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States Need To Avoid 'Cures' That Can Make Inflation Worse

Authored by Regina M. Egea and Danielle Zanzalari via RealClearPolicy.com,

Across the United States, state governments are awash in cash. In a sharp contrast, American taxpayers are enduring a rate of inflation unseen in four decades, with the costs of everything from food to gasoline at record highs.

In our home state of New Jersey, Trenton is looking at an unprecedented surplus of $8 billion through a combination of increased tax revenue, federal pandemic aid and borrowing.

A natural impulse among residents and policymakers is to offer residents “relief” in the form of rebate checks.

The reality is that relying exclusively on rebates or direct cash transfers to individuals will only lead to more inflation as this puts more money in consumers’ hands exacerbating the same problem as today - too many dollars chasing too few goods.

Rather, it is prudent that states focus on long-term investment and responsible budgeting to ensure economic growth now and in the future. This is especially important in high tax, big spending states due to the greater flexibility in work arrangements that have exposed the reality that wealth is mobile.

With more residents fleeing high tax states to low tax states, states will need to reevaluate their tax and regulatory climate to stay competitive. 

Regulation can raise the costs for consumers and slow job growth. A series of studies shows the regulation raises prices and worsens poverty.

Working with local governments to revisit restrictive laws that contribute to higher housing prices, such as building height restrictions and zoning rules, as well as removing unnecessary restrictions on business operations will lead to more economic growth.

Another way states can aid productivity and long-term economic growth with their temporary budget surplus, is to fund training programs for middle-skilled jobs.

Nearly every industry has experienced labor shortages and that reality is especially acute in trades like auto, refrigeration, HVAC, electrical, welding, and manufacturing.

States can invest in these skills through high school and vocational school programs. With college borrowing costs astronomically high, this encourages individuals to pursue careers that are lucrative and budget friendly, as well as fill the over 75,000 job openings that our state of New Jersey is projected to need in just a few years.

To further long-term economic growth many states should also concentrate on fixing their unfunded pension liabilities for public employees. This impacts red and blue states alike, with massive liabilities in California ($1.53 trillion), Illinois ($533.72 billion), Texas ($529.70 billion), New York ($508.70 billion) and Ohio ($429.53 billion). Here in New Jersey, our liability is nearly $40,000 for every resident of the state, which can dramatically deter future growth. Beyond using some of states’ budget surplus to shore up pension liabilities, states should move public employees to defined contribution plans, which are used by more than 100 million Americans. These are found to have better investment returns than state-wide pension plans and cost taxpayers less.

Our final recommendation is perhaps our most important: Save for a rainy day. If the U.S. economy enters into a recession, this will mean fewer jobs and less tax revenue for states. To prepare for the future when states again face a budget shortfall, which may be sooner than we think, states should follow best practices of reserving 10% of their budget in a rainy day fund, to sustain essential programs should a downturn occur in the future.

As state leaders consider their budgets, they should focus on long-term economic growth initiatives. Proposals like funding middle-skilled job trainings ensure workers are ready for the next decade, whereas eliminating unnecessary regulations and focusing on pro-growth tax reforms encourages residents to build businesses and create jobs. Lastly, taking care of state finances by properly funding state employees’ retirement plans and saving for a rainy day will ensure that no state is left behind in the next economic downturn.

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The Fed Is Quietly Handing Out $250 Million To A Handful Of Happy Recipients Every Single Day

The Fed's QE may be over, and QT may be just starting (it won't last long), but don't think the Fed free money giveaway is ending any time soon. In fact, for a handful of happy, mostly anonymous counterparties, the real free-money bonanza has just begun!

Case in point: the Fed's reverse repo facility. While one can debate for hours why there is a record $2.330 trillion in cash parked at the Fed's overnight facility and what it means for systemic plumbing problems, the fact is that there is a record $2.33 trillion in cash parked at the Fed's overnight facility, doing nothing.

Well not nothing: it was nothing when rates were zero, but at 1.55% which is the current rate, that $2.33 trillion is a golden goose for the 108 counterparties that were parking cash at the facility, a mixture of money market funds, banks, GSEs and various other financial intermediaries.

How big of a Golden Goose? The chart below shows the payment in interest that the Fed makes day on this record $2.33 trillion in funds: as of today it amounts to just over $100 million every single day! That's right, more than $100 million in interest payments on funds parked with the Fed, which is by definition the world's only risk-free counterparty!

But wait, there's more!

Remember excess reserves? Well, technically excess reserves ended in March 2020 when the Fed reduced reserve requirement ratios to zero, thus converting the trillions in reserves held at the Fed from "excess reserves: to plain old "reserves" and which as of today amount to $3.13 trillion.

Whatever they are called now, however, reserves parked at the Fed (which is technically an incorrect phrase since the reserves are created by the Fed) also collect interest, and as of today, the Fed's Interest on (Excess) Reserves rate, or IOER, is 1.65%. This translates into $141 million in daily interest payments every single day to the various banks (mostly foreign) whose reserves are parked at the Fed!

Combining the two we get nearly a quarter billion, or to be precise $242 million and rising, in interest payments by the Fed - this is money which is printed into existence - every single day.

All of the above is with the Fed Funds rate at 1.75%. As a reminder, the Fed hopes to keep hiking at least another 175bps (or more) in the next 6 months, which will push the rate to 3.50% and will mean that the Fed will be paying half a billion in interest every single day to a handful of mostly unknown counterparties every day, money which for said counterparties is also known as (riskless) profit and which is only the result of the Fed's previous money printing.

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Biden & G-7 Push World Into "Nightmare Scenario"

Authored by Michael Shellenberger via Substack,

The West's Malthusian neoliberal political order is rapidly collapsing...

Led by U.S. President Joe Biden, the Group of Seven (G-7) economic powers announced plans to ban the transport of Russian oil sold above a certain price with the goal of hurting Russia enough so that it ends its war against Ukraine. "There is only one way out: for Putin to accept that his plans in Ukraine will not succeed," said German Chancellor Olaf Scholz.

The G-7’s plan is to impose a price cap on Russian oil through the regulation of petroleum shipping, banking, and insurance.

The proposal is, in a word, ludicrous.

Russian President Vladimir Putin would never agree to a price cap. He would likely withhold oil from the market in the same way he has been withholding natural gas from Europe, driving up prices. Putin would then sell oil to countries including China and India at a 30-40% discount, as he has been doing, or larger. Russia produces oil at a price of just $3-$4 per barrel and Russian firms can profit with oil prices at $25-$30 per barrel. And while it’s true that there is a near-monopoly in shipping insurance, Russia has been creating alternatives to it.

Neither China nor India are likely to agree to the cap unless G-7 nations imposed severe “secondary sanctions” against them, which could escalate into a mutually destructive trade war. But even if they did formally comply, the two nations could easily cheat, as several analysts quickly noted on Twitter.

“A price cap will never work,” said one.

“Every refiner will bid price cap…. India and China… will cheat and pay above the cap and win all they want as [the] other option is twice the price. Nobody will know they paid it, either. Russia ends with more revenue.”

Defenders of the oil price cap proposal point to a similar oil price cap mechanism that President Bill Clinton led the United Nations Security Council to impose on Iraq in 1995, as part of the U.N.’s “oil-for-food programme,” which allowed Iraq to sell its oil in exchange for food and medicine. It was meant to serve the humanitarian needs of the Iraqi people while preventing Iraq’s then-president, Saddam Hussein, from increasing military capabilities. Oil buyers put money into an escrow account run by a private bank. Some of the money was then distributed to Iraq, some was for war reparations to Kuwait, and some was for U.N. operations.

But the Iraq oil-for-food scheme became famously corrupt and had to be shut down. And while the U.N. Security Council was united on Iraq, it is today divided over Russia's invasion of Ukraine. China, India and 33 other nations refuse to condemn Russia’s invasion, and China and India are, as noted, the largest buyers of heavily-discounted Russian oil.

Russia’s response to Western financial sanctions are further proof that an oil price cap can’t work. Biden in March said sanctions were “crushing the Russian economy” and that “the ruble is reduced to rubble.” But high energy prices have meant that Russia is making more money than ever, the ruble is at a seven-year high against the dollar, and China’s benefiting from discounted Russian oil. As such, the attempted bans on Russian oil are proof that the G-7’s latest price cap idea would backfire. Putin would simply reduce oil and gas exports to punish participating nations and further drive up prices.

"It is a nightmare scenario,” noted an oil trader.

The response to the G-7 Russian oil price cap proposal has been near-uniformly negative, even from economists sympathetic to the Biden administration and some G-7 leaders. “This is going to fail,” tweeted the head of the Peterson Institute for International Economics. “The G7 won't enforce it on India, and China will retaliate until a workaround is reached.” Italy’s Prime Minister urged the oil price cap to include a natural gas price cap, and French President Emmanuel Macron has proposed a price cap on all oil, not just Russian oil. “The U.S.,” noted Politico, “which originally proposed the narrower Russian price cap, and is currently the world’s biggest oil producer, was blindsided by the French plan.”

In other words, the G-7 is in chaos. Last fall, G-7 leaders claimed climate change was the most important issue in the world, demanded that government subsidies to fossil fuels be phased out, and tried to deny African nations fossil fuels. Now, G-7 nations are subsidizing energy, waiving energy taxes, and burning more coal than they have in years. In the three decades since the Cold War, G-7 leaders have heralded a new global order based on free markets and neoliberal ideology. Now, they are proposing price-fixing and the creation of a Western energy cartel.

The bottom line is that there will be no Western energy cartel, nor even a price cap on Russian oil or gas. Global energy markets are far too globalized for an oil price cap to work. Russia, China, India and at least 33 other nations would circumvent it, and as soon as they did, the West would be forced to abandon it, too, given the crippling effect it would have on Western economies. Indeed, simply attempting to impose a global oil price cap would wreak havoc. Noted Bloomberg, “politicians are likely to quietly abandon the concept after agreeing to explore it.”

What, then, is going on? Why are President Biden and the G-7 pushing the West ever closer to a “nightmare scenario” of energy shortages and recession?

The Great Reset looms...

Subscribe to Michael Shellenberger to keep reading this post and get 7 days of free access to the full post archives...

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Tesla's Texas Gigafactory Reportedly Outputting 5,000 Vehicles Per Week

Just hours after reports of hundreds of people being laid off at Tesla's San Mateo, Autopilot focused, office, it appears the company is up and running at full capacity at its new Gigafactory in Texas. 

That's because electrek reported this week that the company is now cranking out as many as 5,000 vehicles per week from its new Texas location, though the report questions whether or not that is a "sustainable" rate. 

The factory also added production of the Model Y Long Range on top of the Standard Range version, the report says. The automaker is staying mum on the details of its production coming from its new factory, it continues.

The Texas Gigafactory has been one of the the company's most important recent investments. The company is finally, after starting production of the Model Y back in 2021, starting to gradually ramp up deliveries of vehicles built in its Texas factory. 

The company's goal is reportedly to produce 10,000 vehicles per week by the end of the year. 

electrek's sources told them that "Tesla has managed to ramp up production since adding a new version of the Model Y, Model Y Long Range, and it now produces several thousand vehicles per week" at the factory. 

They were also told Tesla was capable of producing at least 2,000 Model Ys per week from the factory. Some buyers taking delivery of the Model Y Long Range from the factory are being told that their models have the old 2170 cell batteries, and not the company's new ones. 

Drone footage appears to show that Tesla is getting "hundreds of cars out every day," the report concluded. 

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Daily Briefing: How Do You Solve a Problem Like Stagflation?

Stocks are sliding and bonds are rallying, as investors react to accumulating evidence that inflation will persist even though the economy is slowing down. There’s a word for that kind of scenario: stagflation. “The Fed is facing one of the worst predicaments of its existence,” tweeted Tavi Costa. “The US economy simply cannot handle the Fed’s continued monetary tightening." Costa, a partner and portfolio manager at Crescat Capital, joins Real Vision's Ash Bennington to talk about the confluence of three macro extremes. We also hear from Hari Krishnan about how there may not be a solution for the Federal Reserve’s dilemma. Want to submit questions? Drop them right here on the Exchange: https://rvtv.io/3AklJeO. Watch the full conversation featuring Hari Krishnan and Ash Bennington here: https://rvtv.io/3QUWOnVhttps://rvtv.io/3xYSJG.

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The Astonishing Implications Of Schedule F

Authored by Jeffrey Tucker via The Brownstone Institute,

Two weeks before the 2020 general election, on October 21, 2020, Donald Trump issued an executive order (E.O. 13957) on “Creating Schedule F in the Excepted Service.” 

It sounds boring.

Actually, it would have fundamentally changed, in the best possible way, the entire functioning of the administrative bureaucracy that rules this country in a way that bypasses both the legislative and judicial process, and has ruined the checks and balances inherent in the US Constitution. 

The administrative state for the better part of a century, and really dating back to the Pendleton Act of 1883, has designed policy, made policy, structured policy, implemented policy, and interpreted policy while operating outside the control of Congress, the president, and the judiciary. 

The gradual rise of this 4th branch of government – which is very much the most powerful branch – has reduced the American political process to mere theater as compared with the real activity of government, which rests with the permanent bureaucracy. 

Any new president can hire the heads of agencies and they can hire staff, which are known as political appointees. These 4,000 political appointees ostensibly rule 432 agencies (as listed by the Federal Register) as well as some 2.9 million employees (aside from the military and postal service) that effectively inhabit permanent jobs. This permanent state – sometimes called the deep state – knows the ropes and the processes of government far better than any temporary political appointee, thus reducing the appointed jobs to cosmetic positions for the press to hound while the real actions of government take place behind the scenes. 

From 2020 and onward, the American people got to know this administrative state well.

  • They ordered us to wear masks.

  • They deployed their influence to close small businesses and churches.

  • They limited how many people we could have in our homes.

  • They festooned our businesses with plexiglass and told everyone to stay six-feet apart.

  • They demanded two weeks of quarantine when crossing state borders.

  • They decided which medical procedures were elective and non-elective.

  • And they finally demanded compliance with vaccine mandates at the penalty of job loss. 

None of this was ordered by legislation. It was all invented on the spot by the permanent staff of the Centers for Disease Control and Prevention. We had no idea they had such power. But they do. And that same power which allowed those egregious attacks on rights and liberties also belongs to the Food and Drug Administration, the Department of Labor, the Environmental Protection Agency, the Department of Agriculture, the Department of Homeland Security, and all the rest. 

Donald Trump came into office with the promise of draining the swamp, without understanding entirely what that meant. He gradually came to realize that he had no control over most of the affairs of government, not because he had no patience for the legislative process but because he had no ability to terminate the employment of most of the civilian bureaucracy. Nor could his political appointees control it. The media, he gradually came to realize, echoed the priorities and concerns of this administrative state due to long-established relationships that led to nonstop leaks that spread false information. 

In May of 2018, he took his first steps to gain some modicum of control over this deep state. He issued three executive orders (E.O. 13837, E.O. 13836, and E.O.13839) that would have diminished their access to labor-union protection when being pressed on the terms of their employment. Those three orders were litigated by the American Federation of Government Employees (AFGE) and sixteen other federal labor unions. 

All three were struck down with a decision by a DC District Court. The presiding judge was Ketanji Brown Jackson, who was later rewarded for her decision with a nomination to the Supreme Court, which was affirmed by the US Senate. The prevailing and openly stated reason for her nomination was said to be mostly demographic: she would be the first black woman on the Court. The deeper reason was more likely traceable to her role in thwarting actions by Trump which had begun the process of upending the administrative state. Jackson’s judgment was later reversed but Trump’s actions were embroiled in a juridical tangle that rendered them moot. 

Following the lockdowns of mid-March 2020, Trump became increasingly frustrated with the CDC and Anthony Fauci in particular. Trump was profoundly aware that he had no power to fire the man, despite his epicly terrible role in prolonging Covid lockdowns long after Trump wanted to open up to save the American economy and society. 

Trump’s next step was radical and brilliant: the creation of a new category of federal employment. It was called Schedule F. 

Employees of the federal government classified as Schedule F would have been subject to control by the elected president and other representatives. Who are they? They are those who met the following criteria:

Positions of a confidential, policy-determining, policy-making, or policy-advocating character not normally subject to change as a result of a Presidential transition shall be listed in Schedule F. In appointing an individual to a position in Schedule F, each agency shall follow the principle of veteran preference as far as administratively feasible.

Schedule F employees would be fired. “You’re fired” was the slogan that made Trump TV famous. With this order, he would be in a position to do the same to the federal bureaucracy. The order further demanded a thorough review throughout the government. 

Each head of an executive agency (as defined in section 105 of title 5, United States Code, but excluding the Government Accountability Office) shall conduct, within 90 days of the date of this order, a preliminary review of agency positions covered by subchapter II of chapter 75 of title 5, United States Code, and shall conduct a complete review of such positions within 210 days of the date of this order.

The Washington Post in an editorial expressed absolute shock and alarm at the implications:

The directive from the White House, issued late Wednesday, sounds technical: creating a new “Schedule F” within the “excepted service” of the federal government for employees in policymaking roles, and directing agencies to determine who qualifies. Its implications, however, are profound and alarming. It gives those in power the authority to fire more or less at will as many as tens of thousands of workers currently in the competitive civil service, from managers to lawyers to economists to, yes, scientists. This week’s order is a major salvo in the president’s onslaught against the cadre of dedicated civil servants whom he calls the “deep state” — and who are really the greatest strength of the U.S. government.

Ninety days after October 21, 2020 would have been January 19, 2021, the day before the new president was to be inaugurated. The Washington Post commented ominously: “Mr. Trump will try to realize his sad vision in his second term, unless voters are wise enough to stop him.”

Biden was declared the winner due mostly to mail-in ballots. 

On January 21, 2021, the day after inauguration, Biden reversed the order. It was one of his first actions as president. No wonder, because, as The Hill reported, this executive order would have been “the biggest change to federal workforce protections in a century, converting many federal workers to ‘at will’ employment.” 

How many federal workers in agencies would have been newly classified at Schedule F? We do not know because only one completed the review before their jobs were saved by the election result. The one that did was the Congressional Budget Office. Its conclusion: fully 88% of employees would have been newly classified as Schedule F, thus allowing the president to terminate their employment. 

This would have been a revolutionary change, a complete remake of Washington, DC, and all politics as usual. 

Trump’s EO 13957 was a dagger aimed directly at the heart of the beast. It might have worked. 

It would have gotten us closer to the restoration of a Constitutional system of government in which we have 3 – not 4 – branches of government that are wholly controlled by the people’s representatives. It would have gone a long way toward gutting the administrative state of its power and returning the affairs of state to the people’s control. 

The action was stopped dead due to the election results. 

Whatever one’s view of Trump, one has to admire the brilliance of this executive order. It shows that Trump had come to understand the problem and actually innovate a fundamental solution, or at least the beginnings of one. The “deep state” as we’ve come to know it would have been curbed, and we would have taken a step toward recreating the system that existed before the Pendleton Act of 1883. 

Many efforts have been deployed through the years to regain constitutional control over the permanent bureaucracy. An example is the Hatch Act of 1939 which forbids employees of the government to work for political campaigns. That act turned out to be toothless – one does not need to work for a campaign in order to skew one’s labor in the direction of always granting the federal government more power and control – and largely made irrelevant in the succeeding decades. 

Trump came to office promising to drain the swamp but it was very late in his term before he figured out the means at his disposal to do just that. His final effort took place merely two weeks before the election that was decided in favor of his opponent Biden, who quickly reversed this action just two days following the deadline of an ordered review that would have reclassified, and thus gained control over, a sizable portion of the administrative state. 

With Executive Order 12003 (“Protecting the Federal Workforce”), Biden saved the deep state’s bacon, leaving the efforts finally to drain the swamp to another day and another president. 

Still, Executive Order 13957 exists in the archives as a possible path forward to restore checks and balances in the US system of government. A new Congress can also take such steps at least symbolically. 

Until something takes place to restore the people’s control of the administrative state, a sword of Damocles will continue to hang over the entire country and we will never be safe from another round of lockdowns and mandates. 

Should a genuinely reformist president ever take office, this executive order must be issued on the very first day. Trump waited too long but that mistake need not be repeated. 

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Micron Plunges After Catastrophic Guidance Confirms Worst Fears

The quarter may be over, but the selling is extending to the afterhours session where the closely watched semiconductor bellwether just reported earnings which were not that bad. The problem is the guidance: it was catastrophic, and sent the stock sharply lower after hours.

First, a look at the just concluded third fiscal quarter:

  • Adjusted revenue $8.64 billion, +16% y/y, meeting the estimate $8.64 billion (this was the smallest increase in more than a year).
  • Adjusted EPS $2.59 vs. $1.88 y/y, beating the estimate $2.45
  • Adjusted gross margin 47.4% vs. 42.9% y/y, missing the estimate 47.9%
  • Cash flow from operations $3.84 billion, +7.8% y/y, missing estimate $4.42 billion

But while the historical numbers may have been good, the guidance was an absolute disaster, disappointing on the top line, the bottom line and margin - The company now sees:

  • Adjusted revenue $6.8 billion to $7.6 billion, missing the consensus estimate of $9.14 billion by about $2 billion!
  • Adjusted EPS $1.43 to $1.83, missing the estimate $2.57 by about 40%!
  • Adjusted gross margin 41% to 44%, wildly missing the estimate 47.9%, and confirming that margin pressure is here and is real.

The outlook reflects a slowdown for two key markets for Micron’s memory chips: computers and smartphones. Consumers and businesses have been reining in spending amid concern that the major world economies are headed for recession.

CEO Sanjay Mehrotra was almost as laconic as RH CEO Gary Friedman yesterday, saying that “recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023. We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance."

"Weakened?" We would say the industry demand has fallen off a cliff. As for being positioned for the long-term, the market begs to differ, sending the stock as much as 7% lower, and following a drop of 41% this year through the close as part of a rout for semiconductor stocks that had rallied over the last five years, as traders brace for much worse horror stores in the coming weeks when the horror Q2 earnings seasons begins in earnest...

 

 

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China's Productive Capacity Is Starting To Slip Away To India And Southeast Asia

Continued lockdowns in China aren't helping the country's ongoing, decade-long, production exodus, a new report from Caixin notes.

The accelerating exodus from Asian production powerhouse has been helped along by Covid policy disruptions, rising labor costs and worsening trade tensions between the U.S. and China, the report notes. 

Southeast Asia and India are looking to take China's place thanks to low labor costs and rising domestic demand. This falls in line with India's political objectives, where Prime Minister Narendra Modi is pushing a “Made in India” campaign. 

As an example, Apple said earlier this year that it had started making its iPhone 13 at a factory in India instead of Taiwanese contract manufacturer Foxconn. Like other smartphone makers, it has an incentive not only for exports, but for domestic sales, the report notes:

In India, Chinese smartphone makers set up factories aiming at the huge domestic market. With 1.4 billion people — almost as many as in China — and a high proportion of young people, India has attracted Chinese brands including Xiaomi, Meizu, Vivo and Oppo to build factories. Many Chinese phone part makers have also set up factories there. Now Chinese brands account for nearly two-thirds of India’s smartphone market.

But that doesn't mean China doesn't have advantages: it has an enormous domestic market and decades of manufacturing infrastructure and experience, the Caixin report notes. And while no major aftershocks have been felt in China's economy, the trend is heading in the wrong direction for the country. 

Li Xingqian, director general of the Ministry of Commerce's Foreign Trade Department said the exodus from China was  “in line with the law of economics.”

Exports in the country were up 16.9% in May, the report says, accelerating from April's 3.9%. The country's trade surplus was $78.76 billion in May. 

However, thanks to weak demand in developed countries, "export orders for delivery in June and July, usually the peak season for booking goods for the back-to-school and holiday seasons, didn’t come in as expected," the report said. This weak demand was seen in falling shipping rates. 

Americans may take until the end of this year to work through inventories that were pulled forward over the last year. 

At the same time, President Joe Biden has said that he is considering lifting tariffs on $350 billion a year in Chinese goods. His administration, however, still seems to be divided on the matter and no decision is expected quickly. 

The report noted clearly that, to this day, China remains "the world's factory", which is unlikely to change anytime soon:

Neither Southeast Asia nor India can replace China as the global manufacturing hub in the near future as they are mainly engaged in labor-intensive and low value-added manufacturing, several foreign trade participants told Caixin. They also face problems such as incomplete industrial chains and low labor efficiency to varying degrees, experts said.

To foreign companies, China is not only a manufacturing base but also a huge market, said He Xiaoqing, president of consulting firm Kearney Greater China. In 2020, global companies had $1.4 trillion of domestic sales, far more than their exports of $900 billion, showing the attractiveness of China’s local market, He said.

In addition to India, Vietnam has also been a beneficiary of factories leaving China. Imports for the country were up 16.7% for the first five months of this year, data shows.

Most of the production moving to Southeast Asia involves textiles, furniture and low-end assembly of consumer electronics, the report said. 

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Crisis Of Faith: Politicians & Press Escalate Attacks On Legitimacy Of Supreme Court

Authored by Jonathan Turley,

Below is my column on the growing attacks on the legitimacy of the Supreme Court after the decision to overturn Roe v. Wade. As the Court ends its term, Democratic leaders are calling for removing justices, packing the Court, and other extreme reactions to the decision in Dobbs v. Jackson Women’s Health Organization.

Here is the column:

For justices, the end of a Supreme Court term usually brings welcomed vacations and speaking engagements out of town. This week it seemed more like the justices were fleeing the jurisdiction with a mob at their heels. Six justices (and their homes) are targeted because they dared to interpret the Constitution in a way that is opposed by many in the political, media, and academic establishment. After the overturning of Roe v. Wade, many called for impeachments, court packing, and “disciplining” justices. What is chilling, however, is that these calls have not come from extremist groups but political and media figures who are challenging the very  “legitimacy” of the Supreme Court.

The Madisonian democracy is based on the premise that, despite our factional divisions, the Constitution creates an interest in all groups in preserving the system. While the Constitution does not guarantee that your views will prevail in Congress or the courts, it has proven the most stable and successful democratic system in history.  We are all invested in that system which has achieved transformative changes over time in our laws and our society.

The Constitution is neither poetic nor pretentious in its language. It was written by the ultimate wonk in Madison. It has only one thing to recommend it: we are still here.  We have survived periods of war, economic collapse, and social discord that broke other systems.

Politicians and the press have thrived under this system and have historically defended its legitimacy even when demanding major changes in our laws. We are now witnessing a crisis of faith with the political and media establishment declaring the highest court to be illegitimate. All because they disagree with a constitutional interpretation adopted by the majority of its members.

Sen. Elizabeth Warren, D-Mass, has declared the Supreme Court illegitimate and has called to pack the Court for rending opinions against “widely held public opinion.”

Rep. Alexandria Ocasio-Cortez, D-N.Y., even questioned the institution’s value: “How much does the current structure benefit us? And I don’t think it does.” She has now demanded the impeachment of Justices Kavanaugh and Gorsuch based on the entirely false claim that they lied under oath in their confirmation hearings. After the Dobbs decision, Ocasio-Cortez demanded “there must be consequences” for the Court.

Other leaders like Sen. Jeanne Shaheen, D-N.H., issued a warning to the Supreme Court: Reaffirm Roe v. Wade or face a “revolution.”

The media has amplified these extreme calls. In the New York Times, columnist Jamelle Bouie wrote an outline of how Democrats could rein in the high court in a piece titled, “How to Discipline a Rogue Supreme Court.” He wrote that the Supreme Court does not exist above the constitutional system and added that the “rogue” court “cannot shield itself from the power of other branches.” Bouie’s discipline includes impeaching or removing justices as well as packing the court.

Notably, like many others demanding radical changes to the Court, Bouie previously advocated the change that is most responsible for creating the Court’s current composition. Like many liberals, Bouie demanded that the Senate kill the filibuster rule for Supreme Court nominees.

At the time, some of us warned the Democrats that the move was uniquely short-sighted and that they would rue the day that they took such a moronic step. As predicted, the Democrats soon found themselves in the minority without the protection of the filibuster rule and could not block nominees. They gained comparably little from the change given what they lost, including ultimately Roe v. Wade.

Rather than admit that their prior attack on the filibuster backfired, liberals are now demanding even more radical moves like a bad gambler at Vegas who just keeps doubling down in the hopes of winning a hand.

It does not matter that the Court is not as rigidly ideological or dysfunctionally divided as widely claimed. If anything, it has shown fewer divisions in most cases. Before the opinion, ABC admitted that “67% of the court’s opinions in cases argued during the term that ends this month have been unanimous or near-unanimous with just one justice dissenting.That compares to just 46% of unanimous or near-unanimous decisions during the 2019 term and the 48% average unanimous decision rate of the past decade.” Yet, after the decision, ABC’s legal analyst Terry Moran described the term as a “new era” of the “activist court.”

This crisis of faith is evident in other key constituencies in our system, including in our law schools. Law professors like Berkeley Dean Erwin Chemerinksy have called the justices “partisan hacks” while others have supported targeting the individual justices at their home. Georgetown Law Professor Josh Chafetz declared that “when the mob is right, some (but not all!) more aggressive tactics are justified.” Most recently, the dean and chancellor of University of California Hastings College of the Law David Faigman questioned the legitimacy of the Court after the ruling in Dobbs v. Jackson Women’s Health Organization.  

Writing in his official capacity, Faigman went as far as to claim that “this decision turns back the clock not just to 1973, but to a century when women did not have the right to vote and were, largely, treated as property . .  . the world today is so much less generous and inclusive than it was just yesterday. I tremble for my granddaughters.” Faigman declared that the “the Court itself, which is a product of political gerrymandering—raises basic questions regarding the legitimacy of the Court itself.”

From Congress to the press to academia, the very foundation of the Court is being challenged. What is notable is that these are also the voices of some of the most powerful figures in our society. Rather than seek to moderate the mob, they are fueling the rage with such reckless rhetoric. There are good-faith objections to this decision but those objections challenge the legitimacy of the holding, not the institution itself. As Benjamin Franklin noted “The U. S. Constitution doesn’t guarantee happiness, only the pursuit of it. You have to catch up with it yourself.”

Tyler Durden Wed, 06/29/2022 - 17:40
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US Emergency Oil Reserves Tumble To Record Low 27 Days Worth Of Supply

As we detailed earlier in the week, the latest weekly release has pushed the SPR below the 500 million barrels mark for the first time since 1986...

And as the chart above shows, the plummeting SPR is not having the impact on prices that President Biden hoped (which explains why he is blaming everyone and everything else for the rise in gas prices - as it becomes clear it's a refining capacity issue as much as anything else).

While that is ominous by itself, we note that in the context of US demand, it is even more of a concern as based on the latest Department of Energy estimate of Implied Crude Demand, there is just 27 days of supply left in the emergency oil reserve... a record low...

"Congress has been irresponsibly selling the SPR down," said Bob McNally, who in the early 2000s oversaw the Energy Department's efforts to replenish the SPR under former President George W. Bush, adding that "draining the reserve leaves the country and the world more vulnerable to geopolitical shocks."

Finally, we note that in response to growing concerns about the depleted reserve, the Department of Energy revealed plans to replenish emergency stocks.

This fall, it will launch a buyback process to repurchase 60 million barrels of oil, or one-third of the six-month 180-million-barrel emergency release.

As Andrew Moran writes at The Epoch Times, although the White House is exploring multiple avenues, such as urging OPEC to open the taps and pushing gasoline stations to diminish the pain at the pump, the best solution is greater North American output, says Tortoise Senior Portfolio Manager Rob Thummel.

The best solution remains increasing oil and natural gas production from reliable supply sources like U.S. and Canada that will assist in balancing the global energy markets and reduce the geopolitical risk premium embedded in global oil and natural gas prices resulting in lower prices at the pump,” Thummel stated during a recent TortoiseEcofin QuickTake podcast.

Biden announced last week that he is encouraging Congress to lift the 18-cent federal gas tax for three months...

Tyler Durden Wed, 06/29/2022 - 17:20
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Daily Briefing: When Rates Rise, Growth Slows

U.S. gross domestic product contracted by 1.6% on an annualized basis during the first quarter, according to the Bureau of Economic Analysis’s final estimate, as consumer spending was weaker than originally forecast. The sense we’re heading for recession was heightened when Federal Reserve Chair Jerome Powell said today at a European Central Bank forum that policymakers won’t let the economy slip into a "higher inflation regime" even if it means raising interest rates to levels that put growth at risk. He maintains U.S. household finances remain strong. “The Fed needs you to capitulate on summer travel in order for inflation to get under control,” says 42 Macro founder and CEO Darius Dale. Darius joins Real Vision's Andreas Steno Larsen to talk about receding inflation fear and rising recession risk. We also hear from Francis Gannon about how higher interest rates are driving a shift in market focus. And we share a segment from today’s Crypto Unwrapped episode on continuing upheaval in the crypto market. Want to submit questions? Drop them right here on the Exchange: https://rvtv.io/3Ntyqa7. Watch the full conversation featuring Francis Gannon here: https://rvtv.io/3QUWOnV. Watch the full Crypto Unwrapped episode featuring Tascha Che, Katie Talati, and Ash Bennington here: https://rvtv.io/3NufQyO.

Tyler Durden Wed, 06/29/2022 - 14:20
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Americans Become More Pessimistic About The Future Of The Country

Authored by Tom Ozimek via The Epoch Times (emphasis ours),

The share of American adults who say they’re optimistic about the future of the country has dropped to a new tracking low, according to a poll by Morning Consult, which comes on the heels of a closely-watched consumer confidence gauge that fell to its lowest level on record.

Consumers shop for meat at a grocery store in Annapolis, Md., on May 16, 2022. (Jim Watson/AFP)

The Morning Consult survey, carried out on a representative sample of 2,210 U.S. adults between June 16–20, shows that 45 percent of respondents said they were “very optimistic” or “somewhat optimistic” about the future of the United States.

This is a record low as far as this particular data series is concerned, which goes back to October 2020. By comparison, a series high was reached in March 2021, when 65 percent of U.S. adults expressed optimism about the future of the country.

Consumer Confidence Plummets

While the Morning Consult’s data series goes back only two years, a separate measure of U.S. consumer confidence from the University of Michigan, which goes back to the mid-1970s, has plunged to a record low.

The Michigan consumer sentiment index fell from a reading of 58.4 in May to just 50.0 in June, an all-time low, with soaring inflation a key factor behind the surge in pessimism.

“While consumers still appear relatively optimistic about the stability of their incomes, their perceptions of the economy are much more strongly influenced by concerns over inflation,” according to University of Michigan economist Joanne Hsu, director of the consumer confidence survey.

All components of the University of Michigan sentiment index declined in June, but the sharpest drop was in the year-ahead outlook for the U.S. economy, which fell 24 percent between May and June, according to Hsu.

Inflation Expectations Ease a Little

One bright spot in the University of Michigan survey was that longer-term inflation expectations among U.S. consumers eased slightly to 3.1 percent over the next five to ten years, down from an earlier preliminary reading of 3.3 percent.

Hsu told Bloomberg that the downward revision in longer-run inflation expectations was driven by a jump in the share of respondents who said they expect “extremely low inflation in the years ahead,” with around half of those expressing “bleak views about the risks of recession or unemployment.”

Growing concern about the prospect of a recession as the Fed tightens monetary conditions could be a factor in the easing of the University of Michigan inflation expectations, as price pressures tend to ease during economic contractions.

A number of Wall Street analysts recently raised their forecasts for the odds of a U.S. recession, with Goldman Sachs predicting a 30 percent chance of the U.S. economy contracting over the next year, up from 15 percent in an earlier projection.

‘Quite Eye-Catching’

Still, U.S. inflation expectations as reflected in the 10-year breakeven inflation rate per the St. Louis Federal Reserve data jumped on Friday to 2.56 percent following a three-day downtrend that touched a multi-month low of 2.50 percent.

Policymakers fret over future inflation expectations—not just actual price growth—as they are a barometer of potential pressure building in the wage-price spiral. A de-anchoring of inflation expectations could fuel stronger demand for wages, driving a feedback loop that sees inflation pushing higher.

The dreaded wage-price dynamic was at play during the economic upheaval of the 1970s, which led then-Fed chief Paul Volcker to raise interest rates sharply, taming inflation but also sparking a recession.

Current Fed Chair Jerome Powell recently noted the University of Michigan’s preliminary inflation expectations reading—which he called “quite eye-catching”—as one of the factors that drove policymakers to hike rates by 75 basis points on June 15, the biggest jump since 1994.

‘Unimaginable Fed Pivot’

While an early signal, the slight easing of inflation expectations takes some pressure off the Fed to keep hiking rates aggressively, some analysts say.

Last week’s rally in stocks and other risk assets could reflect a shift in investors’ view of the Fed’s future path in light of inflation expectations.

“The market is telling us it is salivating at the prospect of a currently unimaginable Fed pivot,” analyst Sven Henrich wrote in a series of tweets, referring to a potential reversal of the Fed’s current monetary tightening cycle.

“Perversely, we may enter a period where bad news is good news as ever slowing growth will raise recession expectations and cause yields to drop (bullish stocks),” he added.

Henrich argued that any type of rollover in inflation data over the summer would “be massively positive” for equities, though the risk of a full-blown recession remains with the risk for new lows in stock markets remaining “extremely high.”

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US Consumer Implodes As RH Cuts Guidance For 2nd Time This Month, Warns Of Cratering Demand

One month ago, Snapchat shares cratered after the company unexpectedly slashed guidance for the second time in under one month (it had guided lower in late April and said that since then "the macroeconomic environment has deteriorated further and faster than anticipated.")

Well, fast forward to today when moments ago RH - aka Restoration Hardward - just pulled a Snapchat and just three weeks after the company with the outspoken CEO saw its shares tumble after it guided lower for Q2 and the full year despite sold Q1 results, RH just cut guidance again with CEO Gary Friedman saying that “the deteriorating macro-economic environment has resulted in lower than expected demand since our prior forecast, and we are updating our outlook, particularly for the second half of the year.”

Taking into account the macro-economic conditions and our current business trends, RH provided the following outlook for the second quarter and full year, which assumes demand will continue to soften during the remainder of fiscal 2022:

  • Fiscal 2022 net revenue growth in the range of (2%) to (5%), with adjusted operating margin in the range of 21.0% to 22.0%.
    • Previously the company had seen revenue growth of 5% to 7% and operating margin of 23.0% to 23.5%, so a huge hit to both the top-line and profit margins.
  • For Q2, RH sees net revenue growth in the range of (1%) to (3%), with adjusted operating margin in the range of 23.0% to 23.5%. The second quarter outlook remains unchanged versus our prior forecast due to faster backlog relief offsetting lower than expected demand.

Friedman's catastrophic forecast continued, “With mortgage rates double last year’s levels, luxury home sales down 18% in the first quarter, and the Federal Reserve’s forecast for another 175 basis point increase to the Fed Funds Rate by year end, our expectation is that demand will continue to slow throughout the year.”

Friedman concluded, “While we anticipate the next several quarters will pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift, shed less valuable market share as we continue to raise our quality, and choose not to promote our business while we navigate through the multiple macro headwinds, we continue to believe our long-term investments will enable us to drive industry-leading performance over a longer term horizon.”

The Company also noted that it has not repurchased any shares since announcing the expansion of its common stock repurchase authorization on June 2, 2022.

Which reminds us that just two weeks ago we wrote that "the debate is now over on the dismal state of the US consumer", after Morgan Stanley unloaded on the driving force behind 70% of US GDP. It now appears that this particular realization is starting to finally trickle through to the rest of the economy.

RH stock, of course, tumbled, 5% taking its decline for 2022 to a new low of 55%, and down much more than half from its 2021 all time high of $744

As for the broader implications, in case this needs to be said again - the US consumer is now, and has been for months, in a recession, one which has shocked corporate America with its size and speed, and it's only a matter of time before we get a deflationary tsunami for most non-food and energy goods and services. And, as we have said previously, we also fully expect that the Fed will recognize said recession just around the time of this year's Jackson Hole symposium where recession will become the new Fed baseline.

Tyler Durden Wed, 06/29/2022 - 16:43
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Demand Destruction Emerges As Americans Cancel Road Trips

Gasoline demand destruction is underway as most fuel stations in the country average around $5 a gallon for regular (87 octane). New data finds that high gas prices deter some Americans (most likely the working poor) from road trips this summer. 

Conference Board's data found Americans who planned a road trip in the next six months fell to 22.7% in June. Only 36% intend to take a vacation within the next six months, the lowest level in the dataset going back four decades. 

Slumping gas demand growth is a sign that higher prices are beginning to alter the spending patterns of consumers in what seasonally should be a busy travel season. 

"Demand is currently below seasonal averages, but the key thing for crude is that it is still growing," Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, told Bloomberg. 

A four-week moving average of implied gas demand dropped to about 9 million barrels daily, or 600,000 barrels less than the 2015-19 average. 

Ed Moya, a senior market analyst at Oanda, said, "given where fuel costs are and how expensive dining out has become ... everything is becoming too pricey in America, and lower and middle-income households are feeling the pinch."

We agree with Moya that low to middle-tier consumers have maxed out their credit cards and drained savings, barely able to survive the inflation storm -- which has forced them to change spending habits dramatically. 

The big concern during this summer's travel season is that energy prices could still go much higher. A new report from CNN said the White House is quietly analyzing the worst-case scenario of crude oil at $200 per barrel. 

We have outlined before that refinery capacity bottlenecks are the main driver for higher fuel prices (not Russia). 

Supply fundamentals remain tight as limited refinery capacity will persist. A genuine market rebalancing will only happen through demand destruction with higher prices. 

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NYC Mayor Eric Adams "Shocked" To Find Out "Just How Bad" The City Is

How long has Eric Adams been mayor now? You'd think at some point he would have taken the time to have a tour of his own city, but it looks like that may not have ever been the case - until he rode the subways for 3 hours last week. 

That's because the Mayor was reportedly “shocked” to learn just “how bad [New York City] is," according to exclusive comments he made to the New York Post this week. 3 hours on the subway last week was apparently all it took. 

He said he was taken back by the poor “deployment of resources”. “Let me tell you something: When I started looking into this, I was shocked at how bad this place is,” he later commented to the Post

Adams started to get a glimpse at how poorly run the city was when reviewing plans his first week in office, the report says.

“It was probably the third — third or fourth week in January. I spent a lot of time in the office," he said. “And I started peeling back layers and what it started to unveil to me is how we just had this good shell, but underneath — it’s bad.”

Crime skyrocketed in the final years of deBlasio's tenure as NYC's Mayor. As the Post notes, grand larcenies and auto thefts have skyrocketed 50% and 48% and robberies are up about 40%.

Speaking about the NYPD, Adams commented: “We have not utilized this amazing agency and all our skills.”

“You know, they hold onto this one thing,” he said, criticizing his predecessors like Bill deBlasio, for focusing on a sole project instead of improving the city as a whole. “That’s why when people try to say, ‘OK, Eric, you know, what is your one or two things?,’ I’m saying: To fix this mess!”

Adams said his first initiative would be to crack down on rule breaking in the subways and stop homeless people from living in stations. 

You have to start somewhere, we guess...

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Taibbi: Taking The Neither Pill

Authored by Matt Taibbi via TK News,

Last Thursday, I sat in a studio in Newark for the above interview with Ben Shapiro. It was a wide-ranging and oddly friendly discussion between a former Breitbart staffer and the author of Andrew Breitbart’s mostly infamously obscene obituary, in which the fact that the interview could even happen at all was among the most interesting things about it (more on this on a Callin discussion tomorrow).

Ben and I talked about how it was the political left that years ago was famous for being willing to engage anyone, while the business model of right-wing media was a heated conversation with itself about an always-expanding regimen of enemies, a catastrophic strategy that allowed the Jon Stewarts and not-yet-unfunny Stephen Colberts of the world to win huge audiences by default. Add the lack of a sense of humor, which made Frank Zappa, Larry Flynt, and Dee Snider automatic winners over crusading curmudgeons like Jerry Falwell and John Tower, and the culture war for decades was never a real battle. “There’s no question that the left had been in the ascendancy my entire lifetime,” is how Shapiro put it.

Now the script is flipped. The press mainstream has borrowed from the old Fox model and not only (as Shapiro notes) excludes dissent via the “laundering of expertise” but leads interminable crusades against an exploding list of deviationists within their own ranks. You may have thought you were solidly a progressive, but you can catch a permanent green-room ban for going against narrative on any issue, whether it’s Syria or Ukraine or Russiagate or trans issues or any of a hundred other things. This is the same losing strategy that hurt the old GOP, which logically should lead to the same losing outcome, except this is a political atmosphere where no one seems to be winning.

On Friday, the Supreme Court overturned Roe v. Wade, the 1973 decision granting women a constitutional right to abortion. This exact moment was supposedly why I owed my vote to the Democratic Party, and indeed the Supreme Court was on my mind when I pulled a lever for Hillary Clinton, a politician I couldn’t stand, in 2016.

Four years later, I voted neither. The Democrats between 2016 and 2020 not only lost my vote, but reveled in the idea that they didn’t need or want it, denouncing critics in all directions as traitors, white supremacists, and terrorists, no different from the “deplorables” who voted for Donald Trump. In that time they perfected an attitude of imperious condescension and entitlement so grating that at least half of America wouldn’t piss on someone like Adam Schiff if he were on fire. Then Friday happened and it was the same song everywhere: “See! We were right all along! You do owe us! And if you ever criticized us, this was your fault!

No, it wasn’t. Friday was the result of decades spent building a political project so incoherent, unsellable, and untrustworthy to ordinary people that in 2016 they chose Donald Trump over the person Barack Obama called the most qualified candidate in history. The justices who cast the critical votes Friday were picked by a man denounced by all of institutional America prior to election. All those voices were ignored. That total collapse in trust, not Jill Stein’s candidacy or Putin’s Facebook ads, led to Dobbs v. Jackson. Until Democrats reckon with that problem, which incidentally spread to every category of voter except white men in 2020 and looks poised to spread even more in the midterms, there will be more moments like this.

Subscribers to TK News can click here to read more...

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