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Instagram founder Kevin Systrom and others have warned that the White House's crackdown on TikTok - the Chinese-owned social media platform that has attracted some 100 million American users - is a net negative for the app's American rivals, even as shares of Facebook and Snap popped as the Trump Administration publicized its plans for barring new downloads of both TikTok and WeChat, two companies that had been targeted in an executive order last month. It's the first step toward a total ban, if a deal isn't worked out by Nov. 12 (at least, as far as TikTok is concerned).

As a result, TikTok's American CEO Vanessa Pappas tweeted an invitation for Facebook, which owns Facebook, Whatsapp and Instagram, some of the world's most popular social media and digital communications platforms, to join TikTok's lawsuit fighting the Trump Administration's ban.

We agree that this type of ban would be bad for the industry. We invite Facebook and Instagram to publicly join our challenge and support our litigation. This is a moment to put aside our competition and focus on core principles like freedom of expression and due process of law.

— Vanessa Pappas (@v_ness) September 18, 2020

And a couple of hours later, with US stocks trading in the red, an anonymous US official reassured CNBC that a deal to save TikTok

*STILL A CHANCE FOR TIKTOK DEAL SAYS SENIOR ADMIN. OFFICIAL:CNBC

— zerohedge (@zerohedge) September 18, 2020

With the state of the "deal" (which would leave Oracle and Walmart among a group of investors backing a newly independent US-based company housing TikTok's international business) in constant flux, reports are claiming that AG William Barr is now the lone senior administration official with a say in the CFIUS decision who remains unconvinced. Questions remain about whether ByteDance will retain control of the TikTok content recommendation algorithm.

Correction - ALGO not ALOG https://t.co/neueG5MUST

— Charles Gasparino (@CGasparino) September 18, 2020

Despite reports that Beijing could give the deal its blessing, US officials are now claiming that China could still sabotage the deal.

Just spoke to a senior administration official about the state of play on Oracle/Tik Tok right now. SAO said: No former CFIUS committee meetings yet, but Steven Mnuchin is holed up on the phones trying to work this out with his team. “No final decisions have been made.”

— Eamon Javers (@EamonJavers) September 18, 2020

SAO: There is still “a chance” for an Oracle/Tik Tok deal by Monday.

— Eamon Javers (@EamonJavers) September 18, 2020

SAO on Tik Tok: “Mnuchin cares about the deal but POTUS could take it or leave it.”

— Eamon Javers (@EamonJavers) September 18, 2020

SAO says the Chinese government has not blessed the deal yet: “Chinese government has yet to signal that they would take the deal. That’s an important point here. They will be heard from.”

— Eamon Javers (@EamonJavers) September 18, 2020

The official says that there is a scenario in which the parties could agree to a deal and Trump could bless it, and the Chinese will block the sale anyway.

— Eamon Javers (@EamonJavers) September 18, 2020

With the administration threatening to ban new downloads of both TikTok and WeChat (a popular chat & payments app developed by China's Tencent) as soon as Sunday night, President Trump is appearing at a hastily arranged 1400ET press briefing. Speculation among the White House press corp is that the briefing will focus primarily on the deal.

We have a sneaking suspicion, however, that the briefing will leave us with more questions than answers.

Earlier today we laid out the views of Nomura's Charlie McElligott who discussed why 270 in the QQQs is the "line in the sand" for dealers, as a drop below this "trigger" level could open a trapdoor for markets leading to "things getting sloppy to the downside into next week."

BMO's Russ Visch picks up on the theme of imminent market weakness, and on Friday morning writes that "we are in the worst calendar month of the year for equities both here and in the U.S. and it’s not even close. In addition, the week following the September quadruple witching has also been one of the most consistently negative weeks of the year with the S&P 500 closing lower nearly 80% of the time over the past 30 years."

So, as he puts it, "we’re headed right into the worst of the worst, so to speak."

Looking at a chart, this means that to expect more downside "since momentum gauges remain mostly negative" and should the S&P close below the mid-September low at 3310, that would open the door for a test of next support at 3233:

Similarly for the Nasdaq, should support at 10,850 fail (as it has already done today), a drop to 9,838 is possible:

But before BMO's clients freak out and dump everything, Visch has some soothing words: the pain won't last, and the market's trend in the medium-term remains up: 

The reality is that so far, the correction that’s been underway since the beginning of September has played in the manner we’ve expected. It’s driven largely by the wildly overextended mega-cap growth names which are having an outsized impact on the major averages (SPX: - 6.43%, Nasdaq -9.64%) while the vast majority of stocks are holding up just fine. (Russell 2000 -3.32%, NYSE Composite -2.64%.)

In essence, Visch concludes, "the market is letting some “steam” out of the areas that need it the most." And while he would still allow for more weakness in line with seasonal headwinds that stretch out into October, "so far nothing about this pullback has us concerned about the broader, bullish backdrop."

 

Authored by Steve Watson via Summit News,

A series of new polls reveals that the majority of Americans believe there is a war being waged against police officers, and that support for the ‘black lives matter’ movement has dropped even further, with many more now seeing little distinction between the movement’s ‘protests’ and violent riots.

Polls from Pew Research and Fox News reveal that support for BLM has dropped more than ten percentage points in just a few months.

“As racial justice protests have intensified following the shooting of Jacob Blake, public support for the Black Lives Matter movement has declined,” Pew notes.

“A majority of U.S. adults (55%) now express at least some support for the movement, down from 67% in June amid nationwide demonstrations sparked by the death of George Floyd. The share who say they strongly support the movement stands at 29%, down from 38% three months ago.”

The findings also show that “The recent decline in support for the Black Lives Matter movement is particularly notable among White and Hispanic adults.”

“In June, a majority of White adults (60%) said they supported the movement at least somewhat; now, fewer than half (45%) express at least some support,” Pew notes, adding that “The share of Hispanic adults who support the movement has decreased 11 percentage points, from 77% in June to 66% today.”

A corresponding Fox News poll shows that “More voters consider the unrest in three US cities stemming from Black Lives Matter demonstrations to be riots rather than protests.”

“The poll, published Sunday, found that 48 percent of likely voters surveyed described violence in New York, Portland, and Kenosha, Wisconsin to be riots, compared to 40 percent who saw them as protests,” The new York Post noted.

Meanwhile, a third poll, from Rasmussen, reveals that 59% of voters believe there is a war being waged on police officers.

A whopping 80% of Republicans said it is obvious to them that there is a war on police, compared to 39% of Democrats.

In addition, a majority of independents (60%) agreed with the statement.

Previously, in 2018, 43% of respondents believed there is an ongoing war against police, with another previous high of 58% in 2015 also now being eclipsed.

The new poll found that 59% of respondents say they support the institution of ‘Blue Lives Matter’ laws in their state to classify attacks on police and first respondents as hate crimes with harsher punishments. Several states have already implemented such laws since 2016.

The Rasmussen poll reveals that while white voters are most likely to support ‘Blue Lives Matter’ laws (63%), a majority of 52% of black voters also support the idea, in addition to 49% of other minority voters also expressing support.

The poll also found that a huge majority of 84% of black voters expressed concern that attacks on police would lead to a shortage of police officers and a decline in public safety.

Tesla has won a court case against whistleblower Martin Tripp, who was fired from the company for hacking company data and transferring it to third parties. 

Tripp was a former Tesla process engineering technician who claimed that Musk had defamed him after he revealed problems at the company's Gigafactory and filed a whistleblower complaint with the SEC.

Tesla filed suit against former employee Tripp in 2018, alleging that he had admitted to writing software that hacked Tesla's vehicle operating system, according to Reuters. Tripp then transferred several gigabytes of data to third parties and made false claims to the media, Tesla alleged. 

Tripp had also sued Musk for defamation - but U.S. District Judge Miranda Du rejected Tripp’s arguments and granted Tesla's motion to dismiss, according to Bloomberg. Tripp had failed to establish actual malice on the part of Elon Musk, the court said. The court also said that Tesla could not hold Tripp responsible for drops in the company's stock price. 

The U.S. district court of Nevada also said it will grant Tesla's motions to seal the case “because compelling reasons support them, and they are unopposed.”

The court denied Tripp's motion for leave to file an additional reply. 

On the defamation claims, Musk skated by on hyperbolic speech and making false statements even where the judge found the substance to be more or less true. This includes the statements about supposed hacking, which the judge saw as muddy but not enough to be clearly false.

— PlainSite (@PlainSite) September 18, 2020

Authored by Jim Rickards via The Daily Reckoning,

Unemployment skyrocketed in March and April, during the worst stage of the pandemic and the lockdowns that followed.

The unemployment rate approached 15% in April and total initial claims for unemployment benefits exceeded 59 million between March and August.

This was the worst episode of unemployment since The Great Depression in the early 1930s.

Things have improved since spring. Unemployment fell to about 11% by July and even further in the August unemployment figures released last Friday.

Does this mean the worst is over and the economy is recovering quickly? Not exactly.

No More Payroll Protection Plan

Unemployment would have been much worse in April and May but for the Payroll Protection Plan enacted by Congress.

This Plan appropriated almost $1 trillion in easy-to-get loans for small-and-medium sized businesses. The loans would be forgiven if the proceeds were used to maintain payrolls for two-and-one-half months or to pay rent.

This program acted as a kind of bridge loan from May to July to keep employees on the payroll. It worked. But now, those funds have run out and the lockdowns continue in many parts of the economy.

Businesses that were expecting a reopening and a V-shaped recovery have found that the reopenings have been delayed by new lockdowns and that the recovery is real but weak.

We’re starting to see a second wave of layoffs as the Payroll Protection Plan money runs out and the economy doesn’t recover as hoped.

Meanwhile, states and cities are also planning huge layoffs in the coming weeks as tax revenues dry up and the costs of riots and looting begin to add up.

Putting all of this together reveals that unemployment may actually rise, starting now, after declining from May through August.

Digging Out of a Deep Hole

The reality is, the economy’s in very bad shape. The idea that we’re going to bounce back out of this with all this pent up demand is nonsense. The data is already indicating we’re in a recovery, yes. But if you fall into a 50-foot hole and climb 10 feet up, you’re still 40 feet in the hole.

We’re not going to see 2019 levels of output until 2023 at the earliest. We’re not going to see 2019 low levels of unemployment until probably 2025. We’re not getting back there for three or four or maybe five years. So we’re looking at a long, slow recovery.

And that’s if things don’t get worse from here. But they could, especially if we get a deadly second wave of the virus.

We’ve climbed 10 feet out of the hole. Unfortunately, we could find ourselves right back at the bottom before too long.

Of course, we can’t talk about the economy without mentioning the Fed…

The Powerless Fed

In a highly publicized speech on August 27, 2020 at the Federal Reserve Jackson Hole Conference, Fed Chair Jay Powell declared a new form of monetary policy for the Fed.

For the past 20 years, the Fed has pursued a policy of targeting 2% inflation. They have generally failed miserably at this; inflation has only hit 2% briefly since 2007 and has typically been closer to 1.5% than the 2% target.

Now, the Fed will target average inflation of 2%. This means that if inflation is under 2% for a sustained period (as it has been), then inflation can run above 2% so that the average of the over and under periods will come close to the target.

But there are numerous flaws in this approach, which the Fed does not understand.

The first problem is that if the Fed cannot achieve 2% inflation, why on earth do they believe they can achieve 2.5% inflation to hit the average of 2%? It’s basically meaningless.

Between 2008 and 2014, the Fed created trillions of dollars through quantitative easing (which actually seems like small potatoes compared to what we’re seeing now).

Many analysts sounded the alarm about “inflation” as the inevitable consequence of all that excessive money printing by the Fed. It seemed like a perfectly reasonable warning at the time.

But despite all the fears, nothing bad happened.

Inflation actually fell; there was no serious inflation threat. Interest rates fell. There was no “bond bubble” or rout in the bond market.

That’s why there’s so little resistance to all the monetary programs we’re seeing now.

It’s like the boy who cried wolf. Analysts cried wolf about inflation during the last crisis, but the wolf never materialized. Why should we listen to them now?

It’s About the Velocity, Stupid

As I’ve argued before, and can’t state strongly enough:

Inflation is not caused by money printing alone. It’s caused by the velocity, or turnover, of money.

Velocity is a psychological phenomenon that has nothing to do with the Fed, (in fact, the Fed doesn’t even understand how it works).

The Fed can “print” all the money in the world. But if people don’t actually spend it; but save it instead, it won’t create inflation because there’s no velocity.

And now, because of high unemployment and failing businesses, people are not spending money even when the economy reopens. They’re saving instead.

Now, savings in general is positive. A high savings rate can be good in the long-run, but it kills consumption in the short-run.

It means little money velocity. It means that not much money is turning over.

And since consumption is 70% of the U.S. economy, the immediate aftermath of the pandemic will be slow growth, disinflation and even deflation (disinflation and deflation aren’t the same).

So we’re looking at disinflation and deflation for now, despite all the money creation we’re seeing now.

But that doesn’t mean inflation is dead. The inflation will come, just not yet…

When You’ll See Inflation

Inflation will come when people lose confidence in the dollar and suddenly dump dollars for any hard assets they can find.

Money velocity will accelerate, but it won’t be into consumer goods. It’ll be into hard assets that hold their value over time, gold in particular.

In other words, the best leading indicator of inflation won’t be found in the grocery store or at the gas pump.

It’ll be found in the dollar price of gold.

Of course, higher gold prices mean higher consumer prices — since higher gold prices mean a weaker dollar. More dollars will be required to buy the same amount of goods.

Clearly, the Fed does not know how to cause inflation. Just saying they have a higher target does nothing actually to hit the target.

“What’s So Great About 2% Inflation?”

The second problem with the Fed’s new inflation policy is: What’s so great about 2% inflation?

That level of inflation cuts the value of the dollar in half in 35 years, and in half again in another 35 years. Your dollar would lose 75% of its value in an average lifetime.

If inflation is only 3%, the 75% dollar devaluation happens in about 45-years; an average career span.

Zero percent inflation is the only appropriate target. And, targeting average inflation using past mistakes as a baseline is looking in the rearview mirror.

Inflation should be targeted on a going-forward basis only and not have to drag with it the fruits of prior blunders.

It’s been clear for decades that the Fed has no idea what it is doing when it comes to monetary policy.

This new announcement by Jay Powell just makes their confusion even more obvious.

The safe havens in the present slow-growth, high unemployment environment are cash, Treasury notes and gold.

Of course, gold is also the asset to own when inflation does arrive.

When gold pushes past $2,000 per ounce toward $3,000 per ounce, that’s your signal that inflation in the price of everything else is not far behind.

Don’t wait until that happens. Buy your (physical) gold now while it’s still affordable.

A 4th fiscal deal remains far off according to Nancy Pelosi who spoke on Bloomberg TV and said that she is sticking to her demand for at least $2.2 trillion in the next covid relief bill, clarifying that "state and local" is critical and adding that "something is not necessarily better than nothing" on aid, an argument which both millions of people and markets may have an argument with.

And speaking of the latter, stocks legged lower, and after staging a modest rebound in the past hour, dropped back under the 50DMA and to session lows following Pelosi's comments, while QQQs continuing to slide below the 270 critical level.

Some other headlines from the interview:

• *PELOSI SAYS STIMULUS NEEDS ARE ONLY GROWING AMID PANDEMIC
• *PELOSI SAYS WORKING OUT DETAILS ON STOPGAP FUNDING BILL
• *PELOSI: HOPE TO HAVE STOPGAP TODAY, BRING TO FLOOR NEXT WEEK

As a reminder, two days ago Trump made it clear that the White House is now willing to settle at the $1.5 trillion package which was introduced by the Problem Solver caucas, urging Senate republicans to raise their $500BN skinny deal, although Larry Kudlow yesterday said GOPs have sought to cap aid package at $1 trillion. The reason: republicans believe more stimulus would bail out poorly run democratic states, and the delta between the latest GOP bid of $1.5 trillion and the Democratic ask of $2.2 trillion - which would go to fund various states - remains a key sticking point.

In short, the US remains far from any imminent fourth stimulus deal, something which Goldman noted earlier when it said that "the prospects for further fiscal stimulus have dimmed further, as another week has gone by without any progress. At this point, a major stimulus package before the election looks like a long shot and we expect Congress to leave at the end of September without extending the extra unemployment insurance payment, approving another round of stimulus payments, or providing additional support to small businesses or state and local governments."

As a result of this downbeat admission that it was wrong - again - Goldman conceds that the 9adverse) outcome of the fiscal debate is likely to mean (downward) changes to its forecast for Q4:

Our current forecast assumes a $1 trillion package, including partial extension of the extra unemployment benefit and additional PPP loans. Failure to pass any additional fiscal measures would likely lead us to downgrade our growth estimates for Q4. By contrast, enactment of the sort of package that President Trump or Speaker Pelosi have both endorsed would likely lead us to upgrade our view for Q4.

That said, Goldman concludes that "there is still a fairly good chance for additional stimulus, eventually." The catalyst: "If Democrats win the White House and both chambers of Congress, we expect them to pass a large fiscal stimulus package, similar to the $2.2 trillion proposal Speaker Pelosi has endorsed, as one of the first orders of business in 2021. This would be in addition to Vice President Biden’s longer-term fiscal expansion plans. Some additional fiscal relief would also be possible under divided government, though the magnitude would likely be much smaller."

In short, while a stimulus bill may be delayed - at least until the election - it is only a matter of time before it passes, with the final bill likely to be far greater than the $2.2 trillion some have tentatively priced in, just as Charlie McElligott noted earlier today.

Authored by Jezzamine Wolk via Campus Reform,

The Department of Education has launched an investigation into Princeton University following a controversial open letter from University President Christopher Eisgruber claiming racism is “embedded” in the institution.

According to a letter obtained by the Washington Examiner, the admission “raises concerns” about possible violations of Title VI of the Civil Rights Act of 1964.

It states that "no person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance." The authenticity of the letter was confirmed by a Department of Education spokesperson to Campus Reform.

Meanwhile, Princeton has received tens of millions of dollars in federal funding.  The main point of contention is if the university, in accordance with receiving federal funds, lied in its promise to not uphold racist standards.

"Based on its admitted racism, the U.S. Department of Education ('Department') is concerned Princeton’s nondiscrimination and equal opportunity assurances in its Program Participation Agreements from at least 2013 to the present may have been false," the letter read.

"The Department is further concerned Princeton perhaps knew, or should have known, these assurances were false at the time they were made.”

The Department of Education sent a formal records request to pursue this investigation. The department is seeking what evidence the university used to determine it is racist, all records in relation to the President’s letter, and a spreadsheet identifying those subjected to discrimination. In addition, under oath, the president and a designated representative will sit for interviews and the school must respond to written questioning.

The president’s letter with plans to “combat systemic racism” was in response to a July letter from hundreds of faculty members demanding he take anti-racist action.

However, his words were met by criticism by other faculty members. 

Campus Reformreported that one Mathematics professor, Sergiu Klainerman, stated in a Newsweekop-ed, “Princeton is not in the least racist.”

Campus Reform reached out to Princeton University for a statement but did not hear back in time for publication.

A Michigan judge on ruled on Friday that the state must accept ballots that arrive within two weeks of the election, as long as they are postmarked by November 2nd. The judge also said that the state - which was decided by 10,000 votes in 2016 - cannot restrict who can help voters return an absentee ballot.

This is very significant and the second ruling this week in a key swing state extending the ballot receipt deadline. The Pennsylvania supreme court ruled yesterday that ballots in the state must count if they are postmarked by election day and arrive by Friday after.

— Sam Levine (@srl) September 18, 2020

Michigan joins Pennsylvania in recent mail-in-ballot rulings, after a top state court on Thursday relaxed a deadline related to accepting ballots as long as they're postmarked no later than November 3 and arrive within three days (as opposed to two weeks in Michigan).

Here's how election lawsuits in other key swing-states are shaping up, via The Hill.

In Florida there's a major dispute over steps which former felons must take in order to regain their right to vote - which could affect nearly 800,000 votes. An estimated two-thirds of affected felons are Black and tend to lean Democrat.

The fight traces back to a 2018 amendment to Florida’s constitution — known as Voting Restoration Amendment 4 — that restored voting rights to those with most types of felony convictions who had completed “all terms” of their sentences.

Florida Gov. Ron DeSantis (R) the following year signed into law a bill that obligated Floridians with felony records to settle all outstanding court debt before their voting rights were reinstated. Democrats and civil rights groups say the law is an unconstitutional modern-day version of a Jim Crow-era poll tax.

The case eventually made its way up to the full 11th U.S. Circuit Court of Appeals. Earlier this month, the Atlanta-based court voted 6-4 to uphold a Florida law requiring indigent former felons to pay off outstanding court fees as a precondition to having their voting rights restored. -The Hill

In Wisconsin, residents filed a class action lawsuit against state election officials and lawmakers over the state's controversial April 7 primary election - which was fraught with last-minute legal and political wrangling over the state's alleged failure to create reasonable accommodations for primary voters amid the pandemic which forced thousands to "sacrifice their vote rather than run the risk of in-person voting during America’s worst infectious disease outbreak in more than a century." Plaintiffs want the court to recognize the state's past failings and avoid a repeat in November.

In Arizona, a lawsuit over how the state handles ballots cast at the wrong polling location is working its way through their legal system. Currently, election administrators are required to toss ballots which were 'miscast' at the wrong location.

Arizona Republicans say out-of-precinct policies are common across the U.S. and help ensure ineligible voters do not cast ballots in local races for officeholders who are running to represent a different geographic area. -The Hill

Another lawsuit in Arizona, H.B. 2023, would criminalize the collection and delivery of someone else's ballot - which The Hill says is overwhelmingly more likely to affect minority voters than whites.

While the latest FOMC announcement on Wednesday was generally in line with expectations (even as the market strongly hints that it could have been far stronger in terms of supporting risk assets) there was one notable surprise in that not one but two FOMC voters dissented. This is what we said at the time:

Kaplan was a hawkish dissent. To Kashkari not even the superdovish Fed was dovish enough

— zerohedge (@zerohedge) September 16, 2020

Feeling the urge to explain himself further, Kashkari earlier today published a blog titled "Why I Dissented", in which he admits he "would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives."

In other words, the Fed - which is buying $120BN in securities each month, including corporate bonds and ETFs and has rates pegged at zero until at least 2023 - wasn't dovish enough.

To justify his uber-dovish bias, in the first part of the essay Kashakri provides a rehash of the Fed's admission that the Phillips curve has been broken for years. Discussing the broken linkage between "maximum employment" and the inflation it was supposed to spur, Kashkari first reviews what he learned from the recent tightening cycle that began in 2015, and writes that "that policy tightening was predicated on the Committee’s view that the labor market was reaching maximum employment and therefore inflation was around the corner. When I first became an FOMC voter, I dissented against all three of the Committee’s rate hikes in 2017 because, as I wrote then: “We are still coming up short on our inflation target, and the job market continues to strengthen, suggesting that slack remains.”  Recently, Governor Brainard commented: “had the changes to monetary policy goals and strategy we made in the new [monetary policy strategy] been in place several years ago, it is likely that accommodation would have been withdrawn later, and the gains [to the labor market] would have been greater.”  We misread the labor market and, as a result, the tightening cycle that we embarked upon was not optimal to achieving our dual mandate goals of maximum employment and stable prices."

He then notes that "in recent years, we have repeatedly believed we were at or beyond maximum employment only to be surprised when many more Americans reentered the labor market or chose not to leave, increasing the productive capacity of the economy without causing high inflation. To me, maximum employment is the point at which the labor market is just tight enough to deliver 2 percent inflation in equilibrium. If we were to push the labor market harder, we would end up with inflation greater than 2 percent. By this definition, even in January 2020, we had not yet reached maximum employment."

Of course, regular readers will know what the issue is here: it was back in... oh 2010, or a decade ago, when we first noted that as a result of America's transformation into a part-time worker society, corporations had learned to get away with paying the absolute minimum as well as avoiding full time hiring in order to maximize profits. This meant that even as employment hit the so-called "maximum", wages failed to keep up. Yet the Fed - which targets 2% inflation for the purely optical purpose of "ensuring" rising wages as it serves as the "budget constraint" to maximum employment - failed to grasp this simple fact, and kept insisting that ever lower unemployment rates - which were the result of record hiring in minimum and low paid jobs such as the record surge in waiters and bartenders under the Obama administration - would eventually lead to higher wages and, hence, inflation.

That never happened. So in his next discussion of why the Fed "consistently made this error", Kashkari writes that:

"First, we heard repeatedly from businesses who complained that they couldn’t find workers. Some said we had a “historic worker shortage.” At the same time, wages were only rising modestly. I learned that businesses want qualified workers at wages they are used to paying. If they can’t readily find workers at historical wage levels, then they declare a worker shortage. The fact that wages weren’t climbing more quickly helped me to see through their complaints and realize that there was likely still slack in the labor market.

Well that's truly insightful - after years of reading Fed beige books in which the recurring lament was a shortage of qualified workers, yet an unwillingness by employers to raise wages and find qualified workers - something finally clicked in the Fed's collective head, and it may have had to do with the fact that despite "maximum employment" there were 100 million people not in the labor force who gladly would jump right back into the labor force (courtesy of the Fed's crusade to destroy savers with ZIRP and soon NIRP), and who persistently kept wages low on the margin.

In other words, it only took Kashkari (and the Fed) 10 years to catch up to what we said in 2010.

Kashkari then gets to the crux of the issue, and in highlighting the FOMC's new "outcome-based" forward guidance...

“The Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

... he writes that while he supports the adoption of outcome-based forward guidance "as an important step forward for the Committee’s approach to setting monetary policy" his preference "would have been for this new forward guidance to be stronger."

Specifically, this new language still relies on the Committee to assess whether we are at maximum employment and whether inflation is expected to climb. As I just reviewed, those are difficult judgments to make in real time. For example, what would have happened had the FOMC adopted this forward guidance in 2012, when it first adopted its 2 percent inflation target? Inflation briefly crossed 2 percent in January 2017 before falling back down. Given that we believed at the time we were at or beyond maximum employment, this new forward guidance would likely have deferred liftoff from December 2015 to January 2017, a little more than one year later. While that would have been an improvement over what the Committee actually did, we still would have been lifting off based on a misreading of the labor market and a false signal that underlying inflation had really returned to target. Hence, we still may not have achieved our dual mandate goals of maximum employment and 2 percent inflation.

This reminds us of what we wrote at the end of August, when referring to a speech by Fed vice chair Richard Clarida who made the same point, we said that the Fed's 2015-2018 tightening cycle may have cost Hillary Clinton the election, something the Fed is clearly disappointed about (and as ex-NY Fed president Bill Dudley scandalously mused last year, the "apolitical" Fed may well have to spark a major market selloff to get rid of Trump; indeed still has 6 weeks to make good on this plan).

So what does Kashkari propose? Why delaying tightening until the Fed succeeds in doing something it has failed to do for the past decade: wait until there is a "sustained" increase in inflation above 2% - arguably as a result of rising wages - before hiking, to wit:

In June 2019, I proposed forward guidance that I continue to believe would better assist the FOMC in achieving its dual mandate goals. Specifically, I propose the following: “The Committee expects to maintain this target range until core inflation has reached 2 percent on a sustained basis.” By eliminating both the direct reference to our assessment of maximum employment and any forecast of inflation climbing, this proposed language guards against the risk of underestimating slack in the labor market. We would only lift off once we had demonstrated that we really were at maximum employment, because core inflation would have had to actually hit or exceed 2 percent on a sustained basis in order to lift off. Policymakers will have a range of opinions about what constitutes a sustained basis, but for me in this environment, it means roughly a year.

In short, capitalizing on the Fed's recent transition to an Average Inflation Targeting framework, Kashkari is doubling down as the de facto AIT voice at the Fed, and arguing that no hikes should take place until "average" inflation is sustainable above 2%. Of course, as we noted a few weeks ago, Bank of America calculated that for that to happen and for the AIT regime to offset years of inflation misses, the Fed would have to be at ZIRP for, drumroll, 42 years!

Which of course is perfectly find with Kashkari.

So "What might go wrong?" as the Minneapolis president muses in the conclusion to his essay, and "under what scenario might the Committee regret adopting the forward guidance I propose?"

As he explains, "if inflationary pressures are building, we might have to raise rates to keep inflation expectations anchored at 2 percent. Once core inflation crosses 2 percent on a sustained basis, my proposal allows the Committee to do exactly that. This scenario should not be a concern. We heard in the last expansion that there might be nonlinearities in the inflation process — that once inflation started climbing, it might accelerate, requiring a very strong policy response to control it. At the time, I called such theories ghost stories, because there was no evidence they were true but they also couldn’t be ruled out. I believe that characterization is still appropriate today. The FOMC has powerful tools to combat high inflation but only limited tools to combat low inflation. Persistent low inflation is posing challenges to advanced economies around the world. If this new forward guidance helped to generate higher inflation that the FOMC then had to respond to by raising rates, I think we would consider that a high-class problem."

Right, just ask Paul Volcker his "easy" it was to combat runaway inflation with the Fed's "powerful tools" - while several generations of Americans were not even born yet, the stagflation of the 1970s and early 1980s remains a most horrid memory. It is precisely this stagflation that the Fed wants to - and will - unleash on the US with its average inflation targeting, even without adopting Kashkari's even more dovish framework.

Furthermore, there was one scenario that "might go wrong" that Kashakri conveniently decided to ignore: the Fed sparking an even bigger asset bubble than the one we have now. As a reminder, while the Fed has indeed failed to spark higher wages and promote benign inflation in the "real economy", it has been tremendously successful in creating runaway asset inflation as the following Goldman chart shows.

Keeping rates at zero for years (or decades) only assures that what is already the world's biggest asset bubble will only get bigger. Which for a trickle-downer former banker such as Kashkari is what it's all about, and explains why it never even crossed his mind that such a scenario is among the alternative of "what might be wrong."

In any case, while Kashkari entire rationalization is just a strawman to keep rates at zero (or lower) in perpetuity merely to prop up risk assets and stock prices (never forget that Kashakri is first and foremost a Wall Street proxy at the Fed, having worked at both Goldman and Pimco before inexplicably taking over the Minneapolis Fed), he did need some economic justification to make his uber-dovish position felt, especially since the next administration - whether a continuation of Trump or Biden - will need the biggest dove it can find to monetize deficits that will make this year's record $3 trillion seems like amateur hour.

Consider Kashakri's "dissent explanation" his informal application for the role of Fed Chair under the 46th president of the United States.  

Progressive Democrats with dreams of bread-lines and poverty who worry that a Biden administration won't be socialist enough - never fear, AOC is here.

According to Democratic socialist Rep. Alexandria Ocasio-Cortez (D-NY), progressives will "likely" be able to swing the former Vice President in a more progressive direction should he win the election, according to Fox News.

"We’re different people, and clearly I, in the primary, one of the reasons why I was supportive of Senator Sanders was because of how progressive his stances are, but, you know, the primaries are over, and right now what is most important is to make sure that we ensure a Democratic victory in November and that we continue to push Vice President Biden on issues from marijuana to climate change to foreign policy," AOC told Just the News.

"I think, overall, we can likely push Vice President Biden in a more progressive direction across policy issues," she added. "I think foreign policy is an enormous area where we can improve; immigration is another one."

That said, Ocasio-Cortez walked a tightrope - emphasizing that she wouldn't attempt to undermine the 'moderate' Democratic platform.

AOC's interview comes as Noam Chomsky pushes for Democrats to shift even further to the left.

 

Chomsky urged US leftists to vote for Biden in this November’s presidential election and to press him to pursue a progressive agenda. 

“What the left should do is what it always should do: it should recognise that real politics is constant activism, in one form or another. Every couple of years something comes along called an election, you should take off a few minutes to decide if it’s worth voting against somebody, rarely for somebody. In the course of, say, Corbyn in England, I would have voted for him but most of the time the question is ‘who do you vote against?’  -New Statesman

"There are some areas where we just fundamentally disagree, but that's OK," said AOC. "I think it's important to acknowledge that we can have, in some cases, very large disagreements — it doesn't mean that we're trying to undermine the party or undermine each other. It means that we're trying to do what's best for people in the country."

On the topic of healthcare reform, the New York socialist said Biden is "pretty stubborn" - insisting he can revive Obamacare with a federally run public option, while AOC's progressive wing is pushing for Medicare-for-All.

"One concern I'd say that I have with a public option is that it very easily allows insurance companies to just kind of bump off their more expensive patients onto a public option, thus making an increase in the costs on a public option and kind of them keeping healthier people that require less insurance coverage for themselves," she said.

"The whole purpose of insurance is to even out those costs, which is why I believe single-payer is a better policy, so in terms of that we do disagree," AOC added. "But either way, I do think that a public option is likely a better scenario than we have right now."

When it comes to marijuana, AOC said she would push for "full legalization."

"But, you know, we will hash those out," she said. "Our main priority is to make sure that the vice president is successful and victorious in November so that we can have those kinds of conversations in the first place from a more effective stance with him in the White House."