US Oil Rig Count Plunges By Most In 10 Months

Following last week’s dramatic 31 rig decline, Baker-Hughes reports another major decline of 28 oil rigs (dropping the total oil rigs to 439 – lowest since Jan 2010 – for the 8th consecutive week). The total rig count dropped 30. On the heels of OPEC rumors overnight and then re-rumored bullshit from Venezuela, oil prices had already surged during the day and the biggest 2-week rig count decline in 10 months after initially being sold, is rallying once again.

  • *U.S. OIL RIG COUNT DOWN 28 TO 439, BAKER HUGHES SAYS
  • *U.S. TOTAL RIG COUNT DOWN 30 TO 541 , BAKER HUGHES SAYS

As the rig count continues to track almost perfectly the lagged oil price…

 

The declines were widespread with Texas dropping the most absolutely…

 

Oil did not rip on this “great” news… but minutes later pushed to new highs

 

Charts: Bloomberg


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“Distressed” Bonds Accelerating At “Alarming Pace”, Markit Warns

It is becoming increasingly difficult to ignore the collapse of global credit markets… as Markit warns the number of distressed bonds (trading greater than 1000bps) is "escalating at an alarming pace."

 

 

26% of the entire high yield bond universe is now at "distressed" levels – the highest since the financial crisis.

As we noted previously, credit is screaming and for now stocks are shurgging… and credit is always right in the end!

1,100 is the target…


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How €3.5 Trillion In NIRP Debt Made Europe’s Credit Market “Most Vulnerable Since Lehman”

Earlier today, we discussed how after 8 long years spent wandering punch drunk through a dream-like Keynesian wonderland where all financial assets rise inexorably, the world finally woke up last month with a terrible hangover only to discover that after 637 rate cuts and $12.3 trillion in asset purchases, “quantitative easing” has been a “quantitative failure.”

Perhaps it was the harrowing volatility that tipped investors off to the fact that central bankers were failing. Or perhaps it was the realization that the persistent disinflationary impulse that hangs over developed markets isn’t exactly compatible with the notion that central banks are “succeeding.” Or maybe it was the BoJ’s move into NIRP which was quickly followed by a canceled JGB auction, a soaring JPY, and crashing Japanese equities. Of course it could have been tumbling yields on the US 10Y. Take your pick, but whatever the catalyst, everyone suddenly began to talk about central banker impotence as opposed to central banker omnipotence, and at that point, the narrative was lost.

Of course it’s too late to turn back now. There’s no telling what markets would do if central banks were to suddenly admit that this has all been one giant mistake and so, the monetary powers that be stick to the script. For instance, Haruhiko Kuroda – who is known for saying things so at odds with reality that one can only laugh – said last night that “negative rates are clearly having an effect” – just as Japanese stocks were collapsing on themselves (again).

And central bankers aren’t just doubling down on the rhetoric. They’re doubling down on the easing. Earlier this week, Stefan Ingves and the Riksbank cut Sweden’s repo rate by 15 more bps to -0.50% and Mario Draghi and co. are almost sure to follow suit next month. Meanwhile, Janet Yellen admitted that NIRP has been studied for the US.

In a note out Friday, BofA takes a fresh look at what the plunge down the NIRP rabbit hole has meant for the proliferation of negative-yielding assets in Europe.

A prolonged period of USD strength (in part due to policy divergence between the Fed and the ECB) quickly took its toll on a variety of markets including, of course, commodities and EM FX. “the negative effects of this deflationary wave have been visible,” BofA’s Barnaby Martin writes, adding that “credit rating downgrades have increased [while] European high-yield spreads reached their cycle tights right before” the dollar strength began to manifest itself in earnest. “[And] not because of rising defaults, but rather because of the growth in EM-domiciled credits in the index, thus raising the market’s sensitivity to the strong Dollar/weak commodity story,” he continues.

With that as the backdrop, here’s the rest of the story which explains how NIRP initially offset the bearish themes that accompanied the strong dollar/weak commodity deflationary deep dive but ultimately left the world with a $9 trillion pile of negative-yielding debt and created a “stealth” bear market in European corporate credit.

*  *  *

From BofA

For a while, these bearish themes in credit were suppressed by central bank stimulus in Europe. As interest rates were cut through zero, the phenomenal growth of negative- yielding bonds exacerbated the reach for higher returns in fixed income. The numbers continue to astound: total negative-yielding Euro debt now stands at €3.5tr, encompassing many asset classes. And after Japan’s foray into negative rates at the end of January, total negative-yielding global debt now stands at close to $9tr.


Yet, we argued towards the end of last year (and to our detriment not soon enough) that the chronic lack of yield was undermining the robustness of the corporate bond market, and was in fact creating a bear market “by stealth”. The clearest sign of this, in our view, has been the constant stream of credit outflows. The peak of retail inflows into the Euro IG market was May-15. Since then, retail investors have withdrawn close to $35bn (25% of the cumulative inflow since 2010) – the largest drawdown by investors in the post-Lehman bankruptcy era. So much central bank liquidity, and yet so little inflow…

Further down the rabbit hole…

However, the fascination with NIRP policies continues after Sweden cut rates from -35bp to -50bp yesterday. Negative central bank rates now seem to be the norm rather than the exception. But amid the “race through zero”, not all currencies will weaken.

*  *  *

BofA’s conclusion: “QE has, ironically, left the credit market in a more vulnerable position to outside shocks than at any time in the post-Lehman bankruptcy era, we think.”

Ah yes, more unintended consquences of central bankers gone Keynesian crazy. Don’t expect Mario Draghi to mention this at next month’s presser.


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Here Is The ETF Liquidation That Sent Shockwaves Through The Crude Oil Market

A week ago we exposed the real reason for the "crazy volatility" in crude oil markets, and specifically the driver of the immense rally (despite weak data) in crude – a massive liquidation of the triple-inverse ETF DWTI. Today we have another mysterious, even larger spike in crude oil prices (for no good reason other than 'old' misunderstood rumors about OPEC production cuts). The driver, it would appear, is another liquidation as the ETF trades at a huge discount to NAV. The last time this happened, it didn't last.

We saw the same actin last week (and the delayed data exposed the liquidtaion)… it's happening again…

 

And DWTI is trading at a dramatic discount to NAV – which suggests – given the day lag (There is a day's lag between when redemptions and creations are ordered and when they show up in share figures) that buying pressure hits today…

On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.

 

The evidence is even clearer in the sudden spike in the 1st-2nd month spread – despite no news whatsoever on the storage constraints (as ETF managers are forced to buy back futures in the front-month as the inverse ETF is liqudated)

 

So that explains the sudden squeeze carnage today… and without further liquidation in the fund whythe rip won't hold.


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Bernie Sanders to Hillary Clinton – “I’m Proud to Say Henry Kissinger is Not My Friend”

Screen Shot 2016-02-12 at 11.02.14 AM

He’s a thug, and a crook, and a liar, and a pseudo-intellectual and a murderer. Ok? Those things are factually verifiable.

Kissinger deserves vigorous prosecution for war crimes, for crimes against humanity, and for offenses against common or customary or international law, including conspiracy to commit murder, kidnap, and torture.

A good liar must have a good memory: Kissinger is a stupendous liar with a remarkable memory.

– Quotes by Christopher Hitchens

One of the more bizarre memes that continues to be parroted by the establishment media is this idea that Hillary Clinton is so much stronger than Bernie Sanders when it comes to foreign policy. Sure, if your definition of “strength” consists of cheerleading for the cataclysmic Iraq War and propagating a series of war crimes and international fiascos as Secretary of State, then I suppose that’s true.

For some of Henry Kissinger’s greatest genocidal hits, I turn to a fantastic article published in the Nation last week titled, Henry Kissinger, Hillary Clinton’s Tutor in War and Peace:

continue reading

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Why Republican Party Delegate Rules Might Cause Them Convention Trouble

A wade into the weeds of Republican Party delegate assignment rules, by former Reagan staffer Donald Devine over at American Conservative, which have changed in important ways since 2016, are leading some to wonder if the Party isn’t creating a very strong possibility that the Party will enter the convention with no clear winner.

The core of the potential problem:

The Southern Super Tuesday primaries and the other Southern contests before March 15 are required for the first time to award their primary delegates by proportional representation where each candidate wins only the percentage of delegates he receives from the popular vote, rather than the first-place candidate winning all delegates. That method guarantees no candidate will be able to build a commanding lead until after March 15 when winner-take-all nomination contests become possible.

Southern states made a bargain of sorts with the Party and the nation: they were willing to make their results actual impact in delegate assignment smaller in order to make themselves seem more relevant by occurring earlier in the process before everything seemed like a done deal. 

This leads Devine to strongly suspect, in a world where neither Trump nor Cruz or any other non-Trump is able to start a true sweep of delegate numbers, that this might lead to a contested convention this summer, with no clear winner going in. But:

Republican party chairman Reince Priebus is confident that there will be no contested convention. He recently told Time magazine: “I know the rules pretty well, I’m pretty confident in how delegates are allocated, I helped write a lot of the rules and I believe that clarity will come very soon” as to who will win the nomination. The current plethora of candidates “doesn’t mean that, by the end of March or mid-April, the end of April, that it isn’t going to be very clear. There’s only so much money to go around, there’s only so long everyone can keep fighting.” He claimed he was prepared for a contested convention but based on his expertise did not expect one, “so it’s not like I need some sort of expert help to understand our own governing rules or how our convention might run.”

Devine thinks it looks likely that at least three or more somewhat appealing candidates can stay in the game through the Spring or perhaps beyond.

Another change, aimed at making sure Ron Paul or future Ron Paul types could carry no weight on the convention floor, states that no candidate who does not command a plurality of the delegations of eight states or more can even have their man officially placed in nomination or have his vote counted, which could disenfranchise a lot of delegates whose guys or gals don’t win enough states.

These leads old Party hand Morton Blackwell, who hates the new rules, to posit this potential conundrum for the GOP come convention time:

Assume that Candidate A wins 38% of the delegate votes at the national convention, then that Candidate B wins 39% of the delegate votes, and that candidates C, D, E, F, and G among them win the remaining 23% of the delegate votes.  With many states binding their delegate votes proportionally to their presidential primary votes, this could happen.

Assume also that none of the five candidates whose numbers made up that 23% of the convention votes won the majority of delegate votes in at least eight states.  That would be likely.

Then assume that a big majority of the Delegates whose votes were bound to Candidates C, D, E, F, and G would vote for Candidate A on a second ballot. That couldn’t happen because there wouldn’t be a second ballot.  Under the current rules, the votes for Candidates C, D, E, F, and G wouldn’t be counted. Candidate B would receive the presidential nomination with the votes of only 39% of the duly elected Delegates, although a majority of the total number of Delegates preferred Candidate A over Candidate B.

Will the Party powers care if that happens? Probably not much. But lots of potential Republican voters who feel disenfranchised just might. 

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The Size of Government Question

How big should government be? That was the gist of the very first question at last night’s Democratic presidential debate. The question, posed to Bernie Sanders, noted that spending by the federal government is already equal to about 21 percent of the economy. How much bigger would it be in a Sanders administration?

Sanders, you may not be surprised to discover, did not directly answer the question. Instead, he simply insisted, as he has so many times before, that government has a responsibility to do much more than it is doing right now, on health care, education, infrastructure, jobs, and more. After a follow-up from the moderator, he briefly acknowledged that there should be some sort of limit on the size of government, but did not even attempt to suggest what that limit should be. Instead, he reiterated his belief that the government has a responsibility to do much more than it is doing now.

Sanders’ response was a dodge, and a telling one for a candidate whose plans for the federal government are so ambitious. But he was onto something anyway. Because the way he answered the question was essentially to reframe it, not as a question about the size of government, but about its role.

This is the hidden debate in American politics today, the big question that is rarely discussed directly but arguably lies at the foundation of nearly every major policy and political debate. What is the purpose of government? What is it essential nature and character, its mission statement? What are its essential duties and functions?

The question Sanders actually answered was not, “How big should the government be?” but “What should the government do?” This is a question worth dwelling on, and one for which neither party has a particularly good answer.  

For Sanders, the answer is just about everything, or pretty close. He acknowledges, when pushed, that government should have limits, but he cannot articulate where those limits might because he cannot really imagine any arena where government might not have some role. That’s not to say that Sanders, who has worried darkly about the threats posed by too many styles of deodorant and sneakers even as children starve, has a plan for government to everything right now, but it is difficult for him to imagine any area where government might not ever need to intervene at some point.

Later in the debate, when asked about what parts of government he might cut, he initially could not name anything except a vague reference to “waste.” In what department? In what program? Sanders didn’t say, and it didn’t appear to be a question he’d given much thought to over the year. A moment later, he interjected to say he favors unspecified cuts at the Department of Defense, where he is sure there is excess spending and duplicative effort of some kind, but even here he had nothing specific. His view of government’s role is both practically unbounded almost undefined: It’s job, potentially, is to do anything and everything he thinks should be done.

For Sanders’ opponent in the Democratic presidential race, Hillary Clinton, the answer is somewhat different. Her follow-up to Sanders on the size of government question was instructive: Sanders’ plans would grow the size of government by about 40 percent, she said, but the main problem with his plans is that they aren’t practical. “Every progressive economist who has analyzed [Sanders’ health care plan] says that the numbers don’t add up, and that’s a promise that cannot be kept,” she said. The problem with his plan, for her, isn’t that the government would be too big or doing too much or going beyond its mandate, but that it wouldn’t work.

Clinton’s view, in other words, is that the government should do everything it’s doing now, whatever that is, plus a little bit more. She seems to view herself as a caretaker and manager, nurturing government as it exists today, and growing it somewhat, here and there. Her response on the what would you cut question was that she’d streamline some training and education programs, and “take a hard look at every part of the federal government and really do the kind of analysis” needed to see what might not be necessary anymore, which is another way of saying she’d make no significant cuts. This is a view of government bounded only by practical and political considerations. There are things government cannot do, at least right now, but nothing, really, that it simply should not do. There’s no mission statement either, no real idea about government’s specific place and purpose—no sense of what exactly it is for.

This sort of fuzziness about government’s purpose is perhaps an occupational hazard for politicians of the left, where active government is a default assumption, but in different forms it is evident on the right as well. The Republican presidential field is united in the belief that taxes should be lower, but have far less to say about the sorts of program cuts and reforms that would be necessary to account for the reductions in tax revenues that would certainly result even under optimistic dynamic scoring scenarios. Similarly, too many GOP policy reforms are merely focused on making existing programs leaner or more efficient rather than on fitting them into a larger government schema. There is nothing wrong, of course, with saying that “government should take in less revenue and be more efficient,” but it is not a vision of what government should be, and most Republicans do not really seem to have one, or at least not one they can explain.

This inability to clearly articulate a rationale for government’s existence, to explain what sort of business it is in, is responsible for much of the confusion and frustration on both the left and right, and for much of the sprawl, complexity, and inefficiency in government today. We have Republicans whose idea of government is lower taxes and better management, and Democrats whose idea of government is higher taxes and more programs—perhaps a few more, perhaps a lot more—and maybe better management too. And this is why it is so hard for both sides to answer questions about the proper size of government: Neither side really has a clear sense of what it should do and what it should be.

There’s a lesson here for reformers of all stripes, but especially for those who, like me, would prefer to see a smaller, more restrained government: It’s not enough to talk about what to cut and what to shrink; it’s important to talk about what government should be doing, and how to ensure that it does it well. Give government a purpose and a mission—a clear, positive, and limited mission—and get enough people on board, and the size will right itself.

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‘Three Parent’ Babies Are Certainly Ethical: New at Reason

3parentbabiesSeeking to cure prospective babies of terrible diseases is clearly ethical, right? Sadly, not everyone seems to agree. Old-fashioned doctor-knows-best paternalism has all too often been replaced by bioethicist-knows-best paternalism—or worse yet, by panel-of-bioethicists-knows-best paternalism. Or at least that’s the case with setting some restrictions a promising new set of treatments called mitochondria replacement therapy (MRT). In addition, the folks on Capitol Hill have also forbidden the FDA to spend any funds on evaluating these new treatments. Banning treatments that would give parents the chance to have healthy children is highly somehow considered ethical.

View this article.

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Zero Tolerance: 2 Teens Face Expulsion, Jail for Fishing Knives, Advil in Their Cars

SerratoTwo Escondido, California, high school students—ages 16 and 18—could see their whole lives derailed because they committed the crime of keeping fishing supplies in cars they parked on school property.

The elder teen, Brandon Cappelletti, had three knives in his car: the remnants of a family fishing trip. The knives were used to cut lines and filet fish. The younger teen, Sam Serrato, had a pocketknife in his glove compartment. His father had left it there.

Both teens are facing expulsion. Cappelletti, a legal adult, could serve jail time if convicted of weapons charges, according to The San Diego Union-Tribune.

You might be wondering how administrators at San Pasqual High School even found out about the innocuous items. You might be wondering why the Escondido police became involved. You might also be wondering if the world has gone mad. I have answers to these questions, but you won’t like them.

The high school pays a company to search its campus for contraband using drug-sniffing dogs. On January 27, the dogs indicated Cappelletti’s vehicle—not because of the knives, but because he kept Advil in the car. It’s not clear how Serrato was caught (one news story claims he also had Advil, but his father disputed this). But the knives were discovered, the police were called, and both boys are in big trouble. According to the police report:

At the conclusion of the investigation, the [school resource officer] determined that both students were in violation of a misdemeanor crime by bringing the knives on school property.  The juvenile student’s case has been recommended for the Juvenile Diversion program.  The Juvenile Diversion program involves a collaborative effort to address various juvenile crimes without the case being heard through the formal juvenile court process.  The second student, Brandon Cappelletti is an adult and not eligible for the diversion program. Cappelletti was issued a misdemeanor citation and released at the school to his mother.

At this point, the criminal matter and school matter are two different things. The school district is deciding at a hearing today whether to increase their punishments from suspension—they have already been out of school for weeks—to expulsion. Such a harsh punishment would jeopardize Serrato’s future: he’s relying on athletic scholarships to attend college.

“If I end up getting expelled, I’d have to go to a community college,” he told The Union-Tribune. “It’s not what I really want to do. My whole life would change.”

Cappelletti has enlisted in the Marine Corp, so he’s more worried about the criminal charges, which could completely derail those plans. He did not immediately respond to a request for comment.

Cappelletti and Serrato are not the first boys to run afoul of completely ridiculous school zero tolerance policies, which punish students for making innocent mistakes that harmed no one. Nor will they be the last—because the rules governing school safety protocols are insane and utterly disconnected from any real concerns about violence. Students who leave sharp objects in their car are not menaces to society, and irrational fear of knives—which have practical, non-lethal uses (i.e., fishing)—does no one any good.

Knives left in cars are not weapons. Advil is not an illicit substance. Cappelletti and Serrato are not criminals. They shouldn’t be expelled. They shouldn’t even be in trouble, period.

When it comes to safety, the American public school system—enabled by overzealous law enforcement and clueless state legislators—has completely lost its mind. I hope common sense prevails in this case. Quite often, it does not.

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Clinton vs. Sanders over Obama’s Performance Is All About the Democratic Party’s Future

Clinton also subtextually showed her support for keeping a personality-driven party by dressing up like a cult leader.Toward the end of last night’s Democratic debate we saw a lengthy back and forth as Hillary Clinton attacked Bernie Sanders for the crime of speaking ill of President Barack Obama. Part of it was strategic, obviously. Clinton has deliberately positioned herself as Obama’s third term from the start of her “formal” campaign launch rally. Her message to Democratic voters has been, “If you like what Obama has done, you can expect the same from me.” And as the primaries head toward South Carolina, she obviously has her eyes on where the minority vote may be going.

Here’s a highlight of how harshly Clinton presents the idea that Sanders was expected to support the home team (despite, you know, Sanders serving the Senate as an independent, not a Democrat):

[T]oday Senator Sanders said that President Obama failed the presidential leadership test. And this is not the first time that he has criticized President Obama. In the past he has called him weak. He has called him a disappointment. …

And later:

And it is a — the kind of criticism that we’ve heard from Senator Sanders about our president I expect from Republicans. I do not expect from someone running for the Democratic nomination to succeed President Obama.

Sanders responded by calling the line of attack a “low blow” and said that he had the “right to disagree with the president, including a president who has done such an extraordinary job.”

We will likely see more of this line of attack along with the critique that Sanders likely cannot put into place his radical economic and healthcare plans.

More fundamentally, this approach from Clinton is a reflection of how the Democratic Party is now struggling with an identity as Obama’s presidency comes to an end. In a way, Obama truly has been the Democratic Party’s Ronald Reagan. I don’t mean the two men had a lot in common or that they were equally good (or bad) presidents.

Rather, the identity of the political parties revolved so heavily around the personalities and goals of their elected leader that it’s no longer clear what the party actually is otherwise, beyond just a vague embrace of basic conservative or liberal politics, depending on which faction we’re talking about. To criticize Obama is to criticize the Democratic Party and therefore Democratic voters. That was the not-subtle-at-all subtext of Clinton’s attack.

The politically savvy Clinton is well aware she’s stepping into a vacuum and her strategy is to ease nervous Democrats that everything will continue on as planned. But this growing Tea Party-ish (in style, definitely not in substance) fracture from the left was visible on the horizon from the 2012 midterms. While everybody had already taken note of the rise of Sen. Elizabeth Warren in Massachusetts, there were other “warning” signs that the Democratic Party was going to be struggling with its agenda post-Obama. I took note of this in a preview of the 2014 midterms:

Rifts have appeared on the Democratic side as well: progressives vs. centrists, anti-imperialists vs. interventionists, Sen. Elizabeth Warren (D-Mass.) vs. Hillary Clinton.

It’s still too soon to know whether Warren will give Clinton a challenge from her left in 2016, though the Massachusetts senator is on the record saying she does not want to run. But there was a preview of what such a fight might look like in September, when New York Gov. Andrew Cuomo fended off a spirited campaign from the progressive academic Zephyr Teachout. Cuomo represented the centrist, pro-business Democrats (complete with accusations of corruption), while Teachout wanted to ban fracking, raise the minimum wage, and roll back business-friendly tax cuts. Cuomo won, but Teachout managed to grab 34 percent of the vote despite being vastly outspent and never having previously run for office.

Obviously we know now that Warren won’t be challenging Clinton. But she also hasn’t endorsed Clinton, either, and it’s obvious Sanders is the proxy candidate for Democratic voters who have the same lefter-than-the-establishment views. Teachout, meanwhile, wrote a piece for The Huffington Post heaping praise on Sanders.

That fight at the end of the debate is a distillation of this Democratic Party identity crisis. Clinton’s performance is an embrace of the personality-driven core of the party. Sanders’ performance and calls for “revolution” are an open and obvious call for a shift to a party driven by an operational ideology, not a person.

When Sanders won the popular vote in New Hampshire’s primary, he mentioned in his victory speech the canard that Democrats win when voter turnout is high and lose when voter turnout is low. The stated reason he brought this up was to discuss the size of the turnout for the primary. Republicans had their highest turnout ever for a primary; Democrats had their second-highest (2008 had the highest).

But consider the invocation of turnout a warning to the Democratic establishment—ignore the positions Sanders is taking at their peril. If Clinton gets the nomination and she can’t get Sanders’ supporters to the polls for her, she could lose by virtue of voter disenfranchisement and apathy. Republicans are facing the same issue, worrying what Donald Trump’s voters might do if he’s not nominated (although, in an interesting reversal, Trump represents the same personality-driven presidency Clinton is trying to capitalize on, while the other candidates are campaigning on an ideological view of what the Republican Party should stand for).

Ultimately, while that fight appeared rather petty and not terribly useful (especially to non-Democrats), it represents what is likely to be a big fracture in the Democratic Party’s identity moving forward, especially if they lose the presidency in 2016 and we get a complete GOP takeover of the executive and legislative branches, a complete reversal of what happened in 2008. Look what happened to the Republican Party after that.

All of this should matter to independents because that puts the identity of the Democratic Party up for grabs. Libertarian and independent attitudes made inroads within the Republican Party as it struggled under Obama to recover a place in political power. The same push could be useful on the left.

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