Reading the Tea Leaves Part III

Here is what the market is predicting for interest rates:

	Rate	3 month	6 month	1 year	2 year	3 year	5 year
Jun 21, 2019	2.35%	5.875	5.875	5.875	5.875	5.875	5.875
Sep 21, 2019	2.35%		5.875	5.875	5.875	5.875	5.875
Dec 21, 2019	2.10%			5.25	5.25	5.25	5.25
Mar 21, 2020	2.10%			5.25	5.25	5.25	5.25
Jun 21, 2020	1.85%				4.625	4.625	4.625
Sep 21, 2020	1.85%				4.625	4.625	4.625
Dec 21, 2020	1.60%				4	4	4
Mar 21, 2021	1.60%				4	4	4
Jun 21, 2021	1.60%					4	4
Sep 21, 2021	1.85%					4.625	4.625
Dec 21, 2021	1.85%					4.625	4.625
Mar 21, 2022	2.10%					5.25	5.25
Jun 21, 2022	2.10%						5.25
Sep 21, 2022	2.10%						5.25
Dec 21, 2022	2.10%						5.25
Mar 21, 2023	2.10%						5.25
Jun 21, 2023	2.10%						5.25
Sep 21, 2023	2.10%						5.25
Dec 21, 2023	2.10%						5.25
Mar 21, 2024	2.10%						5.25
Total interest paid		5.875	11.75	22.25	39.5	58	100
Num quarters		1	2	4	8	12	20
Total Annualized Return		2.37%	2.36%	2.23%	1.96%	1.90%	1.92%
Actual as of 5/31		2.35%	2.35%	2.21%	1.95%	1.90%	1.93%

Interest rates will drop in December, again in June 2020 and again in December 2020.  That is 3 interest rate cuts already predicted.  And rates will remain below 2.25% through 2029.

I think this is predicting a stock market crash in October.  Only such a crash would make the Fed cut rates.

What if the market throws a recession party and the Fed doesn't come?

Date	1 Mo	2 Mo	3 Mo	6 Mo	1 Yr	2 Yr	3 Yr	5 Yr	7 Yr	10 Yr	20 Yr	30 Yr
05/29/19	2.35	2.36	2.37	2.38	2.30	2.09	2.04	2.05	2.16	2.25	2.50	2.69
05/30/19	2.37	2.38	2.38	2.40	2.29	2.06	2.00	2.03	2.12	2.22	2.46	2.65

Source: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

The interest rates dropped again, with the 3 year at 2.00%.  The market is expecting interest rates to drop soon, at least by March 2020.  But just a wild thought.  What if the Fed leaves the rate at 2.35% even if a recession starts?  Ok, so they probably will drop rates, but there is no requirement that they do so.  It is still a very low rate and dropping it lower wouldn't have that much of a stimulative effect.  And they have other tools, like QE.  If the market became convinced that they wouldn't drop rates then the longer rates would go higher, right?  And maybe the recession would cure itself.  See, the problem with dropping rates if that it could become a self-fulfilling prophecy and actually cause a recession.  Also lower rates would provide lower income to savers.  If savers had more money, they might spend or invest more.

So that's my thought for the day.  The Fed should leave the 30-day rate unchanged for the next 5 years come hell or high water.

The North Korean bubble inside Japan

There are 150,000 North Korean citizens who live inside Japan and maintain a separate cultural identity with separate schools.

Facebook to launch cryptocurrency

Facebook is planning to launch its own cryptocurrency in early 2020, allowing users to make digital payments in a dozen countries.

The currency, dubbed GlobalCoin, would enable Facebook’s 2.4 billion monthly users to change dollars and other international currencies into its digital coins. The coins could then be used to buy things on the internet and in shops and other outlets, or to transfer money without needing a bank account.  In order to try to stabilise the digital currency the company is looking to peg its value to a basket of established currencies, including the US dollar, the euro and the Japanese yen.

 https://www.theguardian.com/technology/2019/may/24/facebook-plans-to-launch-globalcoin-cryptocurrency-in-2020

I think it will be a payment mechanism, like a debit card.  I think soon, every major bank and company will have their own.  When will GoogleCoin and AppleCoin and MicrosoftCoin arrive?

==========
Update (6/14/19):
The cryptocurrency is now being called Libra.

CoinTelegraph's Marie Huillet reports that Facebook has allegedly sealed backing from over a dozen firms that include Visa, Mastercard, PayPal and Uber for its soon-to-be-unveiled cryptocurrency project. The news was reported by the Wall Street Journal (WSJ) on June 13. Source ostensibly familiar with the matter told the WSJ that the firms — extending across the finance, e-commerce, venture capital and telecoms industries — have each invested around $10 million in a consortium that will govern Facebook’s forthcoming digital token, dubbed Libra.  
https://www.zerohedge.com/news/2019-06-14/facebook-crypto-project-libra-seals-10m-investment-each-visa-mastercard-paypal-uber

Update 2 (6/24/19):

While Facebook is now trying to sign up banks to the association governing the token, its new system is a challenge to banks that often act as middlemen in virtually all transactions, according to Charles McGarraugh, a former Goldman Sachs Group Inc. partner who has moved into the digital world as head of markets at cryptocurrency-wallet provider Blockchain.com.

“We are witnessing a re-orientation of financial services,’’ said McGarraugh. “Having custody of your own assets rather than depositing them in a bank is a totally different paradigm and a superior system to the too-big-to-fail construct that dominates the market now.’’

https://www.bnnbloomberg.ca/guardians-of-money-bristle-at-zuckerberg-s-new-financial-order-1.1277277

Is there an Affirmative Defense to Obstruction of Justice?

One the face of it, I would say that there are 3 counts of Attempted Obstruction of Justice from the Mueller account:
1. Trump asking Session to reverse his recusal.
2. Trump asking McGahn to fire Mueller.  (McGahn did not have the authority to fire Mueller but Trump didn't know that).
3. Trump directing McGahn to create documents that would say that Trump didn't ask him to fire Mueller.
The other accusations in my opinion do not rise to the level of attempted obstruction.  For example, asking Lewandowski to fire Mueller or to fire Sessions.  This was a bad joke on Trump's part, because Lewandowski wasn't even a government employee and had no authority at all.

That said, I don't think these would justify his removal.  Instead Congress should just censure him and move on.

The affirmative defenses to the charges are:
1. The right to resist an unjust investigation.  This is analogous to the right to resist an unlawful arrest.  The burden would be on the defendant to prove: a) that there is such a right, and b) that the investigation is unjust.  Trump is trying to do this by have Barr and others investigate what lead up to the FISA warrants and the espionage on his campaign.  Trump hasn't made a coherent or persuasive argument that there is a right to resist an unjust investigation, but I think he or someone else, like Guiliani or Sekulow, could.  
If Trump doesn't have such a right, then he would have a duty to comply with the investigation even if it was unfair.

2. Executive privilege to resist an investigation.  The president does have extensive executive privileges; however, he hasn't asserted it until recently, by telling people not to appear at the Congressional investigation..  He was cooperating with Mueller's investigation.  It seems unfair to criticize Trump for cooperating before, but you have to be consistent.  So I don't think executive privilege was properly asserted here.

So I think the only thing that will help Trump is a persuasive argument that there is a right to resist an unjust investigation.  I haven't seen it, but I haven't looked that hard yet.

This is related to the idea of limits of Presidential power.  Do we agree that no one is above the law, not even the president?  Or is the president presumably privileged to do anything, including shooting a man in broad daylight on Fifth Avenue, and the only limitation on his authority is the ability of Congress to impeach him?  That is the debate we as a nation are having, or should be having.

Update:
There is a 3rd affirmative defense, closely related to the other two.
3. The President cannot be charged with obstruction of justice for lawfully exercising his constitutional power.  This was stated by Alan Dershowitz.  I don't think Dershowitz goes this far, but under this theory, the President can fire anyone at anytime for any reason, even the special counsel.

Did Nixon lawfully fired Special Prosecutor Archibald Cox?  The Articles of Impeachment against Nixon (which did not pass the full House) do not mention his firing Cox.  It only says: "4. interfering or endeavouring to interfere with the conduct of investigations by the Department of Justice of the United States, the Federal Bureau of Investigation, the office of Watergate Special Prosecution Force, and Congressional Committees;", so maybe it is implied there, but it isn't clearly stated.  The investigation against Nixon continued anyways under the new prosecutor Leon Jaworski.

So if Trump could have lawfully fired Mueller, it isn't obstruction for him to try to get Sessions or McGahn to fire him.  That leaves one count of attempted obstruction of justice, which is the claim the Trump told McGahn to create false document of the request to fire Mueller.  And Trump claims that he never told McGahn to fire Mueller. "  Trump tweeted: "I never told then White House Counsel Don McGahn to fire Robert Mueller, even though I had the legal right to do so."  Is McGahn lying or is Trump lying?  Does it matter if Trump did have the right to fire Muller?

So is there any evidence against Trump not related to his firing Comey or attempts to fire Mueller?  Maybe, if you believe Cohen.  But not much is left.

The Dividend and Covered Call Hypothesis

The Dividend and Covered Call Hypothesis is an investment strategy that I have been thinking about.  Start with companies that pay good dividends, and sell covered calls on them.  You can get monthly cash flow on these as if it is a rental property.

The first step is to get a list of candidate stocks.  All should have revenue over $5 billion, and steady dividends.  Here is one list from US News and World Report:

#10: Newell Brands (Nasdaq: NWL) Dividend yield: 5.8 percent
#9: Altria Group (MO) Dividend yield: 6.1 percent
#8: Invesco (IVZ) Dividend yield: 6.2 percent
#7: Macy’s (M) Dividend yield: 6.2 percent
#6: Kimco Realty Corp. (KIM) Dividend yield: 6.4 percent
#5: AT&T (T) Dividend yield: 6.8 percent
#4 Ford Motor Co. (F) Dividend yield: 6.8 percent
#3: Iron Mountain (IRM) Dividend yield: 6.9 percent
#2: Macerich Co. (MAC) Dividend yield: 7 percent
#1: CenturyLink (CTL) Dividend yield: 8.3 percent

Take Newell.  The current stock price is $15.09, and the call for $16.00 sells for $0.03.  That is a yield of 2.3% per year.  Umm, nevermind, its not worth it.  But it might be worth on some stocks.

Change in Real GDP

You have to subtract out any increase in the national debt from the GDP to get the real GDP.  It ends up like this:

		Public Debt	Public Debt	Change in	Change in	% Change
	GDP	Beg of Year	End of Year	Debt	Real GDP	Real GDP
2000	10,252	3687	3434	-253
2001	10,582	3434	3443	9	320	3.13%
2002	10,936	3443	3710	267	88	0.83%
2003	11,458	3710	4176	466	56	0.51%
2004	12,214	4176	4572	396	359	3.14%
2005	13,037	4572	4872	300	523	4.28%
2006	13,815	4872	5054	182	596	4.57%
2007	14,452	5054	5334	280	357	2.59%
2008	14,713	5334	6836	1502	-1,241	-8.59%
2009	14,449	6836	8294	1458	-1,722	-11.70%
2010	14,992	8294	9656	1362	-819	-5.67%
2011	15,543	9656	10876	1220	-669	-4.47%
2012	16,197	10876	11922	1046	-392	-2.52%
2013	16,785	11922	12643	721	-133	-0.82%
2014	17,522	12643	13090	447	290	1.73%
2015	18,219	13090	13929	839	-141	-0.81%
2016	18,707	13929	14374	445	43	0.24%
2017	19,485	14374	14832	458	320	1.71%
2018	20,494	14832	16101	1269	-260	-1.34%
2019	21252	16101	16621	520	238	1.16%
2020	22120	16621	17576	955	-87	-0.41%
2021	22939	17576	18589	1013	-194	-0.88%
2022	23778	18589	19748	1159	-320	-1.40%
2023	24672	19748	20910	1162	-268	-1.13%
2024	25642	20910	22021	1111	-141	-0.57%
2025	26656	22021	23253	1232	-218	-0.85%

There are some flaws in the data here, with inaccurate numbers, but I am looking for the big picture.  The last year that looks completely normal is 2007.  Since then, the GDP has been juiced by the debt.  Yes there are positives in 2014, 2016, 2017 and 2019.  2019 has some problems with the data so ignore it.

So lets call 2017 normal.  The GDP in 2017 went up 778 billion and the debt only went up 458 billion, for a net increase of 320 billion of real GDP.  Every year after that has debt going up more than the change in GDP.

Why does it matter?  Well the theory is that you can grow the economy faster than the debt and decrease debt as a percent of GDP.  But what if you can't and need the debt increase to grow at all?  So if you can't borrow anymore the economy won't grow.  It seems like we are already in that position.  So what can we do?  Just tread water.  Keep borrowing until we can't borrow anymore.  And lower the interest rate to make it manageable, like Japan.

The problem with this is the "dead wood" - zombie corporations, ineffective and bloated bureaucracies, etc - that will keep growing until they suck out the life of the system which will cause a collapse.

Update:  I guess the big question is can we keep the status quo (of being stuck in a dead economy) going, or will it start collapsing faster and thus we need to borrow even more money.  Will the next recession cause $2 trillion/year deficits?  It could happen.  So any more forecasts are pointless until the recovery from the next recession.

Countdown to FOMC

From reviewing the treasury yield curve, I think that interest rates will drop probably in March 2020.  However, there are other opinions out there that this will happen much sooner.

The site: Countdown to FOMC believe that there is over a 20% chance that rates will drop by July and over a 50% chance that rates will drop by September.

Once you get out to December, they predict a 78.5% chance that rates will drop by a quarter point or more.

I don't have any inside knowledge but I just don't see it.  The bond market is smarter than me, and the 1-year rate is still at 2.32%.  This means only one rate cut in the next year, unless the 1 year drops some more.  Something to keep an eye on.

Justin Amash's Arguments for Impeachment via Twitter

This is the best and most coherent argument I have read yet in favor of impeachment:

People who say there were no underlying crimes and therefore the president could not have intended to illegally obstruct the investigation—and therefore cannot be impeached—are resting their argument on several falsehoods:

1. They say there were no underlying crimes.

In fact, there were many crimes revealed by the investigation, some of which were charged, and some of which were not but are nonetheless described in Mueller’s report.

2. They say obstruction of justice requires an underlying crime.

In fact, obstruction of justice does not require the prosecution of an underlying crime, and there is a logical reason for that. Prosecutors might not charge a crime precisely *because* obstruction of justice denied them timely access to evidence that could lead to a prosecution.

If an underlying crime were required, then prosecutors could charge obstruction of justice only if it were unsuccessful in completely obstructing the investigation. This would make no sense.

3. They imply the president should be permitted to use any means to end what he claims to be a frivolous investigation, no matter how unreasonable his claim.

In fact, the president could not have known whether every single person Mueller investigated did or did not commit any crimes.

4. They imply “high Crimes and Misdemeanors” requires charges of a statutory crime or misdemeanor.

In fact, “high Crimes and Misdemeanors” is not defined in the Constitution and does not require corresponding statutory charges. The context implies conduct that violates the public trust—and that view is echoed by the Framers of the Constitution and early American scholars.

Mueller’s report describes a consistent effort by the president to use his office to obstruct or otherwise corruptly impede the Russian election interference investigation because it put his interests at risk.

The president has an obligation not to violate the public trust, including using official powers for corrupt purposes. For instance, presidents have the authority to nominate judges, but a president couldn’t select someone to nominate because they’d promised the president money.

This principle extends to all the president’s powers, including the authority over federal investigations, federal officials, and pardons.

President Trump had an incentive to undermine the investigation into Russian interference in the 2016 election, which included investigating contacts between Russia and the Trump campaign.

The investigation threatened to uncover information, including criminal activity, that could put Trump’s interests at risk. Ultimately, the investigation did uncover very unflattering information about the president, his family, his associates, his campaign, and his business.

It also revealed criminal activities, some of which were committed by people in Trump’s orbit and, in the case of Michael Cohen’s campaign finance violation, on Trump’s behalf.

The investigation began before the president was elected and inaugurated. After Trump assumed the powers of the presidency, Mueller’s report shows that he used those powers to try to obstruct and impede the investigation.

Some excuse Trump’s conduct based on allegations of issues with the investigation, but no one disputes the appropriateness of investigating election interference, which included investigating contacts between the Trump campaign and people connected to the Russian government.

Some examples in Mueller’s report of the president’s obstructing and impeding the investigation include:

1. Trump asked the FBI director to stop investigating Michael Flynn, who had been his campaign adviser and national security adviser, and who had already committed a crime by lying to the FBI.

2. After AG Sessions recused himself from the Russian investigation on the advice of DoJ ethics lawyers, Trump directly asked Sessions to reverse his recusal so that he could retain control over the investigation and help the president.

3. Trump directed the White House counsel, Don McGahn, to have Special Counsel Mueller removed on the basis of pretextual conflicts of interest that Trump’s advisers had already told him were “ridiculous” and could not justify removing the special counsel.

4. When that event was publicly reported, Trump asked that McGahn make a public statement and create a false internal record stating that Trump had not asked him to fire the special counsel, and suggested that McGahn would be fired if he did not comply.

5. Trump asked Corey Lewandowski, his former campaign manager, to tell AG Sessions to limit the special counsel’s investigation only to future election interference. Trump said Lewandowski should tell Sessions he was fired if he would not meet with him.

6. Trump used his pardon power to influence his associates, including Paul Manafort and Michael Cohen, not to fully cooperate with the investigation.

Trump, through his own statements—such as complaining about people who "flip" and talk to investigators—and through communications between his personal counsel and Manafort/Cohen, gave the impression that they would be pardoned if they did not fully cooperate with investigators.

Manafort ultimately breached an agreement to cooperate with investigators, and Cohen offered false testimony to Congress, including denying that the Trump Tower Moscow project had extended to June 2016 and that he and Trump had discussed traveling to Russia during the campaign.

Both men have been convicted for offering false information, and Manafort’s lack of cooperation left open some significant questions, such as why exactly he provided an associate in Ukraine with campaign polling data, which he expected to be shared with a Russian oligarch.

Some of the president’s actions were inherently corrupt. Other actions were corrupt—and therefore impeachable—because the president took them to serve his own interests.

The president has authority to fire federal officials, direct his subordinates, and grant pardons, but he cannot do so for corrupt purposes; otherwise, he would always be allowed to shut down any investigation into himself or his associates, which would put him above the law.

Source: https://twitter.com/justinamash

I am going to reply to this at some point, but I want to repost this because it is pretty good. 

Majestic-12 Special Operations Manual

http://goldenageofgaia.com/wp-content/uploads/US%20ARMY%20-%20UFO%20Official%20Manual%20(5702KB).pdf

Of course it is a hoax.  It is still pretty cool.  It looks real.  I want to believe.

Panama Pacific Exposition in San Francisco in 1915

This was less than 10 years after the 1906 earthquake. Amazing.

Enemy of the State, part II

Chelsea Manning

Chelsea [Bradley] Manning was once again found in contempt by a federal judge for refusing to testify before a grand jury and will return to jail, just seven days after being released from the same jail. In a court proceeding Thursday in Alexandria, Virginia, Manning was remanded by the US Marshals Service and will return to detention. The judge also ruled that he will be fined $500 per day after 30 days and $1,000 per day after 60 days.   Assistant US Attorney Thomas Traxler argued Thursday that "Manning holds the keys to the jailhouse door," while Manning told Judge Anthony Trenga that he would "rather starve to death" than testify. "I would rather starve to death than change my opinions in that regard," Manning told Trenga, reiterating her opposition to the secretive grand jury process.

Manning will likely be placed back in "administrative segregation" for 22 hours a day.

Manning is being held in contempt of court for refusing to testify before a grand jury about her contacts with Wikileaks and Julian Assange.

Manning was sentenced to 35 years in military prison for espionage and theft in 2013.  His sentence was commuted by President Obama in 2017, so he served less than 4 years of the sentence.

He could be in there a long time.  Martin Armstrong was held in jail on contempt charges for more than seven years before he folded.

I don't think Bradley Manning should have ever been giving top secret clearance, and I think he should have been executed or given life in prison for his actions.  He gave millions of top secret documents to Wikileaks.  That said, he has completed his sentence.  He is being harassed by the government now because they hate Julian Assange so much.

The Great Fires of October 8, 1871

Everyone knows about the Great Chicago Fire of Chicago, which occurred on October 8, 1871.  It was supposedly caused by Mrs O'Leary's cow kicking over a lantern.  The fire killed 300 people, and left 100,000 people homeless. It burned about 3 square miles, or about 2100 acres.

But here is the rest of the story.  There were many other fires that started at almost the exact same time.  The Peshtigo fire of October 8, 1871, on both sides of Green Bay, Wisconsin (but not burning the city of Green Bay), was much larger, destroying 1875 square miles of forest, and it killed 1500 people.  This may have been two separate fires, because Green Bay is about 10 miles wide and fires burned on both sides of it.

Across Lake Michigan, separate fires burned in Holland, Manistee, Alpena, and Port Huron, collectively known as the Great Michigan Fire, which burned more than 3900 square miles, and killing and unknown number of people, probably less than 500.

Update: Here is another article about it.
https://io9.gizmodo.com/october-8-1871-the-night-america-burned-5897629

Introduction to Behavioral Ethics

Reading Tea Leaves Part II - Interest Rate Drop in December 2019

Interest rates dropped again today, so here is how I am reading the current tea leaves.

	Rate	3 month	6 month	1 year	2 year	3 year	5 year
Jun 21, 2019	2.40%	6	6	6	6	6	6
Sep 21, 2019	2.40%		6	6	6	6	6
Dec 21, 2019	2.15%			5.375	5.375	5.375	5.375
Mar 21, 2020	2.15%			5.375	5.375	5.375	5.375
Jun 21, 2020	2.15%				5.375	5.375	5.375
Sep 21, 2020	2.15%				5.375	5.375	5.375
Dec 21, 2020	2.15%				5.375	5.375	5.375
Mar 21, 2021	1.90%				4.75	4.75	4.75
Jun 21, 2021	1.90%					4.75	4.75
Sep 21, 2021	2.15%					5.375	5.375
Dec 21, 2021	2.15%					5.375	5.375
Mar 21, 2022	2.15%					5.375	5.375
Jun 21, 2022	2.15%						5.375
Sep 21, 2022	2.40%						6
Dec 21, 2022	2.40%						6
Mar 21, 2023	2.40%						6
Jun 21, 2023	2.40%						6
Sep 21, 2023	2.40%						6
Dec 21, 2023	2.40%						6
Mar 21, 2024	2.40%						6
Total interest paid		6	12	22.75	43.625	64.5	111.875
Num quarters		1	2	4	8	12	20
Total Annualized Return		2.42%	2.41%	2.28%	2.16%	2.11%	2.14%
Actual as of 5/15		2.42%	2.43%	2.30%	2.16%	2.12%	2.15%

The 7-year and longer doesn't really add anything so I am omitting it.  This predicts a rate drop to 2.15% in December 2019, only 7 months from now, and a further drop to 1.9% in March 2021.

The only reason the Fed would drop rates in December is if the economy worsens considerably and/or if the stock market crashes.  Anyways, this predicts a negative event (like a stock market crash) sometime between September 21 and December 21.  This isn't me saying it, its the bond yield curve.  Of course, there may be more than one way of reading the tea leaves.