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SRPT options are sitting at 400%+ IV. There must be an earnings [or some other announcement] that is pending.

I still have 327 shares. So I sold 3 options at $19 strike at $6.oo each option! I also sold 3 Puts at $10.oo for $2.15, as at that price, I’ll buy 300 shares of the stock. For June, this position looks to be very profitable already.

Therefore, if the stock were to drop to $10.oo [or below] I would actually purchase 300 shares at $1.75/share [less any loss below $10.oo].

While this is a very volatile stock, there is opportunity here regardless of whether you actually hold stock. Even opening a new position in the stock is feasible here with IV so incredibly high.

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Indianapolis, Indiana, May 3rd, 2016, a little before 8:30 p.m. Texas Sen. Ted Cruz strode onstage beneath a gorgeous stained-glass relief in the city’s Union Station. The hall was doubling as a swanky bar for an upscale local hotel, and much of the assembled press was both lubricated and impatient. The primary had been called for Donald Trump more than an hour before. What was the holdup?

“God bless the Hoosier State!” Cruz said to whoops and cheers after he finally emerged. He was surrounded by a phalanx of American flags, family members and his gimmick running mate of six and a half days, Carly Fiorina, who stared out at the crowd with her trademark alien-abducted smile.

Cruz glanced back and forth across the room with that odd, neckless, monitor-lizard posture of his. He had to know the import of this moment. Nothing less than the future of the Republican Party had been at stake in the Indiana primary.

A Cruz loss effectively meant ceding control of the once-mighty organization to Trump, a seemingly unrepentant non-Republican more likely to read Penthouse than the National Review.

Before the vote, Cruz put it this way: “We are at the edge of a cliff, staring downward.”

Now, Cruz was over that cliff, having been trounced 53 to 36 percent in his last-gasp effort to keep Trump from the nomination. In a detail the film-buff candidate Cruz would appreciate, he left Indiana with the same number of delegates as future senator John Blutarsky’s grade-point average in Animal House: zero-point-zero.

Still, Cruz looked like he was ready for the “Was it over when the Germans bombed Pearl Harbor?” speech. He was going to fight.

“Will we hold fast to our founding values of rewarding talent, hard work and industry?” he asked. “Or will we continue on that path of creeping socialism that incentivizes apathy and dependency?”

The crowd roared.

“Will we keep America safe from the threats of nuclear war and atomic terrorism?” he thundered. “Or will we pass on to future generations a land devastated and destroyed by the enemies of civilization?”

More raucous cheers.

Cruz smiled. If he has a good quality, it is that he’s not easily deterred by criticism. As he took the stage that night, he surely knew that former Speaker of the House John Boehner had recently called him “Lucifer in the flesh,” and that fellow senator Lindsey Graham had said, “If you kill Ted Cruz on the floor of the Senate, and the trial was in the Senate, nobody could convict you.” Likewise, when it was revealed Cruz once stated that one has no inherent right to “stimulate one’s genitals,” his college roommate Craig Mazin popped up to call him a hypocrite who’d whacked it plenty in college.

During the campaign, surprising numbers of Americans were even willing to believe Cruz might also be the Zodiac Killer. The infamous Bay Area murders began two years before Cruz was born, but 38 percent of Floridians at one point believed Cruz either was or might be the Zodiac.

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Illustration by Victor Juhasz

Were they serious? In an age when Donald Trump is a presidential nominee, what does “serious” even mean? In any case, the cybercomics who fanned the flames of the Cruz-Zodiac meme will someday be first-ballot entrants in the Trolling Hall of Fame.

Finally, on the morning of the Indiana primary, Cruz woke up to hear opponent Trump babbling that Cruz’s own father had been hanging out with Lee Harvey Oswald before the assassination of John F. Kennedy, a bizarre take on a ridiculous National Enquirer story that Trump, of course, believed instantly. Trump brought this up on Fox and Friends, which let him run the ball all the way to the end zone. “I mean, what was he doing with Lee Harvey Oswald, shortly before the death – before the shooting?” Trump asked. “It’s horrible.”

American politics had never seen anything like this: a presidential candidate derided as a haggardly masturbating incarnation of Satan, the son of a presidential assassin’s accomplice, and himself an infamous uncaptured serial killer.

Despite the media humiliations, Cruz talked passionately of his supporters’ resolve. “Just a few days ago, two young kids, ages four and six, handed me two envelopes full of change,” he said. “All of their earnings from their lemonade stand. They wanted the campaign to have it.”

The crowd cooed: Awwww! There was no way he could quit now and let those kids down. Except that moments later, Cruz did just that, announcing he was suspending his campaign because “the path to victory has been foreclosed.” Then he fled the stage like he was double-parked.

The air vanished from the ballroom. Cruz supporters went nuts.

Nooooo! they screamed, hugging each other and crying. Many volunteers were from faraway states. They expected to be continuing on somewhere the next morning. Now they were all basically fired.

“What the fuck do we do now?” whispered one.

The pundits present were less emotional. “Does he get to use the lemonade money to pay campaign debts?” wondered one.

As ignominious an end as this was for Cruz, it was a million times worse for the Republican establishment.

The party of Nixon, Reagan and two Bushes had needed a win by Cruz, a man not just disliked but loathed by the party elite, to stave off a takeover by Trump.

And yet Cruz’s main pitch to his voters had been that between himself and Trump, he was the one less connected to the Republican Party. “Cruz is the true outsider,” was how one supporter put it in Indiana.

Cruz volunteer Dan Porter seemed stunned with grief after the results came in, but his sadness was reserved for Cruz, not the Republican Party. He couldn’t seem to wrap his head around the fact that so many people had voted for Trump, a man who’d “been a Democrat his whole life,” while a dedicated constitutionalist like Cruz had been so roundly rejected.

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Ted Cruz embraces his father Rafael and wife Heidi after ending his presidential campaign in Indianapolis on May 3rd. Daniel Acker/Bloomberg/Getty

So lost in thought that he stared at the carpet as he spoke, he gave just an incidental shake of the head when asked what the future of the GOP would be now. It was as if the question wasn’t even that important.

“Oh, there won’t be a Republican Party,” he said. “It’s basically over.”

Cruz had at least won nearly 600 delegates and had passionate supporters shedding real tears for him at the end. But nobody anywhere was crying for the Republican Party. Even Custer had a less-lonely last stand.

Trump, meanwhile, spent the night basking in voluble self-admiration from Trump Tower in New York. This is becoming his victory ritual. The lectern from which he spoke said it all: TRUMP – VICTORY IN INDIANA – NEW YORK CITY.

Trump’s naked disdain for the less-glamorous American flyover provinces he somehow keeps winning by massive margins continued to be one of the livelier comic subplots of the campaign.

From seemingly wondering if Iowans had eaten too much genetically modified corn to thanking the “poorly educated” after his Nevada win, Trump increasingly doesn’t bother to even pretend to pander. This, too, is a major departure for the Republican Party, whose Beltway imageers for decades made pretending to sincerely prefer barns and trailers to nightclubs and spokesmodels a central part of their electoral strategy.

Not Trump. Hell, he went out of his way to brag about being pals with Tom Brady in the week before the Indiana primary, and still won by almost 20 points. Given the level of Colts-Patriots antipathy, this is a little like campaigning in Louisiana wearing a BP hat, or doing a whistle-stop tour through Waco with Janet Reno.

After his crushing win, Trump gave a breathless victory speech. It was classic Trump. “The people of Indiana have been incredible,” he said. “I campaigned and I made lots of speeches and met lots of incredible people… You don’t get better. The crowds got bigger and bigger… I didn’t want to leave… We had a tremendous victory tonight… Boy, Bobby Knight was incredible.”

He had a few choice words for the GOP leadership. “I want to thank and congratulate the Republican National Committee, and Reince Priebus,” he croaked, as his heavily-made-up, Robert Palmer-chicks collection of wives and daughters twisted faintly in a deadpan chorus behind him.

“It is not an easy job, when you have 17 egos,” Trump went on, smiling. “And now I guess he’s down to one.”

The crowd roared. The RNC had kissed Trump’s ring. That was it, right there, the death of the modern Republican Party.

After 9/11, it felt like the Republicans would reign in America for a thousand years. Only a year ago, this was still a party that appeared to be on the rise nationally, having gained 13 Senate seats, 69 House seats, 11 governorships and 913 state legislative seats during the Obama presidency.

Now the party was effectively dead as a modern political force, doomed to go the way of the Whigs or the Free-Soilers.

After Indiana, a historic chasm opened in the ranks of the party. The two former President Bushes, along with Mitt Romney, announced they wouldn’t attend Trump’s coronation at the convention in Cleveland. Additionally, House Speaker Paul Ryan refused to say he would support the nominee.

There were now two Republican Parties. One, led by Trump, was triumphant at the ballot, rapidly accruing party converts, and headed to Cleveland for what, knowing the candidate, was sure to be the yuugest, most obscene, most joyfully tacky tribute to a single person ever seen in the television age. If the convention isn’t Liberace meets Stalin meets Vince McMahon, it’ll be a massive disappointment.

From there, this Republican Party would steam toward the White House, which, who knows, it might even win.

The other Republican Party was revealed in the end to be a surprisingly small collection of uptight lawyers, financiers and Beltway intellectuals who’d just seen their chosen candidate, the $100 million Jeb Bush, muster all of four delegates in the presidential race. Meanwhile, candidates whose talking points involved the beheading of this same party establishment were likely to win around 2,000.

Like French aristocrats after 1789, those Republicans may now head into something like foreign exile to plot their eventual return. But whether they will be guillotined or welcomed back is an open question.

This was all because they’d misplayed the most unpredictable and certainly most ridiculous presidential-campaign season Americans had ever seen.

On the one hand, they’d been blindsided by Trump, a foulmouthed free-coverage magnet who impulsively decided to make mocking the Republican Party mullahs his pet project for the years 2015-2016.

But they were also undone by a surge of voter anger that was in significant part their own fault. In recent years, the Koch brothers/Tea Party wing of the GOP had purged all moderates from the party, to the point where anyone who was on record supporting the continued existence of any federal agency, said Mexicans were people, or spoke even theoretically about the utility of taxes was drummed from the candidate rolls.

Their expected endgame here was probably supposed to be the ascension of some far-right, anti-tax, anti-government radical like Scott Walker, or even Cruz.

Instead, this carefully cultivated “throw the bums out” vibe was gluttonously appropriated by Trump, who turned the anger against the entire Republican Party before surging to victory on a strongman’s platform of giant walls, mass deportation and extravagant job promises that made the moon landing or the Bernie Sanders agenda of free college look incrementalist in comparison.

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Donald Trump speaking at Trump Tower following his victory in the Indiana primary on May 3rd. Corbis/Getty

One could say this was just a calamitous strategic misread on the part of the Koch-brothers types. But another way to look at it is that this was the inevitable consequence of the basic dynamic of the party, which by the end was little more than a collection plate for global business interests that were, if not foreign exactly, certainly nationless.

There was a time in this country – and many voters in places like Indiana and Michigan and Pennsylvania are old enough to remember it – when business leaders felt a patriotic responsibility to protect American jobs and communities. Mitt Romney’s father, George, was such a leader, deeply concerned about the city of Detroit, where he built AMC cars.

But his son Mitt wasn’t. That sense of noblesse oblige disappeared somewhere during the past generation, when the newly global employer class cut regular working stiffs loose, forcing them to compete with billions of foreigners without rights or political power who would eat toxic waste for five cents a day.

Then they hired politicians and intellectuals to sell the peasants in places like America on why this was the natural order of things. Unfortunately, the only people fit for this kind of work were mean, traitorous scum, the kind of people who in the military are always eventually bayoneted by their own troops. This is what happened to the Republicans, and even though the cost was a potential Trump presidency, man, was it something to watch.

If this isn’t the end for the Republican Party, it’ll be a shame. They dominated American political life for 50 years and were never anything but monsters. They bred in their voters the incredible attitude that Republicans were the only people within our borders who raised children, loved their country, died in battle or paid taxes. They even sullied the word “American” by insisting they were the only real ones. They preferred Lubbock to Paris, and their idea of an intellectual was Newt Gingrich. Their leaders, from Ralph Reed to Bill Frist to Tom DeLay to Rick Santorum to Romney and Ryan, were an interminable assembly line of shrieking, witch-hunting celibates, all with the same haircut – the kind of people who thought Iran-Contra was nothing, but would grind the affairs of state to a halt over a blow job or Terri Schiavo’s feeding tube.

A century ago, the small-town American was Gary Cooper: tough, silent, upright and confident. The modern Republican Party changed that person into a haranguing neurotic who couldn’t make it through a dinner without quizzing you about your politics. They destroyed the American character. No hell is hot enough for them. And when Trump came along, they rolled over like the weaklings they’ve always been, bowing more or less instantly to his parodic show of strength.

In the weeks surrounding Cruz’s cat-fart of a surrender in Indiana, party luminaries began the predictably Soviet process of coalescing around the once-despised new ruler. Trump endorsements of varying degrees of sincerity spilled in from the likes of Dick Cheney, Bob Dole, Mitch McConnell and even John McCain.

Having not recently suffered a revolution or a foreign-military occupation, Americans haven’t seen this phenomenon much, but the effortless treason of top-tier Republicans once Trump locked up the nomination was the most predictable part of this story. Politicians, particularly this group, are like crackheads: You can get them to debase themselves completely for whatever’s in your pocket, even if it’s just lint.

That’s why the first rule of any revolution is to wipe out the intellectuals. Trump is surely already dreaming of the vast logging camp he will fill with the Republican thinkfluencers who are at the moment making a show of being the last holdouts.

Not surprisingly, in the past weeks, there was an epidemic of Monday-morning quarterbacking among the Beltway punditocracy, as GOP cognoscenti struggled to cope with the reality of Trumpism.

There were basically two responses among the tie-and-glasses sect of Republicans to the prospect of kneeling before the philistine Trump: In the minority stood New York Times lonely-hearts moralist David Brooks, who took the remarkable step of looking at Trump’s victories and wondering what part of this unraveling could be his own fault. In Brooks-ian fashion, this essentially noble response came out as painful pretentious comedy. He concluded that the problem was that upper-crust conservatives like himself hadn’t spent enough time getting to know the dirtier folks below decks.

Instead of “spending large chunks of my life in the bourgeois strata,” Brooks promised to “go out into the pain” and “build a ladder of hope” by leaping across “chasms of segmentation.”

Translated into English, this might have meant anything from trying the occasional domestic beer to actually hanging around the unemployed. But at least Brooks recognized that on some level, the rise of Trump pointed to a connection failure in the Republican kingmaking class.

No others among his conservative brethren saw it that way. Most Republican intellectuals recoiled in blameless horror from the Trumpening, blaming everything from media bias to the educational system for his rise. Some even promised to degrade themselves with a vote for Hillary Clinton before ever supporting Trump.

George Will of The Washington Post might have been the loudest objector. Will increasingly seems like a man who is sure history will remember him for his heroic opposition to Trump, and not for those 40-plus years of being an insufferable spinster who writes bad columns about baseball to prove his ties to the common man.

His diatribes against Trump, a “coarse character” who reads the National Enquirer and brags about the size of his “penis” (one could almost feel the pain it caused Will to have to commit this word to paper), took on an almost religious character.

Just before Indiana, Will began treating the nomination of Trump like a forest fire or a SARS outbreak, something that with the right spirit of sacrifice could be contained with minimal loss of life, and perhaps only four years of a Hillary presidency.

“If Trump is nominated,” Will wrote, “Republicans working to purge him and his manner from public life will reap the considerable satisfaction of preserving the identity of their 162-year-old party.”

But the crowning effort on the right-wing snobbery front came from none other than British blogging icon and noted hairy person Andrew Sullivan. The aforementioned came out of semiretirement to write a 7,000-word jeremiad for New York magazine about how Trump was the inevitable product of too much democracy.

The CliffsNotes summary of his monstrous piece, “Democracies End When They Are Too Democratic,” might go something like this: When I read Plato in grad school, I learned that in free societies the mob eventually stops deferring to the wisdom of smart people, and therefore must be muzzled before they send Trump to wash the streets with our blood.

Sullivan’s analysis was a balm to the decades of butt-hurt that await the soon-to-be-ex-elite of the Republican Party. It blamed Trump’s rise on everyone but Republican intellectuals: Obama, Black Lives Matter and even “the gay left, for whom the word ‘magnanimity’ seems unknown.”

“A struggling white man in the heartland is now told to ‘check his privilege’ by students at Ivy League colleges,” Sullivan wrote, in a sentence that would probably be true enough, if those two groups ever interacted. Sullivan was right that white conservatives in places like Indiana hate Ivy Leaguers and Black Lives Matter and the gay left and safe-spacers and feminists and all the other mocking, sneering, atheistic know-it-all types from cosmopolitan cities who scoff, as Obama famously did once, at their guns and their religion.

But they also hated all of those people eight years ago, 16 years ago, 30 years ago. What’s new about the Year of Trump is that they have now also suddenly turned on their own party. Why?

Sullivan basically ignored this question. The closest he came to an explanation was a passage saying that “global economic forces” hurt blue-collar workers in particular, forcing them to compete with lots of other unskilled and basically fungible human beings around the world. Which made them, he guessed, pissed off.

This avalanche of verbose disgust on the part of conservative intellectuals toward the Trump voter, who until very recently was the Republican voter, tells us everything we need to know about what actually happened in 2016.

There never was any real connection between the George Wills, Andrew Sullivans and David Brookses and the gun-toting, Jesus-loving ex-middle-class voters they claimed to embrace. All those intellectuals ever did for Middle America was cook up a sales pitch designed to get them to vote for politicians who would instantly betray them to business interests eager to ship their jobs off to China and India. The most successful trick was linking the corporate mantra of profit without responsibility to the concept of individual liberty.

Into the heartland were sent wave after wave of politicians, each more strident and freedom-y than the last. They arrived draped in the flag, spewed patriotic bromides about God, guns and small-town values, and pledged to give the liberals hell and bring the pride back.

Then they went off to Washington and year after year did absolutely squat for their constituents. They were excellent at securing corporate tax holidays and tax cuts for the rich, but they almost never returned to voter country with jobs in hand. Instead, they brought an ever-increasing list of villains responsible for the lack of work: communists, bra-burning feminists, black “race hustlers,” climate-change activists, Muslims, Hollywood, horned owls…

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Eric Thayer/The NY Times/Redux

By the Tea Party era, their candidates were forced to point fingers at their own political establishment for votes, since after so many years of bitter economic decline, that was the only story they could still believably sell.

This led to the hilarious irony of Ted Cruz. Here was a quintessentially insipid GOP con man culled straight from the halls of Princeton, Harvard, the Supreme Court, the Federal Trade Commission and the National Republican Senatorial Committee to smooth-talk the yokels. But through a freak accident of history, he came along just when the newest models of his type were selling “the Republican establishment sucks” as an electoral strategy.

Cruz was like an android that should have self-destructed in a cloud of sparks and black smoke the moment the switch flipped on. He instead stayed on just long enough to win 564 delegates, a stunning testament to just how much Republican voters, in the end, hated the Republican kingmakers Cruz robotically denounced.

All of these crazy contradictions came to a head in Indiana, where Cruz succumbed in an explosion of hate and scorn. The cascade started the Sunday night before the primary, with a Cruz stump speech in La Porte that couldn’t have gone worse.

Things went sideways as Cruz was working his way into a “simple flat tax” spiel, a standard Republican snake-oil proposal in which all corporate, estate and gift taxes would be eliminated, and replaced with a 10 percent flat tax and a 16 percent consumption tax. Not because the rich would pay less and the poor would pay more, but because America and fairness, etc. He was just getting to his beloved money line, claiming, “We can fill out our taxes on a postcard,” when a 12-year-old boy interrupted with cries of “You suck!” and “I don’t care!”

Cruz couldn’t quite handle the pressure and stepped straight into the man-trap the moment presented. He lectured the kid about respecting his elders, then suggested the world might be a better place if someone had taught a young Donald Trump that lesson. It was a not-half-bad line of the type that the Harvard lawyer is occasionally capable. But Cruz couldn’t help himself and added, “You know, in my household, when a child behaves that way, they get a spanking.”

Boom! Within hours the Internet was filled with headlines about how Ted Cruz had suggested spanking someone else’s 12-year-old for telling him he sucked.

This was on top of the ignominy of having already called a basketball hoop a “ring” while giving a speech on the gym floor in Knightstown, the home of the fictional Hickory team from Hoosiers. No American male would call a basketball hoop a ring, and even a French immigrant would know better than to do so in Indiana, but this was the kind of run he was on.

The rest of the race was a slapstick blowout. Carly Fiorina fell off a stage, and Cruz’s wife, Heidi, actually had to answer a question from a Yahoo! reporter about her husband being called the Zodiac Killer. Heidi Cruz calmly responded that she’d been married to Ted for 15 years and “I know pretty well who he is.” This, of course, was exactly what the wife of the actual Zodiac Killer would say, making for a perfectly absurd ending to a doomed campaign.

As anyone who’s ever been to high school knows, there’s no answer to “You suck!” When a bully pulls that line on you, it’s because he can smell the weakness: the Jonas Brothers album in your closet, your good grades, your mantleful of band-camp participation trophies, whatever. When the mob smells unorthodoxy, there’s no talking your way out of it. You just have to hold on for dear life.

Trump has turned the new Republican Party into high school. It will be cruel, clique-y and ruled by insult kings like himself and Ann Coulter, whose headline description of Cruz (“Tracy Flick With a Dick”) will always resonate with Trump voters more than a thousand George Will columns.

And anyone who crosses the leader from now on will be fair game for the kind of brutal fragging Cruz and his circle experienced in Indiana. Dissenters will be buried under a cannonade of abuse coming from everywhere: Trump, other politicians, reporters, Internet memers, 12-year-olds, everyone. Add tough economic times to the Internet, and this is what you get: Nationalist High.

Indiana was the end of an era. As Fiorina moved through a pancake house on primary morning, her supporters meekly bowed and curtseyed as though she were the Queen Mother, calling her ma’am and showing off the small-town civility and churchy hospitality that was once a defining characteristic of Republican campaign-trail events. In the Trump era, this seems likely to be replaced forever by the testosterone-fueled diss-fests that had undone Cruz in this state.

“People don’t care about civility anymore,” said Cruz supporter Julie Reimann with a sigh. “It’s another sad state of affairs, and when you see it across the Midwest and in our small towns, it’s like, ‘What has happened to us? Why are we so mean?’ ”

The real question might be, “Why weren’t we meaner before?”

Politics at its most basic isn’t a Princeton debating society. It’s a desperate battle over who gets what. But during the past 50 years, when there was a vast shift in the distribution of wealth in this country, when tens of millions of people were put out of good, dignified jobs and into humiliating ones, America’s elections remained weirdly civil, Queensberry-rules reality shows full of stilted TV debates over issues like abortion, gay marriage and the estate tax.

As any journalist who’s ever covered a miners’ strike or a foreclosure court will report, things get physically tense when people are forced to fight for their economic lives. Yet Trump’s campaign has been the first to unleash that menacing feel during a modern presidential race.

Some, or maybe a lot of it, is racial resentment. But much of it has to be long-delayed anger over the way things have been divvied up over the years. The significance of Trump’s wall idea, apart from its bluntly racist appeal as a barrier to nonwhite people, is that it redefines the world in terms of a clear Us and Them, with politicians directly responsible for Us.

It’s a plain rebuttal to the Sullivan explanation for why nobody between the coasts has a decent job anymore, i.e., that there are “global economic forces” at work that we can no more change than we can the weather. Trump’s solutions are preposterous, logistically impossible and ideologically vicious, but he’s giving people a promise more concrete than “tax cuts will stimulate growth that will eventually bring jobs back.” He’s peddling hope, and with hope comes anger.

Of course, Trump is more likely than not to crash the car now that he has the wheel. News reports surfaced that Donald Trump, unhinged pig, was about to be replaced by Donald Trump, respectable presidential candidate. No more schoolyard insults!

Trump went along with this plan for a few days. But soon after Indiana, he started public fights with old pal Joe Scarborough and former opponents Graham and Bush, the latter for backtracking on a reported pledge to support the Republican nominee. “Bush signed a pledge… while signing it, he fell asleep,” Trump cracked.

Then he began his general-election pivot with about 10 million tweets directed at “crooked Hillary.” With all this, Trump emphasized that the GOP was now mainly defined by whatever was going through his head at any given moment. The “new GOP” seems doomed to swing back and forth between its nationalist message and its leader’s tubercular psyche. It isn’t a party, it’s a mood.

Democrats who might be tempted to gloat over all of this should check themselves. If the Hillary Clintons and Harry Reids and Gene Sperlings of the world don’t look at what just happened to the Republicans as a terrible object lesson in the perils of prioritizing billionaire funders over voters, then they too will soon enough be tossed in the trash like a tick.

It almost happened this year, when the supporters of Bernie Sanders nearly made it over the wall. Totally different politicians with completely different ideas about civility and democracy, Sanders and Trump nonetheless keyed in on the same widespread disgust over the greed and cynicism of the American political class.

From the Walter Mondale years on, Democrats have eaten from the same trough as Republicans. They’ve grown fat off cash from behemoths like Cisco, Pfizer, Exxon Mobil, Citigroup, Goldman and countless others, companies that moved jobs overseas, offshored profits, helped finance the construction of factories in rival states like China and India, and sometimes all of the above.

The basic critique of both the Trump and Sanders campaigns is that you can’t continually take that money and also be on the side of working people. Money is important in politics, but in democracy, people ultimately still count more.

The Democrats survived this time, but Republicans allowed their voters to see the numerical weakness of our major parties. It should take an awful lot to break up 60 million unified people. But a few hundred lawyers, a pile of money and a sales pitch can be replaced in a heartbeat, even by someone as dumb as Donald Trump.


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Today, the biggest black swan is China, the risk we need to understand above all else. Most investors associate China risk with its economy, the chance of a financial crisis or recession. But the bigger risk today, I would argue, is China’s politics. In the last few months, the country’s political climate has deteriorated at an alarming pace.

British citizens have been abducted in Hong Kong by the Chinese government and censorship of foreign media has increased. Just recently, the 50th anniversary of Mao’s Cultural Revolution-a grim decade when as many as 30 million Chinese are thought to have died of political violence and starvation-was commemorated with a grand concert and celebration. Apparently, the Cultural Revolution is returning to fashion.

We still tend to think of China as that of the government of Deng Xiaoping, who placed China firmly on a liberalizing, market-oriented track. Over three decades, we have become used to China’s 10 percent GDP growth rates and a series of economic achievements, of two power plants opened every week and a new airport for every city.

That China is fading. In its place has arisen a restless and unhappy country. Making a buck has been replaced with making the rest of Asia bow down to Chinese superiority. Power, not money, is the currency of the realm.

The impacts are to be seen both domestically and abroad. At home, Beijing is pressuring foreign businesses. Chinese authorities have shut down Apple‘s iTunes service, and Disney’s joint venture with Alibabahas been pulled. NGO’s are coming under direct police supervision, and many are expected to close. Christian churches are being systematically demolished.

For those of us accustomed to thinking of China as a dynamic, prosperous and constructive power, these developments are hard to digest. Back in 2013, the Rhodium Group, a consultancy with a focus on China, argued the liberal case: “The losses China would incur by reversing its hard-won market reforms far exceed any economic or political dividends from taking such a path” as excluding foreign suppliers. Most business people still feel that way, and it is certainly true.

The evidence, however, suggests that President Xi Jinping does not regard economics as a priority. Indeed, he has specifically denounced “Western capitalist values.” What do these values represent if not personal freedom and economic progress? Xi has stated it explicitly: he rejects capitalism, as westerners might think of it, as his prime objective.

His real priorities are more evident in the country’s foreign policy. The centerpiece of Xi’s policy is the building and militarizing of artificial islands in the South China Sea, with an eye to annexing a 300,000 square mile triangle bounded by China’s Hainan Island to the west, the southern tip of Vietnam and Manila in the east.

Why is China antagonizing literally all its major trading partners with this strategy? China is under no threat in the South China Sea, and the gains, beyond political control, are negligible. The venture fails any reasonable cost/benefit analysis. As a point of comparison, the U.S. Gulf of Mexico produces about $25 billion of oil and gas revenues per year, perhaps $30 billion if other economic activities are added. The South China Sea is considered less promising.

On the other hand, China exported $2.3 trillion goods and services in 2015. A loss of only 1 percent of this trade would offset the full economic benefit of the South China Sea. Why risk it?

The militarization of the South China Sea makes sense only in terms of power politics. As he does domestically, Xi wants dominance abroad, certainly in East Asia. Domination is the goal, even at the cost of economic sacrifice.

The result: The U.S. and China are increasingly facing off in the South China Sea. Last week, China scrambled fighter jets when a U.S. navy ship, in a freedom of navigation exercise, sailed close to the disputed Fiery Cross Reef. If this continues, sooner or later we will find ourselves in a shooting war.

For oil markets, Xi’s policies represent risks great and small. The lesser risk is that the continued crackdown on businesses and foreigners will sap the appetite to invest in and trade with China. At best, the outcome would be sanctions, and at worst, well, something a lot worse. Continued internal and external tensions in China will produce exactly the pattern we have seen, a progressive slowing of the Chinese economy.

There will be no stabilization of GDP growth above 6 percent, but rather a continued unwinding. The Cultural Revolution was no boom time; rather it stands as a Chinese holocaust of poverty, oppression and death. If Xi wants to be the new Mao, then China’s economy will perform as it did under Mao.

What are the implications for oil markets? First, oil demand is a function of GDP. If China’s GDP continues to unravel, as it will in the political climate Xi is creating, then China’s oil consumption will disappoint, and oil markets will take longer to clear than currently expected.

We anticipate markets will clear during the summer. On the other hand, a weakening China could put this off by perhaps two quarters. And as importantly, talk of yuan devaluation, which would be implied by unraveling growth, has tended to knock several dollars off the oil price. Should the Chinese economy continue to unwind without outright hostilities, we would expect oil prices to decline less than $12 per barrel from current levels, but meaningful price recovery to be delayed into 2017.

The far greater risk is a shooting war or China’s annexation of the South China Sea. This could lead to oil embargoes, and much, much worse.The only certainty in such an event is that out-of-the-money options will prove a good bet. For now, let’s hope for the best and trust cooler heads will prevail.

Nevertheless, we cannot be complacent. The risk is real. China’s politics has become the black swan we cannot afford to ignore.

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WASHINGTON — Let’s face it — Donald Trump is smarter than he looks.

For all the personality flaws the press loves to dwell on, the presumptive Republican nominee understands more about real world finance than all the deficit hawk politicians in both parties put together.

As he clarified his remarks about consolidating U.S. debt by buying back bonds at a discount when interest rates rise, he was setting the record straight on those who thought he meant to renege on the debt and effectively default.

Not at all, Trump said last week. And then he dropped another bombshell in explaining why that’s not even possible.

“This is the United States government,” Trump said on CNN. “First of all, you never have to default because you print the money, I hate to tell you, OK?”

Bingo. With a stroke, Trump demolished decades of homage by many economists and virtually all politicians to the straitjacket of a monetarist dogma that ignores the realities of present-day finance.

In fact, intentionally or not, Trump embraced a radical view of money and debt advanced by economists like James Galbraith, professor at the University of Texas and son of the legendary economist and presidential adviser John Kenneth Galbraith.

That view, known as modern monetary theory (MMT), holds that governments that control their own currency can print money without risk of inflation unless full employment creates excess demand because it is no longer tied to gold or some other measure of value.

“This is a Nixon-goes-to-China moment,” Randy Wray, a leading MMT exponent atBard College in New York, told Bloomberg, hailing Trump as “a Republican far to the left of the Democratic party apparatus who wants to promote rising living standards of Americans.” (President Nixon’s 1972 trip to China represented a major breakthrough in relations because of his past as a fervent anti-Communist crusader.)

Along with all his controversial views on immigration, terrorism, and trade, Trump is bringing a new perspective to public finance and to financial regulation based on his first-hand experience of dealing with real financial issues around the world.


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Watson-powered Ross will handle bankruptcy law.

Ross, the first artificially intelligent attorney, just got a job.

Global law firm Baker & Hostetler, one of the nation’s largest, recently announced that it has hired a robot lawyer created by ROSS Intelligence, Futurism reports. Ross will be employed in the law firm’s bankruptcy practice which currently employs close to 50 lawyers.

Ross was built on IBM’s IBM -0.75% Watson. It can understand your questions, and respond with a hypothesis backed by references and citations. It improves on legal research by providing you with only the most highly relevant answers rather than thousands of results you would need to sift through. Additionally, it is constantly monitoring current litigation so that it can notify you about recent court decisions that may affect your case, and it will continue to learn from experience, gaining more knowledge and operating more quickly, the more you interact with it.

 Baker & Hostetler is just the first to make this announcement. According to Andrew Arruda, ROSS Intelligence co-founder and CEO, other law firms have signed licenses with Ross, and we can expect more announcements soon.
Though this could be welcome news for someone who needs a good lawyer, it may also fuel concerns that automation is replacing human employees. Some argue that this isn’t an issue because job availability has historically increased as technology advances, but artificial intelligence is a fairly new territory that many worry can put an end to that trend.

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I have an appeal case coming up in the Employment Court. One aspect of the plaintiff’s case concerned ‘confidential information’.

Breach of confidence falls within the jurisdiction of Equity. One is almost tempted to say ‘common law’ which would of course be incorrect.

Anyway. Due to NZ having the Employment Relations Act 2000, the equity provision is s189(1).

This will require some extended research into this area of law.

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The S&P 500 Index remains just 3.5% below its May 2015 peak, yet is also at the same level it set in November 2014, 18 months ago. I continue to view market action as tracing out the arc of a major top formation, completing the third speculative financial bubble in 16 years. Downside risk remains significant, and even our short-term view has shifted back from neutral to hard-negative. Given that the behavior of single indices can be “noisy,” the following chart shows the average behavior of major global equity indices, including U.S., European, British, Hong Kong and Japanese stock markets. This may provide a broader view of equity market pressures here. The respective level of each index on December 31, 2014 is scaled to 1.0.

We have to remain open to the potential for fresh speculation, which would be evident through a clear improvement in market internals. In the absence of uniformity similar to what was observed prior to this top formation, my impression is that the best way to understand the next stage of the current market cycle is to recognize the difference between observed conditions and latent risks. This distinction will be most helpful before, not after, the S&P 500 drops hundreds of points in a handful of sessions. That essentially describes how a coordinated attempt by trend-followers to exit this steeply overvalued market could unfold, since value-conscious investors may have little interest in absorbing those shares at nearby prices, and in equilibrium, every seller requires a buyer.

Imagine the error of skating on thin ice and plunging through. While we might examine the hole in the ice in hindsight, and find some particular fracture that contributed to the collapse, this is much like looking for the particular pebble of sand that triggers an avalanche, or the specific vibration that triggers an earthquake. In each case, the collapse actually reflects the expression of sub-surface conditions that were already in place long before the collapse – the realization of previously latent risks.

Finding the specific trigger that causes the skaters to plunge through the ice isn’t particularly informative. The fact is that catastrophe is inevitable the moment the skaters ignore the latent risk, or rely on faulty evidence to conclude that the ice is stable. The fracture in some particular span of ice is just one of numerous other spots that might have otherwise given way if the skaters had chosen a different course. Hitting that spot creates the specific occasion for the underlying risk to be expressed, but an unfortunate outcome was already inevitable much earlier.

Prior to the collapse of a cliff, the buildup of latent risk is expressed as an acceleration in the average size of seismic events approaching the point of failure. Likewise, if you drop grains of sand onto a pile, the slope may become quite steep, but very small-scale, local avalanches will begin to occur before the structure collapses. These subtle breakdowns in what we might call “internals” serve to relieve local imbalances even as global imbalances build – held together by a whole matrix of weak interactions. At some point, you get a “butterfly effect” – some very small disruption triggers a massive, coordinated shift in the whole system.

We’ve observed a similar process in recent quarters through a combination of obscene valuation, increased internal dispersion, and a series of intermittent corrections and recoveries, just as we observed during the 2000 and 2007 market peaks. This will become increasingly important to monitor if volatility begins to emerge on very short time-scales, which we should carefully watch here. The following is from my weekly comment in the second-half of 2007, before the global financial crisis (see Market Internals Go Negative):

“I’ve noted over the years that substantial market declines are often preceded by a combination of internal dispersion where the market simultaneously registers a relatively large number of new highs and new lows among individual stocks, and a leadership reversal, where the statistics shift from a majority of new highs to a majority of new lows within a small number of trading sessions. This is much like what happens when a substance goes through a ‘phase transition,’ for example, from a gas to a liquid or vice versa. Portions of the material begin to act distinctly, as if the particles are choosing between the two phases, and as the transition approaches its ‘critical point,’ you start to observe larger clusters as one phase takes precedence and the particles that have ‘made a choice’ affect their neighbors. You also observe fast oscillations between order and disorder in the remaining particles. So a phase transition features internal dispersion followed by leadership reversal. My impression is that this analogy also extends to the market’s tendency to experience increasing volatility at 5-10 minute intervals prior to major declines.”

To understand major investment collapses, we should distinguish causes from triggers. The central cause of a collapse is typically the extreme overvaluation that preceded it. Indeed, when equity valuations have been similarly extreme on historically reliable measures, as they were in 1901, 1907, 1929, 1937, 2000, and 2007 (as well as lesser instances such as 1973), the market has always followed by losing half of its value. Once reliable measures of valuation become obscenely elevated, steep losses are already inevitable; baked in the cake. What typically triggers the breakdown is the violation of some widely-observed “support” threshold (often roughly 14% below the market peak) that shifts trend-followers from feeding self-reinforcing speculation to feeding self-reinforcing liquidation. For a more formal analysis, see Complex Systems, Feedback Loops, and the Bubble-Crash Cycle, and Lessons from the Iron Law of Equilibrium.

Unfortunately, the most reliable measures of valuation (those having the strongest and most consistent relationship with actual subsequent market returns) aren’t always the most popular. The unreliable measures, which include price/operating earnings ratios and the “Fed Model,” create mirages. They’re the misleading evidence encouraging skaters out onto the thin ice. Novel or historically unreliable valuation measures offer hope that market extremes are of little concern; that “this time is different.” As J.K. Galbraith wrote, describing the period leading up to the 1929 crash, they were “necessary to reassure those who required some tie, however tenuous, to reality. This process of reassurance eventually achieved the status of a profession.”

A second issue is that the collapse isn’t always immediate. Investors seem very uncomfortable with the idea of latent or unexpressed risk. Instead, there is a misconception that risk must always be expressed immediately, or at least in short order. That mentality shows up in news stories that constantly seek to explain the movement of the financial markets on any particular day with some event that happened that same day. What these stories are actually reporting are triggers, not causes. Numerous other triggers would often have served just as well.

In some cases, investors underestimate the amount of disruption needed to relieve latent risks, deciding that once a particular factor is widely discussed, it must be “priced into” the market. That mentality was clear during the dot-com bubble and again during the mortgage bubble. As a result, breakdowns in various sectors that should have been viewed as canaries in the coal mine were instead viewed as evidence that risk was “contained.”

Why isn’t latent risk immediately followed by market losses? How can overvaluation persist for long periods of time without the market losing value in the near-term? We have to go back to that concept of “internal dispersion.” As I’ve frequently emphasized, the key factor – the “hinge” that distinguishes overvalued markets that continue to advance from overvalued markets that drop like a rock – is the attitude of investors toward speculation or risk aversion. Historically, we’ve found that the best measure of these attitudes is the uniformity or divergence of market internals across a broad range of individual stocks, industries, sectors, and security types, including debt securities of varying creditworthiness. Generally speaking, when investors are inclined to speculate, they tend to be indiscriminate about it. In contrast, increasing dispersion and recurrent small-scale corrections and recoveries at rich valuation levels are much like the increasing seismic events that happen just before a cliff collapses.

The greatest danger comes when investors insist on speculating even after market internals have deteriorated and momentum has rolled over. Following a long period of speculative success, they may be tempted to ignore latent risks, and to keep speculating on the time-delay between the emergence of latent risks and their abrupt expression. They fall victim to the delusion that, in the words of Citigroup’s Chuck Prince just before the global financial crisis, “as long as the music is playing, you’ve got to get up and dance.”

No, you don’t. When you insist on tap dancing at the edge of a fragile cliff, or lace up your skates when the ice is thin, each moment of success may offer false encouragement to press your luck, but it also ensures that you’ll have no escape when underlying risk inevitably meets an occasion to express itself.

Current conditions, valuations, and profit margins

With regard to current market conditions, we should be very clear that reliable valuation measures are presently consistent with S&P 500 nominal total returns in the range of 0-2% annually over the coming 10-12 year horizon. Given that the current S&P 500 dividend yield is slightly above 2%, this implies that we expect the S&P 500 Index itself to be lower a decade from now, than it is today (an expectation that I also correctly expressed in 2000based on similar arithmetic). From a cyclical perspective, a 40-55% market retreat over the completion of the current cycle would represent a run-of-the-mill outcome, not a worst-case scenario. From a shorter-term perspective, while bullish sentiment has retreated modestly, bearish sentiment remains scarce, and the momentum components of trend-following measures have deteriorated enough that – combined with other considerations relating to valuations and market internals – market conditions have shifted our present outlook from fairly neutral to hard-negative.

I’ll emphasize again that while valuations provide a highly reliable view of 10-12 year investment prospects, as well as useful guidance about cyclical return/risk prospects, they provide very little information about investment prospects over shorter portions of the market cycle. On that horizon, what matters most is the inclination of investors toward speculation and risk-aversion, which is best inferred from the uniformity or divergence of market internals (what I used to call “trend uniformity” during the tech bubble). That recognition served us extremely well in previous, complete market cycles. In contrast, our challenges in the half-cycle since 2009 (which I view as fully addressed by the adaptations we introduced mid-2014) underscores, rather than diminishes, the importance of focusing jointly on valuations and market internals. See the Box in The Next Big Short to understand that narrative, so you don’t mistakenly ignore market risks amid ad hominem attacks about things we’ve already discussed and addressed.

While we prefer to compare market capitalization with corporate gross value added, including estimated foreign revenues, the following chart provides the most comprehensive historical review of where reliable valuation measures stand at present. The chart shows market capitalization / GDP, which Warren Buffett cited in a 2001 Fortune interview as “probably the best single measure of where valuations stand at any given moment.” Below, I’ve imputed some of the pre-war data points based on highly correlated proxy data that is available through the full period. Valuations are presented on an inverted log scale (blue, left), with actual subsequent S&P 500 annual total returns in red (right scale).

As I’ve frequently noted, the problem with many earnings-based measures is that while earnings are certainly necessary to generate the long-term stream of cash flows that can be delivered into the hands of investors over time, earnings are actually a poor “sufficient statistic” for those long-term cash flows because profit margins vary considerably over the economic cycle (see Margins, Multiples, and the Iron Law of Valuation for more detail and historical evidence on this point).

There are a number of complementary ways to think about profit margins. From an accounting standpoint, we know that deficits in one sector have to be offset by surpluses in another. Accordingly, we know that large deficits, particularly in the government and household sectors, tend to be associated with surpluses in the corporate sector that we observe as elevated profit margins. We also import surplus foreign saving (which we observe as trade deficits), but since deterioration in the trade deficit tends to be matched by opposite movements in gross domestic investment, fluctuations in those terms of the savings-investment balance have less impact on profit margins (for a detailed analysis of these relationships, see An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities). Put simply, most of the fluctuation in corporate profit margins is a mirror-image of fluctuations in combined government and household saving.

Historically, sum of government and household saving has averaged about 3.5% of GDP, but that figure moved to a deep combined deficit of nearly 7% of GDP in 2010. In recent quarters, that deficit has nearly vanished, which has been associated with a substantial decline in corporate profits as a share of GDP (see the chart below). We’re still not to the point where the combined savings of the government and household sectors are positive, but both have clearly moved in that direction.

The following shows similar deterioration in S&P 500 earnings, both operating (which selectively excludes certain expenses in a way that often varies considerably company-by-company), and as-reported earnings following generally accepted accounting practices (GAAP).

Another way to think about corporate profits is from the standpoint of input costs and output prices. Think of the GDP deflator as measuring the price at which a generic “unit” of goods and services can be sold in the economy. Meanwhile, think of unit labor cost as the amount that companies have to pay for the labor that goes into that “unit” of output. Unit labor costs rise when wages increase or productivity is weak, and fall when the converse is true. From this perspective, we would expect profit margins to rise when the GDP deflator is rising faster than unit labor costs, and we would expect profit margins to fall when the GDP deflator is rising slower than unit labor costs. As shown in the chart below, that’s exactly what we observe.

To believe that the recent decline in corporate profits will be quickly reversed is to either ignore or dismiss the underlying dynamics, which instead suggest the likelihood of further mean-reversion in profit margins. Note that the difference between unit labor costs and the GDP deflator has become particularly hostile to profits in recent quarters. Indeed, we’ve never seen unit labor costs rise more than 2% faster than the GDP deflator without being associated with a subsequent U.S. recession. That’s because the first response of companies in this situation is to economize on labor. Given that employment responds with a lag, we would expect this adjustment to occur over a number of quarters, rather than immediately.

Emphatically – and this point is worth reflection – I am not concerned about major stock market losses because we expect profit margins to decline, or because present conditions remain consistent with an oncoming U.S. recession. Rather, my concern about profit margins is, and always has been, that they can create the mirage of reasonable valuations during periods when business conditions are strong. The argument is not “profit margins are going to decline, and that will bring prices down.” The simple fact is that profit margins don’t have a particularly high correlation with stock price fluctuations to begin with. Rather, the argument is that rich profit margins have distorted popular earnings-based valuation measures (as they always have, but to a much greater degree in recent years), so that investors vastly underestimate how obscene valuations have actually become. This argument continues to hold, and in my view, investors still have a small window to act on that recognition.

As for economic risks, I’ll reiterate that while leading economic data are already sufficiently weak to raise concerns about recession, our views about the immediacy of those risks would be stronger if the stock market was to decline by even a few percent. Stock market declines, in and of themselves, have quite a weak relationship with recessions. However, when those declines occur jointly with tepid economic data on other fronts (for example, relatively weak new orders and order backlogs, declining industrial production, weakness in real sales, flat aggregate hours worked, and so forth), those tepid economic conditions generally deteriorate quickly for the worse.

We’re more interested in accurately responding to the evidence as it emerges than in pounding the table with predictions, so it will suffice to emphasize a) our assessment of recession risk would increase substantially on a market break of even a few percent; b) we continue to view the 1820-1850 level on the S&P 500 as a sufficiently critical and widely-monitored threshold that a violation could be followed by concerted attempts by trend-following speculators to exit, but with little buying interest from value-conscious investors at price levels anywhere near that threshold, and; c) our expectation of a 40-55% market decline over the completion of the current market cycle doesn’t rely on any particular expectation of economic deterioration, but a market break of more than a few percent could present an occasion for steep downside risks – which are ultimately inevitable – to be more quickly realized.

The foregoing comments represent the general investment analysis and economic views of the Advisor, and are provided solely for the purpose of information, instruction and discourse. Please see periodic remarks on the Fund Notes and Commentary page for discussion relating specifically to the Hussman Funds and the investment positions of the Funds.


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