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Rosanna Arquette checks her white privilege

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Another brain dead champagne socialist from Hollywood has proven Einstein’s belief that “Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.

This time, Rosanna Arquette told the world of her “disgust” and “shame” at the “white privilege” afforded her. She tweeted, “I’m sorry I was born white and privileged…it disgusts me and I feel so much shame“. If she feels so badly about maybe she should sell her mansion, move to a poor neighborhood and give her money away to charities that support non-white minorities. Only then can she atone for the sins of her parents for not making her another colour.

As ever this smacks more of a lack of career progression. Here is betting she does nothing about it other than moral preen. Because in this day and age showing you care on social media is enough. Who could forget the backlash against the 2016 election advert made by celebrities?

Paying someone to quit smoking on your behalf

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Jo Nova has put together an excellent piece on the Labor government’s plan to buy carbon credits overseas to atone for our CO2 sins. Buying air we can’t breathe is essentially like paying someone else to quit smoking on our behalf. How do we benefit?!?

Labor leader Bill Shorten may argue that the cost of doing nothing on climate change is a “charlatan’s argument” but CM costed it yesterday. Our CO2 emissions are equivalent to 0.000016% of the global total. No matter what we do our impact is nothing. What does tokenism get us? Zero. Zip. Nada.

Jo Nova wrote,

The 35 billion dollars we will spend on these useless, fraud-prone certificates is $35 billion we are taking out of the Australian labor market, or not spending on medicine, books or holidays in Bali. Angus Taylor, Minister for Energy, has noticed that this means $10b less tax will be paid too, which means less money for hospitals and schools.

There’s nothing wrong with payments to foreigners for real goods and services. But carbon credits buy us 0.0001C of theoretical cooling we don’t need and won’t be able to measure 100 years from now. It’s the dumbest deal Australia has ever made. Fraudsters and bankers will love it.”

Carbon credit markets have had a sketchy past. Hackers broke into poorly protected government and corporate carbon registries and swindled €3.7mn. So the credits we might buy to virtue signal may end up being fraudulent.

Carbon trading is a complete scam. As Jo Nova added,

“Independent modelling suggests the 45% emissions target of the Labor party will cost at least $264bn and as high as $542bn by 2030. The Liberal Party will “only” waste  $50 – $80b.”

All for absolutely nothing. When the economy tanks our politicians can brag about achieving lower emissions targets quicker because our climate policies will have accelerated the death of industry.

UK’s utterly mad electricity operator

The defunct Rugeley power station in Staffordshire

The National Grid Electricity System Operator (NGESO) has said the UK has not used coal-fired power for a week, the first time since 1882. Hooray! High fives all round! NGESO director, Fintan Slye, believes that UK electricity generation could be zero carbon by 2025. What you will read points to the utter madness and inadequate planning that will crush the grid in winter if zero carbon happens. He clearly doesn’t believe in energy poverty, something 331,000 Germans suffered from in 2017.

Let’s look at the latest UK energy mix published by OFGEM.

Coal: 4.8%

Gas: 32.8%

Nuclear: 13.2%

Hydro: 1.95%

Wind/Solar: 15.16%

Biomass: 7.68%

There is an irony to hear the UK government will phase out coal by 2025. It is hardly a goal to phase out 1% per year. How is it possible to zero carbon by 2025 with a junking of 37.6% of the grid? Crank up nuke? Biomass, which is more environmentally unfriendly than coal?

Maybe Mr Slye should read its own endorsed reports?

The Summer Outlook 2019 notes,

Gas Demand – during the summer gas-fired electricity generation becomes a more significant component of GB demand, unlike winter when domestic heating dominates. We are expecting increased volumes of LNG supply, which affects flows of gas across GB.

This OFGEM report calculated the % of the 26.3mn homes that use gas heating in the UK during winter as follows.

England: 85%

Scotland: 78%

Wales: 79%

So what happens when fossil fuels get phased out for a zero carbon world by 2025? Perhaps they need to rely on electricity generated heat onto a grid that plans to knock out c.40% of its fossil fuel baseload. OFGEM notes,

In Great Britain, 25% of flats use electric heating compared to only 4% of houses.

Homes with electric heating systems tend to have a lower energy efficiency rating, partly reflecting the higher running costs of using electric heating. In England, 2% of dwellings with mains gas heating are ‘F’ or ‘G’ rated, compared to 14% of dwellings with storage heating systems, and 57% of dwellings with direct-acting heating.

Storage heating systems can be found disproportionately in private-rented and social housing while direct-acting heating systems can be found disproportionately in the private-rented sector. Households living in these properties are more likely to be:

of lower income. In England, around a third fall in the lowest income quintile, with incomes of less than about £14,500.

fuel poor. In Scotland for example, 48% of households with storage heating systems and 68% of households with direct-acting electric heating are in fuel poverty, compared to 31% of households that use mains gas.

-single adult households and households with no children. There is generally no significantly increased likelihood of householders having a long-term illness or disability (with the exception of storage heating households in Scotland).

So essentially in the quest to virtue signal, policymakers risk pushing more into energy poverty. The only outcome here is far higher prices. Given the UK wants to go full EV by 2040, throw more on the bonfire of stupidity.

Has the NGESO calculated the extra impact to the grid that transferring heating gas to the grid to get zero emissions by 2025 will cause?

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Now that former Australian PM Malcolm Turnbull has chimed in applauding the UK’s week of non coal power generation alongside the embattled UK PM Theresa May, it confirms this energy policy is a dead cert dud.

Seattle Schitty Council

A Seattle citizen, Richard Schwartz, asks for the panel of Seattle City councilors to pay some mind to what he had to say. They couldn’t be less interested. Then people wonder why establishment politicians are being booted out.

The irony is looking at what these councilors purportedly have oversight – human rights, community safety, gender equality. The citizen made a point in his speech how the council allowed Seattle Democrat Rep. Pramila Jayapal to speak for as long as she wished the previous week while all others were given one minute. Some animals are more equal than others animals…

As he rightly points out, it was a damning indictment.

US airlines tell China to take a hike over Taiwan

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Despite the immediate and characteristic folding by in-your-face virtue signaling Qantas and other airlines to remove the word “Taiwan” from the airline in-flight magazines and websites, American airline leaders have decided to tell China to go take a jump saying it is a matter for governments, not airlines to discuss such foreign policy matters. Full credit to China for pushing the boundaries of how powerful the rest of the world thinks it is by the speed of which they roll over and play dead. It doesn’t take much to envisage when the Chinese authorities start to demand ‘real’ things. While leaders in Australia mock the activities of Xi in the Pacific or the Maldives by the irrelevance of the size of free trade agreements to China, they completely overlook the strategic importance of the naval ports China is linking together across the globe.

Of course trivial demands to change maps in inflight magazines on the surface is a backhanded way for the Chinese to prioritize landing slots but the action below the waves is clear. Start with tiny demands and ratchet up the volume and see where the breaking point is. Authoritarian rule at its finest. Where have we seen this before?

Sadly the principle lost on many is that those nations/airlines that “stand for nothing, fall for anything

Alternative for Sweden (AfS) is established

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It seems that several members of the conservative anti-immigrant Sweden Democrats (SD) have splintered to form the Alternative for Sweden (AfS) (video here). The party was founded a few weeks ago by Gustav Kasselstrand, a former member of the SD which saw its support slip to 14.8% in November 2017, compared to 18.4% percent in June, according to the Swedish Statistics Office. Although in March 2018, Sentio poll has the SD at 23% (from 21.9%), a Demoskop poll at 18.6% (15.4% in Feb) and SiFo poll at 15.9%.

The government, comprised of the Social Democrats and Greens, had a 36.4% approval rating, compared with 35.6% in the June poll. The AfS thinks that the SD has become too compromising and see the fall in the polls as reason to break away and follow in the footsteps of the rise and rise of Germany’s AfD.

SD party leader Jimmie Åkesson said in Feb 2018 that the party is its own worst enemy…“Our biggest problem is that we have not been able to build real credibility...”
going on to say it was uncertain whether SD would benefit from “…moving further to the right on immigration issues because parties like the Social Democrats and Moderates have snatched our politics within the area [just like Rutte in The Netherlands adopting policies of Geert Wilder’s Freedom Party at the Dutch election last year]…The next term of office will be crucial for us to establish ourselves as a government alternative…We must compromise and be pragmatic

Even at its current level of support, the Sweden Democrats would still have enough seats to block either the centre-left or centre-right blocs from forming government after the upcoming September 2018 election.

The SD saw surging support several years ago on what they saw was politically correct limp-wristed responses to growing migrant crime. In Malmo, Deputy Police Commissioner Mats Karlsson said in response to multiple explosions that occur in the city on a regular basis, “Our dilemma is that we can never guarantee anything for sure. Evidently there are individuals who have hand grenades and they often resort to violence over things that may seem very banal to you or I – a conflict over an ex-girlfriend or a little brother wanting to outperform his big brother…It’s bad enough when they use guns, because they’ve got such poor aim, but grenades are really worrying. They have a 360-degree reach.”

As CM has made the point for years, whether one likes the direction of right wing politics or not, yet more nationalist parties are feeling the seeds of discontent within their own constituencies and offering a platform to parties that don’t seem to be listening. On Sept 9th, Swedes will get their democratic say. Austria, Germany, Holland, Italy, The Netherlands and France have all seen large shifts toward anti-immigrant/eurosceptic parties in recent elections. It isn’t a coincidence with the EU at the helm.

Should we trust ratings agencies on US state credit?

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The Financial Crisis Inquiry Commission concluded in 2011 that “the global financial crisis could not have happened without the ‘Big Three’ agencies – Moody’s, Standard & Poor’s and Fitch which allowed the ongoing trading of bad debt which they gave their highest ratings to despite over three trillion dollars of mortgage loans to homebuyers with bad credit and undocumented incomes.” The table above tabulates the deterioration in US corporate credit ratings since 2006. The ratings agencies have applied their trade far more diligently.

As written earlier in the week, US state public pensions are running into horrific headwinds. Unfunded pension liabilities are running at over double the level of 2008. With asset bubbles in stocks, bonds and property it is hard to see how plugging the gap (running at over 2x (California is 6x) the total tax take of individual states) in the event of a market correction is remotely realistic. However taking a look at the progression of US states’ credit ratings one would think that there is nothing to worry about. Even during GFC, very few states took a hit. See below.

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Looking at the trends of many states since 2000, many have run surpluses so the credit ratings do not appear extreme. It is interesting to flip through the charts of each state and see the trajectory of revenue collection. A mixed bag is putting it lightly. Whether the rebuild after Hurricane Katrina in 2005, since 2008 revenue collection in Louisiana has drifted.

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Looking through S&P’s own research at the end of last year it included an obvious reference.

U.S. state and local governments can use pension obligation bonds (POBs) to address the unfunded portion of their pension liabilities. In certain cases, POBs can be an affordable tool to lower unfunded pension liabilities. But along with the issuance of POBs comes risk. The circumstances that surround an issuance of POBs, as well as the new debt itself, could have implications for the issuer’s creditworthiness. S&P Global Ratings views POB issuance in environments of fiscal distress or as a mechanism for short-term budget relief as a negative credit factor.”

Perhaps the agencies have learnt a painful lesson and trying to stay as close to being behind the curve as possible. It doesn’t seem like public pensions are being factored at levels other than their actuarial values. Marked-to-market values would undoubtedly impact these credit ratings.

As mentioned in the previous piece on public pensions, a state like Alaska has public pension unfunded liabilities equal to $145,000 per household, treble the 2008 figure. It is 3.5x annual tax collections. The state’s per capita operating budget of $13,728 per person is way above the national average of $6,826 per person. Alaska relies on oil taxes to finance most of its operating budget, so a sudden drop in oil prices caused tax revenues to sharply decline. The EIA’s outlook doesn’t look promising in restoring those fortunes in any scenario. So S&P may have cut Alaska two places from AAA in 2015 to AA in 2017.

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While pension liabilities aren’t all due at once, the last 8 years have shown how quickly they can fester. It wasn’t so long ago that several Rhode Island public pension funds reluctantly agreed to a 40% haircut, later retirement ages and higher contributions with a larger component shifted from defined benefits to defined contributions raising the risk of market forces exerting negative outcomes on the pension fund.

In 2017, despite a ‘robust’ economy, 22 states faced revenue shortfalls. More states faced mid-year revenue shortfalls in the last fiscal year than in any year since 2010, according to the National Association of State Budget Officers.

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Pew Charitable Trust (PCT) notes in FY2015 federal dollars as a share of state revenue increased in a majority of states (29). Health care grants have been the main driver of this. FY2015 was the 3rd highest percentage of federal grants to states since 1961.

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By state we can see which states got the heftiest federal grants. Most states with higher federal shares expanded their Medicaid programs under Obamacare (ACA) and got their first full year of grants under the expanded program in FY2015.

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PCT also wrote “At the close of fiscal year 2017, total balances in states’ general fund budgets—including rainy day funds—could run government operations for a median of 29.3 days, still less than the median of 41.3 days in fiscal 2007…North Dakota recorded the largest drop in the number of days’ worth of expenses held in reserves after drawing down almost its entire savings to cover a budget gap caused by low oil prices. It held just 5.4 days’ worth of expenditures in its rainy day fund at the end of fiscal 2017 compared with 69.4 days in the preceding year… 11 states anticipate withdrawing from rainy day funds under budget plans enacted for fiscal 2018

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Looking at the revenue trends of certain states, the level of collection has been either flat or on the wane since 2010 for around 26 states. As an aside, 23 of them voted for Trump in the 2016 presidential election. The three that didn’t were Maine, NJ and Illinois.

Optically US states seem to be able to justify the credit ratings above. Debt levels aren’t high for most. Average state debt is around 4% of annual income. Deficits do not seem out of control. However marking-to-market the extent of public pension unfunded liabilities makes current debt levels look mere rounding errors.

Considering stock, bond and property bubbles are cruising at unsustainably high levels, any market routs will only make the current state of unfunded liabilities blow out to even worse levels. The knock on effects for pensioners such as those taking a 40% haircut in Rhode Island at this stage in the cycle can only feasibly brace themselves for further declines. This is a ticking time bomb. More states will need to address the public pension crisis.

A national government shelling out c.$500bn in interest payments on its own debt in a rising rate environment coupled with a central bank paring back its balance sheet limits the options on the table. Moral hazard is back on the table folks. Is it any wonder that Blackstone has increased its short positions to $22 billion?

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