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2022-07-01 07:41 by Karl Denninger
in International , 352 references
[Comments enabled]  

Oh c'mon folks, this is not complicated.

Two-time Olympic gold medalist and WNBA star Brittney Griner will appear in court Friday, more than four months after she was arrested in Russia for allegedly bringing vape cartridges containing oils derived from cannabis through a Moscow airport.

So what?

Assuming the cartridges really did contain cannabis, which she's not denied the bottom line is this: As a sovereign nation Russia has every right to determine what can and cannot be possessed and brought into their country, and what the penalties are if you violate said laws.  Period, end of discussion, full-stop.

I've traveled into other nations many times in my life.  Not once have I taken into another country something that I knew, or had reason to believe, might be illegal.  Never.  I'm not that arrogant and recognize that the fundamental nature of international travel is that I'm a guest of the other nation with no right to be there and they have every right to set the boundaries upon which I am admitted and what I can do while I am there.

There are no exceptions to this.  I made clear to my daughter when she started to travel that this was how it is when it comes to international travel and that breaking that set of rules may lead to very severe consequences, including being jailed, and that there's nothing anyone can do about it if it does.

Simply put Griner thought she was "special" because of her status.  It does not matter what the laws are in our country or her state of residence; when you enter another nation you follow their laws and if you don't intend to do that then if you're caught, and you might be, expect the consequences.

I have zero empathy or sympathy for her.  Neither she or anyone on her side from a representational standpoint have denied that she was, in fact, in possession of material banned in Russia, and that her possession was not accidental -- she knew damn well she had them with her and got caught.

All the bleating is, in fact, about her believing she is entitled to break the law of another nation because of who she is.

That's the act of a child and, it appears, she's going to pay for it.

Justly so.

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2022-06-30 13:15 by Karl Denninger
in Corruption , 884 references
[Comments enabled]  

This is an interesting decision that will have very wide-ranging consequences.

First up, however -- it does not eliminate what is known as the Chevron Deference doctrine.  It nips at the edge, but as is the usual Supreme Court practice if they can find a reasoned way to not do something like that, they don't.  They did, thus they didn't.

It is pertinent to the Court’s analysis that EPA has acted consistent with such a limitation for four decades. But the only question before the Court is more narrow: whether the “best system of emission reduction” identified by EPA in the Clean Power Plan was within the authority granted to the Agency in Section 111(d) of the Clean Air Act. For the reasons given, the answer is no. Pp. 28–31.

Chevron is more-broad than this, but not by a great deal -- it's a matter of degree, not act.  For this reason the decision is very, very consequential.  Indeed it is almost-certain to change far more than the overturning of Roe -- and that's a good thing.

Here's the key to the entire case:

Since passage of the Act 50 years ago, EPA has exercised this authority by setting performance standards based on measures that would reduce pollution by causing plants to operate more cleanly. In 2015, however, EPA issued a new rule concluding that the “best system of emission reduction” for existing coal-fired power plants included a requirement that such facilities reduce their own production of electricity, or subsidize increased generation by natural gas, wind, or solar sources.

The question before us is whether this broader conception of EPA’s authority is within the power granted to it by the Clean Air Act.

In other words the EPA took what was clearly within their regulatory authority and expanded it to claim their authority extended to an outright ban on the use of a given technology not because it produced a specific pollutant they were authorized to regulate but because they determined that another means of generating power was more to their liking.

EPA's regulatory animus comes from two primary sources.  The first is so-called "NAAQS" pollutants which may reasonably be anticipated to endanger public health or welfare and which come from numerous or diverse sources, either mobile or stationary.  These are substances which are not specifically traceable to any single activity, event or economic action.  The second is "HAP", which targets substances that are known or expected to be carcinogenic, mutagenic, teratogenic, neurotoxic or otherwise toxic under either acute or chronic exposure.

The latter are of much higher concern for obvious reasons and there the EPA must promote emission standards that, to the maximum reasonably and economically achievable extent, reduce those emissions.  For example scrubbers on a coal-fired plant are required under that rule because mercury emissions, for example, fall into the category of clearly toxic.

Then there is this third category, which is where the controversy lies in question, known as the "New Source Performance Standards" program.  But this standard sets maximum emission outputs and leaves how they're achieved up to the entity in question, up to the "Best System of Emissions Reduction" applicable to that particular thing.

Here's the key element: The NSPS only applies to things that were not part of the other two regulatory schemes.  If a plant was operating under the other two for those specific items of emission EPA does not get a second bite at the same apple.  They already took the bite and don't get a second one.

Well, the EPA thought they could get around this specifically with carbon dioxide, which is NOT under either HAP (obviously) or NAAQS.

Thus they not only made permitting new plants basically impossible they imposed a cap-and-trade, or other similar scheme (requiring partial generation with wind or solar is in effect a cap and trade system no matter what you call it) on EXISTING plants which had the effect of making all of them uneconomic.

But the EPA's motivating animus was not reducing a "pollutant", never mind that CO2 isn't a pollutant -- it is essential for life on this planet, including human life.  Without it all plants die, including plankton and algae in the oceans, and without plants there are no animals.  In other words the premise is false but even leaving that aside, which the court did, the EPA stated that its motivation wasn't reducing a pollutant: It was changing the mix of how electricity is generated.

EPA explained that taking any of these steps would implement a sector-wide shift in electricity production from coal to natural gas and renewables. Id., at 64731. Given the integrated nature of the power grid, “adding electricity to the grid from one generator will result in the instantaneous reduction in generation from other generators,” and “reductions in generation from one generator lead to the instantaneous increase in generation” by others. Id., at 64769. So coal plants, whether by reducing their own production, subsidizing an increase in production by cleaner sources, or both, would cause a shift toward wind, solar, and natural gas.

The EPA then put this desire into practice, setting limits that made the operation of coal plants without shifting generation to zero-carbon sources physically impossible.  They did this despite both their own and EIA analysis showing the impact would create at least a 10% increase in electricity prices and destroy tens of thousands of jobs.

That was the triggering event and many sued.  But then the Obama Administration ended, Trump came in and rescinded the rule.  The EPA subsequently stated that it had exceeded its authority.

This is where the USSC comes in, because there is a doctrine known as the major question doctrine.  It states that for questions of major economic or political significance the authority expressed by an administrative agency must be clearly delineated in the Statute passed by Congress.  That threshold is rather high, but it certainly exists and in fact was the premise on which OSHA lost with the jab mandates which, I remind you, were enjoined before full hearing as they were found to be under that set of statutory requirements.  The same rejection on a final basis came with the CDC's attempt to ban evictions during the pandemic, a decision the CDC tried to ignore and got its wee-wee slammed in the door in final, conclusive fashion by the court for doing so.

Even worse in this particular case the Supremes have already ruled that CO2 cannot be classified as a "pollutant" in the case Utility Air, decided in 2014.  Specifically:

1. The Act neither compels nor permits EPA to adopt an interpretation of the Act requiring a source to obtain a PSD or Title V permit on the sole basis of its potential greenhouse-gas emissions. Pp. 10–24.

End of discussion on that point; the question on whether CO2 (or any other alleged "greenhouse gas") is a "pollutant" subject to EPA regulation has been answered and the answer is NO.

This decision is in fact a restatement of that which was already decided and, as a result, doesn't reach the Chevron Deference because it doesn't have to.  The EPA clearly, based on precedent in an already decided Supreme Court case, attempted to get around precedent and declare carbon dioxide capable of being regulated even though the court had found that it is not a substance that can be regulated in this fashion in the general environment on the basis of alleged greenhouse effects.

Never mind that the EPA's stated purpose was to lead to an outcome not within their regulatory remit at all; that of controlling the sources of electrical power production in the United States.  Nowhere has Congress delegated to that, or any other, agency the authority to make such decisions on an administrative basis.

This question properly belongs in the Halls of Congress, not in an administrative agency.  Never mind the other problems that such agency decisions lead to, specifically that they blow like a reed in the wind depending on who happens to win the White House.  If you expect corporations to make investments that require decades to amortize, and power plants certainly fall within that category the regulatory decision as to such questions properly belongs in Congress where the people have the direct capacity and authority to remove those individuals who screw them.

So while Chevron still exists -- yes, this decision is an earthquake.  Whether the administrative establishment will accept having its hands slammed in the door again, after both the CDC and OSHA had the same result from their attempts to ignore long-standard rules of review and constraint is an open question, but for today its the EPA's turn to have it head in the vise and its about time they did, given that they intentionally did attempt to violate a known standard of review and promulgation of rules that were in direct conflict with a 2014 decision on whether alleged "greenhouse gases" fell under their remit in the first place.

The dissent from Kagan is particularly outrageous and frankly is directly impeachable.  Her opinion specifically eschews the entire concept of the people's representatives and statutory construction any time she thinks its important.  This isn't the first time and I doubt it will be the last, but if and when the USSC is ever actually sacked it would be due to "opinions" similar to hers.

The bottom line is this: Absent an act of Congress greenhouse gas emissions cannot be regulated as "pollutants" including "cap and trade" schemes or demands to abandon said emissions entirely, whether in whole or part.  That question was decided in 2014 at the Supreme Court and, absent an act of Congress, that's the end of the discussion on that point.  One can hope all administrative agencies take note of this and adjust their behavior as this is three decisions out of the USSC in a row that have all slammed agency decisions that have no reasonable foundation in their enabling statutes.

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2022-06-30 08:48 by Karl Denninger
in Macro Factors , 451 references
[Comments enabled]  

From the headline:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.0 percent in May on a seasonally adjusted basis after rising 0.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.6 percent before seasonal adjustment.

Food at home was up 1.4% on the month, which is catastrophically bad.  Fuel, of course, was up ridiculously in May, which we all know (4.1% for gasoline, 3.9% for all energy.)

Annualized figures are not relaxing.  Food at home is up 11.9% with protein sources being up 14.2%.  Energy commodities are up a stunning 50.3% overall, with fuel oil (that's diesel, fools) a clean double.  This is entirely a policy decision by the Biden Administration who said this was what he was going to do during the campaign, and he did.  Do not kid yourself -- the last barrel's price of oil today is what you pay for all of them; that's just how it works.

The media is all happy-talk about things "rolling over"; the only thing rolling over is the economy and jobs will follow.  Inertial elements in the CPI are going to remain sticky and until and unless truly restrictive monetary policy is put into place there is no reason to believe this trend will actually change.  Simply put Friedman was and is correct: Inflation is always and everywhere a monetary phenomena, and my statement of years ago is also correct: Behind every unit of economic output is a unit of energy, so until our government stops the war on energy there is no resolution of this problem that is possible.

One way or another will get that.  Either the government will stop it or demand will collapse along with economic output and balance will be restored in that way.  There are no other alternatives.

Note that the intentionally distorted "Owner's Equivalent Rent" says house prices only went up in the last 12 months by 5.1%, and the even more-ridiculous and direct lie is that allegedly rents only went up by 5.2%.  That's nonsense and we all know it, but there you have it.  Put a more-realistic national number on both and you wind up with a headline annualized inflation well into the double digits.

The personal income and spending report says that the rollover in the economy is here right now.

PCE has basically collapsed, down to 0.2% on the month of May where the last four months were all three or more times that, with two of them well clear of 1%.  Worse, price indices were up 0.6% headline and 0.3% core, which means on a price-adjusted basis its negative.  In addition goods spending decreased on a gross basis, and since gasoline and other fuels are a good (which went up wildly in price) this is a flat-out recession print.

No, folks, its not "resolving" -- its getting worse, exactly as I expected and which is blindingly obvious from the PPI data, which says that we're in for a long, nasty slog here with the most-likely path looking a lot like the late 1970s and early 1980s.

That went on for about four years so if that pattern holds, and I bet it will, we're at least three years away from resolution and this assumes The Fed follows through, which I fully expect them to not because they want to -- but because they must.

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2022-06-29 11:33 by Karl Denninger
in POTD , 33 references

[remotegallery 657]

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2022-06-27 07:00 by Karl Denninger
in Market Musings , 666 references
[Comments enabled]  

Boy, they're feeling their oats the last few days, aren't they?

"It's over."


"Get back in, if you got out."

Uh huh.

What's actually changed?

Well, interest rates have doubled on mortgages in the last six months or so, and have not gone back down -- nor will they to any appreciable degree.  At 3% a $300,000 house has a P&I payment of $1,264.81.

That same house, at the same payment with rates at 6% is worth $210,960, a reduction of about 30%.

Oh, you think not?  Well then that same person has to be able to come up with $1,798.65 a month for P&I and the $551.84 additional each and every month, over $6,600 a year, is not spent somewhere else because you can't spend the same dollar twice.

Has gas come down appreciably?  No.  Nor has diesel.  Diesel is in literally everything since the farm tractor and combine run on it, the trucks move everything at least the last mile with it, and thus the price level will not relent in its pressure until and unless that cost recedes.

If I spent $20 a week to get to work a year or so ago and now spend $40 that's $1,000 a year that I don't have to spend on other things.

Behind every unit of economic output is a unit of energy.  This is a fact and no amount of arm-waving will change it.

Within the next year or three corporate bonds will roll over.  They always do.  Corporations, unlike individuals, don't typically finance something and pay it off.  They finance it and roll over the bond because otherwise they must have socked back the cash for the principal, and that reduces their earnings -- a lot.  So they don't do it.  When, not if, those bonds roll over the interest rates will be much higher.  For the firms with the best credit the impact is, in percentage terms, greater than those with lesser credit.  Why?  Because going from 3% to 6% in the corporate bond market is a double while going from 10% to 13% is a 30% increase. Who's full-up with this leverage?  Damn near everyone one way or another.  Oh, you think not for places like Amazon?  How many of their fixed facilities do they actually own?  Almost none, which means they leased them and someone borrowed the money to build them.  When said borrowing comes due and their lease must renew the rent goes up.

This won't show up instantly but it will show up with certainty.  For the last 30 years corporate "earnings" have benefited mightily from the distortion in the rate structure.  Almost nobody currently running money and analyzing firms has ever seen an economic world where rates are not falling on a five or ten year rolling basis.  That's over folks, and it isn't coming back either.

Worse, the CPI has "Owner's Equivalent Rent" in it instead of house prices.  This too, simply on mathematics, has benefited mightily from the interest rate environment always going down.  It's artificial but consistent however the math runs the other way when rates are generally rising, which means the CPI now has the very same distortion pressure in reverse.  Is that in the numbers yet?  No, but it will be as certain as night follows day.

Never mind the so-called "Green Energy" nonsense.  All of that is predicated on the federal government printing more money, which now, with the international sequestration door slammed closed and bolted (that will not come back for a decade or more after the Russia/Ukraine thing is over, if it ever does) any attempt to do that (e.g. solar panel subsidies, EV cars, etc.) instantly reflects back into CPI and hammers everyone.  Further, any attempt by Congress to "soften the blow" via yet more deficit spending does the same thing -- not five or ten years hence but rather immediately within months.  Congress has yet to have Powell say this in public but you can bet he has privately (look at M2 lately?) and if he has to show up six months from now and drive that point home in public -- he will.

Are the short term moves of the market material to long-term outcome?  No.  Indeed, there might be more rally in what we saw last week.  But betting that the "tide has turned" when all of the fundamental factors behind said earnings power are going the wrong way and, on the PPI data, will be for at least the next 12 months is rather fruit-loop -- or perhaps it's desperation speaking -- don't you think?

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