Wednesday, March 26, 2014 - Render to Caesar

Render to Caesar

by Sinclair Noe

DOW – 98 = 16,268
SPX – 13 = 1852
NAS – 60 = 4173
10 YR YLD - .03 = 2.70%
OIL + 1.03 = 100.22
GOLD – 5.90 = 1306.80
SILV - .27 = 19.84

Durable goods orders increased 2.2% in February, ending 2 straight months of declines. Durable goods are items like refrigerators, cars, and airplanes that are built to last for several years. But we need to dig into this report just a little; orders for non-defense goods, excluding aircraft, were actually down 1.3%. This might also indicate that first quarter business investment is weak.

The US Census Bureau began releasing data from its 2012 Economic Census, a survey of American businesses taken every 5 years. The enormous boom in domestic oil and gas production helped make the mining, quarrying and oil and gas extraction industry one of the fastest growing sectors of the US economy. The number of businesses rose 26% from 2007 to 2012, employment in the sector rose 24% and revenue surged 34%. Meanwhile, from 2007 to 2012 manufacturing lost 2.1 million jobs, now down to just 11.3 million people employed in manufacturing.

The finance and insurance sector shed 390,000 jobs between 2007 and 2012 and industry revenue fell by $137 billion, nearly 4%. But revenues in 2012 were still up 61% from 15 years earlier. There were one million retail stores operating in 2012. But the retail trade sector shed 65,000 establishments and nearly 778,000 jobs from five years earlier. Internet-based selling was something of a bright spot, with the number of “nonstore retailers” rising 12%, though employment was basically flat. The health care and social assistance sector is the nation’s largest employer, with 18.6 million workers in 2012. That’s up 11% from five years earlier, and revenue for the industry rose 23% to just over $2 trillion.

President Obama said after a summit with top EU officials that Russian President Vladimir Putin had miscalculated if he thought he could divide the West or count on its indifference over his annexation of Crimea. The United States and the European Union agreed to work together to prepare possible tougher economic sanctions in response to Russia's behavior in Ukraine. The sanctions could possibly include the energy sector.

Yesterday, the Supreme Court went back to revisit the Affordable Care Act, hearing the consolidated arguments in Sebelius v. Hobby Lobby and Conestoga Wood Specialties Corp, in which the owners of the for-profit businesses Hobby Lobby and Conestoga claim they should be allowed to deny their employees health insurance coverage for certain types of birth control based on the owners' personal religious beliefs.

 In enacting the ACA, Congress required large employers to provide basic preventive care for employees. That turned out to include all 20 contraceptive methods approved by the Food and Drug Administration. Under the law, religious nonprofits were exempted from this requirement, but for-profit corporations were not. Hobby Lobby's attorneys argue that the law violates the company's constitutional right to religious freedom by forcing it to cover all forms of birth control or pay steep fines.

This is a very interesting case on several levels. The Supreme Court, in business cases, has held that "incorporation's basic purpose is to create a legally distinct entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs." In recent constitutional law cases, however, the justices seem to have forgotten this basic principle of corporate law. In Citizens United, the court effectively held that corporations enjoyed the same free speech rights as ordinary individuals.

Now, in the Hobby Lobby case, the owners of the craft store chain want the court to again forget about the basic principles of corporate law and decide that corporate personhood extends beyond free speech to religious freedoms. It seems a bit of a stretch. Hobby Lobby’s owners certainly have constitutionally protected religious rights, but Hobby Lobby's owners aren't required by the law to do anything. The legal duty falls on Hobby Lobby, the company, not its owners. If Hobby Lobby fails to provide the required insurance, the company, not the owners, is responsible.

The Hobby Lobby case would require the Supremes to "pierce the corporate veil"; legalese for looking behind the corporation's legal identity and basing a ruling on the interests and desires of the owners of the firm, but Hobby Lobby's owners only want to pierce the veil for this one issue, birth control, while maintaining the protections of the corporate form for everything else, including limited liability. The whole point of corporations being “people” is that they are distinct from their owners, officers, and employees.

Hobby Lobby should only have the rights of legal personhood that are essential for its operations. Supreme Court Chief Justice John Marshall wrote nearly 200 years ago, "Being the mere creature of law," the corporation "possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence." In Citizens United, the Supreme Court said this includes some limited speech rights, as we ordinarily expect firms to advertise and communicate with employees and customers.

Not everyone, or even a majority, agree with the Citizens United ruling. A February 2010 ABC News-Washington Post poll found 80% of Americans opposed Citizens United and 72% support the idea of a legislative workaround to reinstate the limits the court lifted. And expanding corporate personhood to religious liberty, well that’s even more of a stretch.

Until 1990, the court applied a tough test to examine laws that disadvantaged people's religious beliefs. Then, the justices changed direction in a case involving penalties for the use of peyote as part of a Native American religious ceremony, the court ruled that as long as a law that applies generally to all citizens is neutrally applied, it is constitutional, even though it may have some unhappy consequences for some believers. 

Congress didn’t like the decision, and in 1993 passed the Religious Freedom Restoration Act. Under the act, if a law imposes a substantial burden on the free exercise of religion, it has to meet a high threshold for justification. Hobby Lobby claims the religious practice of the corporation now faces a substantial burden. And if there is a burden, can the government justify it with a “compelling state interest” and the “least restrictive means” of reaching it.

The case raises some interesting philosophical arguments that began with the liberal justices peppering Hobby Lobby’s lawyers with slippery-slope hypotheticals.  If Hobby Lobby can deny coverage for contraception, why couldn’t a Christian-Scientist-owned company deny health insurance completely?  What if a Muslim-owned company wanted to make employees were burqas on the job? What then?

 “How does a corporation exercise religion?” that was a question posed by Justice Sotomayor yesterday.

Justice Anthony Kennedy, who many expect to be the swing vote in this case, questioned both sides aggressively. Kennedy asked why the company couldn't just choose not to provide health insurance at all, pay a tax and then raise salaries to allow employees to purchase health care on their own. Assuming that would be a financial "wash," Kennedy asked, "Then what would your case be?"

And that may very well be the key question of the day, for two reasons. First, is it a “substantial burden’ for a company to not offer health insurance to its employees? For Hobby Lobby they are looking at about $26 million in taxes, but that is cheaper than the cost of the insurance; a bigger burden is the loss of competitive advantage. Justice Kagan, in particular, effectively said “so what?”  But is that really true? Is it really a trivial thing to not offer a desired benefit to employees?  I guess we’ll see in June. The second reason is that the individual mandate is a tax.

Let’s take the way-back machine to the summer of 2012. And we land on the steps of the Supreme Court in Washington DC. Chief Justice John Roberts has just issued a decision in the case of National Federation of Independent Business v. Sebelius. Surprisingly, Roberts sided with the 4 liberal justices to determine that the Affordable Care Act is constitutional and that the individual mandate is not valid as an exercise of Congress’ commerce clause power but the majority upholds the mandate as a tax. 

Chief Justice Roberts wrote in the controlling opinion: "The individual mandate cannot be upheld as an exercise of Congress's power under the Commerce Clause. That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it. In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress's power to tax."

Obamacare, or the Affordable Care Act, relies upon the individual mandate, which basically says you get insurance or pay a penalty, and that mandate is a tax. We all have to pay taxes, individuals and corporations alike. There are many ways the government spends tax dollars that I don’t like; you probably feel the same way; someone might even have religious objections to the way the government spends tax dollars. But we all have to pay taxes; that decision was handed down a long time ago: “Render to Caesar the things that are Caesar’s and to God the things that are God’s.” And we’ll see if the Supreme Court can recognize the difference.

Wednesday, April 17, 2013 - Austerity Oops

Austerity Oops

by Sinclair Noe

DOW – 138 = 14, 618
SPX – 22 = 1552
NAS – 59 = 3204
10 YR YLD - .01 = 1.70%
OIL – 2.35 = 86.37
GOLD + 8.20 = 1378.50
SILV - .03 = 23.41

The Federal Reserve released its Beige Book this morning. The Beige Book is just a survey of the 12 Fed Districts and the name is due to the fact that it has a beige cover. The survey covers the time from late February to early April. The info is more anecdotal than precise measurements. Of the Fed’s 12 districts, five reported “moderate” growth, five reported “modest” growth, and New York and Dallas reported slight accelerations.

“Particular strength” was seen in residential construction and automobiles, which confirms the report on Monday dealing with industrial output. Consumer spending grew modestly, with higher gasoline prices, the expiration of the payroll tax cut and winter weather restraining growth. Lat week, the Commerce Department reported that retail sales were at a 9 month low. The sequester has rattled the defense industry with the automatic budget cuts; no surprise there. Overall, the Fed remains optimistic, but still concerned about fiscal policy.

On the fiscal policy front, one of the main arguments for budget cuts and austerity comes from a 2010 study by two Harvard economists, Ken Rogoff and Carmen Reinhart. The study concluded that when a nation's debt grows too big, it can slow growth. The idea is that when the debt to GDP ratio hits 90%, the result is that growth will drop to 0.1%. So, the conventional wisdom, based upon the study, was that too much debt would make a country's economy grind to a halt. And the response was budget cutting and austerity programs from the European Union to the fiscal cliff and sequestration that came out of Washington.

Well now another set of academics at University of Massachusetts at Amherst have replicated the study. They discovered that the Harvard professors made a couple of errors in their research. The new review of the study shows the original study used a debatable method to weight the countries in their research and selectively excluded years of high debt and average growth, and they uncovered a code problem with the Excel spreadsheet.

Ooops.

I seem to recall that an Excel spreadsheet coding error was blamed in the collapse of the London Whale. Somebody really needs to come up with a foolproof spreadsheet.

Anyway, when the data is corrected, that 90% debt to GDP ratio isn't really the threshold that results in slower economic growth. It doesn't mean that high levels of debt should be considered as a positive, just that there is some wiggle room, and the appropriate levels of debt are a little different depending upon the situation, and it isn't set in stone, and maybe all this austerity isn't really the solution for everything right here, right now. And the new data shows that countries can have very high levels of debt and can have good strong growth.

Now in fact there is a reason to be concerned about the artificially low interest rates the Fed has and is certain to continue to engineer. They are a massive transfer from savers to the financial system and to speculators on asset prices. But the solution is more demand and more investment, and if the private sector won’t provide it, government needs to step in. The evidence, as even the IMF has been forced to acknowledge, is that government spending is stimulative, and with a fiscal multiplier over 1 (which is also what the IMF found is operative in low growth economies), spending makes the denominator of the debt/GDP grow faster than the numerator, reducing rather than increasing debt ratios.

Of course, it will be much harder to defend budget cuts and austerity, now that the data has been debunked, but the damage is already done. Science advances one funeral at a time.

The Senate failed to muster sufficient support Wednesday for a gun-buyer background check bill, voting the measure down in a procedural vote that likely dooms any major legislation to curb gun violence. The amendment failed 54 to 46, falling short of the 60-vote threshold needed to break a filibuster of the measure, even as victims of the Sandy Hook shootings and other shooting watched from the Senate gallery and activists at a vigil outside the Capitol read the names of people slain since then, hoping to prompt action.

"Shame on you!" shouted two women in the gallery after the vote. One was Patricia Maisch, who grabbed the third clip from the gunman who opened fired at then-Rep. Gabby Giffords in the Tuscon., Ariz., shooting in 2011. The other was Lori Hass, whose daughter was injured in the Virginia Tech shootings six years ago.

Passage of the background check amendment had been seen as key because it represented a bipartisan agreement in a highly polarized debate. It also would have preserved a major part of the overall bill that many advocates against gun violence saw as a minimum step toward stemming gun massacres.

Who says nothing ever gets done in Washington? Swiftly and without fanfare, Congress and President Obama have made it easier for top federal employees to trade on inside information.

On Monday, Obama signed into a law a change in the Stop Trading On Congressional Knowledge, or STOCK Act, which was passed in 2012. The change, which was approved unanimously by Congress last week, means that top federal employees, including staffers on Capital Hill and in the White House, will not have to publicly disclose their financial holdings online. That requirement was part of the original STOCK Act, but its implementation had been delayed again and again by Congress. And now it's dead.

A Pennsylvania judge has issued what might be considered a precedent-setting decision holding that there is no corporate right to privacy under that state's constitution. The ruling comes in an ongoing case where several newspapers sued to unseal a confidential settlement where major fracking corporations paid $750,000 to a family that claimed the gas drilling had contaminated their water and harmed their health. The Court ordered that settlement unsealed, enabling the papers, environmentalists and community rights advocates to examine the health issues and causes. The Court's ruling is significant because the fracking companies have relied on secrecy agreements with landowners to hide the environmental and health impacts of gas drilling.

Where the ruling is likely to make the biggest waves is in the corporate personhood debate. The Judge spent more than a third of her 32-page decision saying why corporations and business entities were not the same as people under Pennsylvania's constitution, and why, for the purposes of doing business in the state, that federal court rulings that blur the rights of people and businesses do not apply.

The Court wrote, "Nothing in that jurisprudence indicates that that right [of privacy] is available to business entities... There are no men or woman defendants in the instant case; they are various business entities," it wrote, saying business entities are created by the state and subject to laws, unlike people with natural rights. "In the absence of state law, business entities are nothing." If businesses had natural rights like people, "the chattel would become the co-equal to its owners, the servant on par with its masters, the agent the peer of its principles, and the legal fabrication superior to the law that created and sustains it."

The judge said the U.S. Constitution's 14th Amendment "use of the word 'person' that makes its protections applicable to business entities" does not apply to Pennsylvania's constitution. "The exact opposite is derived from plan language of Article X of the Constitution of the Commonwealth of Pennsylvania." And the Judge added, "Not only did our framers know how to employ the names of business entities when and where they wanted them… they used those words to subjugate business entities to the constitution."

January, Tuesday 10, 2012

DOW + 69 = 12,462
SPX + 11 = 1292
NAS +25 = 2702
10 YR YLD +.01 = 1.97%
OIL +.84 = 102.15
GOLD +21.20 = 1633.20
SILV +.89 = 30.04
PLAT + 39.00 = 1467.00

 The S&P 500 Index moved back to its highest level since July. There was positive reaction to earnings. Alcoa kicked off the earnings reporting season by announcing they lost $193 million dollars in the fourth quarter. Go figure.

Is the economy facing inflation or deflation? The answer is – yes. Two Federal Reserve officials laid out contrasting views of Fed attempts to bolster the economy, with one seeing a need for more asset purchases and another warning that current accommodation risks provoking instability.

Federal Reserve Bank of San Francisco President John Williams sees a “strong” case for new purchases of mortgage bonds given his expectation that inflation will fall below 1.5 percent this year. His counterpart in Kansas City, Esther George, said officials must weigh whether their current policy is increasing the odds of renewed financial turmoil.

In his speech, Williams credited the Fed’s emergency lending to financial institutions with keeping the U.S. economy from falling into an abyss in 2008 and 2009. He said it’s “vital” for policy makers to support an economy that’s hobbled by high unemployment, anemic spending and a weak housing market. Williams thinks the Fed should provide more stimulus for the economy.

George, in her speech said “the economy is going through a deleveraging process and that takes time. Efforts to speed up that process run some risks. It’s going to take things other than interest rates to stimulate that economy.”

There’s nothing like an election year to stimulate the economy.

Today is primary Election Day in New Hampshire. I can tell you who the big winner is; I don’t have to wait for the polls to close. The winners are the people that produce negative attack ads – this is the new growth industry in America. While some industries are laying off workers and cutting back hours, the negative attack ad industry is ramping up, and paying for overtime for anyone with the unique skill set to dig up dirt and then sling it in an entertaining, captivating, provocative manner without regard to truth, accuracy, or democracy.

The 2012 elections will feature unprecedented spending by corporations and a few wealthy individuals, much of it channeled through independent organizations and trade associations not required to disclose their donors. In many races, unaccountable Super PACs and trade associations will spend significantly more money than candidates or political parties. 

Independent entities spent $300 million in the 2010 federal elections; almost all of that money went for negative attack ads.  It worked. They supported 60 of the 75 Congressional races where party control changed.  And this year they are expected to spend more than $1 billion dollars. Next week, you’ll see a new “documentary” on Mitt Romney and Bain Capital. If you don’t know the definition of vulture capitalism, wait a week. This follows a blitz of negative attack ads against Newt Gingrich in Iowa. Don’t even think about a Google search on Santorum. And the latest ads target Jon Huntsman for being an acolyte of Chairman Mao because he adopted a daughter who was born in China.  Look for the republican candidates to cannibalize their fellow candidates; the 11^th Commandment be damned. And all that is before we get to the main event. When the republicans and democrats square off later in the year things will really turn ugly.

It is all the result of the U.S. Supreme Court's 2010 decision in Citizens United v. Federal Election Commission.  The Court held for the first time that corporations have a First Amendment right to spend unlimited money on behalf of individual candidates and causes. More generally, the Court signaled that the old customary restraints on election spending no longer applied.  

The source of corporate involvement in politics goes back to laws that give personhood to corporations. Even though corporations are abstractions, have special protection from liabilities, and are not limited to a natural lifespan, they have created a super-person with the potential for something like immortality; they can live forever, as long as their money, their lifeblood doesn’t run out. This is a strange power for an entity that is never mentioned in the Constitution. By achieving this designation of corporations as person, real flesh and blood people are relegated to subhuman status. The Constitution only mentions We the people and the government; it says nothing about We the Corporations. Corporations are legal entities; machines for getting a job done; they have no soul; they can’t dream. Corporate Personhood is the legal fiction that property is a person.  This is just as absurd as the legal fiction of slavery, which determined that people are property.

To read Justice Kennedy's decision in Citizens United is to enter a convoluted universe of "legal fiction" where the distinctions between living breathing human beings and intangible corporations are blissfully ignored. "Speech is an essential mechanism of democracy, for it is the means to hold officials accountable to the people," wrote Justice Kennedy. On this point we all agree; but it is to citizens -- actual people -- that officials should be held accountable, not Goldman Sachs, ExxonMobil or NewsCorp. 

Individual citizens have no hope of matching the money of corporations. Corporations have special advantages when earning money, plus liability from certain losses. If money is considered free speech, there is no way individual citizens’ voices can be as loud and powerful as corporations. In politics, money doesn’t’ talk, it screams; it drowns the voices of mere mortal citizens. The concept that corporations are person also means that corporations can govern – not with a vote, but with political manipulation.

While there are a host of reforms that would diminish the impact of Citizens United -- most notably, public financing of public elections -- there is ultimately no legislative fix for Citizens United. The 5-4 majority in the case found that corporations have a protected First Amendment right to spend unlimited money on elections.  Absent the unlikely near term scenario of the Supreme Court reversing itself, we need a constitutional amendment to restore our democracy. That’s not going to happen.

In his Citizens United dissent, Justice John Paul Stevens rightly recognized that "corporations have no consciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their 'personhood' often serves as a useful legal fiction. But they are not themselves members of 'We the People' by whom and for whom our Constitution was established."

It shouldn’t be a controversial position. Corporations are not people. Corporations can’t vote. And so the money they spend on elections should be called by it’s rightful name – bribery.

Of course, whenever the government tries to impose an unnatural idea on the population there is the possibility of unintended consequences. People tend to reject something that is shoved down their throats. The negative attack ads might backfire – it could happen, but I’m guessing we’re still at least $2 billion dollars away from that possibility.

The European Central Bank released data today showing that the ECB’s policies are helping to restore calm in the money markets, even though the policies aren’t doing anything to help the worsening economy. Demand for the ECB’s weekly loans has been falling since Dec. 21, when the ECB allotted nearly half a trillion euros in long-term loans to more than 500 euro-zone banks. Banks faced with mounting debt redemptions and tightening credit standards appear to be hoarding the cash for their own reserves and in case of future market unrest. So, Europe didn’t implode overnight but it was largely forgotten by traders on Wall Street.

In Europe over the past few weeks the banks deposited about 500 billion euros at the ECB getting a return of 0.25%. The banks could make more by lending the money on the interbank market; they could earn 0.4%. This used to be considered an easy and safe place to park money. Not anymore. Banks don’t trust other banks, mainly because the banks know they hold toxic assets on their own books, and they don’t think the other banks hold anything other than toxic assets. The credit markets are telling us there is a crisis. The governments can’t do much because the toxic assets the banks hold is government debt. It’s a mess, but apparently it’s a mess for another day.

Europe and Japan moved ahead Tuesday in planning for punitive cuts in oil imports from Iran. A day after Iran confirmed the start of uranium enrichment at a mountain bunker - and sentenced an American to death for spying - the European Union brought forward a ministerial meeting to consider an oil embargo. The 27 EU governments are still debating how quickly some of their ailing and oil-dependent economies can afford to drop a key supplier and find alternatives. Oil prices moved higher -

In a sign of pessimism about humanity's future, scientists today set the hands of the infamous "Doomsday Clock" forward one minute from two years ago.  "It is now five minutes to midnight."  That represents a symbolic step closer to doomsday, a change from the clock's previous mark of six minutes to midnight, set in January 2010.

 The clock is a symbol of the threat of humanity's imminent destruction from nuclear or biological weapons, climate change and other human-caused disasters. In making their deliberations about how to update the clock's time, the Bulletin of the Atomic Scientists focused on the current state of nuclear arsenals around the globe, disastrous events such as the Fukushima nuclear meltdown, and biosecurity issues such as the creation of an airborne H5N1 flu strain.

I don’t believe it. I think they should have rolled the clock back, at least I hope so. And that brings us to our quote of the day, it comes from the Greatest, Muhammad Ali: “It's the repetition of affirmations that leads to belief.  And once that belief becomes a deep conviction, things begin to happen.” 

Be careful what you choose to believe.