Tag: news

The Echo Chamber Of Elite Economists: Often Wrong, Never In Doubt

Authored by Michael Lebowitz via 720Global.com,

Since the U.S. economic recovery from the 2008 financial crisis, institutional economists began each subsequent year outlining their well-paid view of how things will transpire over the course of the coming 12-months. Like a broken record, they have continually over-estimated expectations for growth, inflation, consumer spending and capital expenditures. Their optimistic biases were based on the eventual success of the Federal Reserve’s (Fed) plan to restart the economy by encouraging the assumption of more debt by consumers and corporations alike.

But in 2017, something important changed. For the first time since the financial crisis, there will be a new administration in power directing public policy, and the new regime could not be more different from the one that just departed. This is important because of the ubiquitous influence of politics.

The anxiety and uncertainties of those first few years following the worst recession since the Great Depression gradually gave way to an uncomfortable stability.  The anxieties of losing jobs and homes subsided but yielded to the frustration of always remaining a step or two behind prosperity.  While job prospects slowly improved, wages did not. Business did not boom as is normally the case within a few quarters of a recovery, and the cost of education and health care stole what little ground most Americans thought they were making.  Politics was at work in ways with which many were pleased, but many more were not.  If that were not the case, then Donald Trump probably would not be the 45th President of the United States.

Within hours of Donald Trump’s victory, U.S. markets began to anticipate, for the first time since the financial crisis, an escape hatch out of financial repression and regulatory oppression.  As shown below, an element of economic and financial optimism that had been missing since at least 2008 began to re-emerge.

Data Courtesy: Bloomberg

What the Federal Reserve (Fed) struggled to manufacture in eight years of extraordinary monetary policy actions, the election of Donald Trump accomplished quite literally overnight. Expectations for a dramatic change in public policy under a new administration radically improved sentiment. Whether or not these changes are durable will depend upon the economy’s ability to match expectations.

Often Wrong, Never in Doubt

The institutional economists searching for a coherent outlook for 2017 are now faced with a fresh task. President Trump and his cabinet represent a significant departure from what has come to be known as “business-as-usual” Washington politics over the past 25 years.  Furthermore, it has been 89 years since Republicans held control of the White House as well as both the House of Representatives and the Senate. The confluence of these factors suggests that the outlook for 2017 – policy, the economy, markets, geopolitical risks – are highly uncertain.  Despite what appears to be an inflection point of radical change, most of which remains unknown, the consensus opinion of professional economists and markets, in general, are well-aligned, optimistic and seemingly convinced about how the economy and markets will evolve throughout the year.  The consensus forecast based upon an assessment of economic projections from major financial institutions appears to be the result of a Ph.D. echo chamber, not rigorous independent analysis.

Economic Outlook – Consensus Summary

After a thorough review of several major financial institutions’ economic outlooks for 2017 and market implied indicators for the year, below is an overview of what 720 Global deems to be the current consensus outlook for 2017.

  • The consensus is optimistic about economic growth for the coming year with expectations for real GDP growth in the 2.0-2.5% range
  • Recession risks will remain benign
  • The labor market is now at or near full employment
  • Wage growth is expected to increase to the 3.0-3.5% level as is customary for the economy at full employment
  • Inflation is expected to reach and exceed the Fed’s 2.0% target level
  • The Fed is expected to raise the Federal Funds rate in 25 basis point increments two or three times in 2017
  • The Fed will maintain the existing size of its balance sheet
  • Some form of fiscal stimulus will occur by the second half of the year
  • Fiscal stimulus is expected to be modest and unlikely to have a big impact on fiscal deficits
  • Tax reform will occur by the second half of the year and is viewed as highly supportive of corporate profits
  • Regulatory reform will begin to take shape in the first half of the year
  • Trade will be affected by some form of border tax adjustment, the economic impact of which is expected to be low
  • The combination of fiscal stimulus, tax reform, and regulatory reform in conjunction with an economy that is growing above trend and at full employment easily offsets Fed rate hikes supporting the optimistic outlook for economic growth

Despite the low probability of accuracy, the consensus outlook for 2017 is the starting point from which a discussion should begin because it is reflective of what markets and investors expect to transpire. Markets are pricing to this set of outcomes for the year.

Deviations

Having established a consensus baseline, further attention is then paid to those areas where the consensus may indeed be wrong. Will inflation finally exceed the 2.0% level as expected? Will growth for the year end in the range of 2.0-2.5%? Can the new administration negotiate a fiscal stimulus package this year? These and many others are important questions that will dictate the strength of the U.S. dollar, the level of interest rates and the ability of equity markets to sustain current valuations.

If economic growth for the year is stronger than current projections and inflation is higher than forecast, then the Fed will appear to be behind the curve in hiking interest rates. In this circumstance, the Fed may begin to telegraph more than three rate hikes for the current year and a higher trajectory for rates in 2018. The interest rate markets will likely front run growth expectations and push interest rates higher. Given that investors have so little coupon income to protect them from price changes, such a move could occur in a disorderly manner, which will tighten financial conditions and choke off economic growth.

If, on the other hand, economic growth for the year falters and continues the recent string of disappointing, sub-2.0% readings, then fears of recession, and likely an abrupt change in confidence, will re-emerge.

This exercise undertaken each year by economists is akin to a meteorologist’s efforts to predict the weather several weeks in advance.  The convergence of high and low-pressure systems will produce a well-defined outcome, but there is no way to ascertain weeks or even days in advance that those air masses will converge at a precise time and location, or that they will converge at all.  It does in fact, as they say, very much depend on the “whether.”  Whether consumers borrow and spend more, whether companies hire and pay more or even whether or not confidence in a new administration promising a variety of pro-growth policies can fulfill those in some form.

The Lowest Common Denominator

Interest rates have already risen in anticipation of the consensus view coming to fruition.  Although higher interest rates today are reflective of an optimistic outlook for growth and inflation, the economy has become dependent upon low rates. Everything from housing and auto sales to corporate buybacks and equity valuations are highly dependent upon an environment of persistently low interest rates.  So, when the consensus overview expects higher interest rates as a result of higher wage growth and inflation, it is difficult to reconcile those expectations with the consensus path for economic growth.

Investors and markets continue to give the hoped-for outcome the benefit of the doubt, but that outcome seems quite inconsistent with economic reality. That outcome is that policy will promote growth, growth will advance inflation and interest rates must therefore rise.  The problem for the U.S. economy is that the large overhang of debt is the lowest common denominator.  The economy is a slave to the master of debt, which must be serviced and repaid. The debt problem is largely the result of 35 years of falling interest rates and the undisciplined habits and muscle memory that goes with such a dominating streak.  Marry that dynamic with the fact that this ultra-low interest rate regime itself has been in place for a full eight years, and the economy seems conditioned for an allergic reaction to rising rates.

Episodes of rising interest rates since the 1980’s, although short-lived, always brought about some form of financial distress. This time will likely be no different because the Fed’s zero-interest rate policy and quantitative easing have sealed the total dependency of the economy on consumption and debt growth.  Regaining the discipline of a healthy, organic economic system would mean both a rejection of policies used over the last 30 years and intense public sacrifice.

Summary

Given the altar at which current day politicians’ worship – that of power, influence, and self-promotion – it seems unlikely that this new Congress and President are inclined to make the difficult choices that might ultimately set the U.S. economy back on a path of healthy, self-sustaining growth.  Rather, debt and deficits will grow, and the enthusiasm around overly-optimistic economic forecasts and temporal improvements in economic output will fade as has been the case in so many years past.  Although a new political regime is in store and it brings hope for a new path forward, the echo chamber reinforcing bad policy, fiscal and monetary, seems likely to persist.

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Maryland Has a Bad Beer Bill on Tap

First the good news: The Maryland House of Delegates just passed a bill that would quadruple the amount of beer that breweries are allowed to sell in their taproom. Now the bad news: Those brewers will have to try to squeeze those sales into less time, because the bill would also require them to stop serving by 9 on weeknights and by 10 on Fridays and Saturdays. (Depending on where they’re located, they’re currently allowed to stay open til either midnight or 2 a.m.) The bill also bans the brewers’ taprooms from selling other companies’ products.

In other words, it takes away a lot more than it gives. The aim of all this, apparently, is to protect traditional bars and liquor stores from competition.

This had been one of three rival beer bills in the legislature. The best one would have loosened the restrictions on how much beer the brewers could serve without adding those new controls. The other measure was a cronyist proposal that essentially would have carved out a special privilege for a Guinness brewery coming soon to Baltimore County, upping the amount it could serve in its taproom without offering a comparable increase elsewhere. (Speaking as a local: I’m all for bringing more Guinness to the area, but I’d like the rest of the state’s beermakers to have the same rights.) Guinness had actually endorsed the more sensible legislation, but it had this one ready too, just in case. Beer writer Liz Murphy called it the “cover your ass bill.”

The legislation will now go to the Maryland Senate, where hopefully it will die. If these new rules do become law, Guinness will be able to handle them, but they’ll kneecap a lot of smaller businesses. It’d be a double tragedy: a bill so bad that it drives you to drink, but which also takes drinks off the table.

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Bombshell: Nunes Says There Was “Incidental Surveillance” Of Trump During Obama Administration

It appears Trump may have been right, again

Two days after FBI director Comey shot down Trump’s allegation that Trump was being wiretapped by president Obama before the election, it appears that president Trump may have been on to something because moments ago Politico reported that according to the House Intelligence Chairman, Devin Nunes, “members of the Donald Trump transition team, possibly including Trump himself, were under surveillance during the Obama administration following November’s election”, he told reporters on Wednesday.

As AP confirms, Nunes said that President Donald Trump’s communications may have been “monitored” during the transition period as part of an “incidental collection.”

Nunes told a news conference Wednesday that the communications appear to be picked up through “incidental collection” and do not appear to be related to the ongoing FBI investigation into Trump associates’ contacts with Russia. He says he believes the intelligence collections were done legally, although in light of the dramatic change in the plotline it may be prudent to reserve judgment on how “incidental” it was.

Nunes says the communications of Trump associates were also picked up, but he did not name those associates. He says the monitoring mostly occurred in November, December and January. He added that he learned of the collection through “sources” but did not specify those source

Politico adds that Nunes is going to the White House later Wednesday to brief the Trump administration on what he has learned, which he said came from “sources.”

While there are no further details, we look forward to how the media narrative will change as a result of today’s latest dramatic development.

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Davos for Democrats – DNC Mega Donors Meet at Mandarin Oriental Hotel to Plot “The Resistance”


The Daily Beast just published an article previewing what should be referred to from this day forth as Davos for Democrats, a big-money infused orgy of wealthy donors telling their political puppets what to do as they mingle at one of the most luxurious hotel chains in the world, the Mandarin Oriental in Washington D.C. Clearly learning absolutely zero lessons from their recent election pummeling, the Democratic Party is simply doubling down on its hopelessly failed strategy. Namely, a focus on more cash, even more donor influence and an absence of any new or interesting ideas that could actually get frustrated and struggling American voters excited. The post referenced below reads like something out of The Onion and would be downright hilarious if it wasn’t so pathetic and deranged.

From the article, Democratic Donors Gather in D.C. to Plot the Resistance:

The Democratic Party’s top officials will meet with some of their wealthiest donors in Washington, D.C., this week to plot the Trump resistance, according to documents obtained by The Daily Beast.

The chairs of the Democratic National Committee and the party’s House and Senate campaign arms will huddle with activists, operatives, and deep-pocketed Democratic financiers at a biannual conference hosted by the Democracy Alliance, a leading left-wing donor collaborative at Washington’s ritzy Mandarin Oriental hotel.

continue reading

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Is That GIF You’re About to Post on Twitter a ‘Deadly Weapon’?

Travolta, 'Perfect'If a person can come to actual, physical harm by looking at a particular image, and you deliberately present such an image to that person knowing this could happen, can you be held criminally responsible?

We’re about to find out if animated images can be classified as “deadly weapons.” Combative journalist Kurt Eichenwald, a loud critic of President Donald Trump and his supporters, went toe-to-toe with Tucker Carlson on Fox News back in December. As is normal in the state of social media these days, he found himself the focus of angry tweets from those who disagreed with him.

But Eichenwald is also very open and has written about the fact that he is epileptic and susceptible to seizures. After the December appearance, Eichenwald claimed somebody tweeted to him a flashy animated GIF designed for the purpose of provoking a seizure. (It literally had the text “You deserve a seizure for your posts” on it). Furthermore, Eichenwald claimed that the GIF succeeded. The flashing colors prompted a seizure. After he recovered, he filed a criminal complaint in Texas in the hopes of tracking down the culprit.

It looks like authorities have succeeded. A grand jury in Texas has indicted a Maryland man named John Rayne Rivello of “aggravated assault with a deadly weapon” for tweeting the offending GIF. And an FBI agent has filed a complaint accusing Rivello of violating federal cyberstalking laws.

Let’s, at least for the purposes of analyzing the underlying concerns with this case, set aside the politics and personalities involved. We need to do that because Eichenwald’s behavior in the interview that prompted the “attack” was notably absurd—revolving around an unsubstantiated claim that Trump had been institutionalized in the 1990s. Whether Eichenwald is a person to be treated seriously shouldn’t be issue here.

Is Rivello legally responsible if an image that never even physically comes into contact with Eichenwald triggers a harmful reaction? Even if Rivello was actually hoping a seizure would happen (and the evidence presented by the Justice Department, if true, suggests Rivello had actually investigated how to trigger an epileptic seizure)? NBC talked to a defense lawyer who hadn’t heard of a similar case in the past:

“I’m unaware of anybody being criminally prosecuted for this,” defense attorney Tor Ekeland, who represents clients accused of federal cyber crimes, told NBC News. “If it’s not the first time, it’s one of the first times this has happened.”

Ekeland, who is not involved in the case, noted that Rivello is being charged with a federal cyberstalking law that is frequently the subject of criticism from First Amendment advocates. The law criminalizes using electronic communication “with the intent to kill, injure, harass, [or] intimidate” a victim, but it’s typically used in relation to images (like revenge porn) or speech (like emailed death threats).

What’s likely unprecedented about this case is that Rivello’s tweeted GIF is considered an assault weapon.

“Here they’re saying you used the internet as a weapon that causes physical harm,” said Ekeland. “You’re in different territory, because that’s at least something you can have concrete testimony and evidence of, rather than squishy emotions and ‘Gee, I felt bad.'”

But there’s still the matter than when you come at somebody with a knife, it’s easy for prosecutors to make the case that you were obviously attempting to cause physical harm. The slippery slope here is that Rivello is potentially being held responsible for an unusual reaction to a stimulus that would normally be classified as speech, and only due to Eichenwald’s particular medical condition.

The prosecutors here want to make the easiest argument—that Rivello clearly intended to cause harm to Eichenwald, even if he didn’t physically lay hands on him. But note Ekeland’s comments about how cyberstalking laws, written vaguely for deliberate reason, are used by prosecutors in ways that stretch or even break the definitions. And clearly the same holds true for the definition of “assault with a deadly weapon.” I doubt the average American would ever visualize that an image—even an animated image—would ever be classified by a court as a weapon capable of killing somebody.

While it’s not wrong to be concerned that Rivello may have actually intended for Eichenwald to come to physical harm, there are a lot of potentially bad long-term consequences to a jury ruling that we can be held criminally liable for normally constitutionally protected behavior based on how the recipient physically reacts to it. Rivello would probably not be facing charges if he had sent the tweet to somebody who was not epileptic. We should be concerned here about how such a precedent could be misapplied by zealous prosecutors.

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Welcome to Adulthood, Gen Z

The Pew Research Center takes a look this week at political polarization between generations. Unsurprisingly, millennials and Gen X’ers (those in the 19- to 52-year-old age range this year) poll more liberal than their older counterparts, with differences especially stark when it came to labeling oneself a liberal Democrat or a conservative Republican. What did surprise me about Pew’s latest round of generational sorting is that 2016 was the last year in which surveys of U.S. adults could exclude “Gen Z.”

Granted, generational boundaries are about as disputed as territorial borders (and as much of a social construct), and no one has quite agreed yet on when the millennial generation begins and ends. But Pew is as good an arbiter of generational parameters as any, and here’s how it categorizes us:

  • You’re a millennial if you turn 19- to 36-years-old in 2017 (birth years 1981-1998)
  • You’re part of Gen X if you turn 37- to 52-years-old in 2017 (birth years 1965-1980)
  • You’re a baby boomer if you turn 53- to 71-years-old in 2017 (birth years 1946-1964)
  • You’re a member of the Silent Generation if you turn 72- to 89-years-old in 2017 (birth years 1928-1945)

Folks still living who were born before 1928 are mostly part of the generation alternately referred to as the “G.I. Generation” or the “Greatest Generation.” Those born after 1998 are currently (and quite unimaginatively) being called Generation Z. And, by Pew’s math, the eldest members of this nascent generation are turning 18 this year.

Welcome to adulthood, Gen Z!

As one of the oldest members of your immediate ancestors in American youth, I’d like to officially transfer the think-piece mantle your way. As millennials’ misadventures in youthful entitlement and narcissism dwindle, may your place as a scapegoat for societal fears about sex, technology, and general change shine bright. May Gen X prove as much a collective nemesis for you as boomers have so generously done for my generation. And, perhaps most importantly, may you please be patient in a few years when you’re trying to explain to us how to upload a hologram snap to Mind Twitter.

Also, for what it’s worth, millennials may have spawned Faceboo, but don’t blame us if Americans are more politically polarized these days. According to another recent generational study, it’s the oldest Americans who have grown the most polarized within their own generation in recent decades. While many people attribute political polarization to social media or the internet more broadly, the study’s authors found that, between 1996 and 2012, the increase in polarization was “largest among the groups least likely to use the internet and social media.” On a nine-point measure of different sorts of polarization, the gap grew by 0.38 index points for respondents ages 75 and older, but just 0.05 index points for adults ages 39 and below.

Lastly, don’t get too comfortable, kids—your generational predecessors are already arriving. Going by Pew’s parameters, the typical generation spans about 17 years… which means that the last of Gen Z babies were likely born in 2016. A new generation starts being born this year.

Welcome to the world, post-Gen Z generation! What a weird, absurdist time to be start your lives. May we course correct a bit here before you hit adulthood. (Alternately, tell your kids to give President Ivanka’s reanimated corpse and V.P. Chelsea Clinton’s cryogenically frozen head my love, and sorry about the Kardashians. That one really is our fault.)

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First Photo Of London Terrorist Suspect Emerges

According to the UK’s Mirror, the following is a photo of the moment the Parliament terror attack suspect is wheeled into an ambulance after being shot by police. The man, who was said to be “Asian, and middle-aged” in appearance, entered the grounds of the Houses of Parliament and stabbed a policeman just after 2.30pm this afternoon.

It came after a 4×4 car mounted the pavement on Westminster Bridge and mowed down up to ten pedestrians and cyclists. At least two people have been killed with others suffering “catastrophic injuries”.

Pictures showed armed cops standing over a man as he lay prone on the floor. A knife could be seen on the floor nearby. Armed cops were seen standing over him with guns levelled at him while ambulance crew treated him.

The policeman who was stabbed was also seen to receive treatment.  The suspect was wheeled into an ambulance naked with bandaging around his waste.


The man is wrapped in a bandage (Photo: PA)

Footage captured just moments after the attack showed security officials surrounding at least one injured person behind the gates at Westminster. The injured person is seen on the floor in New Palace Yard, past the security checkpoint at the gates at Palace of Westminster.


A knife appears to be lying on the ground nearby (Photo: PA)


The knife can be seen on the floor (Photo: PA)

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Stocks Suddenly Slammed After Meadows Says “Still Not Enough Votes” To Pass Healthcare Reform

US equity markets suddenly dumped on heavy volume after House Freedom Caucus chairman, speaking after White House meeting, sais there are still not enough votes to pass healthcare bill. 

Investors are very anxious…

 

In Context…

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Turkey Threatens Europeans: You “Will Not Walk Safely In The Streets” If Current Attitude Persists

Having already told Europe "we'll blow your mind" with a threat to unleash 15,000 immigrants per month,Turkish President Tayyip Erdogan escalated his rhetoric this morning warning Europeans across the world would not be able to walk safely on the streets if they kept up their current attitude.

Tensions have accelerated since Turkey became embroiled in a row with Germany and the Netherlands over the barring of campaign appearances by Turkish officials seeking to drum up support for an April referendum on boosting Erdogan's powers. Today's comments are the most aggressive yet…(via Reuters)

"If Europe continues this way, no European in any part of the world can walk safely on the streets. We, as Turkey, call on Europe to respect human rights and democracy," Erdogan said at event for local journalists in Ankara.

As we noted previously, should Turkey execute on its threat, it is likely that the anti-immigrant, populist wave that has swept Europe in 2015 and 2016, and which has subsided modestly in the subsequent period, will find a second, and very dangerous to the European establishment, wind.

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