Dec 07

Today’s News 7th December 2018

  • Revealing The Naked Truth Of China’s Real Estate Slowdown

    Warren Buffett has famously told Berkshire Hathaway investors: “You only find out who is swimming naked when the tide goes out.”

    Buffett’s market wisdom can be applied to the Chinese property market.

    Now, the tide is going out and the boom days are over, the industry is rapidly slowing as credit growth is the slowest on record – pointing to a weakening in the economy in coming months.

    As for “swimming naked when the tide goes out,” well, it seems like one real estate firm, in southwest China used topless models covered in body paint as a last-ditch effort to unload a new property development before the market implodes.

    Nanning Weirun Investment Company, a real estate developer in Nanning, capital of the southwestern Guangxi Zhuang, hired a bunch of models to advertise its condominiums by using their bare skin as a canvas, said Asia Times.

    Floor plans of the condos were painted on the back of each model, and their breasts were painted with logos and other advertising slogans.

    While it is unclear if the topless models helped to spur sales, Asia Times indicated that the stunt attracted many people to the showroom last Friday.

    Hundreds of Sina Weibo users, China’s Twitter, criticized the promotion and called it disgusting, as others thought it was an interesting method, in the attempt to generate sales in a slowing market.

    An employee at Nanning Weirun told the website Btime.com that the bodypainting promotion was a one-off event to drive sales.

    The strategy is one of the more unconventional approaches being taken by desperate developers to attract new buyers as GDP growth, and the housing market are expected to fall in the first half of 2019.

    Was the marketing stunt worth it for the developer?

    Probably not, as the city planning authority suspended the firm’s marketing permit on Monday.

    Video: Revealing the naked truth of China’s real estate slowdown

  • "I Know Where All The Bodies Are Buried": Clinton Foundation CFO Spills Beans To Investigators

    The CFO of the Clinton Foundation, thinking he was “meeting an old professional acquaintance,” admitted to investigators that the charity had widespread problems with governance, accounting and conflicts of interest, and that Bill Clinton has been commingling business and personal expenses for a long time, reports The Hill‘s John Solomon. 

    Clinton Foundation CFO Andrew Kessel made the admissions to investigators from MDA Analytics LLC – a firm run by “accomplished ex-federal criminal investigators,” who have been probing the Clinton Foundation for some time. 

    Kessel told MDA “There is no controlling Bill Clinton. He does whatever he wants and runs up incredible expenses with foundation funds, according to MDA’s account of the interview. “Bill Clinton mixes and matches his personal business with that of the foundation. Many people within the foundation have tried to caution him about this but he does not listen, and there really is no talking to him.” 

    MDA compiled Kessel’s statements, as well as over 6,000 pages of evidence from a whistleblower they had been working with separately, which they secretly filed with the FBI and IRS over a year ago. MDA has alleged that the Clinton Foundation engaged in illegal activities, and may owe millions in unpaid taxes and penalties.

    In addition to the IRS, the firm’s partners have had contact with prosecutors in the main Justice Department in Washington and FBI agents in Little Rock, Ark. And last week, a federal prosecutor suddenly asked for documents from their private investigation.

    …

    The memo also claims Kessel confirmed to the private investigators that private lawyers reviewed the foundation’s practices — once in 2008 and the other in 2011 — and each found widespread problems with governance, accounting and conflicts of interest.

    “I have addressed it before and, let me tell you, I know where all the bodies are buried in this place,” the memo alleges Kessel said.

    …

    The 48-page submission, dated Aug. 11, 2017, supports its claims with 95 exhibits, including internal legal reviews that the foundation conducted on itself in 2008 and 2011. –The Hill

    As Solomon noted in January, the Little Rock FBI field office has been spearhandling an investigation into pay-for-play schemes and tax code violations according to law enforcement officials. 

    The officials, who spoke only on condition of anonymity, said the probe is examining whether the Clintons promised or performed any policy favors in return for largesse to their charitable efforts or whether donors made commitments of donations in hopes of securing government outcomes.

    The probe may also examine whether any tax-exempt assets were converted for personal or political use and whether the Foundation complied with applicable tax laws, the officials said. –The Hill

    Meanwhile, the Clinton Foundation has been under investigation by the IRS since July, 2016 according to a January report by the Dallas Observer – after 64 GOP members of congress received letters urging them to push for an investigation. The investigation is being handled by their Dallas office – far away from Washington insiders.

    FBI Offices, Little Rock, Arkansas

    “There is probable cause that the Clinton Foundation has run afoul of IRS rules regarding tax-exempt charitable organizations and has acted inconsistently with its stated purpose,” MDA alleged in its memo, adding “The Foundation should be investigated for all of the above-mentioned improprieties. The tax rules, codes, statutes and the rule of law should and must be applied in this case.”

    Foundation officials confirmed that Kessel met with MDA investigators, but said that he “strongly denies that he said or suggested hat the Clinton Foundation or President Clinton engaged in inappropriate or illegal activities.” 

    “Mr. Kessel believed he was meeting an old professional acquaintance who was looking for business from the Foundation,” the foundation added in a statement. 

    MDA was specifically created to investigate 501c3 charities, and researched the Clinton Foundation at its own expense in the hope that the whistleblower submission they compiled might result in a government reward if the IRS was able to corroborate wrongdoing and recover tax dollars. 

    The IRS sent multiple letters in 2017 and 2018 to MDA Analytics, confirming it had received the submission and it was “still open and under active investigation.” But, shortly before last month’s election, the agency sent a preliminary denial letter indicating it did not pursue the allegations for reasons that ranged from a lack of resources to possible expiration of the statute of limitations on some allegations.

    I asked a half-dozen former federal investigators to review the submission and key evidence; all said the firm’s analysis of tax-exempt compliance issues would not be that useful to federal agencies that have their own legal experts for that. But they stressed the evidence of potential criminality was strong and warranted opening an FBI or IRS probe. –The Hill

    According to retired FBI supervisory agent Jeffrey Danik, MDA’s work is “a very good roadmap for investigation, adding “When you have the organization’s own lawyers using words like ‘quid pro quo,’ ‘conflicts of interest’ and ‘whistleblower protections,’ you have enough to get permission to start interviewing and asking questions.” 

    While some of the documents MDA submitted were marked as attorney-client privileged, Danik doesn’t think that should be an issue for federal investigators – given that since special counsel Robert Mueller “got the OK to investigate Michael Cohen and his attorney-client communications with President Trump, I imagine that hurdle could be overcome under the crime-fraud exception.” 

    Meanwhile, next week a GOP Congressional subcommittee led by Rep. Mark Meadows (NC) will review the work of John Huber – the US attorney designated a year ago by then-Attorney General Jeff Sessions to investigate “all things Clinton.” The hearing will establish how much money and resources Huber has dedicated, and whether we can expect to see any recommendations regarding Hillary Clinton’s transfer of classified information from her insecure private server, along with the foundation’s activities. 

    To that end, a prosecutor working under Huber called MDA analytics last week and requested copies of their Clinton Foundation evidence, according to Solomon. 

    A prosecutor working for Huber called MDA Analytics last week, seeking copies of their evidence, according to sources. The firm told the prosecutor that the FBI has possessed the evidence in its Little Rock office since early 2018, the sources said.

    Some evidence that MDA investigators cited is public source, such as internal foundation reviews hacked in 2016 and given to WikiLeaks. Other materials were provided to the investigators by foreign governments that have done business with the charity, or by foundation insiders.

    One of the nonpublic documents is an interview memo the MDA Analytics investigators penned after meeting with Kessel in late November 2016 at the Princeton Club in New York City. –The Hill

    Kessel’s inadvertent admissions, meanwhile, track closely with comments made in 2008 written by a private lawyer named Kumiki Gibson – who the Clinton Foundation hired to study its governance. Gibson flagged concerns over improper commingling of charitable and private business. 

    “The work of the Foundation and the President are intertwined in a way that creates confusion at, and undermines the work of, the Foundation at virtually every level,” he wrote, warning that such actions pose “reputational and legal challenges, and with confusion, inefficiencies and waste.”

    Specifically, the memo warned the foundation had not created policies and procedures “required by law” and that some of its leaders “appear to have interests that do not always align with those of the Foundation.”

    It also raised the possibility of illegal activities, saying the foundation and its managers held an “anti-compliance attitude” and that there were lower-level employees who “begged” for whistleblower protections after witnessing “less than fully compliant behavior or even worse are asked to participate in or condone it.” –The Hill

    Meanwhile, a 2011 review by the law firm Simpson Thatcher noted “material weaknesses” found by auditors in 2009 and 2010, such as a lack of board meetings and unsigned board minutes – and also found that some foundation employees “abuse expense privileges,” while others had conflicts of interest. 

    We look forward to hearing anything further from Solomon and The Hill on whatever Huber has been up to. 

  • "Blade Runner" Eye-Scanning Lie Detector May Be Coming To A Dystopian Future Near You

    A futuristic eye-scanning lie detector reminiscent of the Voight-Kampff device in Blade Runner may be coming to a dystopian future near you. 

    Funded by billionaire Mark Cuban and released in 2014 by startup Converus, the “EyeDetect” examines things like pupil dilation, blink rate and other eye movements to determine whether a person is lying, reports Mark Harris of Wired, who traveled to Converus’ testing center north of Seattle to check it out. 

    Released in 2014 by Converus, a Mark Cuban–funded startup, EyeDetect is pitched by its makers as a faster, cheaper, and more accurate alternative to the notoriously unreliable polygraph. By many measures, EyeDetect appears to be the future of lie detection—and it’s already being used by local and federal agencies to screen job applicants. –Wired

    The device is “largely automatic” writes Harris – who notes that it does not suffer from one of the major pitfalls of polygraph lie detectors; human operators who can introduce their own biases when they analyze and interpret tests. According to former police chief and Converus employee Jon Walters, EyeDetect is bias-free – and claims to have an accuracy rate of 86 percent – vs. 60-75 percent accuracy of a polygraph. 

    Wired‘s own research refutes this, however, finding through public records requests that “like polygraphs, EyeDetect’s results may introduce human bias an manipulation into its results.”

    “Converus calls EyeDetect a next-generation lie detector, but it’s essentially just the same old polygraph,” says transparency activist and independent researcher, Vera Wilde, who has studied polygraphs for several years.”

    “It’s astounding to me that there are paying customers deploying this technology and actually screening people with it,” said William Iacono – a professor of neuroscience, psychology, psychiatry and law at the University of Minnesota. 

     In a study from 2013, the National Security Agency used an early version of EyeDetect to identify NSA employees who had taken a cellphone into a secure area, a minor security violation. The test accurately identified just 50 percent of those guilty of the mistake (the same as you would expect from chance) and just over 80 percent of those innocent. –Wired

    Still, Converus already has attracted a mountain of interest for its new device – claiming to have “close to 500 customers in 40 countries,” most of whom are using it to screen job applicants. The list of buyers includes the federal government, as well as 21 state and local law enforcement agencies. 

    The State Department recently used the system to vet local hires at the US Embassy in Guatemala to the tune of $25,000 taxpayer dollars, according to Wired.  

    Converus told WIRED that a Middle Eastern country has purchased EyeDetect and is planning to use it to check whether people entering the country are associated with terrorist activity. In an email to the Salt Lake City Police Department last year, obtained through WIRED’s public records requests, a Converus executive wrote that the company had “been identified as the solution for ‘extreme vetting’ by the new [Trump] administration.” (Though there were discussions with the Trump administration about using EyeDetect for vetting, Converus says the administration never committed to using EyeDetect.) –Wired

    The test takes 30 minutes, as opposed to the 2-4 hours required to conduct a polygraph, while the device is also comfortable vs. the traditional cyborg-looking polygraph setup.

    “When I was wired up for the polygraph, it was kind of intimidating,” said Walters. “Here you just sit and look into the machine.”

    Harris describes his own test: 

    I settle in for a demonstration: a swift 15-minute demo where the test will guess a number I’m thinking of. An infrared camera observes my eye, capturing images 60 times a second while I answer questions on a Microsoft Surface tablet. That data is fed to Converus’ servers, where an algorithm, tuned and altered using machine learning, calculates whether or not I’m being truthful.

    …

    He asks me to pick a number between 1 and 10 and write it on a scrap of paper before I sit down in front of the EyeDetect camera. Walters instructs me to lie about my chosen number, to allow the system to detect my falsehood. If I beat it, Walters promises to give me $50. (Journalistic ethics mean I’d pass any winnings along to a charity.)

    A series of questions flash across a screen, asking about the number I picked in straightforward and then roundabout ways. I click true or false to each question. The EyeDetect camera feels no more intrusive than a normal webcam, and I do my best to keep my face and expression neutral, whether I’m lying or telling the truth.

    Almost immediately after the test is over, the screen flashes a prediction based on my eye motions and responses. EyeDetect thinks that I chose the number 3. I had, in fact, picked the number 1. But when I reach for Walters’ crisp $50 note, he stops me. It turns out that Walters’ interpretation of “a number between 1 and 10” includes only the digits 2 through 9. I had fooled the machine, but only by not playing by its rules. On my next attempt, the system correctly detects my hidden number. –Wired

    Read the rest of Harris’s adventures in futuristic lie-detection tech that may or may not be so accurate here.

  • How Much Do CEOs Of Tech Companies Make Pre-IPO?

    Submitted by Priceonomics

    There have been a flurry of IPOs in 2018, many for companies in the Technology sector. Previously, we looked at the compensation of Fortune 100 company CEOs and we were curious to see how these compared to CEO compensation at Tech companies at their IPO.

    We looked at companies with an IPO in 2018 and the Executive Compensation data in their S-1 filing. Keep in mind, this is annual compensation (salary plus equity awards that year), not the total amount of equity the CEO or founder might previously have earned (for an analysis of founder equity stakes at IPO, please see this past analysis)

    The table below shows CEO compensation at these companies in Fiscal Year 2017, ranked by total compensation.

    Dropbox’s Drew Houston is, by a significant margin, the highest paid CEO, with over $110M in compensation in the year. By comparison, the highest paid CEO of the Fortune 100 companies, Jeff Bewkes of Time Warner, made significantly less, at $49M in annual total compensation.

    Aaron Skonnard (Pluralsight) and KR Sridhar (Bloom Energy) ranked second and third, respectively. Just under half of the companies had total CEO compensation over $1M.

    The base salaries for CEOs here are mostly between $100K to $500K, with the exception of Zscalar and i3 Verticals, whose CEOs are both taking under $25K in total compensation. In fiscal year 2017, Gregory Daily (CEO of i3 Verticals) elected to receive only a nominal salary equal to the employee premiums for health insurance.

    Across all these compensation packages, the base salary represents, on average, 42% of total compensation. If we compare this to the distribution for Fortune 100 CEOs (base salary is 8% of total compensation), it’s relatively low. However, we do see there are obvious outliers – Dropbox CEO Drew Houston’s base salary represented only 0.3% of his overall compensation.

    Next, we compare the CEO’s compensation to the revenue of the company for the previous fiscal year (FY17).

    We can see here there is a slight positive correlation between the CEO’s total compensation and annual revenue (R-squared = 0.33). Dropbox, with the highest paid CEO, is the only company with over $1B in revenue for the fiscal year preceding their IPO. Pluralsight had the second highest paid CEO, but only ranked 15th in terms of revenue, at $167M. Sonos, however, had the second highest revenue, $993M, but their CEO was 19th highest paid.

    With rumored high-profile IPOs in 2019 (such as Uber, Lyft, Airbnb, Pinterest, Palantir, Postmates), we are interested to see how their CEOs’ salaries compare – stay tuned.

  • North Carolina Election Thrown Into Chaos As Investigators Target "Vote Harvesting" Scheme

    North Carolina’s 9th district congressional race has remained uncertified amid allegations of election irregularities and fraud – in particular surrounding the practice of “harvesting” absentee ballots by which people are paid to go door-to-door and collect uncast votes – an illegal practice in the state. 

    According to NBC, state investigators have been probing election board records in several counties to determine whether there was an organized effort to canvas neighborhoods and collect thousands of absentee ballots – and then not turn them over to election officials. 

    They are especially interested in Bladen County, a rural, low-income area in the southeastern part of the state where investigators are looking at several individuals who turned in requests for absentee ballots on behalf of hundreds of voters.

    The results of the investigation could put in jeopardy Republican congressional candidate Mark Harris’ unofficial lead of 905 votes over Democrat Dan McCready. –NBC

    In particular, a firm hired by GOP candidate Mark Harris employed a felon and known politico, McCrae Dowless, who allegedly worked with a team of family members to “harvest” ballots in Harris’s race against Democrat Dan McCready. 

    On Wednesday, the Charlotte Observer’s editorial board called for a new state election, while top state Democrat on the House Oversight Committee demanded an investigation. 

    “If they can show with certainty that the outcome could not have been changed, they need to certify Mr. Harris and continue to support all state and federal criminal investigations,” said North Carolina GOP executive director Dallas Woodhouse in a Thursday statement, adding “If they can show a substantial likelihood it could have changed the race, then we fully would support a new election.”

    Voters, meanwhile, have been offering personal accounts of how they were tricked into giving up their ballots. 

    Datesha Montgomery told NBC News that a blonde woman came to her door on Oct. 12 and asked if she could collect her absentee ballot.

    “I told her, ‘Sure.’ I had broke the seal in front of her to show it was never opened,” Montgomery said. “I’m telling her who I was voting for, and she was like — she didn’t wanna hear it, so I just like, didn’t say nothing else. I just filled out two blocks, and I gave it to her.“

    Montgomery, 27, lives with her 4-year old daughter in a neatly manicured public housing complex named Twisted Hickory just outside of Elizabethtown in Bladen County. She said she gave her unsealed absentee ballot to the woman, believing her to be an election official who would turn the ballot in. 

    But she said two investigators later showed up at her house and told her it had never been submitted. –NBC 

    In another case, a blonde woman appeared at 87-year-old Emma Shipman’s door in the city of Tar Heel – encouraging her to turn in her absentee ballot. Shipman said she wouldn’t give it to the woman. 

    Under North Carolina law, the only people who can legally deliver an absentee ballot are the voter, a relative, or a postal delivery person (USPS, FedEx or UPS). 

    The North Carolina Board of Elections is set to hold an evidentiary hearing on or before December 21 to determine whether irregularities or fraudulent activities were a factor in a “sufficient number of votes” to have changed or tainted the outcome of the election. At question are 14,056 absentee ballots collected by voters across the 9th district. 

    The woman connected to the two ballot harvesting incidents has been identified as Lisa Britt, who has in turn been connected to McCrae Dowless –  a felon and politico convicted of perjury and fraud in the early 1990s. Dowless – known for get-out-the-vote campaigns revolving around absentee ballots, was hired by a firm working for Republican candidate Mark Harris against Democrat Dan McCready, and was rumored to be in line for a $40,000 bonus if Harris won the election. 

    As we detailed on Tuesday, a woman told local news outlet WSOC that Dowless paid her to collect ballots, which she says he never told her was illegal. 

    Dowless was hired by the Harris campaign as well as other local campaigns, according to The Washington Post, to help in Bladen County.

    In an election-night speech at his headquarters, Harris thanked two counties — Bladen and Union — for putting him over the top.

    On Wednesday, the board announced that its newly appointed chairman, Joshua Malcolm, had written a letter directing staff to review and post documents relating to the investigation in an “online portal” for the public to see.

    One of the publicly released documents, an “office record”maintained by the Bladen County Board of Elections, shows that Dowless himself turned in 590 absentee ballot request forms between late August and early October.

    The same document showed that a Jessica Dowless, who was described by BuzzFeed News as a distant relative of Dowless, turned in 185, a total of 775 absentee ballot request forms between the two. –NBC 

    According to an NBC News investigation, documents obtained from an attorney working with Democrats indicate that Jessica Dowless and at least six other people were signed witnesses to over 150 absentee ballot applications. Sandra Dowless – the mother of Lisa Britt (the blonde ballot-harvesting woman) also signed applications along with others. When NBC News contacted Sandra Dowless, she “had nothing to say,” while the network was unable to reach the others. 

  • NYC Evicts Homeless Man, Tears Down Brooklyn Encampment Full Of Garbage, Drum Collection

    A Brooklyn homeless man living in the plaza near a Flatbush subway station was formally evicted by New York City officials on Wednesday, after being served notice of his pending ouster, reports CBS New York.

    The subway plaza is not your home. That was the message sent to Thomas Harris as an army of cops and city workers began carting away a massive homeless encampment he built — and lived in — at Parkside and Ocean avenues.

    He did not go quietly. –CBS

    “I’m in a wheel chair – I got one leg!” cried Harris, as police bagged and carted off his belongings. “I don’t need no ambulance,” Harris exclaimed after being offered a ride to the hospital. 

    “Leave me alone!” Harris said. “I don’t bother nobody!”

    Except that according to locals, Harris has been a longstanding nuisance in the area. 

    Actually, Harris’ jaw-dropping collection of drums, clothes, food and garbage bothered a lot of people, which is why the city served him with a formal eviction notice last week and then showed up Wednesday to enforce it. –CBS

     

  • Mr. Tariff Ups The Ante On China

    Authored by Tom Luongo,

    Donald Trump just jumped the shark calling himself, “Mr. Tariff.”  He believes a trade deficit is akin to stealing the wealth of a nation.  It isn’t.

    Under normal conditions a trade deficit is simply a reflection of the difference in comparative advantage of one country’s workers over anothers.  And the value of the currency is supposed to rise and fall to offset that state of affairs over time.

    Donald Trump has, in the words of David Stockman, “A 17th century view on global trade.”

    It is one born of a complete misunderstanding of how and why trade imbalances occur, why they will re-balance if allowed and why, ultimately, they are irrelevant.

    But, Trump can’t or won’t see it that way.  He refuses to accept that we are the creators of our persistent trade deficit with China.  That the trade deficit stems from running budget deficits and applying Keynesian counter-cyclical monetary policy or, worse, QE to protect domestic asset prices.

    It also stems from our being the world’s reserve currency which places an insane demand on the Fed to keep the flow of dollars rising to liquefy global trade.

    He complains that international tariffs regimes are unfair.  But, as Stockman has consistently pointed out tariff levels globally are nearly non-existent running at around 3% on average.  This is the period of freest trade we’ve seen in the era of the modern nation state, but Trump looks at these niggling things, these small things and can’t see the forest for them.

    Mr. Inflexible

    It speaks of ideological possession on the subject.  It speaks to inflexibility of mind.

    “Germany taxes our cars too high, slap a tariff on them.”  He’s obsessed with German car exports.  Germans don’t buy GM’s because they are shitty cars, not because they are more expensive.

    A level playing field won’t help a company handed over to the UAW, stiffing the bondholders, and run by morons.  The only reason GM still functions is because they make bad cars to sell to people who can’t afford a good car and ‘patriots’ who buy Silverados instead of F-150s.

    “Canada won’t buy our milk,slap on tariffs and threaten NAFTA,” cries Mr. Tariff.  Not that NAFTA shouldn’t just be abolished completely, but whatever, Trump doesn’t believe in free trade, he believes in extortive trade because, ‘Merica First.

    If China won’t import our oil but buys Iran’s instead, then they are our enemy then we sanction them and extort higher imports of it.

    It’s all childish and immoral in a way that is, frankly, embarrassing to anyone with three working brain cells to rub together and make a spark.

    But, the real undercurrent in all of this is Trump’s obsession with China ‘stealing our technology’ and leap-frogging the U.S. as a technology leader.

    Which way on Huawei?

    And that’s why Huawei’s CFO was arrested in Canada while Trump was negotiating with Chinese Premier Xi Jinping over the weekend over the company violating U.S. sanctions on Iran.

    Leaving aside the pure insanity of Canada arresting a Chinese national for her company violating U.S. sanctions on Iran which China was not a party to, this is a dangerous escalation by the U.S. over what is, essentially, something that is ultimately not enforceable, U.S. technology licensing.

    It’s simply bullying.  But, since Trump is a bully, what else is new?

    But, the real issue here is that, in very short order, Huawei has become a global leader in 5G infrastructure technology which the U.S. is falling behind on.  And now with this arrest Trump is betting that he can scare everyone else into not buying their superior products through the ruinous application of sanctions policies.

    The West has been systematically cutting Huawei out of the global 5G rollout because of ‘security’ concerns. More like profit concerns.  It is, simply, typical protectionism by Mr. Tariff himself.

    And he’s made no bones about any of this.  Trump has stated quite emphatically that all a policy has to do is pass his ‘America First’ sniff test and it’ll get implemented.

    And since he’s not a deep thinker, all he cares about are first-order effects and how he can sell it on his Twitter feed to his now brain-dead base who believes all of this ‘China hacked muh everything’ narrative we’re being inundated with all of a sudden.

    Trump knows that now China’s tech industry isn’t just the manufacturing arm of U.S. multinationals.  We’re staring at equivalence in a lot of areas.  And the rate of catch up China is playing in this arena is threatening our long-term competitiveness.

    Hence going after Huawei, a phenomenal success story, and ZTE.  While Apple focuses on tactical things like end-user products — phones, watches, and media services — Huawei started there, creating homegrown Chinese variants of the iPhone and built a company focused on the future of communications infrastructure, 5G, with the end-user product the face of the company to build Apple-like brand loyalty in China.

    This is the public face of the future trade war.  Will Americans continue buying, say, iPhones and watches over their Chinese knock-off counterparts at half the price?

    Flow not Stock, Don

    So, I understand completely Trump’s problem with the current situation and the past that led to this state of affairs.  What I disagree with is the magic of tariffs to reverse the flow of capital out of the country.

    He’s taken some steps in the right direction — tax cuts, tax amnesty for repatriating offshore corporate profits, lowering certain regulations — but that’s not nearly enough.  It can’t and won’t solve the real problem of the expense of doing business in the U.S.

    His critics on the left are right that a lot of those tax breaks didn’t go to fund new sustainable growth and that a lot of it went to fuel buybacks and pay dividends.  But they miss the reason why, it isn’t because Trump wanted to repay his corporate overlords, it’s because idiotic leftist policy inertia and insane monetary policy has kept the cost of business expansion higher than protecting the corporate balance sheet or returning the money to shareholders.

    His $1 trillion per year deficit, itself a source of the trade imbalance with China, will explode now that his growth story is dying, emerging markets are starved for dollars, supply chains are freezing up because of the U.S.’s increasingly erratic behavior and debt levels around the world choking out growth.

    Trump wants a weaker dollar, and for a little while he may get it as the market misreads what’s happening here.  Any Fed dovishness will be seen as dollar negative versus being globally accommodative to worsening economic conditions amplifying debt servicing costs.

    His classic mercantilist mindset will applaud this and it might abate the worsening trade deficit numbers for a time, but it won’t change the trend against him regardless of the Fed raising rates or not in 2019.

    The world economy is deflating and Trump’s tariffs, arrests and sanctions only tell people that capital is not welcome in the U.S.  His only saving grace in 2019 is that the leadership in Europe is even dumber on these issues than he is.

    The consumer is ultimately sovereign.  It’s their money and its their time.  If you are so arrogant as to believe you are indispensable to your customers you will find out very quickly what they think of that.  And customers of the U.S. dollar are rapidly coming to the conclusion that the cost of doing business in it is too high.

    In the game of global capital you don’t have to be good, you just have to treat it slightly better than everyone else to see the inflows come your way.  Trump is alienating everyone and ensuring that companies like Huawei find ways to never do business with the U.S. ever again.

    *  *  *

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  • Payrolls Preview: A Bezos Boost But Beware Stormy Weather

    On the heels of a disappointing ADP print which Mark Zandi warned signaled “the peak of the jobs cycle,” the November payrolls data remains likely to show hiring momentum remained solid if ‘soft’ survey data is anything to go by combined with the seasonal benefits of strong retail hiring ahead of the holiday season. However, as Goldman Sachs notes, a drag from winter storms, and given rising jobless claims and tighter financial conditions, the underlying pace of job growth may have also slowed somewhat.

    Notably, consensus has tended to underestimate November payrolls by an average of roughly 30k over the last five years. Meanwhile, October payrolls could be revised higher as was the case in the previous two years, when hurricane disruptions may have delayed some data reporting. October payrolls were then revised up by an average 18k in the following month.

    Bloomberg also points out that the seasonal adjustment factor applied to November payrolls reflects a recurring pickup in the pace of job creation, partly due to holiday-related hiring. The adjustment typically trails October, when the bulk of that rise occurs, and has averaged 249k over the past five years.

    CONSENSUS FORECASTS:

    • Non-farm Payrolls: Exp. 200k, Prev. 250k
    • Unemployment Rate: Exp. 3.7%, Prev. 3.7% (NOTE: the FOMC projects unemployment will stand at 3.7% at the end of 2018, and 4.5% in the longer-run)
    • Average Earnings Y/Y: Exp. 3.1%, Prev. 3.1%
    • Average Earnings M/M: Exp. 0.3%, Prev. 0.2%
    • Average Work Week Hours: Exp. 34.5hrs, Prev. 34.5hrs
    • Private Payrolls: Exp. 200k, Prev. 246k
    • Manufacturing Payrolls: Exp. 20k, Prev. 32k
    • Government Payrolls: Prev.4.0k
    • U6 Unemployment Rate: Prev. 7.4%
    • Labour Force Participation: Prev. 62.9%

    PRIMARY DEALER FORECASTS:

    Average: 197k (Median: 200k, High: 230k, Low: 140k)

    • Barclays: 200k
    • BMO: 190k
    • BNP Paribas: 225k
    • BAML: 200k
    • Citi: 205k
    • Credit Suisse: 205k
    • Daiwa: 180k
    • Deutsche Bank: 200k
    • Goldman Sachs: 185k
    • HSBC: 185k
    • Jefferies: 220k
    • JPMorgan: 175k
    • Mizuho: 175k
    • Morgan Stanley: 198k
    • NatWest Markets: 205k
    • Nomura: 175k
    • RBC: 220k
    • Scotiabank: 200k
    • Societe Generale: 230k
    • TD: 215k
    • UBS: 140k
    • Wells Fargo: 215k
       

    The Headlines – via Ransquawk

    Year-to-date, payroll growth has averaged 218k, 216k over the last three-months, and 213k over the last six months. All of these outcomes are well above the pace necessary to keep the unemployment rate unchanged, indicating demand for labour remains strong,” Westpac says, adding that “this strength in employment will see downward pressure remain on the unemployment rate, though the next step lower is more likely in a few months’ time than November.”

    Goldman is more downbeat than most estimating nonfarm payrolls increased 185k in November (mom sa), compared to +198k consensus, +250k in October and the three-month average of +218k, with unseasonably high snowfall in the Northeast and Midwest expected to weigh on payrolls in tomorrow’s report.

    Arguing for a weaker report:

    • Jobless claims. Initial jobless claims have rebounded, averaging 218k over the five weeks between the payroll reference periods and up from the cycle lows during the September payroll month (average of 206k). While initial claims in the November payroll month only returned to their July averages, the uptrend has continued (the current 4-week moving average is 228k), and we believe these increases reflect a legitimate sequential rise in layoff activity. Continuing claims have also increased, rising 67k between the October and November survey weeks. While they declined in the most recent report, this occurred after the November payroll month had ended, and we also cannot rule out seasonal adjustment distortions related to the Thanksgiving holiday. Taken together, the claims reports in recent weeks raise the possibility that job growth could be slowing somewhat, perhaps influenced by the tightening in financial conditions.

    • Winter weather. We believe snowstorms during the survey period in the eastern half of the United States weighed on November payroll growth. Our population-weighted snowfall dataset was 1½ inches above normal during the survey week (see Exhibit 1), and we are assuming a drag from winter weather of between 15k and 25k in tomorrow’s report. The wildfires in California could also weigh on November job growth (perhaps by an additional 3-6k).

    Exhibit 1: Winter Storms during the Survey Week Likely Weighed on November Payroll Growth

    Source: National Centers for Environmental Information, National Oceanic and Atmospheric Administration, Department of Labor, Goldman Sachs Global Investment Research

    • Company-level one-offs. We expect a few company-level developments to weigh on payroll growth in tomorrow’s report, with a combined drag of 10k or more. Within the retail industry, we expect a continued drag from store closings (Sears closing 46 stores by November, Steinhoff Mattresses closing 200 stores starting in October, Lowe’s closing 20 stores). Layoff programs at Verizon (44k employees eligible) and General Motors (14k workers affected over the next year) could also weigh on job growth in tomorrow’s report and in coming months.

    • ADP. The payroll-processing firm ADP reported a 179k increase in October private payroll employment—16k below consensus and the slowest pace in three months. While higher jobless claims may have weighed on the ADP model this month, we also expect a larger drag from winter storms in the BLS measure, which is generally more sensitive to weather.

    • Service-sector surveys. Service-sector business surveys were mixed in November, as our headline non-manufacturing tracker increased by 0.5pt, but the employment component declined (-1.6pt to 54.8). Similarly, while the headline aggregate of the ISM non-manufacturing survey increased, the employment component pulled back. Despite the sequential weakness, we note that most employment surveys remain at firm levels (see Exhibit 2). Service-sector job growth rose 179k in October and averaged 155k over the last six months.

    Exhibit 2: Employment Surveys Have Retrenched but From Elevated Levels

    Arguing for a stronger report:

    • Holiday retail hiring. Thanksgiving was particularly early this year (November 22), and this could increase the number of holiday retail employees reflected in the November establishment survey. Retail job growth tends to be strong in similar calendar configurations, accelerating in each of the last four instances (2006, 2007, 2012, and 2017). Last November, for example, retail employment rose 27k, its fastest pace of the year. This, coupled with strong consumer fundamentals ahead of the holiday shopping season, should support retail job growth despite a continued drag from store closings (discussed above).

    • Post-hurricane rebound. Job growth tends to rebound above-trend after a major disaster. And while employment already rebounded in the Carolinas following Hurricane Florence (+47k in October after -28k in September), we believe Hurricane Michael may have reduced October job growth in Georgia (+2k after +19k) and the Florida panhandle. On net, we note the possibility of a modest further boost from these effects in tomorrow’s report.

    • Job availability. The Conference Board labor market differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get—rose 2.4pt to +34.4 in November, a new cycle high. JOLTS job openings modestly declined from a cycle high in the most recent report (7,009k in September).

    Neutral factors:

    • Manufacturing surveys. Manufacturing-sector surveys were mixed in November but generally remain at elevated levels. Our manufacturing employment tracker edged up after falling for four straight months (+0.2pt to 57.5). Both the headline aggregate and employment subcomponent of the ISM manufacturing survey increased against expectations for a modest decline in November. Manufacturing payroll employment rose 32k in October and has increased by 21k on average over the last six months.

    • Job cuts. Announced layoffs reported by Challenger, Gray & Christmas decreased by 13k in November to 53k (SA by GS). On a year-over-year basis, announced job cuts rose 18k, mostly reflecting announced layoffs in the automotive sector (+13k yoy) that will take place gradually.

    • Tariff uncertainty. Trade tensions have escalated in recent months, with the White House imposing a 10% tariff on $200bn worth of Chinese imports on September 24th(and the “pause” announced at the G20 occurring after the November survey week). We continue to expect that the growth and employment effects of trade frictions will be modest in the US, and accordingly, we are not embedding an explicit drag in our November payroll estimates. That being said, we note the risk that increased uncertainty or the prospect of retaliatory tariffs may have weighed on hiring.

    Goldman sees the November unemployment rate remaining stable at 3.7% after rising 0.05pp to 3.74% in the October report. Despite signs of slowing, we believe the pace of job growth remains above the demographic trend, and the participation rate (62.9% in October) now appears somewhat elevated and may retrench (this would lower the unemployment rate, other things equal). At the same time, we believe the risks are skewed towards a higher jobless rate in tomorrow’s report, given the 67k increase in continuing claims from survey week to survey week (see left panel of Exhibit 3). Additionally, the early Thanksgiving this year suggests the household survey may miss some holiday seasonal hiring. For example, last November (also an early Thanksgiving), the unrounded jobless rate rebounded (to 4.12% from 4.07%), reflecting a sharp rise in youth unemployment (+2.2pp to 15.9% for ages 16-19) that was particularly pronounced among part-time workers. These distortions subsequently unwound in December, echoing a similar pattern in previous instances (see right panel of Exhibit 3).

    Finally, Goldman estimates average hourly earnings increased 0.3% month over month, with the year-over-year rate moving to a cycle high of 3.2%. This reflects somewhat favorable calendar effects, as the survey week ended on the 17th. Additionally, we see scope for a rebound in supervisory earnings, as October average hourly earnings (+0.18%) underperformed relative to the production and nonsupervisory subset (+0.31%). Finally, we expect a modest boost from hourly wage hikes at Amazon, perhaps worth 0.01-0.04pp in November.

    * * *

    Bloomberg’s Christopher Condon details what some economists expect from the report:

    Wells Fargo

    “Admittedly showing some signs of modest slowing in one of the important secondary employment indicators, the underlying pace of job growth remains strong as evidenced by historically low initial jobless claims, healthy private-sector employment sentiment, and consumers’ assessment of the labor market continuing to make fresh cycle highs,” wrote economist Sam Bullard, who projects 200,000 new jobs. He noted a variety of wage measures inching up in recent months. “Against a tight labor market, combined with Amazon increasing its minimum wage last month, we look for average hourly earnings to rise 0.3 percent in November. If realized, that would take the annual rate to 3.2 percent — the fastest annual pace in nearly a decade.”

    Grant Thornton

    Chief Economist Diane Swonk projects 185,000 new jobs. “We expect to see solid job creation but it will appear weaker month-on-month compared to the distortions in October’s data,” she said. “Our forecast shows average hourly earnings up 0.2 percent for November, which would translate to a 3.1 percent gain on a year-over-year basis.”

    TD Securities

    “The jobs report is shaping up to be hawkish across the board,” wrote strategist Michael Hanson, who forecast 215,000 jobs. He said employment growth will likely revert to trend and “remain strong in line with the resilience seen in job surveys, from regional Fed surveys to ISM indicators which on balance remain consistent with payrolls running at a +200k pace.” On wages, Hanson expects a 0.3 percent gain from the prior month, helped by recent pay increases at Amazon.com Inc., and 3.2 percent year-on-year growth.

    Societe Generale

    “One source of strength in November could be the retail sector,” wrote Omair Sharif, senior U.S. economist, who predicted 230,000 new jobs. He cited a jump in the industry’s job openings from a year earlier and said if that and “additional wage and other perks are any indication, retailers likely boosted hiring heading into November.” Sharif sees average hourly earnings rising 0.3 percent from the prior month and 3.2 percent on an annual basis.

    Bloomberg Economics

    “Strong growth earlier this year should ensure the economy creates jobs at a robust pace into year-end,” economists Yelena Shulyatyeva, Tim Mahedy and Carl Riccadonna wrote in a note. “The composition of job gains will provide clues on which sectors will drive hiring in 2019. As the Fed continues to tighten policy, the housing and auto sectors will likely get hit by rising interest rates.” Bloomberg Economics projects a payroll gain of 240,000 and a 0.2 percent rise in average hourly earnings from the prior month.

  • France Deploys 89,000 Cops Amid Fears Of Yellow Vest Rebellion On Saturday

    French authorities will deploy at least 8,000 riot police and gendarmes in Paris on Saturday, and 89,000 forces across the country according to the Prime Minister, as the Elysee prepares for “act four” of the Yellow Vest movement’s violent protests against the Macron government. 

    In addition to the closure of the Eiffel Tower on Saturday, several Paris museums have announced that they won’t be open this weekend. 

    “The demonstrations announced Saturday, December 8 in Paris cannot guarantee the safety of visitors, the Sete has made the decision to close the Eiffel Tower,” announced the Societe de la Tour Eiffel which operates the monument. 

    Despite Macron’s government delaying a planned fuel hike by six months, the Yellow Vest movement has called on its followers to “stay on our course,” over Facebook and gather for “The Act IV”  on Saturday the 8th, in what will be the fourth week of protests. 

    Coup attempt?

    French intelligence services have reported to the Elysee Palace – the official residence of President Macron, in light of “calls to kill” and “carry arms to attack” government officials, parliamentarians and police, according to Le Figaro. “They are putschists. We are in a coup attempt,” said Le Figaro‘s sources. 

    On Thursday, Yellow Vest leader Eric Drouet said “Saturday will be the final outcome. Saturday is the Elysee,” adding “we all would like to go to the Elysee.” 

    Le Figaro also reports that Saturday’s demonstrations may involve unprecedented violence, as it may include “a hard core radicalized” element,  from “both the extreme right and extreme left.” 

    https://platform.twitter.com/widgets.js

    Four people have died over the last several weeks of protests across France – including an 80-year-old woman who died of shock after a police tear-gas canister was launched into her apartment window as she was trying to close it. Over 400 people were arrested in last weekend’s violent protests, while more than 130 were injured. 

    Macron’s administration has struggled to calm the protesters – initially delaying a planned fuel tax hike by six months, and then floating a tax increase for the wealthy. Thus far, none of it has worked. 

    Yellow Vest protesters recently told Russian state-owned RT that the government has lost touch with its people, and that they have to “put humane attitude first, and not the money.” Another protester said that they “would prefer to be at work, than to find [themselves] on the streets shouting, hoping for nothing.”

     

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