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IRS Agrees to Apply New Forfeiture Standards to Old Case, Give Back Convenience Store Owner’s Life Savings

The IRS is finally acting justly by retroactively applying new standards in civil forfeiture (that is, naked government theft) law to an older case out of North Carolina, as announced today by the Institute for Justice (I.J.).

I.J. represented the injured convenience store owner Ken Quran, who had his life savings taken from him for the “crime” of making withdrawals from his bank in amounts the federal government finds suspicious.

Details from an I.J. press release today:

Ken’s money was seized under so-called “structuring” laws. These laws were designed to target criminals evading bank-reporting requirements. But under IRS policy at the time of the seizure, the IRS applied the structuring laws to seize cash from individuals and businesses accused only of frequent under-$10,000 cash transactions.

The IRS changed its policies in October 2014 to prevent such seizures. But those changes came too late for people like Ken, whose property was seized before the policy change.

So, in July 2015, the Institute for Justice submitted a petition to the IRS on Ken’s behalf, arguing that the IRS should apply its policy retroactively to Ken’s case. The petition argued that the money “would not be seized—much less forfeited—under current government policy” and urged the IRS to “do the right thing and give the money back.”

This week, IJ sent a letter to IRS Commissioner John Koskinen following up on the petition—and urging the IRS to act quickly to give Ken his money back.

Today’s letter states that Ken’s petition is granted “in full.”….

According to data obtained by the Institute for Justice from the IRS via the Freedom of Information Act, the IRS forfeited about $43 million in 618 structuring cases between 2007 and 2013 in which the IRS reported no suspicion of criminal activity other than the mere fact of sub-$10,000 cash deposits.

Jacob Sullum reported earlier this month on a very similar I.J. victory involving another North Carolina convenience store owner Lyndon McClellan, when the IRS was ordered to return his stolen cash plus interest and legal expenses.

Past Reason writings on the bullshit crime of “structuring”.

Institute for Justice video on the story:

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Canadian Island Launches “Move Here If Trump Wins” Campaign To Americans

Submitted by Claire Bernish via TheAntiMedia.org,

Canada’s Cape Breton Island has become the unofficial escape option for their neighbors to the south should Donald Trump manage to be elected the next president of the United States. A website promoting the plan greets visitors with the following:

“Hi Americans! Donald Trump may become the President of your country! If that happens, and you decide to get the hell out of there, might I suggest moving to Cape Breton Island!”

What began as a bit of a tongue-in-cheek jab at the surprising support for the brash, xenophobic, and oddly anti-Iraq war billionaire candidate, the website Cape Breton If Donald Trump Wins quickly garnered over 10,00 hits — and a number of serious inquiries.

Local radio DJ Rob Calabrese, who created the site, told CTV Atlantic, “There are millions of people on this continent who, if they knew about the lifestyle here on Cape Breton, they would think, ‘This is for me.’”

According to the website, Cape Breton is experiencing a population decline and would therefore welcome newcomers with open arms. Prominently mentioned among reasons to consider this move to the island on Canada’s eastern coast are state-sponsored healthcare, diversity, weather comparable to New York City, “the most affordable housing market in North America,” and — though unmentioned — no Donald Trump.

A link on Calabrese’s site directs visitors to the site for Cape Breton Island tourism; and Destination Cape Breton CEO Mary Tulle said the link had resulted in more than 2,000 hits on Tuesday, alone — originating from Delaware, Oregon, Texas, and other states around the U.S.

Though Calabrese didn’t necessarily intend to create a flurry of interest in Cape Breton, he explained he will do his best to help those with serious questions about the move — including several concerning the process for legal immigration he’s already received. And he understands why people in the U.S. might be making escape arrangements at the prospect of Trump taking over 1600 Pennsylvania Avenue. As he explained:

“It’s scary. I know I wouldn’t want to live in a country where he’s leader.”


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Irony? “Credit Crash Warning” Icahn May Be Cut To Junk By S&P

Having warned – correctly – of the impending collapse of the US credit markets last year, it just seems ironic that Carl Icahn's firm has been downgraded to "watch negative" from stable by S&P, implying a cut to junk may be imminent. Just as we detailed earlier, activist investors have suffered greatly in the oil rout, and S&P cites declining investment values in the firm's portfolio, which have smashed the loan-to-value ratio up to 45% (a crucial threshold for the ratings agency).

 

Full S&P Statement: Icahn Enterprises L.P. 'BBB-' Ratings Placed On CreditWatch Negative On Declining Portfolio Values And Higher Leverage

Icahn Enterprises L.P.'s investment portfolio has lost a significant amount of value in the last several months.

  • The firm's loan-to-value ratio has very likely increased above 45%.

As a result, we are putting our 'BBB-' issuer credit rating and 'BBB-' issue rating on the firm's senior unsecured debt on CreditWatch with negative implications.

We expect to resolve the CreditWatch listing within 90 days once we obtain more performance data and observe investment values over a longer period.

Standard & Poor's Ratings Services said today it placed its 'BBB-' issuer credit rating on Icahn Enterprises L.P. on CreditWatch with negative implications. We also placed our 'BBB-' issue rating on the company's senior unsecured debt on CreditWatch with negative implications.

"The CreditWatch action reflects declining investment values in the firm's portfolio that we believe have very likely led to the firm exceeding a 45% loan-to-value (LTV) ratio, which we previously cited as a key threshold for the rating," said Standard & Poor's credit analyst Clayton Montgomery. Through Feb. 18, 2016, we estimate that the firm has lost at least $1.4 billion in value versus investment values as of Sept. 30, 2015. Although we only have good visibility on the firm's publicly traded majority holdings (since the hedge fund is hedged and can change exposures during the quarter and other holdings are private), we also believe that the hedge fund may have also lost value in the fourth quarter and so far in 2016 due to declining markets and the significant deterioration in commodity-related investments (including Chesapeake, Cheniere, and Freeport-McMoRan).

The firm's LTV ratio could benefit from the successful sale of Fontainebleau over the near to medium term. However, given the magnitude of the decline in the portfolio, this will likely not improve the company's LTV ratio to back below the 45% threshold. Furthermore, we believe that the firm may redeploy The firm's LTV ratio could benefit from the successful sale of Fontainebleau over the near to medium term. However, given the magnitude of the decline in the portfolio, this will likely not improve the company's LTV ratio to back below the 45% threshold. Furthermore, we believe that the firm may redeploy those proceeds back into investments, which would be less beneficial to the firm's LTV ratio than if management kept proceeds in cash. We net all of Icahn's cash against debt in our leverage calculation. 

The firm has started to maintain less cash at the holding company than it has historically. Our historical assumption was that the firm would maintain over $500 million in cash based on statements made by management and the firm's behavior over time. As of Sept. 30, 2015, cash was only $182 million, down from $1.1 billion a year earlier. We believe that cash provides a very visible source of repayment for the firm's debt obligations, especially given the firm's relatively weak income stream that it receives from a few portfolio companies. Thus we view this deterioration negatively. Icahn's next debt maturity is $1.175 billion in senior unsecured notes due in January 2017, which we believe the company has the ability to repay if needed. However, at this point, we view it as more likely that the firm will refinance this maturity.

We believe it is possible that Carl Icahn, the majority shareholder of IEP and Chairman of the Board, could support the company's capitalization at some point in the future through an equity raise. We don't include the assumption of support in the rating, but nonetheless it is a possibility that could improve the firm's leverage ratio and creditworthiness. As of Sept. 30, 2015, Mr. Icahn owned 88.8% of Icahn units. We would view an equity offering positively since it would result in deleveraging, but portfolio deterioration may still outweigh the benefit of this action, if it were to occur.

*  *  *

IEP's bonds have lifted in the last few days off record lows… but we suspect this move may nudge them lower… given this statement from S&P:

we also believe that the hedge fund may have also lost value in the fourth quarter and so far in 2016 due to declining markets and the significant deterioration in commodity-related investments (including Chesapeake, Cheniere, and Freeport-McMoRan).

We will see…


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How The Fed’s Strong Dollar Made Further Market Gains Impossible: JPM Explains

In recent months, much has been said about how as a result of the rising correlation between oil and equities (and pretty much all other asset classes), crude has been dragging down stocks, and alternatively unelashing furious short squeezes on even the tiniest pop in the price of oil.

But what about the impact of the strong dollar on the S&P 500?

We have some bad news for the bulls, courtesy of JPM’s Kolanovic, who explains how the strong USD is now both a blessing and a curse for equities. But mostly a curse in that the market can’t rally without a stronger dollar… and that it also needs a weaker dollar to rally.

S&P 500 and USD: In our previous report, we explained our view that the market may stop rewarding passive investors (who were winners in recent years). In that light, we are not excited about owning the S&P 500 as core exposure to risky assets. The S&P 500 is capitalization weighted, has high momentum bias, is internet heavy, and is implicitly long USD (when the USD is near historical highs). The current correlation of the S&P 500 to USD is ~30%. One of the reasons behind the positive correlation of the S&P 500 to USD is the high weight in Momentum and Low Volatility stocks in the index, and these stocks’ positive correlation to USD. At the same time, the index has low weight in Value stocks that are negatively correlated to USD (correlation of momentum, value and S&P 500 to USD are shown in Figure 1). When it comes to macro drivers of equities, the S&P 500 may be trapped by USD: it can’t rally to new highs without USD (momentum sectors, FANGs, etc.), and at the same time the strong USD is capping any significant upside due to its negative impact on EPS (via value segments such as multinationals and energy).

 

Summary: the market is now damned if the Fed hikes more, and damned if it doesn’t.


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Ted Cruz, Military Spending, and the “Liberty Vote”

Sen. Ted Cruz (R-Texas), in a presidential campaign speech in South Carolina earlier this week, made it very clear that, despite any old Tea Party talk about shrinking government, he as president intends to spend more, more, and more on America’s military establishment. His military spending goals as percentage of GDP amount to a plan that, if applied this year, would have meant a military budget 23 percent higher than its actual $583 billion.

Benjamin Friedman at Cato points out the purely fiscal implications of this Cruzian dream. 

Cruz’s plan produces a massive increase in military spending: about $1.2 trillion over what would be Cruz’s first term and $2.6 trillion over eight years. Details on the chart are at the end of this post.

Cruz is unclear on how he’ll fund the buildup….The implication, standard among those trying to look fiscally responsible while throwing money at the military, is that you cut administration to pay for force structure. But Cruz doesn’t sustain the pretense beyond attacking the Pentagon’s “bloated bureaucracy and social experiments.” He never identifies what bureaucracy—commands, budget line or contracts—he’d axe. He doesn’t explain how to overcome the Pentagon’s tendency to increase overhead during buildups or betray concern about the meager results of past efforts to shift tail to tooth….

Cruz, of course, will not fund his buildup through taxes. Instead, the plan mentions selling federal assets, unspecified spending cuts, and tax revenue juiced by four or five percent annual growth. Wishful thinking seems a fair summary…

As Friedman further points out, none of Cruz’s spending or restructuring proposals are matched in any intelligent way with an overall plan for military strategy and purpose, in effect “spending a lot more to do what we are now doing. Like Jeb Bush, Marco Rubio, and even Dick Cheney, Cruz’s rhetorical assaults on the Obama administration’s defense policy belie underlying agreement with its premises.”

Politico has more details on Cruz’s clumsy attempts to seem both a fiscal hawk and a military hawk, noting that he used to show more anti-spending backbone on the matter, at least occasionally:

[His] record on national security has come under fire in the presidential campaign. Rubio has criticized the Texas senator’s votes against the National Defense Authorization Act, which authorizes funding for the Pentagon, as well as his support for a budget from Sen. Rand Paul (R-Ky.) that would have slowed defense spending.

At the same time, Cruz supported an amendment from Rubio himself last year that would have boosted defense spending by hundreds of billions over the next decade….

The biggest challenge he or any other Republican president would face is that the Budget Control Act — which limits both defense and non-defense discretionary spending — kicks back into effect next fall unless Congress acts to change the spending limits.

Even the Obama administration’s budget, which Republicans say is decimating the military, includes $100 billion more than the spending caps allow over the next five years.

The very concept of hard spending caps would have to be sacrificed for Cruz’s hat tip to an endlessly growing military-industrial complex independent of any larger vision of purpose or strategy for that military.

Will this affect Cruz’s quest to win over portions of the “liberty vote” that one might presume would have gone to Rand Paul, were he still in the race? In a likely attempt to appeal to them, Cruz has been outreaching to largely federally-owned Nevadans with a call for divesting federal ownership of its land in favor of the state government out West. Alternately, in another slap in their face, as Ed Krayewski reported yesterday, he’s on the government’s side against Apple and our privacy when it comes to the “decrypting the San Bernardino terror cell phone” argument.

Joel Kurtinitis wrote a long, detailed personal report that ran on Medium about his turn from Paul to Cruz in Iowa this year. Most of the critiques he and some fellow ex-Ron Paulites had of Rand Paul had to do with his being insufficiently protective of issues important to the evangelical right, like gay marriage, and for a general sense he’d “gone establishment” with his endorsements of other Republicans not beloved of Tea Party types.

Kurtinitis says that Cruz’s push for a government shutdown over Obamacare really caught their attention; then after some personal encounters with him on the stump in Iowa he and some other ex-Paul folk concluded:

Cruz spoke our language, and held his own on a wide range of liberty issues including state nullification, the military-industrial complex, and drug policy. There were some areas of disagreement, and his appeal to us wasn’t grounded in ideological purism, but in common policy goals. Still, even those who still had reservations came away with more respect for his candid approach and willingness to engage us directly.

For those of us who hold to ideological consistency as a value in both politicians and voters, one might think that Paul people who do value the Paulite perspective on “the military-industrial complex” might be disillusioned by this latest Cruz move.

While actual rigorous social science on this question of the Ron Paul vote of 2008/12, what they believed and wanted, and where they have gone, remains nonexistent as far as I’ve seen, certainly some observable facts of reality give reason to believe that lots of them have shifted to Cruz, at least in Iowa—and also that lots of them have shifted to Donald Trump (as seems more likely in New Hampshire, where nearly all areas Paul won in 2012 went Trump and only about 15 percent of primary voters seemed to be first-timers) and even Bernie Sanders, as some anecdotal evidence suggests.

Trying to hold such voters to intellectual coherence in a manner typical for a movement libertarian is likely a waste of time. Still, to the extent that anyone attracted to Paul was thus attracted for a couple of his primary characteristics—desire to curb government spending in general and military overreach specifically—Cruz isn’t exactly making himself desirable along those lines.

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Nassim Taleb Refuted on the Dangers of GMOs: New at Reason

NassimTalebNassim Taleb, author of The Black Swan and NYU statistician extraordinaire, has ducked out of an arranged debate on the topic: “Do GMOs [genetically modified organisms] present cause for moral concern?” Taleb was invited to participate because he and several colleagues had earlier published a very anti-GMO working paper, “The Precautionary Principle (with Application to the Genetic Modification of Organisms.” In that paper, Taleb and his colleagues claimed that “GMOs represent a public risk of global harm,” suggesting that GMOs could result in global “ecocide” and even perhaps “the extinction of human beings or all life on the planet.” Taleb, for unknown reasons, has now withdrawn from the debate. Never mind. Since I have already spent the time reporting and writing a refutation of his arguments, let’s go ahead and debate anyway.

View this article.

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US Oil Rig Count Collapses At Fastest Rate In A Year

Rig counts dropped for the 9th straight week but for the 3rd week in a row, US oil rig counts dropped heavily, down 26 this week after -28, and -31 in the last 2 weeks. The 85 rig drop is a 17% plunge over 3 weeks – the fastest pace since Feb 2015, and 2nd fastest since Feb 2009.

  • U.S. OIL RIG COUNT DOWN 26 TO 413, BAKER HUGHES SAYS
  • U.S. TOTAL RIG COUNT DOWN 27 TO 514 , BAKER HUGHES SAYS

Rig counts continue to track the lagged crude price perfectly…

 

Here is the regional breakdown:

 

And yet despite this collapse in rig, why Total crude production has barely dropped.

The reason: rig productivity is soaring.

 

As we explained yesterday, rig counts are meaningless when efficiency improvements leave hardly any impact on production, when imports are soaring, and when even huge CapEx cuts as shown in the following Goldman chart…

… result in only tiny production reductions.


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Russia Demands End To Turkey’s Efforts To Undermine Syrian Sovereignty

Over the past several days, Turkey has been busy putting the world on the course to World War III.

The YPG – which Ankara identifies with the “terrorist” PKK- has contributed to the Russian and Iranian effort to cut off the Azaz corridor, the last remaining supply line to the rebels fighting to oust Bashar al-Assad in Syria.

The Kurdish effort to unite territory the group holds east of the Euphrates with cities it hold west of the river in Syria has infuriated Ankara, which views the YPG advance as a kind of precursor to Kurdish independence in Turkey.

The solution, Turkey says, is a 10 km incursion into Syria, an effort which will establish a “safe zone” for those fleeing the violence that plagues the country’s besieged urban centers. That , of course, is merely an excuse for Ankara to send ground troops into the country, where the Sunni-sponsored effort to overthrow Assad is on its last legs.

The deadly bombing in Ankara that claimed the lives of several dozen people on Thursday is predictably being trotted out as an excuse to put Turkish boots on the ground in Syria. “Months ago in my meeting with him I told him the U.S. was supplying weapons. Three plane loads arrived, half of them ended up in the hands of Daesh (Islamic State), and half of them in the hands of the PYD,” Turkish President Recep Tayyip Erdogan said on Friday. “Against whom were these weapons used? They were used against civilians there and caused their deaths,” he added.

Obviously, that’s completely absurd. Turkey has been funneling guns and money to the Syrian opposition for years. For Ankara to accuse anyone of “supplying weapons” to the Sunni insurgents who are endangering civilians is the epitome of hypocrisy. Turkey is only angry at the US and Russia in this case because Washington and Moscow both support Kurdish elements that Ankara views as threatening to AKP and to Turkey’s territorial integrity. 

At this juncture, the only way to preserve the rebellion and protect the anti-Assad cause is to insert ground troops, a move that both Ankara and Riyadh are seriously considering. The presence of Turkish and/or Saudi boots would mark a meaningful escalation and would put Sunni forces directly into battle against Iran’s powerful Shiite proxy armies, setting the stage for a disastrous sectarian battle that would forever alter the Mid-East balance of power. 

On Friday, in an effort to avert an all-out global conflict, Moscow called for a UN Security Council meeting to discuss Turkey’s plans to send troops into Syria. “Turkey’s announced plans to put boots on the ground in northern Syria undercut efforts to launch a political settlement in the Syrian Arab Republic,” Maria Zakharova said, earlier today.

The announced intentions of Ankara (as well as Riyadh and Doha) are not consistent with the will of Damascus, which has only invited Russia and Iran to the fight against “the terrorists.” Everyone else – including the US, Britain, and France – are effectively trespassing. 

In May of 2014, Russia and China blocked a Security Council resolution to refer the Syria conflict to the Hague. Now, we’ll get to see whether the West will protect its allies in Ankara and Riyadh, or whether someone in the international community will finally step up and say “enough is enough” when it comes to fomenting discord in Syria.


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“What The Hell Is Going On?”

The last few days have been "odd" according to one veteran trader and today's moves, with USDJPY plunging, S&P 'steady', and XIV (the inverse VIX ETF soaring) left the same trader exclaiming "what the hell is going on?" More unwinds from equity market-neutral funds? OPEX impacts? Or just the death-throes of a Fed-fueled market gasping its last breaths…

The chaos in equity market-neutral funds continues with weak/strong momo stocks extremely volatile this week…

 

Carry trades being unwound in size as China bank liquidty stress hits again…

 

And bonds ain't buying it…

 

And finally – The VIX ETF complex is completely decoupled today…

 

In answer to the trader's rant – we don't know, but we suspect we know what happens next.


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The Southern Poverty Law Center Strikes Again

That Trump guy pops up everywhere.The Southern Poverty Law Center has published its annual report on “The Year in Hate and Extremism,” which as always includes its attempt to tally how many hate groups and how many anti-government “Patriot” groups exist in America. This year, both figures rose about 14 percent.

I have repeatedly made two criticisms of these counts and the ways they’re used. One problem is built in to the idea of measuring a movement’s strength by counting the number of groups on the ground. If an organization splinters, that suggests it’s getting weaker, but on these lists the disarray will show up as growth. The SPLC’s Mark Potok more or less acknowledges this problem in his write-up of the numbers this year. The “hardest core sectors of the white supremacist movement—white nationalists, neo-Nazis and racist skinheads—actually declined somewhat,” he notes, with the hate-group count going up because there are more Klan groups and black separatist organizations. But the Klan spike is “probably mainly accounted for” by the fact that two large Klans fell apart last year, leaving their adrift former members to form new grouplets.

I don’t doubt that there’s been some genuine growth in some of these movements. It’s plausible, for example, that the general recent increase in civil rights activism would include some growth on the separatist fringes. And Potok may be right that the outcome of the original Bundy standoff led more people to join militia-style groups. But the numbers being thrown around can be misleading.

The patriot's dream still lives on today.That’s especially true when you run into my other recurring complaint—that people try to treat these lists as a proxy for the number of American willing to engage in right-wing terrorism. The problem is that they include nonviolent as well as violent organizations. (This year’s list of anti-government groups, for example, includes 44 chapters of Phyllis Schlafly’s Eagle Forum, 24 chapters of the John Birch Society, a separate listing for “the John Birch Society Shop,” and the paleolibertarian website LewRockwell.com.) Nonviolent groups can be a stepping-stone to violence, but they can also pull people away from violence; in several cases, nonviolent activists have even turned would-be terrorists in. Potok never tries to account for those dynamics.

The SPLC does caution against using the list as a proxy for the terror threat in another, more self-serving way. Before this latest report came out, we saw several years in which its numbers of hate groups and anti-government groups were both declining. So the center took to playing up the specter of unorganized “lone wolf” violence, noting that such crimes can surge even as actual groups disappear. This year Potok combines the approaches, citing the increasing number of groups while also highlighting the threat of the loners.

So how much lone-wolf terror was there in 2015? The SPLC turns to another group for its answer:

According to a year-end report from the Anti-Defamation League (ADL), “domestic extremist killers” slew more people in 2015 than in any year since 1995, when the Oklahoma City bombing left 168 men, women and children dead. Counting both political and other violence from extremists, the ADL said “a minimum of 52 people in the United States were killed by adherents of domestic extremist movement[s] in the past 12 months.”

If that number seem extraordinarily high, it’s because of that phrase “and other” sitting there between “political” and “violence.” The ADL’s count includes gang slayings, domestic violence, and other apolitical or ambiguous assaults in which the killer also happens to subscribe to an “extremist” worldview. According to the ADL’s bulletin, the number of ideologically motivated murders last year was not 52 but 34. That breaks down to 19 deaths in two Islamist attacks (the mass shootings in Chattanooga and San Bernardino) and 15 killings by people with views resembling the groups covered in the SPLC’s count, with the grisliest incident being the massacre of nine Charleston churchgoers in June. This may be more than usual, especially on the Islamist front, but it’s within the sort of random year-to-year fluctuations that you often see with rare crimes.

If you want to read the SPLC’s full report, it’s here. For a different view of the year that just ended, read my “2015: The Year in Fear.”

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