Month: October 2024

Authored by Caden Pearson via The Epoch Times,

Former presidential candidate and congresswoman Tulsi Gabbard, who left the Democratic Party two years ago, announced Tuesday that she’s joining the Republican Party because of her love for America and former President Donald Trump’s leadership.

Gabbard made the surprise announcement during a speech at Trump’s rally in Greensboro, North Carolina.

“It is because of my love for our country, and specifically because of the leadership that President Trump has brought to transform the Republican Party and bring it back to the party of the people and the party of peace, that I’m proud to stand here with you today, President Trump, and announce that I’m joining the Republican Party,” Gabbard said.

Moments prior to revealing her decision, Gabbard explained her reasoning.

She said that the Republican Party was welcoming to “independent-minded people” who are committed to the U.S. Constitution and to freedom, such as herself.

“I am joining the party of the people, the party of equality, the party that was founded to fight against and end slavery in this country. It is the party of common sense and the party that is led by a president who has the courage and strength to fight for peace,” said Gabbard, who serves in the U.S. Army Reserves.

She noted that Trump has “pledged to end wars, not start them.”

Gabbard served as a member of Congress from 2013 through 2021, representing Hawaii’s second district as a Democrat.

While countless Wall Street banks try to one-up each other with ridiculous guesstimates on how many more new iPhones Apple’s still to be released AI Siri will sell, not based on any fact-based evidence but on goalseeking “vibes” to justify their ridiculous price targets, one independent analyst has demonstrated a proven track record of being accurate time and again, and as such his calls have an outlier impact on the stock.

We are talking about TF International Securities’ Apple-watcher Ming-Chi Kuo, and the reason why AAPL just dumped to session lows is because according to Kuo, iPhone 16 orders were cut by around 10 million units for 4Q24–1H25, with most of the cuts affecting non-Pro models. As a result, iPhone 16 production for 2H24 is now estimated at 84 million units (down from around 88 million previously).

Following these cuts, total iPhone production for 4Q24, 1Q25, and 2Q25 is now forecast at around 80 million, 45 million, and 39 million units, respectively, all down YoY (vs. around 84 million, 48 million, and 41 million in 4Q23, 1Q24 and 2Q24, respectively).

Separately, iPhone SE4 mass production will start in December 2024, with projected production of around 8.6 million units from December 2024 to 1Q25.

Here is Kuo analysis and conclusions:

• Apple’s iPhone revenue in 4Q24 may not fully reflect the impact of production cuts, as the gap between production and sell-through in 4Q23 was larger than in 4Q24, and the product mix in 4Q24 is more favorable (with increased production of the Pro Max model for Sep-Oct). However, iPhone revenues are expected to come under pressure in 1H25 due to a YoY shipment decline and a less favorable product mix due to the launch of SE4.
• Most iPhone suppliers are expected to experience pressure from late 4Q24, with a more significant impact in 1H25.
• Some market participants are optimistic that Apple Intelligence could dramatically boost iPhone shipments soon. However, Apple’s recent order cuts suggest this optimistic expectation may not materialize in the short term. I believe that Apple is best positioned to succeed in on-device AI, and I am confident about the long-term potential for Apple Intelligence to become a popular paid service. However, significant growth in iPhone shipments will likely require further hardware innovation to accompany this AI development.

The reaction in the stock price was immediate, and it is hitting both the Nasdaq and the broader market, especially with Nvidia also dumping today.

Authored by Rex Widerstrom via The Epoch Times,

New Zealand has been implicated in the leak of classified documents which outline the United States’ assessment of Israel’s plan to attack Iran.

According to White House National Security Council spokesman John Kirby, President Joe Biden is “deeply concerned” about the leak.

One of the documents says it was compiled by the National Geospatial-Intelligence Agency (NGA), while the other appears to have originated from the National Security Agency (NSA).

The two documents, marked “top secret,” were shared within the Five Eyes intelligence alliance of the United States, Britain, Canada, New Zealand, and Australia.

They include the acronym FGI, standing for Foreign Government Intelligence.

They were published on an Iranian-aligned Telegram account called “Middle East Spectator” last week, but Kirby said there was no “indication” that any additional documents will “[find] their way into the public domain.”

New Zealand has recently been the victim of several successful hacks by foreign powers. The Government Communications Security Bureau (GCSB), the country’s intelligence agency, recently suffered a $7 million (US$4.7 million) budget cut.

Iran has a large and sophisticated cyber-warfare capability, so the possibility of a hostile hack is being investigated by U.S. intelligence agencies and the FBI.

NZ’s Intelligence Personnel Numbers Have Increased

Asked about the Israel-Iran breach, the GCSB and its Minister Judith Collins both said they did not comment on intelligence matters.

However, the GCSB did point out that the number of people employed across that agency and the Security Intelligence Service (SIS) is actually slightly higher this year.

“Information security is always a fundamental priority for the intelligence agencies,” it said.

The leak potentially threatens New Zealand’s role in several new agreements, including the United States relaxing rules around selling space technology to close allies, and NGA collaborating more with military forces on ground targeting.

However, dual-use military and civilian technology has been carried in rockets launched from New Zealand by private firm Rocket Lab.

A U.S. firm that sells satellite imagery to the governments of America and Ukraine to monitor the Ukrainian war sent up a payload in August.

New Zealand has recently helped the U.S. Space Force with satellite tracking, setting up a U.S.-funded NZ Defence Force hub in Auckland last year and joining Operation Olympic Defender last month.

The NGA provides both combat support and core intelligence. It plays a major role in the allied geospatial intelligence system (ASG), which includes GEOINT New Zealand, a team made up of NZ Defence Force and intelligence agency personnel.

On Sunday, the NY Times attempted to defend Kamala Harris’s claim that she worked at McDonald’s – claiming that her deceased mother told a high school friend about the job.

“Donald Trump has claimed without evidence that Ms. Harris never worked at the fast-food chain,” reads the report. “Her campaign and a friend say she did.”

Wanda Kagan was described by the Times as “a close friend of Ms. Harris’s when they attended high school together in Montreal,” who Harris’ mother told “about the summer job years ago.”

Yet, as the Free Beacon now reveals, Kagan wasn’t just a ‘close friend from high school’ – she’s a full blown Harris surrogate who has appeared alongside the vice president at several campaign stops.

“It’s an emotional and chilling ride, and I’m just overwhelmed with happiness for my friend, and I’m happy to be alive to be able to witness her now fighting for the people of America,” Kagan told MSNBC in August during the Democratic convention.

Kagan is the first living person to step forward in the seven weeks since a Free Beacon investigation first raised doubts about Harris’s claim to say that Harris worked at McDonald’s. Kagan’s claim, that she heard about McDonald’s from Harris’s mother, cannot be verified because Harris’s mother is dead. To date, the Harris campaign itself has not produced a single person with firsthand knowledge of Harris’s McDonald’s job, other than Harris herself. –Free Beacon

According to PBS News, Kagan was not in touch with Harris when she allegedly worked for McDonald’s, but said that she stayed in touch with Harris’ mother during that time.

“I lost touch after she went to college, and then I went to college. But then I stayed in touch with her mom still, and—but then I still had a pretty unstable life again, so I was moving a lot, and so I lost her mom’s contact number,” she said.

Kagan and Harris are more than just casual friends. When Kagan claims she was physically and sexually abused by her stepfather, Harris pressed her to move in with her own family – something she’s spoken about on the campaign trail.

“This is one of the reasons I became a prosecutor—to protect people like Wanda—because I believe everyone has a right to safety, to dignity, and to justice,” said Harris.

Shifting Narratives

The Free Beacon also points out that Harris has changed her story about McDonald’s. First, her campaign said she held the job to pay her way through college at Howard University. Then, they said she worked there in the summer of 1983 – after her freshman year of college – for extra spending money.

Interestingly, the night before the NYT report dropped, Kagan was at the White House to celebrate Harris’s birthday – posting a clip of Stevie Wonder performing at the event with the caption, “Friends together for her birthday.”

Why didn’t the Times note that Kagan and Harris remain close friends?

Authored by Jack Phillips via The Epoch Times (emphasis ours),

High turnout on Wisconsin’s first in-person absentee voting caused the battleground state’s election system to experience system problems and lags, officials said on Tuesday.

People who spoke with local media outlets in Milwaukee on camera said they were waiting for several hours to vote on Tuesday. Meanwhile, the city of Glendale, Wisconsin, wrote on social media that high voter turnout caused “severe delays” as well as “periodic outages” on Tuesday.

Hours later, the Wisconsin Elections Commission (WEC) revealed that the turnout caused “system lags” in the state’s WisVote program and that the issue was resolved. Some election clerks also “experienced a period of slowness” that was also resolved, it said.

Clerks across the state can use the WisVote system to “print a label that can be placed on the outside of in-person absentee certificate envelopes,” the WEC said, adding that the same information can be placed on the outside of the ballot’s envelope “manually with a pen.”

“Today’s system lag was purely related to demands on the WisVote system due to high turnout,” the state election agency reiterated. “This should not prevent any voter’s ability to vote in-person absentee today.”

Its staff also worked to increase the WisVote system capacity to ensure that election clerks can keep pace with in-person absentee voting.

In an exclusive interview with WISN-TV, WEC Chairwoman Ann Jacobs, a Democrat, said that voter turnout has been “through the roof” and “more than we anticipated” before the 2024 contest on Nov. 5

“The problem is fixed. We are monitoring it closely and I don’t want anyone to worry. Your votes will be counted. This is just a matter of a slow down. It did not come to a stop,” Jacbos said.

Early voting in Wisconsin started Tuesday and will continue through Sunday, Nov. 3. In the state, voters don’t need to provide a reason for voting absentee.

Ballots started being sent by mail in late September, but beginning Tuesday, voters can request one at designated voting locations and cast their ballots in person.

Wisconsin is expected to be a key battleground state that could tip the scales in the 2024 presidential race. In both the 2016 and 2020 elections, the winner of the state was determined by slim margins.

Former President Barack Obama and Democratic vice presidential nominee Tim Walz urged supporters of Vice President Kamala Harris to vote early during a campaign event in Madison earlier this week.

“Even one or two extra votes per precinct will be enough to win this thing and send Kamala to the White House,” Walz told the audience.

However, Wisconsin Democratic Party Chairman Ben Wikler said given the new push from former President Donald Trump and Republicans in support of early voting, “Democrats should expect Republicans to vote in massive numbers.”

Wisconsin Republican Party Chairman Brian Schimming said on Monday that Trump and Republicans have been “very clear” in their support for voting early. Schimming even put in a plug for using absentee ballot drop boxes, a method of returning ballots that Trump once opposed and that some Wisconsin Republicans still do.

As of Monday, more than 360,000 absentee ballots had already been returned in Wisconsin. Voters can continue to return them by mail, in person, or at absentee ballot drop boxes in communities where those are available. All absentee ballots must be received by the time polls close at 8 p.m. on Election Day.

The Associated Press contributed to this report.

In a huge and surprise development, Ukrainian President Volodymyr Zelensky has specified and verbalized what could be a first concrete step toward ceasefire between Russia and Ukraine.

He told journalists in Kiev this week that both sides should mutually agree on halting all aerial attacks on energy targets and cargo ships, and that this could pave the way for negotiations to end the war.

The comments were first reported by Financial Times on Tuesday, which quoted the Monday remarks as follows: “when it comes to energy and freedom of navigation, getting a result on these points would be a signal that Russia may be ready to end the war.”

“We saw during the first (peace) summit that there could be a decision on energy security,” he explained to reporters. “In other words—we do not attack their energy infrastructures; they don’t attack ours. Could this lead to the end of the war’s hot phase? I think so.”

This marks a first such known overture of this nature, and comes at a crucial moment that the Ukrainian population is bracing for a harsh winter, given especially the rolling blackouts, frequent emergency power outages, and severely damaged power grid.

The last year of war has seen Russian aerial attacks primarily focus on degrading Ukraine’s power infrastructure, including knocking offline key thermal power plants, which has resulted in some 60% of Ukraine’s power generation being disabled.

This has left the war-ravaged country primarily reliant on nuclear power and imports from European partners.

On the other side of the battle lines, the last several months have seen Russian oil and energy facilities, as well as some military bases and ammo storage depots, get hammered by cross-border drone attacks from Ukraine.

Russia’s defense ministry has been reporting almost nightly drone intercepts over Russian territory. Large fires at oil depots in Russia’s southern oblasts have now become a monthly reality.

It seems Ukraine may have been engaged in such risky escalations of these cross-border strikes precisely to build leverage at a future negotiating table. But it remains that Russia’s vast energy infrastructure has barely been dented, and the situation inside Russia is far from desperate, especially compared to Ukraine’s crisis.

As FT wrote, “If Moscow and Kyiv agreed to end strikes on their respective energy infrastructures, it would be a significant step towards de-escalating the conflict, Zelenskyy said in reference to Ukrainian drone attacks on Russian oil refineries.”

The Economist writes that the U.S. considers Zelensky’s “victory plan” to be a “failure.”

This is due to the fact that it involves an escalation of the conflict. According to the publication, the plan should be interpreted as a way to force Russia into negotiations with Ukraine… pic.twitter.com/uENNdF6nod

— WarTranslated (Dmitri) (@wartranslated) October 23, 2024

And yet recent escalations appear to have made it less likely that direct negotiations would happen, at least according to public statements from officials on both sides. But on the ground in the east, in the Donbass, Russian forces are clearly on the advance, and Ukraine’s severe manpower problems have become more and more obvious and public.

Zelensky’s potential ‘offer’ of mutually halting aerial attacks on energy sites comes as he’s been promoting his five-point ‘victory plan’ – which so far has received a muted response in Washington and among NATO leaders. The quiet signals from the Western allies appear to be pushing Kiev toward winding down the conflict, at the negotiating table, as opposed to escalation which could lead to direct Russia-NATO fighting.

This is a significant turn, given that up until this week Zelensky had always rejected the very idea of talks with Putin, saying he would not negotiate with Moscow so long as the Russian strongman remains in power. That thinking appears to have changed, likely a reflection of the increasing desperation Ukraine’s armed forces are feeling.

Authored by Zachary Stieber via The Epoch Times,

Steve Bannon will serve the rest of his prison sentence, a federal judge ordered on Oct. 22.

U.S. District Judge Carl Nichols rejected Bannon’s request to be released early from prison.

“Whether viewed as a motion for reconsideration or not, the Court concludes that the relief the Defendant seeks is not warranted,” Nichols said in a minute order released by the U.S. District Court in Washington.

Bannon, a former official in the Trump administration, on July 1 started serving a 4-month sentence at a federal prison in Connecticut. He was convicted of being in contempt of Congress. Based on advice from his lawyer, Bannon had declined to cooperate with a U.S. House of Representatives panel investigating the Jan. 6, 2021, breach of the U.S. Capitol.

In an Aug. 29 motion, Bannon asked Nichols to order his release. Through his attorneys, Bannon noted his appeal has been pending since July, which they said should result in a reconsideration of his case or at least one dissent based on historical practice.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit turned away Bannon’s appeal of his conviction, prompting Bannon to request a rehearing from the full appeals court. The court also denied his attempts to remain free as the appeal works its way through the court system.

Prosecutors said Bannon should not be released because he has not shown any basis for a change.

Even if the court denied the attempt to reinstate bail pending appeal, then it should order Bannon released with supervision, his lawyers said.

They pointed to how the U.S. Bureau of Prisons confirmed on Oct. 21 that Bannon has accrued credits under the First Step Act good for 10 days of home confinement.

While the government’s position is that Bannon must ask the bureau’s director for a sentence reduction before turning to the courts, Bannon’s attorneys said that he should not have to wait and waste time he could be spending at home.

Darek Puzio, the acting warden at the Federal Correctional Institute in Danbury, told Bannon’s lawyers recently that there is not sufficient time left on Bannon’s sentence to process an early movement to home confinement. The office overseeing the area in which Bannon is serving will not accept placements under 30 days, Puzio said.

Bannon is scheduled to be released on Oct. 29, after serving his full sentence.

In a time when literally nothing can go right for Boeing, and even its satellites are now randomly exploding in space…

A Boeing satellite just exploded.

Dozens of satellite fragments are now flying around the geostationary arc.

This company just can’t stop taking massive Ls… pic.twitter.com/EvRhXAAYUr

— Christian Keil (@pronounced_kyle) October 22, 2024

… this morning Boeing confirmed just how bad it all really is, when it reported yet another batch of catastrophic earnings just hours ahead of another momentous event for the company, a labor vote set for later Wednesday where the workers will decide whether to end their ongoing strike.

Here are the highlights: for Q3, Boeing reported a net loss of $6.17 billion, bringing total losses in 2024 to stunning $8 billion. This was on revenue of $17.84 billion which was down 1% from a year ago, and missed estimates, and generated adjusted cash burn of $1.96 billion, also worse than expected. The company reported revenue of about $17.8 billion, down about 1% from the same period last year. The figures closely matched the preliminary numbers it released last week. Here is the full breakdown:

• Adjusted EPS loss $10.44, missing estimate loss/shr $10.31
• Revenue $17.84 billion, missing estimate $17.89 billion
  • Commercial Airplanes revenue $7.44 billion, -5.5% y/y, missing estimate $7.66 billion
  • Defense, Space & Security revenue $5.54 billion, +1% y/y, missing estimate $5.6 billion
  • Global Services revenue $4.90 billion, +1.8% y/y, missing estimate $5.02 billion
• Commercial airplanes operating loss $4.02 billion vs. loss $678 million y/y, missing estimate loss $3.15 billion
• Defense, Space & Security operating loss $2.38 billion vs. loss $924 million y/y, missing estimate loss $1.94 billion
• Global services operating earnings $834 million, +6.4% y/y, missing estimate $853.2 million
   
• Negative adjusted free cash flow $1.96 billion, estimate negative $1.87 billion (Bloomberg Consensus)
• Negative operating cash flow $1.35 billion vs. positive $22 million y/y, estimate negative $1.99 billion

And so on, you get the picture and if you don’t here it is:

Of note, Boeing’s commercial airplane division had an operating loss of about $4 billion versus a $547 million-loss a year earlier as Boeing announced a new delay for the first 777X jetliner and set plans to end wind down production of its 767 freighter.

Boeing’s defense and space business lost $2.38 billion in the quarter as it recorded additional cost overruns on fixed-price contracts for its KC-46 tanker, Starliner spacecraft and other programs. Ortberg ousted the division’s chief, Ted Colbert, early in his tenure as CEO.

Boeing said its slumping cash flow reflected “lower commercial widebody deliveries, as well as unfavorable working capital timing, including the impact of the IAM work stoppage.”

This meant that Boeing’s net cash declined by about $2.1BN to $10.5BN, and while the consolidated debt was roughly unchanged and still investment grade, rating agencies have both warned that Boeing is about to be junked unless it raises billions in new cash.

The company also reported it had a total backlog of $511 billion, which included over 5,400 commercial airplanes. Good luck delivering those.

“This is a big ship that will take some time to turn, but when it does, it has the capacity to be great again,” new CEO Kelly Ortberg said in a message to employees on the results.

In his first public presentation, Ortberg laid out a blunt assessment of what must change, saying Boeing has “some really big rocks that we need to get behind us to move the company forward.” Among the most immediate tasks, he said, is ending a strike that has crippled Boeing for weeks. Workers vote later today on whether to ratify a new contract offer.

“It will take time to return Boeing to its former legacy, but with the right focus and culture, we can be an iconic company and aerospace leader once again,” Ortberg said and laid out a four-pronged plan that includes rebuilding a culture where management is close to the action to prevent “the festering of issues.” He’s also brought back detailed business reviews intended to unearth operations breakdowns before they morph into full-blown crises. And as it works to stabilize its business, he insisted Boeing can’t lose focus of building an all-new airplane.

“Boeing is an airplane company and at the right time in the future, we need to develop a new airplane,” Ortberg said in prepared remarks to investors. “But we have a lot of work to do before then.”

As reported previously, in its preliminary report last week Boeing it would end production of its 767 tanker jet and push back the release of its upcoming 777X widebody jet. The company also said it would a take $5 billion in pre-tax charges, with $3 billion coming from the commercial airlines division and $2 billion coming from its defense business.

Boeing also entered into an agreement to secure $10 billion in credit from a consortium of banks, and filed a mixed shelf registration with the SEC to offer up to $25 billion in new debt securities, common stock, preferred stock, and other share offerings. The WSJ reported Boeing would pursue a $10 billion stock offering via the filing, sources said.

The new credit agreement and debt and stock offerings come as the company is mired in a labor dispute with its largest labor union, representing 30,000 workers. Last week, CEO Ortberg announced the company would lay off 10% of its labor force, or around 17,000 employees, across all the divisions to shore up its financial position.

The layoffs, which will come as early as next month, will occur as Boeing’s labor dispute with the International Association of Machinists (IAM) may be nearing a close. Boeing workers will vote later on Wednesday whether to approve a new contract proposal.

The cost of the strike so far has been substantial for both Boeing and the workers, with one trade group estimating the total cost is nearing $5 billion.

“First and foremost on everybody’s mind today, is ending the IAM strike. We have been feverishly working to find a solution that works for the company and meets our employees’ needs,” Ortberg said.

Ortberg also added: “We need to reset priorities and create a leaner, more focused organization.”

For investors, the main event will be the strike vote later today, said Ken Herbert, an analyst with RBC Capital Markets. When Ortberg and Boeing Chief Financial Officer Brian West host an earnings call later this morning, listeners be looking for details on the underlying state of Boeing’s business during the labor strife and its plans for recovery.

“Honestly, to me it’s just how much is he comfortable saying now given that he’s been there two months, the strike’s still going on and he’s got a massive long-term strategic hill to climb,” Herbert said.

The planemaker has been beset by cascading crises since a door-shaped panel blew off a 737 Max 9 model during flight in early January. The accident has put the focus on sloppy workmanship and poor oversight at Boeing, with regulators capping output to help steady processes and the board appointing new senior management, including hiring Ortberg in August as CEO.

Ortberg sought to lay out a road map for Boeing’s revival, infused with a sense of optimism that customers and employees want the company to succeed. Which likely means he is already drafting his resignation.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

The Mayo Clinic defines Post Traumatic Stress Disorder, or PTSD, as “a mental health condition that’s caused by an extremely stressful or terrifying event — either being part of it or witnessing it.” Within the field of PTSD research is a concept called “memory inflation.” Memory inflation occurs when memories of traumatic events become more intense over time.   

Memory inflation of past events amplifies one’s emotions and behaviors. As we will discuss, distress from recent price inflation is causing many investors to overly fear that a similar situation will reoccur.

Given the tight relationship between inflation and bond yields, memory inflation negatively affects bond prices. Additionally, memory inflation may prevent some investors from seeing an opportunity to profit from the distorted market views.

Apollo Management’s Chart Crime Amplifies Memory Inflation

The following graph from Apollo Management has been circulating in social media for nearly a year. We believe it keeps yesterday’s high inflation fresh in people’s minds and stokes memory inflation, which warps investors’ current view of inflation.

The graph insinuates that inflation is perfectly tracking the 1970s and 1980s. The graph prompted us to write a four-part article (ONE, TWO, THREE, and FOUR) explaining why the current environment vastly differs from the 1970s and 1980s. The series made a strong case that another round of inflation is not likely, barring an unpredictable black swan event.

Within the article, we created a more accurate graphical comparison, as shown below, between the two periods and explained why the graph is deeply flawed. To wit:

First, the two vertical y-axis scales on Apollo’s graph are different. This makes it appear that the inflation rates of the 1970s and today are nearly identical.

Second, the horizontal axis doesn’t compare apples to apples. From 1960 to 1965 (not graphed), inflation fluctuated below 2% a year. In 1966, inflation started to increase consistently. In the modern time frame, the year 2020 is when the wheels for inflation were set into motion.

Therefore, the recent data for comparison should start in 2020, not six years prior, when there was little inflationary impulse. The graph below adjusts both axes and provides a better comparison.

Our graph below has been updated since it was initially published.

Inflation Rates Versus Price Levels

When most people discuss inflation, they talk about how the prices of many goods and services are much higher today than only a few years ago. For instance, “Dinner for my wife and I now runs close to $100; it used to be $50 or $60”, or “Can you believe a gallon of milk is now $6.” Those statements reflect the price differences between today and the past but do not reflect the recent rate of change. The difference may sound trivial, but it is substantial.

When discussing inflation, economists will note the annual or monthly rate of change and not the absolute price level. For instance, they may say, “The price of milk is only up 1.2% this past year.” Or “Used car prices are down 7.5% year over year.”

We elaborated on the stark difference in inflation views between economists and citizens in Why Economists and Citizens Have Different Inflation Realities. To help better appreciate the inflation perspective of economists and citizens, we shared the graph below and wrote the following:

Economists focus on the blue line, graphing the year-over-year change in new vehicle prices. Over the last year, the price index of new vehicles has decreased by .60%. Economists can say the cost of buying a new vehicle is in a deflationary state.

While the chart may warm the hearts of economists and the Fed, most individuals see the orange line, the CPI price index for new vehicles instead. It shows that new vehicle prices are up about 20% since the pandemic. Yes, they may have recently declined slightly, but today’s prices are nowhere close to where they were four years ago. In their minds, there is significant inflation in new vehicles.

Which statement is more stressful?

• A new car costs $55,000 compared to $35,000 a few years ago.

• The price of a new car is down 1% over the last year.

We venture to say every reader picked the first bullet point. Both statements can be correct. However, one statement induces stress and the other tranquility. As consumers, much higher prices for many goods and services are constant reminders of the high inflation. The recurring cues invoke memory inflation in all of us, except for the most committed economists.

Bond Investors Should Think Like Economists

Whether logical or not, memory inflation of inflation creates fear that another bout of inflation is coming. For bond investors, this can create an opportunity if you believe, as the Fed and we do, that inflation is heading back toward 2% and will likely stay there, barring an unforeseen event.

Today and throughout time, bond investors should always seek a yield that compensates them for inflation and credit risks. The higher the perceived risk, the greater the yield. We believe that the memory inflation of inflation subconsciously pushes many investors to demand higher bond yields. This condition will persist. However, assuming inflation continues to head toward or below the Fed’s 2% target, the fear will diminish over time. As it fades, bond yields will catch down to inflation rates.

From a bond investor standpoint, we need to appreciate what is truly going on with inflation now versus battling memory inflation of years past. When analyzing bonds, we must try to forget that cars now cost $60,000+ and milk is $5 a gallon. Instead, think like an economist and focus on the rate of change in inflation.

The Fed Also Has Memory Inflation

If you worry that your inflation worries will persist even as evidence strengthens that inflation is fading, you are not alone. The Fed also fosters the same problem.

As of September, the Fed’s long-run GDP and PCE price forecasts are 1.80% and 2.00%, respectively. In 2019, before the pandemic, the Fed’s long-range forecast for GDP was 1.90% and PCE at 2.00%. In other words, growth prospects slipped slightly, and their inflation forecast is unchanged. However, despite virtually identical economic and inflation outlooks, the lowest long-range Fed Funds rate forecast for the 19 Feb members is 2.40%, well above the average Fed Funds rate in the post-finance crisis era.

Summary

Memory inflation of inflation results in bond yields trading above where they might have had the recent bout of inflation not occurred. It also results in a relatively conservative monetary policy.

Memory inflation will not disappear overnight, but as the distress of higher inflation ages, the bad memories will subside. Dare we say memory disinflation will kick in?

Historically, bond yields have a solid relationship with inflation and economic growth. When one considers that today’s economic fundamentals are not much different than before the pandemic, one may question why bond yields remain high. Some will blame the massive deficits or foreign selling of Treasury bonds. We think a lot of the yield premium rests on the shoulders of memory inflation and not the truest fundamental driver of yields, actual inflation.

Citron Research employee Ryan Choi settled charges with the SEC, paying more than $1.8 million, for putting out two tweets and trading around them. 

The SEC said on Tuesday Choi “negligently engaged in a scheme to defraud readers of Citron Research in connection with two tweets issued by the platform”. 

The SEC press release says the agency “alleges that in December 2020, Choi worked with Left on the research and content for two buy recommendations that Left issued through Citron Research. According to the complaint, Choi failed to act reasonably by not conducting adequate research or due diligence, which he provided to Left to support the recommendations that Left included in the Citron Research tweets.”

To which we say, if failing to do enough due diligence is a crime, the entire sell side, most CNBC guests and Cathie Wood should all be done for. 

The SEC also alleged that “Choi quickly traded on price increases that came after the two Citron Research tweets, and negligently failed to ensure that this trading activity was adequately disclosed in the tweets.”

As most already know, Citron’s head, Andrew Left, faces charges from both the DOJ and the SEC for securities fraud and has said he’d “never” accept a plea deal.

“This case is going to fail for six independent reasons,” his lawyer said in July. “You have no duty to the market to disclose your private trading intentions.”

Spertus told CNBC that, irrespective of Left’s conviction or acquittal, the case will deter short sellers from publicly sharing their research on companies they believe to be overvalued or whose stock prices are based on false information.

“People will stop sharing their research with the market,” Spertus said. “It’s really bad for the financial markets to have a prosecution like this when the government agrees that the public statements were truthful.”

As we wrote this summer, Federal prosecutors charged short seller Andrew Left with fraud, accusing him of making misleading statements about stocks to profit from price moves triggered by his reports. 

Known for his firm Citron Research, which targets market “lemons,” Left gained fame for betting against Valeant Pharmaceuticals and for betting against GameStop during the meme stock craze, but he has seen less success in recent years.