Trump’s Volley – Hoover’s Folly?

By: Michael Lebowitz

“You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store” 
– Sixteen Tons by Tennessee Ernie Ford

Shortly following Donald Trump’s election victory we penned a piece entitled Hoover’s Folly. In light of Trump’s introduction of tariffs on steel and other selected imports, we thought it wise to recap some of the key points made in that article and provide additional guidance.

While the media seems to treat Trump’s recent demands for tariffs as a hollow negotiating stance, investors are best advised to pay attention. At stake are not just more favorable trade terms on a few select products and possibly manufacturing jobs but the platform on which the global economic regime has operated for the last 50 years. So far it is unclear whether Trump’s rising intensity is political rhetoric or seriously foretelling actions that will bring meaningful change to the way the global economy works. Either as a direct result of policy and/or uncharacteristic retaliation to strong words, abrupt changes to trade, and therefore the role of the U.S. Dollar as the world’s reserve currency, has the potential to generate major shocks in the financial markets.

Hoover’s Folly

The following paragraphs are selected from Hoover’s Folly to provide a background.

In 1930, Herbert Hoover signed the Smoot-Hawley Tariff Act into law. As the world entered the early phases of the Great Depression, the measure was intended to protect American jobs and farmers. Ignoring warnings from global trade partners, the new law placed tariffs on goods imported into the U.S. which resulted in retaliatory tariffs on U.S. goods exported to other countries. By 1934, U.S. imports and exports were reduced by more than 50% and many Great Depression scholars have blamed the tariffs for playing a substantial role in amplifying the scope and duration of the Great Depression. The United States paid a steep price for trying to protect its workforce through short-sighted political expedience.

Although it remains unclear which approach the Trump trade team will take, much less what they will accomplish, we are quite certain they will make waves. The U.S. equity markets have been bullish on the outlook for the new administration given its business-friendly posture toward tax and regulatory reform, but they have turned a blind eye toward possible negative side effects of any of his plans. Global trade and supply chain interdependencies have been a tailwind for corporate earnings for decades. Abrupt changes in those dynamics represent a meaningful shift in the trajectory of global growth, and the equity markets will eventually be required to deal with the uncertainties that will accompany those changes.  

From an investment standpoint, this would have many effects. First, commodities priced in dollars would likely benefit, especially precious metals. Secondly, without the need to hold as many U.S. dollars in reserve, foreign nations might sell their Treasury securities holdings. Further adding pressure to U.S. Treasury securities and all fixed income securities, a weakening dollar is inflationary on the margin, which brings consideration of the Federal Reserve and monetary policy into play.

The Other Side of the Story

The Best Reasons to Try a Prepaid Cell Phone.

The President recently tweeted the following:

Regardless of political affiliation, most Americans agree with President Trump that international trade should be conducted on fair terms. The problem with assessing whether or not “trade wars are good” is that one must understand the other side of the story.

Persistent trade imbalances are the manifestation of explicit global trade agreements that have been around for decades and have historically received broad bi-partisan support. Those policies were sponsored by U.S. leaders under the guise of “free trade” from the North American Free Trade Agreement (NAFTA) to ushering China in to the World Trade Organization (WTO). During that time, American politicians and corporations did not just rollover and accept unfair trade terms; there was clearly something in it for them. They knew that in exchange for unequal trade terms and mounting trade deficits came an implicit arrangement that the countries which export goods to the U.S. would also fund that consumption. Said differently, foreign countries sold America their goods on credit. That construct enabled U.S. corporations, the chief lobbyists in favor of such agreements, to establish foreign production facilities in cheap labor markets for the sale of goods back into the United States.

The following bullet points show how making imports into the U.S. easier, via tariffs and trade pacts, has played out.

  • Bi-partisan support for easing multi-lateral trade agreements, especially with China
  • One-way tariffs or producer subsidies that favor foreign producers were generally not challenged
  • Those agreements, tariffs, and subsidies enable foreign competitors to employ cheap labor to make goods at prices that undercut U.S. producers
  • U.S. corporations moved production overseas to take advantage of cheap labor
  • Cheaper goods are then sold back to U.S. consumers creating a trade deficit
  • U.S. dollars received by foreign producers are used to buy U.S. Treasuries and other dollar-based corporate and securitized individuals liabilities
  • Foreign demand for U.S. Treasuries and other bonds lower U.S. interest rates
  • Lower U.S. interest rates encourage consumption and debt accumulation
  • U.S. economic growth increasingly centered on ever-increasing debt loads and declining interest rates to facilitate servicing the debt

Trade Deficits and Debt

These trade agreements subordinated traditional forms of production and manufacturing to the exporting of U.S. dollars. America relinquished its role as the world’s leading manufacturer in exchange for cheaper imported goods and services from other countries. The profits of U.S.-based manufacturing companies were enhanced with cheaper foreign labor, but the wages of U.S. employees were impaired, and jobs in the manufacturing sector were exported to foreign lands. This had the effect of hollowing out America’s industrial base while at the same time stoking foreign appetite for U.S. debt as they received U.S. dollars and sought to invest them. In return, debt-driven consumption soared in the U.S.

The trade deficit, also known as the current account balance, measures the net flow of goods and services in and out of a country. The graph below shows the correlation between the cumulative deterioration of the U.S. current account balance and manufacturing jobs.

Data Courtesy: St. Louis Federal Reserve (NIPA)

Since 1983, there have only been two quarters in which the current account balance was positive. During the most recent economic expansion, the current account balance has averaged -$443 billion per year.

To further appreciate the ramifications of the reigning economic regime, consider that China gained full acceptance into the World Trade Organization (WTO) in 2001. The trade agreements that accompanied WTO status and allowed China easier access to U.S. markets have resulted in an approximate quintupling of the amount of exports from China to the U.S.  Similarly, there has been a concurrent increase in the amount of credit that China has extended the U.S. government through their purchase of U.S. Treasury securities as shown below.

Data Courtesy: St. Louis Federal Reserve and U.S. Treasury Department

The Company Store

To further understand why the current economic regime is tricky to change, one must consider that the debts of years past have not been paid off. As such the U.S. Treasury regularly issues new debt that is used to pay for older debt that is maturing while at the same time issuing even more debt to fund current period deficits. Therefore, the important topic not being discussed is the United States’ (in)ability to reduce reliance on foreign funding that has proven essential in supporting the accumulated debt of consumption from years past.

Trump’s ideas are far more complicated than simply leveling the trade playing field and reviving our industrial base. If the United States decides to equalize terms of trade, then we are redefining long-held agreements introduced and reinforced by previous administrations.  In breaking with that tradition of “we give you dollars, you give us cheap goods (cars, toys, lawnmowers, steel, etc.), we will most certainly also need to source alternative demand for our debt. In reality, new buyers will emerge but that likely implies an unfavorable adjustment to interest rates. The graph below compares the amount of U.S. Treasury debt that is funded abroad and the total amount of publicly traded U.S. debt. Consider further, foreigners have large holdings of U.S. corporate and securitized individual debt as well. (Importantly, also note that in recent years the Fed has bought over $2 trillion of Treasury securities through quantitative easing (QE), more than making up for the recent slowdown in foreign buying.)

Data Courtesy: St. Louis Federal Reserve

The bottom line is that, if Trump decides to put new tariffs on foreign goods, we must presume that foreign creditors will not be as generous lending money to the U.S. Accordingly, higher interest rates will be needed to attract new sources of capital. The problem, as we have discussed in numerous articles, is that higher interest rates put a severe burden on economic growth in a highly leveraged economy. In Hoover’s Folly we stated: Further adding pressure to U.S. Treasury securities and all fixed income securities, a weakening dollar is inflationary on the margin, which brings consideration of the Federal Reserve and monetary policy into play.

It seems plausible that a trade war would result in potentially controversial intervention from the Federal Reserve. The economic cost of higher interest rates would likely be too high a price for the Fed to sit idly by and watch. Such policy would be controversial because it would further blur the lines between monetary and fiscal policy and potentially jeopardize the already tenuous independent status of the Fed.

Importantly, this is not purely a problem for the U.S. Still the world’s reserve currency, the global economy is dependent upon U.S. dollars and needs them to transact. Any disruption in economic activity as a result of rising U.S. interest rates, the risk-free benchmark for the entire world, would most certainly go viral. That said, for the godless Communist regimes of China and Russia, a moral barometer is not just absent, it is illegal. Game theory, considering those circumstances and actors, becomes infinitely more complex.

Summary

Investors concerned about the ramifications of a potential trade war should consider how higher interest rates would affect their portfolios. Further, given that the Fed would likely step in at some point if higher interest rates were meaningfully affecting the economy, they should also consider how QE or some other form of intervention might affect asset prices. While QE has a recent history of being supportive of asset prices, can we assume that to be true going forward?  The efficacy of Fed actions will be more closely scrutinized if, for example, the dollar is substantially weaker and/or inflation higher.

There will be serious ramifications to changing a global trade regime that has been in place for several decades. It seems unlikely that Trump’s global trade proposals, if pursued and enacted, will result in more balanced trade without further aggravating problems for the U.S. fiscal circumstance.  So far, the market response has been fidgety at worst and investors seem to be looking past these risks. The optimism is admirable but optimism is a poor substitute for prudence.

In closing, the summary from Hoover’s Folly a year ago remains valid:

It is premature to make investment decisions based on rhetoric and threats. It is also possible that much of this bluster could simply be the opening bid in what is a peaceful renegotiation of global trade agreements. To the extent that global growth and trade has been the beneficiary of years of asymmetries at the expense of the United States, then change is overdue. Our hope is that the Trump administration can impose the discipline of smart business with the tact of shrewd diplomacy to affect these changes in an orderly manner. Regardless, we must pay close attention to trade conflicts and their consequences can escalate quickly. 

Everything You Should Know About The 1994 Assault-Weapons Ban

 

Here we go again. Another assault weapons ban rears its knee-jerk head. The Assault Weapons Ban of 2018 is the feel-good, we-have-to-do-something move. I’m all for it if it will make a positive difference. But it won’t. We already know that it won’t because of the 1994 assault weapons ban.

Remember how excited your mother was in 1994? “Honey,” she said, “finally we’re doing something about crime.” She did have a point since crime had been rising steadily through the eighties and early nineties. The ban seemed like a good idea at the time, and darn it if FBI crime statistics didn’t prove her right. (You hate it when that happens.) From 1994 to 2004, the violent crime rate dropped 35 percent.

When the Department of Justice released statistics about firearms homicides specifically, your mother was even more sure of herself. In 1993, the year before the ban took effect, there were 18,253 firearm homicides. The ban took effect, and the number of firearm homicides dropped every year for the next seven years. They began to rise again in 2001, but in 2004, there were 11,624 firearm homicides, an overall reduction of 36 percent.

“See?” your mother crowed, “Told ya!” (*sigh*)

Then you got to thinking. There was that statistics course you took in college, and something is niggling in the back of your mind. Hey, you realized, those numbers don’t mean much unless you know how many guns were on the street while all of this was happening. A crude measure of gun sales is criminal background checks, and the FBI began collecting data in 1998, four years into the 1994 Assault Weapons Ban. You can’t study the entire ban period, but you can study the last six years. And then you can study the first six years after the ban.

For the six years from 1999 to 2004 when the ban was lifted, 52,214,932 background checks were conducted. For the first six years after the ban was lifted (2005 to 2010), 71,319,676 background checks were conducted. If each background check represents one gun, 19 million more guns were purchased in the six years after the ban than during the last six years of the ban. This makes intuitive sense: when guns are banned, fewer guns are sold; when the ban is lifted more guns are sold. But is it the number of guns we care about or what people are doing with those guns?

You compare the data on background checks – your reference point for gun sales – to the FBI’s data on what people were doing with those guns for 1997 to 20012002 to 2006, and 2007 to 2011. While you’re at it, you look at what the FBI says people were doing with rifles specifically since there was a principal target of the ban.

The FBI says that during the last six years of the ban, firearms were used to kill 54,468 people, 2,483 of whom were killed with a rifle.

During the first six years after the ban – with 19 million more guns on the street – the FBI says firearms were used to kill 58,065 people, 2,432 of whom were killed with a rifle.

What? More people were killed with a rifle during the ban than after the ban? Could it be the assault ban made no difference to homicide by rifle? Why, yes, yes it could. And with 19 million more guns on the street after the ban, there were only 3,597 additional firearms homicides? Could it be that limiting guns had very little impact on limiting total firearms homicides? Why, yes, yes it could.

You realize that during the last six years of the ban, there was one gun murder for every 959 guns whereas, during the first six years after the ban, there was one gun murder for every 1,228 guns.Well, you’re right to wonder, if there were more guns but fewer firearms homicides per gun, what was everybody doing with all those extra guns? They certainly weren’t using them to murder more people. Could this help to explain the steady drop in violent crime rates that has continued since 2004? Could it be that people are using those extra guns to defend themselves and to deter and prevent all kinds of violent crime? Why, yes, yes it could.

You need to tell your mother.

Especially if she looks like Dianne Feinstein

Another Liberal-Created Failure

Another Liberal-Created Failure

By Walter E. Williams

Another Liberal-Created Failure
Walter E. Williams
Walter E. Williams

A liberal-created failure that goes entirely ignored is the left’s harmful agenda for society’s most vulnerable people — the mentally ill.

Eastern State Hospital, built in 1773 in Williamsburg, Virginia, was the first public hospital in America for the care and treatment of the mentally ill. Many more followed. Much of the motivation to build more mental institutions was to provide a remedy for the maltreatment of mentally ill people in our prisons.

According to professor William Gronfein at Indiana University-Purdue University Indianapolis, by 1955 there were nearly 560,000 patients housed in state mental institutions across the nation. By 1977, the population of mental institutions had dropped to about 160,000 patients.

Starting in the 1970s, advocates for closing mental hospitals argued that because of the availability of new psychotropic drugs, people with mental illness could live among the rest of the population in an unrestrained natural setting.

According to a 2013 Wall Street Journal article by Dr. E. Fuller Torrey, founder of the Treatment Advocacy Center, titled “Fifty Years of Failing America’s Mentally Ill“, shutting down mental hospitals didn’t turn out the way advocates promised.

Several studies summarized by the Treatment Advocacy Center show that untreated mentally ill are responsible for 10 percent of homicides (and a higher percentage of the mass killings).

They are 20 percent of jail and prison inmates and more than 30 percent of the homeless.

We often encounter these severely mentally ill individuals camped out in libraries, parks, hospital emergency rooms and train stations and sleeping in cardboard boxes. They annoy passers-by with their sometimes intimidating panhandling. The disgusting quality of life of many of the mentally ill makes a mockery of the lofty predictions made by the advocates of shutting down mental institutions and transferring their function to community mental health centers, or CMHCs.

Torrey writes: “The evidence is overwhelming that this federal experiment has failed, as seen most recently in the mass shootings by mentally ill individuals in Newtown, Conn., Aurora, Colo., and Tucson, Ariz. It is time for the federal government to get out of this business and return the responsibility, and funds, to the states.”

Getting the federal government out of the mental health business may be easier said than done.

A 1999 U.S. Supreme Court ruling in the case of Olmstead v. L.C. held that under the Americans with Disabilities Act, individuals with mental disabilities have the right to live in an integrated community setting rather than in institutions. The U.S. Department of Justice defined an integrated setting as one “that enables individuals with disabilities to interact with non-disabled persons to the fullest extent possible.” Though some mentally ill people may have benefited from this ruling, many others were harmed — not to mention the public, which must put up with the behavior of the mentally ill.

Torrey says it has now become politically correct to claim that this federal program failed because not enough centers were funded and not enough money was spent. But that’s not true.

Torrey says: “Altogether, the annual total public funds for the support and treatment of mentally ill individuals is now more than $140 billion. The equivalent expenditure in 1963 when President John F. Kennedy proposed the CMHC program was $1 billion, or about $10 billion in today’s dollars. Even allowing for the increase in U.S. population, what we are getting for this 14-fold increase in spending is a disgrace.”

The dollar cost of this liberal vision of deinstitutionalization of mentally ill people is a relatively small part of the burden placed on society. Many innocent people have been assaulted, robbed and murdered by mentally ill people. Businesspeople and their customers have had to cope with the nuisance created by the mentally ill. The police response to misbehavior and crime committed by the mentally ill is to arrest them. Thus, they are put in jeopardy of mistreatment by hardened criminals in the nation’s jails and prisons. Worst of all is the fact that the liberals who engineered the shutting down of mental institutions have never been held accountable for their folly.

About Walter E.Williams

Walter E. Williams is a professor of economics at George Mason University. Williams is also the author of several books. Among these are The State Against Blacks, later made into a television documentary, America: A Minority Viewpoint, All It Takes Is Guts, South Africa’s War Against Capitalism, More Liberty Means Less Government, Liberty Versus The Tyranny of Socialism, and recently his autobiography, Up From The Projects.

The Ghosts of 1968

The hope of 1968 that public demonstrations can actually change the power structure has been lost.
1968 was a tumultuous year globally and domestically. The Prague Spring in Czechoslovakia–a very mild form of political and cultural liberalization within the Soviet bloc–was brutally crushed by the military forces of the Soviet Union.
The general strikes and student protests of May 1968 brought France to a standstill as demands for social and political change called the entire status quo into question.
On the other side of the planet, the Cultural Revolution was remaking China’s still-youthful revolution, to the detriment of the political status quo, the intelligentsia and the common people.
The U.S.was convulsed with assassinations, civil unrest and mass demonstrations against the war in Vietnam and the political status quo (the Democratic Party convention in Chicago).
Ironically, much of the world was benefiting from two decades of rising prosperity and the demise of colonialism. When expectations exceed actual opportunities, discontent is the result. When the power structure is deaf to the discontent, a cycle of repression and disorder feed on each other.
Fifty years on, the ghosts of 1968 are still with us. With the advantage of hindsight, 1968 was the culmination of the belief that it was still possible for the common people to change the political and social order in a positive fashion– to remake the status quo power structure into something more humane, accessible, just and fair.
The Western status quo bent but did not break. Nothing in the developed-world power structures actually changed. The status quo did break down in China, but the breakdown was not liberating; it was a catastrophe of injustice and destruction without precedent.
A new winter of discontent is chilling the air. Though the current state of affairs seems quite different from that of 1968, the basic context is eerily similar: decades of economic growth have ushered in widespread prosperity, but the benefits and power have gone disproportionately to the few at the top of the wealth-power pyramid.
The status quo power structures are deaf to the discontent of the common people, and respond with blandishments (Universal Basic Income, etc.), propaganda and a spectrum of repression.
In the context of 1968+50=2018, Chris Hedge’s incisive essay from 2010 bears re-reading. 2011: A Brave New Dystopia (truthdig):
The two greatest visions of a future dystopia were George Orwell’s ‘1984’ and Aldous Huxley’s ‘Brave New World.’ The debate, between those who watched our descent towards corporate totalitarianism, was who was right. Would we be, as Orwell wrote, dominated by a repressive surveillance and security state that used crude and violent forms of control? Or would we be, as Huxley envisioned, entranced by entertainment and spectacle, captivated by technology and seduced by profligate consumption to embrace our own oppression? It turns out Orwell and Huxley were both right. Huxley saw the first stage of our enslavement. Orwell saw the second.
We have been gradually disempowered by a corporate state that, as Huxley foresaw, seduced and manipulated us through sensual gratification, cheap mass-produced goods, boundless credit, political theater and amusement. While we were entertained, the regulations that once kept predatory corporate power in check were dismantled, the laws that once protected us were rewritten and we were impoverished. The state, crippled by massive deficits, endless war and corporate malfeasance, is sliding toward bankruptcy. We are moving from a society where we are skillfully manipulated by lies and illusions to one where we are overtly controlled.
It’s also worth re-reading Mario Savio’s extemporaneous speech to the Free Speech Movement’s sit-in on December 3, 1964, on the campus of the University of California at Berkeley. Though the speech predates the Prague Spring and the Paris general strike by four years, it embodies the core dynamic of those social uprisings: the system itself is fundamentally flawed, and we are the raw material and product that keep the system operating.
There is a time when the operation of the machine becomes so odious, makes you so sick at heart, that you can’t take part; you can’t even passively take part, and you’ve got to put your bodies upon the gears and upon the wheels, upon the levers, upon all the apparatus, and you’ve got to make it stop. And you’ve got to indicate to the people who run it, to the people who own it, that unless you’re free, the machine will be prevented from working at all!
The hope of 1968 that public demonstrations can actually change the power structure has been lost. The ghosts of 1968 inform us that there is no reforming the status quo power structure, there are only simulacrum reforms that fulfill the PR requirements of being seen as effecting reform. But people are losing faith in do-nothing policy tweaks; those tossed aside as detritus by the winner-take-most status quo realize the system is failing not just those on the margins but the entire citizenry. Those who look at the stripmined seas, polluted air, depleted soils and aquifers know the system is also failing the planet.
The system needs us as raw material, as “product,” as consumers of the output of the machine. That we are consumed by the process–that awareness has faded into the shadows inhabited by the ghosts of 1968.

After December In Housing, No Miracle

by Jeffrey P. Snider

While there are those who saw October and more so November spikes in real estate and housing estimates as the beginning of the something big, all the December 2017 statistics suggest nothing more than the easily anticipated hurricane anomalies. Housing construction was back in line with weaker earlier 2017 estimates (particularly starts), while resales were, too. Today we found that sales of newly constructed homes also pulled back last month after a run in November.

The prior month’s big jump was revised to a seasonally-adjusted annual rate of 689k, well above the 599k posted in October. The estimate for December was 625k, just above the 6-month average.

The November figure was widely hailed as some kind of meaningful milestone simply because it was the most sales since August 2017. The media loves to write stories that contain the phrase “highest in ten years.”

This is not to say that the housing market isn’t growing; it is. Nor is it exhibiting any warning signs that it is close or about to collapse; it isn’t. The issue here is the same as it is for the overall economy, which is what matters as to whether November’s increase was the start of something bigger, or an aberration leaving the real estate market in the same shape as before.

In other words, anything that has been written about home construction making it seem like a positive is totally overwhelmed by the chart above. In December 2017, the Census Bureau figures that 43k (unadjusted) newly built homes were sold across the United States. That’s fewer than were turned over in December 1995 (45k), or December 1985 for that matter (47k).

As noted yesterday, there is a big problem in housing as it relates to the economy given this shrunken state. It’s far too consistent with the non-full employment view of circumstances. If things are really improving as is always claimed and characterized, then home sales would be brisk, as would resales.

The latter are not because they are being held back by a serious and sustained reluctance of home owners to sell. What we find here in new home sales is that reticence is obviously shared among buyers, too, particularly at the lower end starter homes.

Like shrinking available-for-sale inventory, the permanently reduced market for new homes isn’t really a mystery. If you ignore, as Economists do, the millions upon millions (as many as 16 or more) of Americans who don’t count for the unemployment rate, none of this makes sense given the “exceptional” job market that one statistic might indicate. Factor them into your economic equation, however, and your interpretation, and therefore outlook, changes dramatically.

Given that, it wasn’t ever very likely that October and November represented the start of something meaningfully different. That would have been just too far of a leap, to get to rapid growth finally after a decade of truly stunning shrinking and stagnation, and for what legitimate reason? In truth, it would have been a miracle, a verdict that I think will be applied to a lot more than the housing statistics in the months to come.

NAR Warns Upper-End Home Prices Set To Slide


Following the plunge in New- and Existing-Home Sales, expectations for a 0.5% acceleration in Pending Home Sales in December were met.

 

However, YoY, Pending Home Sales NSA dropped 1.8%.

 

The Northeast dominated the weakness (after a big jump in Nov):

  • Northeast fell 5.1%; Nov. rose 4.1%
  • Midwest fell 0.3%; Nov. fell 0.1%
  • South up 2.6%; Nov. rose 0.1%
  • West up 1.5%; Nov. fell 2%

 

Since the start of the year, Housing-related data has disappointed notably, after ramping remarkably since the storms…

Lawrence Yun, NAR chief economist, says pending sales edged up in December and reached their highest level since last March (111.3).

“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018,” he said. “Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now.”

Added Yun,

“Sadly, these positive indicators may not lead to a stronger sales pace. Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices — especially at the lower end of the market.” oops “In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” said Yun.

“However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.”

However, Yun ended on an ominous note…

“Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values.”

Tesla Tumbles On Further Model 3 Delays

Elon Musk’s week just got worse as Tesla’s share tumble after CNBC reports the problems with battery production at the company’s Gigafactory in Sparks, Nevada, are worse than the company has acknowledged and could cause further delays and quality issues for the new Model 3, according to a number of current and former Tesla employees.

These problems include Tesla needing to make some of the batteries by hand and borrowing scores of employees from one of its suppliers to help with this manual assembly, said these people.

The reaction was instant and lower…

CNBC goes to report that more than a month after Musk’s initial warnings, in mid-December, Tesla was still making its Model 3 batteries partly by hand, according to current engineers and ex-Tesla employees who worked at the Gigafactory in recent months.

They say Tesla had to “borrow” scores of employees from Panasonic, which is a partner in the Gigafactory and supplies lithium-ion battery cells, to help with this manual assembly.

Cutting a Hole in the 4th Amendment

 

Hidden beneath the controversy stirred up last week by the publication of a book called “Fire and Fury,” a highly critical insider’s view of the Trump White House that the president has not only denounced on national television but also tried to prevent from being published and distributed, are the efforts of the Trump administration and congressional leadership to bypass the Fourth Amendment to the Constitution.

Here is the back story.

After the excesses of the Watergate era, during which the Nixon administration used the FBI and the CIA unlawfully to spy without warrants on the president’s real and imagined domestic political opponents, Congress passed the Foreign Intelligence Surveillance Act. FISA prohibited all domestic surveillance except that which is pursuant to warrants signed by federal judges.

The Fourth Amendment — which guarantees privacy in our persons, houses, papers and effects — permits the government to invade that privacy only when a judge has signed a warrant that authorizes surveillance, a search or a seizure. And judges may only issue warrants when they have found probable cause to believe that the government surveillance or invasion of the target’s privacy will produce evidence of criminal behavior. The Fourth Amendment further requires that the judicial warrant describe specifically the place to be searched or the person or thing to be seized.

All these requirements are in the amendment so as to prevent any court from issuing general warrants. Before the Constitution, general warrants were issued by British courts that met in secret in London. They were not issued based on probable cause of crime but issued based on the government’s wish to invade the privacy of all Americans living in the Colonies to find the more rebellious among them. This was the king and Parliament’s version of protecting national security.

General warrants did not describe the place to be searched or the person or thing to be seized. They authorized the bearer — usually a British soldier physically located in the Colonies — to search where he wished and seize whatever he found.

FISA did not interfere with the standard understanding or use of the Fourth Amendment by the government and the courts. But it did add another way for the government to invade privacy when its wish is to surveil people for national security purposes — a return to general warrants — as opposed to solely gathering evidence of crimes.

The FISA-created procedure, enacted in defiance of the Fourth Amendment — which makes no distinction between government evidence gathering and government intelligence-gathering — permits a secret court in Washington to issue general warrants based on the government’s need to gather intelligence about national security from foreigners among us. It pretends that the standard is probable cause of foreign agency, but this has now morphed into the issuance of general warrants whenever the government wants them.

Since 1977, the Foreign Intelligence Surveillance Court has issued well over 99 percent of the warrants that the government has requested. And these warrants do not specifically describe the place to be searched or the person or thing to be seized. A typical FISC-issued warrant authorizes government surveillance on all landlines, mobile devices and desktop computers in a given area or ZIP code. One infamous FISC-issued search warrant permitted the feds to surveil all Verizon customers in the U.S. — in excess of 115 million people — without any evidence of crime or even suspicion about any of them.

Now back to the Trump administration’s work below the radar. Even in the fresh aftermath of 9/11, when the government’s respect for constitutional norms was at a lamentably low point, the government interpreted the Fourth Amendment as requiring the government to separate its intelligence functions from its law enforcement work. The government recognized that its trigger for mass surveillance — namely, looking for a foreign agent among the populace — was a far lower standard than probable cause of crime, which is what the Fourth Amendment requires.

Today, the federal government’s computers are permanently connected to the mainframes of all telecoms and computer service providers in America, so the spying is in real time. Today, the federal government employs more than 60,000 domestic spies — one spy for every 5,500 Americans. Today, if any of them come across evidence of crimes while listening to your telephone calls or reading your texts or emails ostensibly for intelligence purposes, there is little they can do about it.

Until now.

Now, hidden beneath the “Fire and Fury” controversy is the muffled sound of the Trump administration and Republican congressional leaders plotting the enactment of an addition to FISA that would permit the use of evidence of crimes in federal court even when it is discovered during mass surveillance authorized by general warrants.

If enacted, this radical, unconstitutional hole in the Fourth Amendment would bring the country full circle back to the government’s use of general warrants to harass and prosecute — general warrants so odious to our forebears that they took up arms against the king’s soldiers to be rid of them.

I am surprised that President Donald Trump supports this. He has himself been the target of unlawful foreign surveillance and unconstitutional FISC-authorized domestic surveillance. “Fire and Fury” even quotes former British Prime Minister Tony Blair warning a newly elected Trump about this. And now he wants to unleash upon us all the voracious appetite for surveillance that was unleashed upon him and prosecute us for what is found, the Constitution be damned.

Whatever happened to the public promise to preserve, protect and defend the Constitution as it is written? That’s in the oath all in government have taken. That is the oath that the president and his Republican allies reject.