The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

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Harris promises to offer free tuition for low-income students at public and historically Black colleges


Democratic vice presidential nominee Sen. Kamala Harris welcomed by a marching band at Florida Memorial University, a historically Black private university, on Thursday.


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Democratic vice-presidential nominee Sen. Kamala Harris promised Thursday that a Biden-Harris administration would make college tuition free at public schools and private historically Black colleges and universities for students whose families’ income is below $125,000 a year, and pledged student-loan debt forgiveness for some graduates of HBCUs.

“In relation to the history of HBCUs, [students] decide to take on a profession of service, which often does not pay as well as if they go into the private sector and do other things,” Harris said at a roundtable discussion held at Florida Memorial University, a historically Black private university. “So for those students who come out and have jobs that pay less than $125,000, student-loan debt will also be forgiven.”

Harris also promised to invest $70 billion in historically Black colleges and universities.

Additionally, she said that two-year college programs would be free for low-income Americans.

“We want to support our young people for whatever they pursue by way of education after high school,” Harris said. “For some that will be a college and university, for some it will be a two-year program, or an apprenticeship, or something of that nature, and we want to make sure that we support them in that quest.”

Harris made the remarks in response to Jaffus Hardrick, president of Florida Memorial University, who said that “we are literally working on a shoestring budget” amid the economic decline caused by the pandemic that has forced many students to reconsider attending college.

During her short-lived presidential campaign, Harris proposed making community college free.

Her remarks came in the key swing state of Florida, where 29 electoral votes are up for grabs, the most among any of the major swing states. Former President Barack Obama claimed the state by a thin margin in the 2008 and 2012 elections. President Donald Trump, however, won it in the 2016 election.

In a RealClearPolitics moving average of polls focused on top swing states that are likely to decide the election, Democrat Joe Biden had an edge of 3.9 percentage points over Trump as of Thursday, but his edge in Florida was just 1.2 points.

Before addressing the roundtable, Harris took a jab at Trump, citing the interview he had with Bob Woodward where he said “I wanted to always play it down,” referring to the threat of the looming pandemic.

“He suggested that to wear a mask is a sign of weakness as opposed to a sign of strength,” she said. “This is the president of the United States.”

Earlier in the day, Harris visited Doral, a neighborhood of Miami with a high concentration of Venezuelans.

Two days prior, Trump also visited South Florida, where he signed an order extending a moratorium on offshore drilling around Florida’s Gulf Coast.

Biden is scheduled to visit the Sunshine State on Sept. 15.



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Homeland Security whistle-blower says he was pressured to alter intelligence on Russia and white supremacists to match Trump preferences


Acting U.S. Secretary of Homeland Security Chad Wolf testifies during a hearing before Senate Homeland Security and Governmental Affairs Committee.


Alex Wong/Getty Images

WASHINGTON (AP) — An official at the Department of Homeland Security said in a whistle-blower complaint released Wednesday that he was pressured by agency leaders to suppress details in his intelligence reports that President Donald Trump might find objectionable, including intelligence on Russian interference in the election and the threat posed by white supremacists.

Brian Murphy says in a whistle-blower complaint filed with the agency’s inspector general that he was demoted for refusing to alter his intelligence reports in an “illegal and improper” manner.

The former FBI agent and Marine Corps veteran had served as principal deputy under secretary in the Office of Intelligence and Analysis.

In August, he was demoted to assistant to the deputy under secretary for DHS Management.

“Mr. Murphy is, put simply, a dedicated public servant who has had a laudable career prior to the recent events that have led to the submission of this package to the OIG,” his complaint states. “Prior to his current circumstances, he had never had so much as a negative fitness report in his professional career with the U.S. Government.”

In his complaint, he alleges that former DHS Secretary Kirstjen Nielsen, current acting Secretary Chad Wolf and his deputy, Ken Cuccinelli, repeatedly pressed him to change intelligence assessments in ways that would support administration policies or avoid offending the president.

In one example, he said Nielsen and her deputies pressed him to exaggerate the number of migrants with links to terrorism who have been detained at the Southwest border. Murphy said she falsely used a higher figure in testimony to Congress.

The complaint says Wolf, who has been nominated to be secretary by Trump, directed Murphy to cease providing intelligence assessments on the threat of Russian interference to the U.S. because it “made the President look bad.” Murphy said he declined because it would be a violation of his duties not to do it.

He said Cuccinelli directed him to modify a section of a report on white supremacy to make the threat appear less severe, and to include information on left-wing groups to echo administration talking points around civil unrest following the protests over the killing of George Floyd.

A copy of the complaint was released Wednesday by Rep. Adam Schiff of the House Intelligence Committee. Schiff says he has asked Murphy to testify to Congress.

DHS did not immediately respond to a request for comment by The Associated Press.



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Trump’s idea on changing Social Security funding has the potential to break an impasse on much-needed reforms


President Trump has proposed a dramatic change to how Social Security is financed. But Trump’s controversial proposal to fund Social Security with income taxes rather than payroll taxes opens the door to reforms that both Democrats and Republicans might support.

On Aug. 8, President Trump issued an executive order that would temporarily defer the collection of Social Security payroll taxes through the end of the year, meaning that these taxes wouldn’t be owed until Americans file their tax returns in April 2021.

But President Trump made clear in an Aug. 12 news conference that his real goal is to replace the Social Security payroll tax with revenues drawn from the general tax fund, the vast majority of which is income taxes. This idea faces both practical and philosophical hurdles, but could help the political parties finally come together to fix Social Security.

Read:Paul Brandus says this is one Trump tax cut you really don’t want

The first problem with funding Social Security via income taxes is obvious: the federal budget is already in deficit, which means there isn’t room to fund Social Security with general revenues without significantly cutting other programs or raising income taxes. And that tax increase wouldn’t be tiny. In 2019, the federal government collected about $1.7 trillion in individual income taxes, versus nearly $1 trillion in Social Security payroll taxes. Even if the President’s plan would replace only the employees’ 6.2% payroll tax, that would mean about an additional $500 billion in general tax revenues needed.

Moreover, funding Social Security with income taxes is also contrary to the program’s history, in which benefit were funded with a flat rate tax that applied to all earnings up to a maximum, which is currently $137,700 per year. The payroll tax contributed to the view that Social Security is an “earned benefit” rather than a welfare plan.

Read:This eye-opening experience has me rethinking how Social Security figures into my retirement planning

But most Democrats have already given up on the idea of truly earned benefits, since their Social Security proposals focus on lifting the payroll tax cap and making the rich carry more of the load.

Income-tax financing would simply take that idea in a more progressive direction. While about 15% of earnings accrue to employees with salaries above the $137,700 payroll tax ceiling, almost half of total income taxes are paid by households with incomes above that level. More than one-third of income taxes are paid by the top 1% alone.

But what it in it for Republicans? The answer is that an income-tax-financed safety retirement net need not be nearly as expensive as the current Social Security program. For instance, Australia’s Age Pension costs around one-fifth of what Social Security does, because it merely supplements households’ own savings to ensure a minimum standard of living in retirement. Canada and New Zealand also use income tax-financed programs to provide a strong base of retirement income.

Read:Australia’s safety net for retirees is generous and comprehensive — and complicated

For this idea to work, though, the U.S. would need to follow Australia’s lead by signing up every worker for a retirement savings account with automatic contributions. Those contributions could be funded using the payroll taxes that no longer would be needed to fund Social Security.

Once transitioned into place — which admittedly would take years — the result would be higher private savings, particularly for lower-income households, which reduces wealth inequality and boosts the economy. And while income taxes would be higher, total government spending on Social Security would be lower.

To be clear, this is my plan, not President Trump’s. But for income tax-funding of Social Security to work, for it to overcome 30 years of Congressional inaction on Social Security, it needs to think creatively and offer something to both sides. Because the traditional menu of reforms — payroll tax rate increases, higher retirement ages, lower cost-of-living adjustments and so forth — haven’t motivated Congress to action.

Follow MarketWatch’s coverage of all things Social Security here.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute and former principal deputy commissioner of the Social Security Administration during the George W. Bush administration. Follow him on Twitter @biggsag.





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Trump is following the playbook of other antidemocratic strongmen— here’s how to stop him


BERLIN (Project Syndicate)—With November approaching, I am becoming ever more nervous about the U.S. presidential election. While my American friends focus on Joe Biden’s lead over President Donald Trump in opinion polls, believing deeply in U.S. democracy’s capacity for self-renewal, my own perspective as a British citizen and think-tank director has me worried.

As a Briton, I can remember watching a 20-point polling lead for “Remain” become a victory for “Leave” in the Brexit referendum four years ago. And as a think-tank director, I work closely with scholars who study how authoritarian leaders manipulate democratic systems to stay in power, as has happened in Turkey, Russia, Hungary, and Poland.


Like other authoritarian leaders, Trump is deploying a new antidemocratic politics that has yet to be fully comprehended.

In fact, it often seems as though Trump has studied the tactics pioneered by other aspiring strongmen more closely than anyone. Based on recent conversations with experts on each of these countries, I have compiled the following catalogue of dirty tricks that Trump seems to borrowing.

Weaponization of history

The first is the weaponization of history. Populist leaders promote their political platforms through polarization and social division. They do not mind alienating and insulting some voters if doing so will energize their own base. By posturing as the champions of national greatness, they want to determine who counts as authentic citizens and who does not. This practice inevitably brings history to the fore.

Whether it is Russian President Vladimir Putin invoking the Soviet victory in World War II, Turkish President Recep Tayyip Erdoğan harking back to the Ottoman Empire, Hungarian Prime Minister Viktor Orbán fixating on the Treaty of Trianon, or British Prime Minister Boris Johnson looking back to Pax Britannica, each leader has advanced a highly partisan historical narrative.

Post-truth politics

Another, related approach is what might be called post-truth politics. These leaders prefer direct communication with voters through professional propaganda videos and social media, because this allows them to dismiss inconvenient facts offered by experts.

In this media ecosystem, fact-checking has little purchase, because the people who need to hear it are not listening, or refuse to believe anything the “liberal” media says. In many democracies, fake news is now most common at the local level, where political operatives have filled the vacuum left by the decline of traditional city and regional outlets.

Run against the Deep State

A third tactic is to run against one’s own government. The term “deep state” is said to have originated in Turkey in the 1990s, but now features prominently in the lexicon for Trump, Orbán, Erdoğan, Johnson, and Poland’s de facto ruler, Jarosław Kaczyński. By blaming nameless shadowy, faceless characters behind the curtain and shadowy cabals, all these leaders have a ready excuse for all of their own failures.


It often seems as though Trump has studied the tactics pioneered by other aspiring strongmen more closely than anyone.

A fourth element in the playbook is voter suppression. Like Erdoğan’s constant attempts to disempower Kurdish voters, Trump and the Republican Party are desperate to disenfranchise African-Americans. For an incumbent would-be strongman, the need to tip the electoral scales opens the door to all kinds of attacks on democratic processes.

Hence, before Poland’s general election in May, the ruling Law and Justice (PiS) party tried to limit all voting to mail-in ballots, effectively transferring control of the election from the independent National Electoral Commission to the PiS-controlled postal service. Though this plan ultimately ran into resistance, it showed that there are countless ways for authoritarians to meddle in or subvert the process.

Not surprisingly, mail-in voting and the politicization of the U.S. Postal Service have become major issues in the election, too.

Dirty tricks

Another related device is “political technology,” a term for the dirty tricks commonly associated with post-Soviet politics. Such methods include Russia’s covert backing of third-party candidates like Jill Stein in the 2016 U.S. presidential election; Kompromat, or compromising material (epitomized by the search for dirt on Biden in Ukraine); and simply declaring victory before the votes are counted.

In the case of the United States, if Trump declares victory before all postal mail-in ballots have arrived, Republican-controlled legislatures in key states could end the counting early to lock in that outcome.

An incumbent authoritarian can also engage in various forms of “lawfare,” using law enforcement or compliant courts to facilitate gerrymandering, voter suppression, coverups, and other violations of the democratic process.

Here, one of the biggest advantages is the ability to control the timing of events or the release of politically damaging information.

Many people still believe that then-FBI Director James Comey’s announcement of a new probe into Hillary Clinton just days before the 2016 election tipped the outcome in Trump’s favor. Now, the Department of Justice is run by Attorney General William Barr, a man who has shown no compunction about politicizing independent law-enforcement agencies on Trump’s behalf.

Law and order

Another common authoritarian tactic is to play the “law-and-order” card. By tarring the Black Lives Matter protests as an outpouring of violent “urban” hooliganism, Trump is reprising the racial politics used by former Republican presidents since Richard Nixon, but by Erdoğan more recently, during the Gezi Park protests in 2013.

The problem for the Democrats in the U.S., and democrats everywhere, is that all these techniques tend to become more effective the more they are called out.

Fact-checking fake news can inadvertently spread misinformation more widely. Warnings about voter suppression can become self-fulfilling prophecies if enough people conclude that the process is rigged and not worth participating in. Challenging violations through the courts creates the impression of an end run around democracy.

To avoid these effects, the project of corrupting democracy needs to be clearly identified, named, and analyzed through a new lens.

There is a world of difference between the political subterfuge outlined above and the outright falsification of election results, as happened last month in in Belarus. Nicu Popescu, a former Moldovan foreign minister who is now at the European Council on Foreign Relations, contends that autocracy is not the right term to describe the phenomenon. Rather, “it is the “degradation, corrosion, and deconsolidation of democracy.”

In any case, if Trump were Moldova’s president, one assumes that the European Union would be calling him out for his dirty tricks. Any such criticism from abroad would almost certainly be counterproductive. But it may help to put the current American experience in a wider context, so that democratic forces can see Trump more clearly.

Ultimately, the only way to defeat Trump is through politics. The task for the Democrats is to remind Americans what democracy is for—and, one hopes, to counter Trump’s tactics effectively.

Mark Leonard is director of the European Council on Foreign Relations.

This article was published with permission of Project SyndicateTrump’s Dirty Tricks.



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