Analysts at Jefferies have downgraded athletic apparel giant Nike, in addition to footwear and clothing retailers Footlocker and Urban Outfitters, on mounting headwinds from a massive slowdown in China to a deteriorating US consumer amid restarting student loan repayments. This follows a must-read note from JPM’s Market Desk that warned last week: “Sentiment Is Turning Very Negative On The US Consumer” (available to pro subs). 

Beginning with Nike, analyst Randal Konik told clients Monday that a slowdown in China, coupled with the bank’s latest US consumer survey, presents a worrisome outlook for demand from one of the world’s largest athletic apparel companies. 

“We see incremental risk ahead for NKE as the wholesale channel is likely to remain pressured and growth in China faces macro headwinds. Meanwhile, our consumer survey results indicate that US consumers are likely to reduce spending ahead, with apparel and footwear being the most likely areas of pullback,” Konik said. 

Here’s more from the report: 

• Wholesale Channel to Remain Pressured… While retail inventory levels have improved industry- wide (down 5% YoY in 2Q23), we think tight inventory mgmt through at least the end of the year is likely to reduce replenishment orders and pressure NKE’s wholesale channel. Meanwhile, NKE’s ongoing focus on increasing DTC sales penetration is likely to expand margins over time, but we think the current consumer environment could push out the timing of this expansion (44% in F’23 vs. 60% LT target), putting NKE’s F’25 target of high-teens Op margin (vs. 11.5% in F’23) at risk.

• Near-Term Growth in China Could be Challenged. While trends in China have been okay in recent quarters, we believe growth remains challenged given the macroeconomic headwinds in the region. We think NKE’s sales trends in this region could be choppy given the recent slowdown in apparel retail sales in China (see herein), and we are modeling 7% growth in F’24 vs. cons. of 12%.

Konik’s warning about a US consumer slowdown:

• Survey Results Point to Slowdown In US Consumer Spending Ahead… Our survey indicates that most US consumers with student debt are concerned about meeting all their monthly expenses (87%) and that apparel/accessories and footwear are likely to be areas of reduced spending ahead. To this end, 54% of respondents plan to spend less on apparel/accessories and 46% plan to spend less on footwear, while 51% plan to buy fewer items or shop less frequently in apparel/accessories (48% in footwear). As a result, we expect US consumer spending to be pressured ahead.

• And Higher Price-Point Products Could Witness Headwinds. Notably, 39% of survey respondents plan to buy cheaper alternatives in apparel/accessories and 35% in footwear. We believe these results suggest that NKE could face incremental headwinds in higher-priced areas of its assortment.

Mounting pressures forced Konik to lower his fiscal 2024 estimates for Nike while downgrading the stock from a “buy” to a “hold,” and shifted a new price target for the stock down to $100 from $140. 

• As a Result, We are Adjusting Estimates and Our PT Moves to $100. We are lowering our F’24 revenue and EPS estimates to $52.1B and $3.45 (vs. cons. of $53.6B and $3.72). Specifically on 1Q, we are now forecasting sales of $12.8B and EPS of $0.72 (vs. cons. of $13.0B and $0.75). Our new PT of $100 is based on ~26x F’2 P/E of $3.90, below the ~29x 5-year avg.

Expanding on the consumer, Konik noted that nearly 90% of respondents with student loan debt were “concerned about meeting all their monthly expenses, while apparel/accessories is likely to be a key area of reduced spending ahead.” 

He said, “To this end, 54% of respondents plan to spend less on this category, 51% plan to buy fewer items or shop less frequently, and 39% plan to buy cheaper alternatives.” 

In a separate note, Barclays economist Adirenne Yih recently warned that restarting student loan payments will be around a $15.8 billion monthly headwind – or $190 billion per year – to US spending. 

The slowdown in US consumer spending also forced Jefferies Corey Tarlowe and Konik ( in a separate note) to downgrade clothing retailers Footlocker and Urban Outfitters on Monday morning. 

“We believe US consumers are likely to curtail spending ahead, with apparel & footwear being the most likely areas of pullback. With the resumption of student loan repayments, we believe this could be a catalyst that weighs further on already soft sales at some of our specialty apparel coverage. To this end, we believe URBN and FL could be affected and are downgrading to Hold & lowering our PT’s,” the analysts said. 

Citing the bank’s consumer survey, they said:

• Recent Survey Results Point to Potential Slowdown in Discretionary Purchasing… We recently ran a survey for US consumers with outstanding student loan debt for either themselves or their children (see note here) and found that ~54% and ~46% of respondents plan to spend less on apparel/accessories and footwear, respectively, as a result of student loan payments restarting. Additionally, 51% plan to buy fewer items or shop less frequently for apparel/accessories items, with 48% of respondents feeling the same about footwear.

They added:

• With Our Apparel and Footwear Coverage Likely to be Significantly Impacted... ~33% of respondents plan to shop less frequently at Urban Outfitters (which is already experiencing headwinds due to the banner’s skew towards lower-income individuals). The enterprise witnessed record 2Q sales, primarily driven by its Anthropologie brand (growing from 39% of sales in 2Q22 to 46% in 2Q24). As Anthropologie broadens its assortment to attract younger customers, we believe difficulties could arise due to the resumption of student loan payments. Additionally, with the less-than-favorable results for our footwear coverage, combined with ongoing pressures in the wholesale channel and macro headwinds to growth in China, we see incremental risk ahead for NKE. In a recent note, Jefferies’ Greater China consumer discretionary analyst John Chou noted that the basketball category witnessed weak sell-through and that running and fitness footwear performed better, but generally have lower ASPs and margins. We believe these headwinds could flow through to FL, which currently has ~64% Nike penetration.

As a result, they downgraded Footlocker and Urban Outfitters: 

• Coming into this year, we believed FL’s new mgmt would help to reaccelerate the business, but the turnaround has been slower than we anticipated. In regard to URBN, we see headwinds to its top-line that could persist through F’25.

Here’s what changed:

Morgan Stanley’s Michael Wilson also echoed the same tune on Monday, warning consumer stocks are in trouble: “This price action is picking up on slowing consumer spend, student loan payments resuming, rising delinquencies in certain household cohorts, higher gas prices and weakening data in the housing sector.” 

To summarize: Jefferies’ downgrades of Nike, Footlocker, and Urban Outfitters are the latest warning signs big Wall Street banks are quickly losing faith in the consumer. 

Authored by Jesse Colzani via BictoinMagazine.com,

Every Bitcoin user has very different reasons for using Bitcoin in the first place. That is something that everyone should consider when trying to orange pill new users…

Throughout the years, I have presented the case for Bitcoin to a lot of people from a wide range of backgrounds. The list includes curious cab drivers, financial advisors, young software developers, skeptical policymakers, voiceless activists, and once even an IMF employee.

Needless to say, most of these attempts ended up falling on deaf ears. So I started asking myself “why would this person in front of me care about Bitcoin?” and immediately realized that getting a response was particularly challenging because—even among Bitcoiners—there is no common understanding of what Bitcoin is in the first place. Is it “peer-to-peer electronic cash” as Satoshi originally defined it? Or should we consider it as “digital property” as Michael Saylor suggests? Or maybe listen to Gary Gensler and define it as a commodity?

As tempting as it is to look for a common definition for Bitcoin, doing so during a time when even the most simple linguistic choices are under scrutiny makes such a venture uninspiring and, frankly, pointless.

What I decided to do instead was understand what each of those people really cared about and how Bitcoin could fit into their view of the world rather than expecting them to understand a subject they are barely interested in. As the saying goes, “If the mountain will not come to Mohammed, Mohammed must go to the mountain.”

By doing so, I realized it was unreasonable to act like Morpheus and expect my interlocutors to take a big orange pill. After all, if that approach barely worked with Neo who was “the chosen one”, why would it work with my brother-in-law or with a stranger sitting next to me on the plane?

Image source: https://armantheparman.com/moaop/ 

Because I’ve known for a while that Bitcoin’s nature is multifaceted, the very idea of one single entry point to a multifaceted concept did not sound right. Depending on where one lives, social status, professional background, set of beliefs, values, and environment, there will be a different (and smaller) orange pill that will be more appropriate for each person.

More categories may emerge in the future (Jason Lowery, for example, proposes a military interpretation of Bitcoin and the recent ordinals frenzy reminded us how valuable Bitcoin’s block space can be as its own use-case), but here are the four main buckets that I have identified so far—which represent four different set of problems that Bitcoin is solving for.

1 – HARD MONEY

In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes —Satoshi Nakamoto

The first sets of problems that Bitcoin attempts to solve originate from a financial system that is broken in its most foundational aspects. For those not understanding, the problem can be described as having a similar nature (but, of course, different magnitude) to hyperinflation in Weimar Republic and Venezuela. The constant debasement of currencies (even the “mild” 2% inflation we all know about) has a tremendous societal impact, with those who are “close to the money printer” being the only winners—a phenomenon also known as the Cantillon Effect.

Unlike fiat money and commodities, such as gold, Bitcoin’s total supply is capped, which makes it the most scarce store of value in the history of mankind and, therefore, an ideal store of value in the long term.

For all those living in the half of the world that is experiencing double-digit inflation, this is a particularly interesting moment to understand how money printing and currency debasement can affect so many aspects of their lives. In fact, people who have lived through the 70s and those living in countries such as Venezuela, Lebanon, Zimbabwe, Argentina, and Turkey will be more receptive to the idea of Bitcoin as a way to preserve their purchasing power in inflationary environments.

This is arguably one of the most difficult aspects of Bitcoin to understand given the number of assumptions it requires us to challenge (e.g. “controlled inflation is good for the economy” or “fiat currencies are stable”). Yet, it’s arguably the most powerful orange pill that one could take.

2 – SUPERIOR PAYMENT NETWORK

Humans have invented the best financial tool in our history, and it’s an exciting time to be alive and use it — Jack Mallers

For the first time in human history, money and a payment network are integrated into one open and global system. Not only can Bitcoin serve as a store of value in the long term as explained above, but it also functions as a global medium of exchange that does not require any third party.

In a few seconds, money can be sent anywhere in the world by only paying a fraction of a cent. Compared to bank transfers, credit cards, and remittances, sending money through Bitcoin is significantly cheaper and faster.

People who don’t like bitcoin as a store of value can just use it as a payment system by converting it to the local currency at the two ends of the transaction. Why do that instead of using legacy systems? Perhaps to quickly send money during earthquakes and wars. Or to bypass remittance companies that take weeks to transfer money and charge up to 10% in fees.

The potential of Bitcoin just as a payment network extends to the most unthinkable areas. Micropayments have the potential to boost the creator economy and or solve the problems that have been haunting social networks.

3 – FREEDOM TECHNOLOGY

It would be a dark, dark world if Bitcoin didn’t exist — Alex Gladstein

The two previous perspectives address the common criticism that “Bitcoin is useless”. But another common criticism—often paired with the former even though it directly contradicts it—is the fact that (just like cars, computers, and most technologies) Bitcoin is used by criminals.

As crazy as it might sound to many, that’s a feature, not a bug. Because in those instances where it’s ethnicity, religion, sex, or political views that determine whether one is a criminal, having a financial system that cannot be weaponized by the government is one of the best insurance policies you can wish for. That is particularly true for two-thirds of the global population that lives in backsliding democracies or autocratic regimes.

Those who care about freedom and human rights should be paying very close attention to this technology. Bitcoin has already provided lifeline support for individuals in need for over a decade. Wikileaks would have not been able to expose serious violations of human rights and civil liberties without Bitcoin. Similarly, many in North Korea, Iran, Afghanistan, Ukraine, Hong Kong, Belarus, Nigeria, and Russia also use Bitcoin as a tool to escape the control and government censorship.

As we move away from physical money and the potential for financial surveillance and censorship increases exponentially, the world will greatly benefit an additional set of checks and balances to limit the power of governments and corporations. Understanding this is very important for all those that are active in promoting individual freedom and human rights in the most authoritarian corners of the world.

4 – ENERGY BUYER OF LAST RESORT

It is a win-win-win for everybody. It’s a win for the environment and an inarguable win for the economy — Dennis Porter

Lastly, there is a relatively small crowd of people who might be able to appreciate Bitcoin for a very different set of reasons. Bitcoin constitutes an unprecedented opportunity to build a cleaner, more resilient, and more efficient energy infrastructure. Bitcoin can mitigate the problem of intermittency—the demand/supply mismatch that occurs with renewable energy—and help with the $13B problem of congestion of the electric grid in rural areas.

Bitcoin miners can strengthen these grids and incentivize the deployment of more renewable energy by adapting to the fluctuations of power generation schedules since their rigs can be turned off at any moment without notice. Commonly referred to as “energy buyers of last resort”, Bitcoin miners are perfect for Demand Response programs. Last year, Bitcoin miners in Texas “returned up to 1,500 megawatts to the grid, enough to heat over 1.5 million small homes or keep 300 large hospitals fully operational”.

Bitcoin miners are also finding very creative ways to utilize energy that was previously wasted and many are arguing that Bitcoin is “the only available, practical and scalable technology when it comes to tackling the world’s most deadly greenhouse gas: methane.”

There’s (at least) four orange pills, and people don’t need to take them all.

Source: Author

One of the things I learned during my Bitcoin journey is that this is not a mono-functional technology like a washing-machine or an elevator. Because Bitcoin solves many different problems, its perceived value and utility will change significantly depending on who you talk to.

Those living in South Carolina might not care about censorship resistance or privacy as much as the local jobs that are created by a new Bitcoin company. The Turkish population might have not cared about Bitcoin as an inflation hedge (given the country’s situation, it should) during the earthquake earlier this year, but just needed a way to receive money as fast as possible. North Korean defectors like Yeonmi Park are not really interested in how Bitcoin micropayments can support artists online while they are being sold for less than $300 as sex slaves.

Listening and trying to understand who you are talking to is the most important thing you can do when presenting an idea. That is particularly true with Bitcoin, given the negative bias most people have towards it, how complex it is to understand, and how difficult it is to challenge some of the greatest assumptions that most people have.

This simple framework is an attempt to strategically identify the areas of interest of people who are new to Bitcoin and avoid overwhelming them with a big orange pill they might not be ready for.

Instead, by choosing between hard money, payment system, freedom technology, and energy buyer, I am now able to better structure conversations and elevator pitches when engaging with people and answering the usual “Uh! Tell me more about this Bitcoin thing!” question.

So go ahead, choose your orange pill and remember the most important question for Bitcoin is “why would one care about it?”

Voting machine company Smartmatic, which is suing Fox News and former President Donald Trump’s top allies over their claims that the company’s machines facilitated cheating in the 2020 US election, has been accused as uncharged co-conspirators in a bribery scheme in the Philippines.

According to court documents revealed by CNN, the Department of Justice has filed money laundering charges against former Filipino election administrator, Andres Bautista, who has been accused – along with unnamed Smartmatic executives – of illegal financial transactions.

The accusations levied against Smartmatic suggest attempts to funnel $4 million to Bautista, adding fuel to the allegations surrounding the 2020 U.S. Presidential Election, and the lawsuits filed by Smartmatic against Fox News and former President Trump’s allies.

The new allegations further complicate Smartmatic’s defamation suits against various pro-Trump figures and media organizations, who have sought to underscore Smartmatic’s ties to Venezuela and its involvement in foreign elections as defense in their ongoing legal battles.

Smartmatic has sued Fox News as part of a $2.7 billion lawsuit, in which they have demanded a full retraction and apology from the network.

According to Smartmatic spokeswoman Samira Saba, the Florida-based company “has never won a project through any illegal means,” and that the claims in the Bautista case are “not related to Smartmatic election security or integrity.”

Smartmatic filed massive defamation suits against Fox News, Newsmax, OAN, several individual Fox hosts, ex-Trump lawyer Rudy Giuliani, former Trump campaign lawyer Sidney Powell, MyPillow CEO Mike Lindell and others. They all deny wrongdoing.

Some of these pro-Trump figures have tried to push back against the defamation suits by highlighting Smartmatic’s ties to Venezuela and its involvement in foreign elections.

OAN recently asked a judge to let them seek records from the Philippines government and other countries as part of the discovery process, claiming they have files about “investigations… scandals.. and major problems” involving Smartmatic machines. -CNN

According to the charging documents, “slush funds” were used by the Smartmatic executives via “fake contracts” to facilitate the alleged bribes. The co-conspirators are accused of having “caused or attempted” to funnel the $4 million to Bautista “in violation of US money laundering laws.”

Bautista denies the allegations.

“I did not ask for nor receive any bribe money from Smartmatic or any other entity,” he claimed on X, adding that the elections he was in charge of were “hailed” by observers as being the “best managed” in Filipino history.

He also says he would “respond to the alleged charges at the proper forum and time” to the criminal charges, which were filed Tuesday.

As CNN notes, “The new allegations of corrupt foreign dealings could boost the defense for Fox News and the other Trump allies currently fighting Smartmatic in court. They could argue that it wasn’t their lies about the 2020 election that caused Smartmatic to lose business, but rather the company’s reputation was tarnished by the allegedly criminal behavior of some of its employees.”

The complaint against Bautista and the co-defendants doesn’t accuse them of tampering with election results.

Authored by Irina Slav via OilPrice.com,

• Anti-fossil fuel policies in the U.S. and Europe have led to lower investment in new projects.

• ExxonMobil CEO Woods: If we don’t maintain some level of investment in the industry, you end up running short of supply.

• Only lowering global energy demand may lead to a situation in which prices will remain under control.

Earlier this week, Morgan Stanley said in a note that all signals for crude all were “flashing tightness”.

The investment bank joined a growing number of forecasters expecting Brent crude to top $100 per barrel before the year’s end, again.

What all these forecasters have in common is that all of them point out a discrepancy between demand for oil, which has remained strong, and supply, which has become increasingly constrained. At a time when governments in the West are making a huge effort to reduce that demand. And supply, too.

For now, they can only claim success in the supply area. And a major contribution to higher prices with that.

When President Biden came into office, his first order of business was to effectively ban oil and gas drilling on federal lands. He later revoked his ban as retail fuel prices began climbing and the White House reconsidered its attitude to local supply of hydrocarbons.

Not that it helped. Not when the whole energy policy of the administration has been oriented against the oil industry. We see the same situation in Europe, where the push against oil and gas is even stronger, and in other parts of the world, as well.

Reuters reported this week, citing Rystad Energy data, that investment in oil and gas on a global scale would only grow moderately this year to $579 billion. That compared to an average annual investment rate of $521 billion for the period between 2015 and 2022, after the 2014 peak, which stood at $887 billion.

Also this week, the Energy Information Administration reported that oil production from the U.S. shale patch was set to decline in October from September after the September average was also forecast to be lower than the average for August.

In fairness, the EIA has been proven too pessimistic in its forecast by the actual production data, with its forecast production decline for August actually turning out to be a modest monthly increase in production. Yet production did indeed decline this month, albeit still quite modestly. The bigger problem is it did not increase in any meaningful way, contributing to global tightness.

Production is not increasing in any meaningful way elsewhere, either, even if we set aside for a moment the Saudi and Russian cut of a combined 1.3 million barrels daily. But demand is still strong, which has led to suggestions from transition campaigners that governments should switch targets and, instead of supply, focus on curbing demand by taxing the use of hydrocarbons.

This state of affairs does not bode well for the future energy security of a world that will consume close to 103 million barrels of crude oil every day this year, according to the latest to forecast peak oil demand, the International Energy Agency.

The chief executive of Aramco, who has been one of the most vocal critics of the transition push as it is being conducted, recently leveled a new dose of criticism at its planners: “The current transition shortcomings are already causing mass confusion across industries that produce and/or rely on energy. Long-term planners and investors do not know which way to turn,” Nasser said at the World Petroleum Congress in Canada.

Exxon’s CEO was more succinct: “If we don’t maintain some level of investment in the industry, you end up running short of supply, which leads to high prices” – a scenario that is currently unfolding in Europe and the United States.

The reason there is no sufficient investment, according to the industry, is the uncertainty caused by the transition agenda of the governments where they operate. Indeed, when you have no clarity of the regulations that your government would direct your way as part of its efforts to fight climate change, investment decisions become even harder than usual to make.

As the executive chair of Canada’a Cenovus told Reuters, “If you want to add 100,000 barrels a day of production, you’re going to spend billions and billions of dollars. In terms of any real meaningful investment in large projects, that’s probably going to have to wait for some more clarity on the government front.”

The situation is even worse for African countries that want to pursue their energy independence by developing their own hydrocarbon resources. Banks and international lenders such as the World Bank and the International Monetary Fund have made it quite clear they would not be lending for oil and gas development.

“We are being intimidated into running away from fossil fuel investment,” the secretary general of the African Petroleum Producers’ Organization, Omar Farouk Ibrahim, said as quoted by Reuters.

Yet Big Oil is still big enough to be able to put some money into new production without too much worry about the future. TotalEnergies recently said it could commit $9 billion to exploration in Suriname. Shell is drilling in Namibia and making discoveries that will require fresh investments to develop.

Whether these new exploration ventures would be enough to make up for lower production in legacy regions is hard to say. Perhaps, if governments really get down to curbing demand, balance could return to oil markets. For a short while. Because people really don’t like to be told how little energy to use.

Barring some sort of miracle from Congress, the government will technically shut down on Saturday at midnight after House Speaker Kevin McCarthy and the House Freedom Caucus failed to arrive at consensus for a 30-day stopgap known as a Continuing Resolution (CR) – despite a promise from McCarthy last week to remove roughly $300 million for Ukraine aid (on which he later reversed course).

“It became too difficult to do that, so we’re leaving it in,” McCarthy said – signaling virtue over the bill he knew had no chance of passing at this point.

Bring it…

Rep. Matt Gaetz (R-FL), a key Republican holdout on the CR, says he’s ready for a multiday US government shutdown if it means that demands such as conservative border policies are inserted into the eventual package.

If the departments of Labor and Education “have to shut down for a few days as we get their appropriations in line, that’s certainly not something that is optimal,” Gaetz told Fox News‘s “Sunday Morning Futures,” adding “But I think it’s better than continuing on the current path we are to America’s financial ruin.“

“I want to fund the government. I’m not pro-shutdown,” Gaetz continued. “But the way to fund the government is the same way we’ve been doing it since the mid-90s where it’s one up or down vote on the entire government all at once.”

The way to fund the government is not by doing it the same way Congress has since the mid-90s, where it’s one up or down vote on the entire government all at once.

We should have separate single-subject spending bills. @SpeakerMcCarthy promised that in January. He is in breach… pic.twitter.com/iewuoroMqL

— Rep. Matt Gaetz (@RepMattGaetz) September 24, 2023

That said, House Republicans are expected to move forward on four appropriations bills this week – though Congress is now set to miss its quickly approaching month-end budget deadline, while Republicans are also considering a different stopgap measure which would fund the US government for between 14 and 60 days.

Prior to Gaetz, Rep. Jim Jordan (R-OH) appeared on the show, where he said that in principle “everyone wants to get the 12 appropriation bills done,” but “frankly, we’re not going to get it done in the next six days.”

“So there’s going to have to be some stopgap measure,” Jordan continued, adding that Republicans would have to “win something” in passing the CR.

Democrats such as House Minority Leader Hakeem Jeffries have repeatedly portrayed Republicans as holding the federal government hostage with a “civil war” of infighting between House factions. President Joe Biden renewed his call for Republicans to “get this done” in a speech at a Congressional Black Caucus event Saturday evening.

Conservative hardliners have been a sore spot for House Speaker Kevin McCarthy, who’s caught between appeasing the far right and catering to more moderate members of the House while relying on a single-digit Republican majority. –Bloomberg

On Sunday, Morgan Stanley broke down the impacts of a short-term (or longer) shutdown scenario…

1. Government shutdown risk is real: Why? We could write thousands of words on the fiscal negotiating positions of different groups in Congress and their underlying motives, but let’s just leave it at this: The House Republican majority is struggling to reach internal consensus on both the level and makeup of the spending it supports. Further, it appears that whatever consensus it reaches will differ substantially from the bipartisan Senate consensus. And time is running short to bridge that gap. Hence, a shutdown and the resulting political pressure on elected officials from unhappy constituents may be the only path to compromise.

2. By itself, our economists size a shutdown impact on GDP as modest UNLESS it lasts more than a few weeks…an uncommon occurrence: Shutdowns typically last a few days, sometimes a few weeks. We’ve little reason to expect this time to be different. Historically, shutdowns tend to end when the economic risk (and hence the perceived political risk) gets real. Consider the 35-day shutdown under President Trump. The compromise that ended it came quickly after an air traffic stoppage at New York’s LaGuardia Airport, when 10 air traffic controllers who weren’t being paid failed to show up for work. In a similar situation, our economists expect the loss of consumption from deferred government salaries and other spending to reduce GDP by 0.05% for each week of shutdown, with a more muted impact if workers receive back pay when the shutdown ends.

BUT…an extended shutdown could amplify the risks: Lacking income for a longer period may change the consumption patterns of the unemployed. What’s more, the longer the shutdown, the greater the risk that government contract payments get deferred (e.g., payments to vendors for doing work like paving roads), upping the economic impact. The Council of Economic Advisers estimates that under those conditions, the GDP downside rises to 0.13% per week.

3. Still…it could create fresh pressure on markets to price in a slower US growth trajectory, limiting a further rise in US treasury yields: Although the shutdown’s economic effect could be modest, its timing may remind investors of other factors our economists have flagged that likely drive a slowdown into 4Q. In particular, the surprisingly large one-time effects of key summer events go away and the student loan repayment moratorium ends, likely directing some household income away from consumption…

Bottom line – a US government shutdown alone is unlikely to weaken growth but clearly could remind investors of other more powerful growth headwinds, supporting our broad preference for bonds over equities.

Authored by Jonathan Turley,

Below is my column in The Hill on the indictment of Senator Robert Menendez for bribery, again. As predicted in this column, his colleagues are now expressing disgust at his corruption. However, make no mistake about it, Menendez is not being abandoned due to his corrupt inclination but his conspicuous consumption.

Here is the column:

The massive indictment of Sen. Robert Menendez (D-N.J.) and his wife has shaken Washington.

As Senate Foreign Relations chairman, Menendez is one of the most powerful Democratic members of Congress, and someone who has long been a kingmaker in the party. He has also long been accused of open and insatiable corruption.

What made Menendez a standout in Washington was not his corrupt inclinations, but his utter audacity in following them. I was able to witness that signature conduct personally on the floor of the Senate.

In 2010, I defended a federal judge, Thomas Porteous, in his impeachment trial, against charges that he had taken gifts and misused his office for personal gain. The curious thing about Senate trials is that you have a jury composed of people you could strike for cause in a real court. Menendez was among those sitting in judgment of Porteous, but he wasn’t just another face in the Senate crowd — he stood out. It was like arguing a piracy case with Captain Jack Sparrow sitting on the jury.

Menendez himself would later go on trial in 2017 in a major bribery and fraud case involving luxury gifts allegedly exchanged for official favors. Most of us expected the worst when, during jury deliberations, one juror asked the court, “What is a senator?” Menendez dodged the bullet. The jury hung and the Justice Department dropped all charges.

Now Menendez has been slapped with a massive new bribery indictment. The facts are all too familiar, with a long list of lavish gifts allegedly made in exchange for favors.

The indictment details gold bars, hundreds of thousands of dollars, furnishings and other gifts.  His wife was allegedly actively involved in this corruption conspiracy and is also facing criminal charges.

During the Porteous trial, I noted that, at the time of the underlying acts, the senators themselves were accepting free lunches. It was not until later that the rules changed on such gifts. Menendez now stands accused of accepting a host of gifts at that time, including an $8,000 free flight in October 2010, in addition to luxury trips to Paris and a Caribbean villa.

Yet Menendez still demanded conviction for the Porteous, even though the judge was never charged with bribery, and free lunches and the other gifts would not be enough to even register with Menendez.

The question is whether this level of corruption is now enough for Democrats. California Gov. Gavin Newsom (D) recently suggested a type of Goldilocks rule for corruption. He warned that people in Washington had better be careful if they want to crack down on the Biden family’s influence-peddling.

“If that’s the new criteria, there are a lot of folks in a lot of industries — not just in politics — where people have family members and relationships and they’re trying to parlay and get a little influence and benefit in that respect. That’s hardly unique.”

It would appear that the question is not corruption, but when a little corruption is “just right.”

If these allegations against Menendez are proven, then he violated Washington’s Goldilocks rule. It would mean that Menendez pursued gifts with a reckless abandon, endangering others whose corruption was more circumspect.

Consider the timeline: It would mean that during the Porteous trial, Menendez was allegedly accepting gifts while condemning and removing from office of a judge accused of receiving gifts.

Later, after the jury hung in his first corruption trial, Menendez (according to the Justice Department) almost immediately started taking gifts from new sources.

In a town known for a certain finesse in influence peddling, Menendez broke with industry custom by allegedly accepting direct items like gold and a car. This is classic bribery stuff. There was no labyrinth of shell companies and accounts — just crude old-school corruption, with cash stuffed in clothing and gold bars squirreled away for a rainy day.

Where corrupt figures often refer to getting their beaks wet, Menendez allegedly took a headlong plunge into this pool of corruption. This city has not seen such low-grade alleged bribery since former U.S. Rep. William Jefferson (D-La.) was found with $90,000 wrapped like a po boy in his freezer.

Like Jefferson, Menendez will need to be isolated as a pariah for his conspicuous consumption. Yet the public is still being played for chumps. This entire city floats on a sea of corruption as family members and associates sell influence and access to high-ranking officials. Menendez is notorious only for the size of his appetite and the extent of his audacity.

Newsom’s Goldilocks rule for graft is certainly compelling for many in this city. For most of us, it is the very source of the problem as politicians seek to get corruption “just right.”

So get ready for politicians to suddenly declare themselves “shocked, shocked” by the allegations against Menendez. These are the same people who made Menendez the head of the Foreign Relations Committee, twice. They gave him the power of leverage with countries where bribery is an accepted practice. It was like making a known arsonist the CEO of the International Paper Corporation.

In the end, the problem is not Menendez. It is the array of other politicians who enabled him while dismissing his reputation for corruption. To use Newsom’s words, Menendez is “hardly unique” for cashing in on his position. That is precisely the problem.

Celebrations about UAW progress with Ford over the weekend were likely premature as Ford said late on Sunday that there were still “significant gaps to close” in negotiations with the United Auto Workers union.

Ford said over the weekend the “issues are interconnected and must work within an overall agreement that supports our mutual success,” according to Reuters. The exclamation comes after the UAW said there was “real progress” in talks with Ford on Friday. 

Late on Friday United Auto Workers boss Shawn Fain had come out in the morning and stated that: “Ford is serious about reaching a deal,” but “It’s a different story at GM and Stellantis.” 

And so, unlike with Ford, the United Auto Workers broadened their strike actions against General Motors and Stellantis to include 38 parts distribution hubs throughout the U.S. There was no immediate confirmation as to whether high-level negotiations occurred with GM and Stellantis over the past weekend.

On Friday, Fain said: “Today at noon Eastern time, all of the parts distribution facilities of GM and Stellantis are being called to stand up and strike.” He said on Friday there would be strikes at 38 locations across 20 states. 

Kicking off unparalleled, concurrent strikes on September 15 at a single manufacturing plant for each of the Detroit Big Three automakers, the UAW’s move follows the expiration of their previous four-year labor contracts. With the additional strikes launched last Friday against GM and Stellantis, an estimated 5,600 more workers joined the initial 12,700 who were already on the picket line.

“Either the Big Three get down to business and work with us to make progress in negotiations, or more locals will be called on to stand up and go out on strike,” Fain said early last week. 

Bloomberg said last week that: “An expanded strike could ratchet up pressure on the carmakers to reach a deal. Fain’s strategy has been to keep the companies guessing about his next move. But more members walking on also poses a risk to the union in the form of a diminished strike fund.” 

The pressure is on for automakers and the union to find common ground at the bargaining table. Morgan Stanley’s auto strategist, Adam Jonas, revealed in a note to clients last week:

“The value of N. American light production of the D3 (F, GM, STLA collectively) is approximately $750mm per day (approx. 15k units per day). Applying slightly more than a 30% decremental (yes, mix is that high) implies around $250mm of lost profit per day (assuming 100% of production impacted).”

Last week we detailed how the UAW strike was costing the Detroit 3 $250 million in lost profit every day. 

One River CIO Eric Peters wrote last week about the strike’s progress: “… in the timeless conflict between capital and labor, it is extremely rare for the imbalance to be so extreme. The wider the gap, the bigger the stakes. And the last time the chasm was so great was at the height of the Roaring 1920s.”

Authored by Daniel Lacalle,

If we search the news from 2007, we can find plenty of headlines with the IMF and the Federal Reserve predicting a soft landing. No one seemed to worry about rising imbalances. The main reason is that market participants and economists like to believe that the central bank will manage the economy as if it were a car. The current optimism about the U.S. economy reminds us of the same sentiment in 2007.

Many readers will argue that this time is different, and we will not see a 2008-style crisis, and they are right. No crisis is the same as the previous one. However, the main pushback I get when discussing the risks of a recession is that the Fed will inject all the liquidity that may be needed. Quantitative easing is seen as the antidote that will prevent a crisis. However, if the only antidote to prevent a 2008-style contraction is monetary easing, then the risk of stagflation is even higher. So, the good news for those fearing a recession is stagflation.

I already mentioned a few times that we are in the middle of a private sector recession disguised by insane government spending. The latest purchasing managers index (PMI) readings confirm it. S&P Global mentions that “further loss of service sector momentum weighs on overall US economic performance” and “manufacturing firms continued to register a decline in production,” with service sector firms recording the slowest rise in business activity in the current eight-month sequence of growth. U.S. consumer confidence declined in August. The Conference Board consumer confidence index slumped to 106.1 in August from a revised 114 in July. Consensus expected 116.

Even more concerning is to admit that the services sector and consumption are held by debt increases. In July 2023, the personal savings rate was 3.5 percent, well below the pre-pandemic average of 6.9 percent. In the second quarter of 2023, total credit card debt rose above $1 trillion for the first time ever, reaching a record total household debt of $17 trillion, according to the New York Federal Reserve.

Despite elevated inflation, the United States government is spending more than ever, which means consuming more units of issued currency. Tim Congdon at the Institute of International Monetary Research shows how the inflationary burst was directly linked to broad money growth due to rising government deficit spending. Other studies by Claudio Borio at the Bank of International Settlements confirm it. Congdon highlights an exceedingly worrying figure that endangers trust in the U.S. currency and the sustainability of public finances. In the year to July 2023, the United States deficit totaled $2,474b. With nominal GDP in the same period of about $27,000b, the deficit was over 9% of GDP.

Rising debt is keeping GDP afloat in the United States. Meanwhile, inflation expectations remain elevated, the pace of rate hikes has yet to show its complete impact on the economy, and monetary aggregate declines are showing that the entire burden of the monetary policy contraction is falling on the shoulders of the private sector. A rising government deficit means higher taxes, higher inflation, or higher debt in the future.

The reason why most economists believe in a soft landing is simply because rising fiscal and debt imbalances have not generated a significant impact on the broad economy. And they may be right to believe there will not be a recession soon. However, the longer it takes to see an inevitable recession, the worse the impact will be. Trying to disguise what would have been a logical technical recession after such an enormous monetary and fiscal boost in 2020–21 is likely to make it worse, as economic agents are led to believe that rate hikes will not hurt and, even more optimistically, that credit supply will be unchanged.

Monetary aggregates are starting to bounce way before the battle against inflation has been completed. Money supply growth has rebounded; rates are not rising, but core and headline inflation remain significantly above the target. Furthermore, if the sole factor to deny a 2008-style recession is further quantitative easing, then the recipe for stagflation is complete. Large liquidity injections to keep markets afloat will likely add to stubbornly high deficit spending from the government, which is unwilling to make any reduction in expenditures. The last time this happened, the economy still declined, but this time the starting point is not deflation but rising core and headline prices.

The government needs to cut unnecessary spending and drastically reduce the deficit; the Fed needs to tighten its balance sheet and avoid the perverse incentive of buying banks’ long-dated treasuries at the first market concern. More government stimulus plans will only add to what is already a low-growth, high-debt, and poor-productivity economy. Monetary contraction should be aimed at reducing public sector imbalances, not choking the private sector.

There is no soft landing if the government size in the economy rises, and the private sector is squeezed and crowded out.

The warning signs are evident. Ignoring them is irresponsible.

To remain relevant this week as President Biden heads to the picket line to support United Auto Workers, ultra-liberal New York Representative Alexandria Ocasio-Cortez told CBS’s Face the Nation on Sunday that she intends to trade her non-union-made Tesla for a union-backed Ford, General Motors, or Stellantis electric vehicle. 

When asked about her non-union-made Model 3 purchase during the pandemic, AOC said she’s “looking into trading in our car now.” She added, “So we’re looking into it, and hopefully we will soon.” 

.@AOC says she drives a non-union-made Tesla because she purchased it during the pandemic, “prior to some of the new models” of electric vehicles that are now available.

“We’re actually looking into trading in our car now,” she says.

“Hopefully we will soon.” pic.twitter.com/69LrefYv01

— Face The Nation (@FaceTheNation) September 24, 2023

AOC’s move is about all optics as UAW strikes intensify and Democrats continue their crusade against billionaire Elon Musk.

According to Cars.com, the most American-made vehicles are the Model Y, Model 3, Model X, and Model S – all produced by Tesla. 

Democrats have to stop pitching their top priority is so-called ‘climate change’ and ‘America first’ while they ditch America’s largest EV company for Big Three that continues to invest in gas-powered vehicles and source foreign parts. 

Yup

— Elon Musk (@elonmusk) September 25, 2023

One X user asked: 

“What union made EV is she going to buy? Mach-E is made in Mexico. Chevy Equinox EV is made in Mexico. Chevy Blazer EV is made in Mexico. Chevy Bolt is being discontinued. Jeep EV is made in Poland. Does Chrysler have an EV? I only see a hybrid. Hybrids don’t get us to net 0 and don’t stop climate change.” 

Why is AOC abandoning the american company and their many employees who are leading the world in transitioning to a sustainable future to instead reward company who keep building new products that pollute our planet and to reward the UAW, who once went on strike to slow the transition to EVs? Don’t all american workers matter, or only some of them? 

Don’t all American companies matter, or only if they are in a swing state? 

Remember last year when some Democrats sold their Teslas to buy some of the worst EVs on the market: Chevy Bolt… 

My pronouns are he/him, I believe in science, and I support Dr. Fauci. @elonmusk’s continued bad actions kept me from buying a @Tesla and now I am ecstatic to have a @UAW-made @chevrolet Bolt EUV in my driveway! pic.twitter.com/8Jj3kLjaEB

— Eric Sorensen (@ERICSORENSEN) December 12, 2022

Democrats have become the party of confusion. 

Authored by Bill Pan via The Epoch Times,

Texas has expanded the scale of operations to transport illegal immigrants out of the state, adding two distressed border towns to the growing list of departure points for fleets of buses filled with illegal border-crossers.

Texas Gov. Greg Abbott announced on Friday that he has directed the Texas Department of Emergency Management to deploy more buses to Eagle Pass and El Paso to transport those who illegally crossed the Texas-Mexico border to Democrat-led, self-proclaimed “sanctuary cities.”

The buses in Eagle Pass and El Paso are being activated in addition to the ongoing state bus operations in Brownsville, Del Rio, Laredo, and McAllen.

“President [Joe] Biden’s continued refusal to secure our border allows thousands of people to illegally cross into Texas and our country every day,” the Republican governor said, noting that the move provides “much-needed relief” to Texas communities “overwhelmed and overrun” by the border crisis.

“Until President Biden upholds his constitutional duty to secure America’s southern border, Texas will continue to deploy as many buses as needed to relieve the strain caused by the surge of illegal crossings.”

Border Towns at Breaking Point

The announcement comes as Eagle Pass Mayor Rolando Salinas Jr., a Democrat, said more than 6,000 illegal immigrants have crossed into his city in just two days, and that thousands more are expected to to cross through in the coming days. The city itself has a population of only around 28,000.

“Nothing that we’ve seen ever really to have so many people crossing in without consequence and congregating at the international bridge,” the mayor told Texas Public Radio, after signing a seven-day emergency declaration to “request financial resources to provide the additional services” caused by the severe illegal immigrant influx.

Meanwhile, in El Paso, where a recent wave of illegal border crossing brought over 2,000 individuals per day, shelter capacity and other resources are being strained to “a breaking point,” city officials said. Just six weeks ago, the city was seeing about 350 to 400 people coming in per day.

“The city of El Paso only has so many resources and we have come to … a breaking point right now,” Mayor Oscar Leeser, a Democrat, said at a press conference on Saturday.

According to Mr. Leeser, about two-thirds of those new arrivals are single men. A estimated 32 percent of them are families, and about just 2 percent are unaccompanied children.

“I think it’s really important to note that we have a broken immigration system,” he said. “It’s the same thing over and over again.”

Buses Coming to Sanctuary Cities

Three buses carrying some three dozen illegal immigrants departed Eagle Pass for New York City on Friday, the New York Post reported, citing an eye-witness at the scene. Another bus reportedly left the border town for Chicago.

Frustrated with the swelling population of illegal immigrants in state and municipal governments’ care, New York Gov. Kathy Hochul called on would-be border crossers to “go somewhere else.”

“We have to let the word out that when you come to New York, you’re not going to have more hotel rooms,” the Democrat governor said in an Sept. 21 interview with CNN.

“We don’t have capacity, so we have to also message properly.”

“The smarter thing is to apply for asylum before you leave your country,” she added.

Ms. Hochul’s remark comes as she explores the possibility of ending a decades-old mandate for New York City to provide a bed to anyone in need of one and for as long as they need it. Both she and New York Mayor Eric Adams blame the policy for becoming a magnet for illegal immigrants.

“Never was it envisioned that this would be an unlimited universal right or obligation on the city to have to house literally [the] entire world,” she said at a Sept. 20 press conference.

“We want to make sure that no families end up on the streets. We don’t want anything to happen to our children, but we also have to let the world know that there have to be limits to this.”

The Abbott administration mocked the Democrat governor’s complaints over the escalated illegal immigrant crisis, saying that her “hypocrisy” is “astounding.”

“With millions of residents, New York is only dealing with a fraction of what our small border communities deal with on a day-to-day basis,” spokesperson Andrew Mahaleris said in a statement.

“Instead of complaining about 14,000 migrants being bused to New York City from Texas, Governor Hochul should be calling out her party leader, President Biden, who has been flying plane loads of migrants to New York and oftentimes in the cover of night.”

According to the Abbott administration, since April 2022, Texas has bused over 11,900 illegal immigrants to Washington, over 14,800 to New York City, over 8,700 to Chicago, over 3,000 to Philadelphia, over 1,500 to Denver, and most recently, 610 to Los Angeles.