Connect with us

Spread & Containment

Futures Rebound In Shaky Markets With Stocks On Pace For 2nd Weekly Drop

Futures Rebound In Shaky Markets With Stocks On Pace For 2nd Weekly Drop



Futures Rebound In Shaky Markets With Stocks On Pace For 2nd Weekly Drop Tyler Durden Fri, 09/11/2020 - 08:07

After yesterday's surprise intraday reversal lower - the third such lurch following last Friday's and Tuesday's drubbing - which may or may not have been sparked by a pair of sell programs late in the morning, US equity futures levitated sluggishly in the week's final session while European shares struggled for momentum on Friday as concerns about extra monetary stimulus and overnight falls in U.S. big tech shares kept investors on edge. The dollar continued its decline while Treasury yields rose.

Despite the modest rebound in U.S. futures, global stocks, the S&P 500 and the Nasdaq Composite were course for a second straight week of losses. On Friday, Nasdaq 100 futures were up 1.3% and S&P 500 futures 0.9% firmer. The NYSE Fang+ index of big 10 tech companies has lost 5.4% so far this week, its biggest weekly loss since the market turmoil in March if sustained by the end of Friday. Menwhile, volatility is rising and as the next chart shows, the Nasdaq has moved more than 1% on every day in September.

"When you see these short-term, sudden moves after a run-up like we’ve had, it doesn’t mean you avoid the sector, but you have to be prepared that it’s the price of admission of being there,” said Charles Day, a managing director and private wealth advisor at UBS Global Wealth Management. “We still think investors should stay invested, we’re still positive on equities.”

Fears over a messy hard Brexit added to the bearish sentiment, putting sterling on track for its worst-week since March after the European Union told Britain it should urgently scrap a plan to break their divorce treaty. In other political clashes, the U.S. Senate killed a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats seeking far more funding prevented it from advancing. That followed European Central Bank President Christine Lagarde earlier in the day appearing to rule out measures to weaken the euro, even though the ECB's chief economist followed up this morning warning that a strong euro is dampening inflation.

"Investors were disappointed,” said Milan Cutkovic, market analyst at AxiCorp. “They were hoping that the central bank will boost the stock market rally by paving the way for further stimulus measures and talking down the euro. "But ECB President Christine Lagarde sounded less dovish, and her remarks about the strong euro left markets unimpressed."

Europe's Stoxx 600 was rangebound, opening lower before gaining 0.1%. The bank subgroup index fell as much as 1.4% and travel & leisure index dropped 1.1%, after ECB chief economist Philip Lane used a tougher tone than President Christine Lagarde and warned that the euro’s appreciation this year has dampened the inflation outlook, signaling that more monetary stimulus might be needed. After crashing by a record 20% in the second quarter, Britain’s economy grew by 6.6% in July, slower than June’s monthly rate, the Office for National Statistics said.

The European Union is ramping up preparations for a tumultuous end to the four-year Brexit saga after Britain explicitly said this week that it plans to break international law by breaching parts of the Withdrawal Agreement treaty that is signed in January.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.4%, moving away from a one-month trough touched earlier this week. Markets in Asia were mixed, with Jakarta Composite and Shanghai Composite rising, and Australia's S&P/ASX 200 and Thailand's SET falling. The Topix gained 0.7%, with Diamond Electric Holdings and Raksul Inc rising the most. The Nikkei rose after Tokyo dropped its coronavirus alert by one notch from the highest level as COVID-19 cases trend down. The Shanghai Composite Index rose 0.8%, with Yechiu Metal Recycling China and Jiangsu Sinojit Wind Energy Technology posting the biggest advances.

With the world’s stocks still trading near the most expensive levels relative to profit outlook since the 2000 tech bubble, some analysts called for caution.

"Global shares had rallied on expectations of economic recovery from lockdowns. But as the autumn begins (in the northern hemisphere), people wonder if the coronavirus infections could worsen,” said Kozo Koide, chief economist at Asset Management One. “You never know if vaccine deployment is that easy nor if banks need to aside more provisions for struggling firms in hospitality sector. Considering all that, investors are likely to question the current valuations can be justified,” he said.

In rates, Treasuries drifted lower led by long end as the curve bear-steepened, with futures near lows of the day in early U.S. trading. 10- and 30-year yields remain below this week’s auction stops, with a 20-year reopening ahead on Tuesday. Yields are cheaper by ~2bp at long end, steepening 5s30s by 1.6bp; 10-year higher by 1.3bp near 0.69%. Government bond yields across the euro area fell after Lane’s comments that inflation will be persistently low in the coming years. Bunds outperformed by ~3.5bp, helped by comments from ECB’s Lane who said the euro’s recent rise dampens the inflation outlook; gilts outperform Treasuries by 2.7bp.

In fx markets, the Bloomberg Dollar Spot Index slipped for a second day as the greenback weakened versus most of its peers as gains in U.S. stock futures dented demand for haven assets. The euro advanced for a third day as investors shrugged off policy makers’ commentary about how the common currency’s strength dims inflation prospects. The EURUSD rose 0.5% to 1.1874 day high, up 0.3% on a weekly basis, after ECB chief economist Philip Lane warned that the euro’s appreciation this year has dampened the inflation outlook, using tougher language than President Christine Lagarde and signaling that more monetary stimulus might be needed. Norway’s krone and antipodean currencies were at the top; the Australian dollar advanced against the greenback to erase a weekly loss after exporters and speculative funds bought spot to cover short term obligations into the weekend. The pound extended this week’s slump and headed for its worst week since March on a deterioration in Brexit negotiations. Dollar-yen stayed in a tight range as investors refrained from taking fresh positions ahead of U.S. inflation data.

In commodities, oil prices were under pressure from a surprise rise in U.S. stockpiles and weak demand due to the coronavirus pandemic. Brent was down 0.4% at $39.91 a barrel after falling nearly 2% on Thursday. U.S. crude dropped 0.2% to $37.23 a barrel, having fallen 2% in the previous session. Despite the continued dollar drop, gold was roughly unchanged at $1,944.75 per ounce after hitting its best level since Sept. 2 on Thursday.

Looking at the day ahead, data highlights include the US CPI reading for August. There are an array of ECB speakers, including chief economist Lane, Schnabel, Mersch, Villeroy and Weidmann. Kroger is reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.9% to 3,370.75
  • STOXX Europe 600 up 0.07% to 367.74
  • MXAP up 0.4% to 170.90
  • MXAPJ up 0.3% to 560.25
  • Nikkei up 0.7% to 23,406.49
  • Topix up 0.7% to 1,636.64
  • Hang Seng Index up 0.8% to 24,503.31
  • Shanghai Composite up 0.8% to 3,260.35
  • Sensex down 0.1% to 38,796.07
  • Australia S&P/ASX 200 down 0.8% to 5,859.42
  • Kospi up 0.01% to 2,396.69
  • Brent futures down 0.2% to $39.97/bbl
  • Gold spot down 0.2% to $1,943.19
  • U.S. Dollar Index down 0.1% to 93.23
  • German 10Y yield fell 3.6 bps to -0.469%
  • Euro up 0.3% to $1.1846
  • Italian 10Y yield fell 1.2 bps to 0.883%
  • Spanish 10Y yield fell 3.0 bps to 0.32%

Top Overnight News from Bloomberg

  • The U.K. secured a free-trade agreement with Japan, its first major post-Brexit accord and a boost to Prime Minister Boris Johnson as negotiations deteriorate with the EU
  • Britain’s economy expanded 6.6% in July compared to June, when it gained a record 8.7%, with activity being boosted by the reopening of restaurants and bars in early July
  • Investors are now paying for the privilege to lend cash to the U.K. government for short periods of time, adding to conviction for rate cuts by the Bank of England
  • JPMorgan Chase & Co. is requiring its most senior sales and trading employees to return to their offices by Sept. 21, the strongest move yet by a U.S. bank to restaff its workplaces
  • French President Emmanuel Macron will meet with his government Friday to discuss how to curb a surge in coronavirus infections without endangering a tentative economic recovery. France recorded close to 10,000 new cases Thursday, the most since the lockdown ended in May
  • Norges Bank will probably raise its main interest rate a good deal earlier than the bank’s own forecasts suggest, according to Norway’s statistics agency

A look at global markets courtesy of NewsSquawk

Asian equity markets trade mixed, but finished mostly positive, as the region partially shrugged-off the weak performance stateside where all major indices declined amid resumed heavy selling in tech and energy, while higher US jobless claims data and the failure to pass the skinny stimulus bill at the Senate added to the downbeat mood. ASX 200 (-0.8%) underperformed with tech and miners leading the broad descent across its sectors, while Rio Tinto shares whipsawed following the announcement of top-level changes with CEO Jacques to exit the Co. when a successor is appointed or by end-March 2021 and iron ore chief Salisbury to step down with immediate effect as a fallout from the destruction of the Aboriginal heritage sites. Nikkei 225 (+0.7%) recovered initial losses with the index helped by mildly favourable currency flows and amid reports Japan is to allocate JPY 1.6tln for coronavirus measures from the reserve fund. Hang Seng (+0.8%) and Shanghai Comp. (+0.8%) were indecisive after this week’s PBoC liquidity efforts resulted to a net weekly injection of CNY 230bln, but with upside restricted after President Trump adamantly dismissed extending the deadline for TikTok and with weakness seen in defense stocks after China and India border tensions eased following a meeting of their foreign ministers in which the sides issued a joint statement that they agreed to honour existing agreements and to not escalate the border situation. Finally, 10yr JGBs were marginally higher as they took their cue from USTs and with the BoJ also present in the market for nearly JPY 1.2tln of JGBs with up to 10yr maturities, although gains were limited by the improvement in risk appetite overnight and with stubborn resistance at the 152.00 level.

Top Asian News

  • Credit Suisse Hires 11 for China Research After JV Control
  • India Survey Suggests Covid-19 Cases Hit 6.4 Million by May
  • Nissan Makes Euro Bond Market Debut After Jumbo Dollar Sale
  • Bank Indonesia Intervenes as Planned Social Curbs Hit Rupiah

Directionless trade thus far and relatively contained in early European hours (Euro Stoxx 50 -0.4%) as the region took the lead from a mixed APAC performance and fluctuates between negative and positive territory amidst a lack of fresh catalysts heading into US CPI. Meanwhile, US index futures see more pronounced gains following yesterday’s tech-led slide. European sectors also see a mixed performance with little to be derived in terms of a risk profile. Healthcare leads the gains – propped up by Pharma behemoths Novartis and Roche, with the latter noting that new data further reinforces Co’s Ocrevus as a highly effective treatment for MS. To the downside, banks feel the ill-effects of a slightly lower European yield environment, whilst Oil & Gas and Travel & Leisure react to dwindling demand prospects. In terms of individual movers, Altice (+24%) tops the charts amid news that it is to be acquired by Next Private in an all cash offer of EUR 4.11/shr; expected to completed in Q1-2021. Meanwhile, Banco de Sabadell (-3%) failed to capitalise on further Spanish banking sector consolidation rumors as merger talks reportedly have not been initiated. Sticking with M&A, LSE (+1.8%) shares are supported by reports that Board of directors of Italy’s CDP and CDP equity have resolved to proceed jointly with Euronext (+1.8) to submit non-binding bid for Borsa Italiana.

Top European News

  • U.K. Agrees Post-Brexit Trade Deal With Japan, Boosting Johnson; U.K. Economy Surges in July But Clouds Gather Over Brexit
  • Sunak Urged to Extend U.K. Job Support, Help Indebted Firms
  • LVMH, Hermes Gain as Morgan Stanley Sees Rosier Luxury Outlook
  • Euronext Joins Italy State Lender CDP in Borsa Italiana Bid

In FX, sterling remains vulnerable heading into Friday’s round of Brexit trade talks, and with UK PM Johnson facing a Conservative Party revolt against the Internal Market Bill on top of the EU backlash following no reassurances about commitment to comply with the WA from yesterday’s extraordinary joint committee meeting. However, Cable briefly clambered back over 1.2800 after positive reports from Japan about agreement on a trade deal with Britain and Eur/Gbp retreated through 0.9250 before rebounding again after the cross catapulted 2 big figures to 0.9270 on Thursday, albeit with the Euro off its post-ECB highs across the board. For the record, no discernible reaction to a raft of UK data that was mixed on balance, but pretty much as expected in terms of GDP, and from a chart perspective the Pound may find underlying bids around 1.2750 vs the Dollar as the 200 DMA sits not far below at 1.2737, while 0.9300 could offer some sentimental support relative to the Euro.

  • AUD/NZD - Broad risk sentiment is still fragile after a resumption of the tech-inspired equity market bull correction on Thursday, but the Aussie and Kiwi have taken comfort from more resilient performances across APAC bourses overnight. Moreover, Aud/Usd and Nzd/Usd will draw encouragement from the fact that their latest pullbacks were shallower, down to around 0.7250 and 0.6650 respectively compared to 0.7200 and 0.6600 on Wednesday, while retesting 0.7300 and 0.6700. Note, however, Aud/Nzd is holding above 1.0900 in wake of softer NZ food prices and the manufacturing PMI only just retaining 50+ status.
  • EUR/CHF/CAD - Also rebounding vs the Greenback, as the DXY meanders between 93.356-129 parameters ahead of US CPI, with the single currency near the top of a 1.1869-14 range and keeping tabs on a host of ECB speakers for anything fresh/pertinent to supplement pretty routine and unchanged guidance from September’s policy meeting. Meanwhile, the Franc has reclaimed 0.9100+ status and the Loonie is pivoting 1.3170 without additional impetus from BoC Governor Macklem who basically repeated Wednesday’s post-meeting statement and merely acknowledged that Usd/Cad has not fallen as much as other pairs in the past month.
  • JPY - Very little deviation in the Yen just under 106.00 against the Buck awaiting next week’s LDP leadership developments and BoJ policy outcome that is now widely touted to culminate in an upgrade to the economic assessment for Japan.

In commodities, WTI and Brent front month futures are flat within tight ranges in the aftermath of yesterday’s decline, as the complex awaits fresh news flow ahead of US CPI metrics. WTI has been contained within USD 0.5/bbl parameters between 37.00-50/bbl and 39.65-15/bbl respectively, with the only scheduled crude-specific data the weekly Baker Hughes rig count which will be released as usual. Next week is poised to be a relatively busy week for crude markets, with the OPEC and IEA MOMRs alongside the JMMC, which collectively should provide some meat on the bone around what is still an uncertain supply/demand outlook. Elsewhere, spot gold and spot silver are uneventful in caged-trade sub-USD 1950/oz and below USD 27/oz, Meanwhile, Shanghai copper closed lower on the day, weighed on by the losses seen across US stock markets, whilst Dalian iron ore rebounded on demand recovery hopes.

US Event Calendar

  • 8:30am: US CPI MoM, est. 0.3%, prior 0.6%; 8:30am: US CPI Ex Food and Energy MoM, est. 0.2%, prior 0.6%
  • 8:30am: US CPI YoY, est. 1.2%, prior 1.0%; 8:30am: US CPI Ex Food and Energy YoY, est. 1.6%, prior 1.6%
  • 8:30am: Real Avg Hourly Earning YoY, prior 3.7%; Real Avg Weekly Earnings YoY, prior 4.3%
  • 2pm: Monthly Budget Statement, est. $235.4b deficit, prior $200.3b deficit

DB's Jim Reid concludes the overnight wrap

25 years ago today with great trepidation I walked into my graduate training program and started in Investment Banking. My honest plan at that point was to do it for 3-5 years and earn enough money to pursue my dream of becoming a rockstar. I genuinely believed this would happen. The fact that I’m writing this a quarter of a century later suggests my dreams were quashed or alternatively that I’m a very bad analyst. However with Mick Jagger still going strong at 77 maybe there’s hope that I can do this for another 3-5 years and then pursue my dreams of becoming a rockstar! Note that back on this day in 1995, 10yr US, German, UK and Italian yields were 6.22%, 6.61%, 7.89% and 11.51% respectively. I think the first thing I learnt on that training program was that yields and interest rates don’t go negative. So if you’re reading this as a new graduate, ignore the first thing you learn today.

If you really want to look at long-term returns our “The Age of Disorder” (link here) provides you with them spliced and diced numerous ways for global equities, bonds and commodities. This is in addition to our thematic view in the report that we are about to start a new era - the 6th in the last 160 years. The lead topic was one of a likely ongoing deterioration in the US-China relationship. We showed in Figure 3 (and in our CoTD yesterday here) that China is only restoring its historical position that it lost for a century or so post the mid-19th century. That catch up was fine while it was still far behind the size of the US economy but as parity has got closer and as China has resisted conforming to Western ideals, tensions have been and will continue to increase. See the report for a full chapter on this but remember there’s an 8-page executive summary that covers all the report at a high level.

The month of disorder continues in September with yesterday turning into yet another volatile day for investors as a raft of headlines out of Europe coupled with weak labour market data from the US saw swings between gains and losses before the US took a sharp leg lower post the European close led by the tech sector (-2.28%) once again, with the NASDAQ -1.99%. The S&P 500 was flat at noon in New York before finishing -1.76% down on the day. While there was no specific impetus to the selloff, there were a couple of negative headlines that may have reinforced the week-old risk-off sentiment. A slimmed down US stimulus bill failed to pass the Senate (somewhat expectedly), and Microsoft (-2.80%) announced that they had detected new cyberattacks targeting the US elections. With Europe missing the late drop in risk, the STOXX 600 fell a lesser -0.59%. Sovereign bonds diverged as yields on 10yr Treasuries fell (-2.3bps) to 0.677% as investors sought safety in the late risk off. Earlier yields on 10yr bunds (+2.9bps) had moved higher to -0.43%.

One of the bigger FX moves came from sterling, which fell -1.52% against the US Dollar and -1.60% against the euro as Brexit tensions escalated further between the UK and the EU – the biggest daily drops since 18 March during the worst of the pandemic selling. It follows the release on Wednesday of the UK government’s internal market bill, which seeks to override parts of the already-signed Withdrawal Agreement. In terms of the developments in the last 24 hours, an extraordinary meeting of the EU-UK joint committee was held, following which Commission Vice President Šefčovič said that the adoption of the internal market bill by the UK “would constitute an extremely serious violation of the Withdrawal Agreement and of international law.” More notably, the EU called on the UK “to withdraw these measures from the draft Bill in the shortest time possible and in any case by the end of the month”, and that the EU would “not be shy” when it came to using the mechanisms and legal remedies in Withdrawal Agreement to address any violations.

On the UK side however, there was no sign of the government backing down, with their legal defence issued yesterday saying that “Parliament is sovereign as a matter of domestic law and can pass legislation which is in breach of the UK’s Treaty obligations.” Questions have been raised however as to whether the legislation could successfully pass through Parliament, since although the government has an 80-seat majority in the House of Commons (The Times this morning suggest that up to 30 Tory MPs could rebel), they don’t have one in the Lords, where even the former Conservative leader and Brexit supporter Michael Howard expressed disquiet over the fact that the UK could breach its treaty obligations.

In a statement from EU chief Brexit negotiator Barnier, he noted “significant differences remain in areas of essential interest for the EU.” This was almost the exact same wording from U.K. counterpart Frost, who said that “a number of challenging areas remain and the divergences on some are still significant.” The negotiators are due to meet again next week but, as Mr Barnier noted, both sides are in essentially the places they started eight rounds of negotiations ago.

With the Brexit saga dominating, the ECB were somewhat lower down the headlines yesterday, particularly as they left policy on hold with nothing new in the statement. One of the big questions was how they’d react to the recent appreciation in the euro’s exchange rate, which crossed over the $1.20 threshold recently for the first time in over two years. On this President Lagarde said that “to the extent that the appreciation of the euro puts negative pressure on prices, we have to monitor carefully such a matter, and this was extensively discussed”. However, it was a Bloomberg headline rather than comments from Lagarde that saw the euro strengthen during her press conference. It basically said that the ECB was said to agree there was no need to overreact to the Euro’s gains. In response the euro appreciated to $1.19 shortly afterwards, before paring back some of its gains by the close to finish up +0.10% at $1.182.

In terms of their latest economic forecasts, they now see a smaller -8.0% contraction in GDP this year (vs. -8.7% in June), before a +5.0% rebound in 2021 (vs. +5.2% in June). And on the inflation side, the recent weak inflation prints didn’t stop them revising their outlook slightly higher, with this year’s HICP forecast remaining at +0.3%, before next year saw an upgrade to +1.0% (vs. +0.8% in June) while 2022 remained at +1.3%.

With the ECB behind us now, central bank attention is fully on the upcoming Fed meeting next week, which will be the first since the new framework was presented at the virtual Jackson Hole symposium. To that end at 14:30 BST today, Matt Luzzetti, our Chief US economist, will be in conversation with David Wilcox (the former chief economist at the Fed) on the next steps for the Fed ahead of the important FOMC next week. To register for this event, please click here.

Overnight in Asia markets are mixed with the Nikkei (+0.29%) and Hang Seng (+0.42%) both up while the Shanghai Comp (-0.21%), Kospi (-0.67%) and Asx (-0.69%) are all down. The Nikkei is trading higher after reversing earlier declines helped by news that Yoshihide Suga, the leading candidate to become Japan’s next leader, said there’s no need to raise the sales tax again in the next decade. This overnight remark is significant after he had said a day prior that a further increase in the tax is inevitable in the future given Japan’s aging population. In Fx, the British pound and euro are both up +0.20% and +0.17% respectively this morning while the US dollar index is down -0.16%. Futures on the S&P 500 and Nasdaq are trading up +0.59% and +0.64% respectively. In terms of data, Japan’s August PPI came in line with consensus at -0.5% yoy.

On the coronavirus, the CEO of AstraZeneca Pascal Soriot said that a vaccine could still be available by the end of the year after their trial was delayed. Meanwhile, the head of the US FDA has said overnight that drug makers seeking an emergency authorization for a Covid-19 vaccine will have to meet a higher standard of efficacy than normally would be required for such clearance.

Onto the virus numbers now and there were further signs that Europe was becoming a renewed area of concern, with the UK reporting a further 2,935 cases in the past 24 hours, which brought the 7-day average up to its highest since May 25 at 2,532 albeit with higher testing levels now. We have been highlighting the transatlantic shift in new cases over the last month - rising in Europe while falling in the US over the past 6 weeks. Yesterday was the first time since early spring that new daily cases in the European Union and the U.K. surpassed those in the US (c.27k vs c.26k). European leaders continue to advocate for targeted measures over national lockdowns, with French President Macron saying, “we have to continue to be rigorous, realistic, without giving in to any kind of panic” as the country is seeing more weekly cases than ever. Elsewhere, Japan and Singapore are planning to open a reciprocal green lane for travel next week in a bid to revive business between the two countries.

Looking at yesterday’s data, both the initial weekly jobless claims and continuing claims surprised to the upside in the US. The initial claims for the week through September 5th came in at 884k (vs. 850k expected), which is unchanged from the previous week’s level, while the continuing claims covering the previous week increased to 13.385m (vs. 12.904m expected). Notably, the uptick in the insured unemployment rate to 9.2% was the first weekly increase since mid-July, and only the second since May. So that’ll add to concerns that labour market progress is slowing, particularly in the absence of another stimulus package in the US.

Chances for that additional stimulus package fell yesterday, as Senate Democrats voted down a ‘skinny’ bill that some Senate Republicans and the President had been pushing. The bill was estimated at $500-700bn targeted at supplemental unemployment insurance benefits and aid to small businesses. It was a big drop from the Democrats’ most recent salvo of $2.2tr and the Republicans’ opening $1tr bill. With fewer than 60 days to the election it is uncertain what the path forward is here, as some Senate Republicans are still unsure if more stimulus is even needed while Democrats may wait to see if they have a stronger negotiating platform in November.

To the day ahead now, and there are an array of ECB speakers, including chief economist Lane, Schnabel, Mersch, Villeroy and Weidmann. Separately, data highlights include the US CPI reading for August and the UK’s GDP reading for July.

Read More

Continue Reading

Spread & Containment

Separating Information From Disinformation: Threats From The AI Revolution

Separating Information From Disinformation: Threats From The AI Revolution

Authored by Per Bylund via The Mises Institute,

Artificial intelligence…



Separating Information From Disinformation: Threats From The AI Revolution

Authored by Per Bylund via The Mises Institute,

Artificial intelligence (AI) cannot distinguish fact from fiction. It also isn’t creative or can create novel content but repeats, repackages, and reformulates what has already been said (but perhaps in new ways).

I am sure someone will disagree with the latter, perhaps pointing to the fact that AI can clearly generate, for example, new songs and lyrics. I agree with this, but it misses the point. AI produces a “new” song lyric only by drawing from the data of previous song lyrics and then uses that information (the inductively uncovered patterns in it) to generate what to us appears to be a new song (and may very well be one). However, there is no artistry in it, no creativity. It’s only a structural rehashing of what exists.

Of course, we can debate to what extent humans can think truly novel thoughts and whether human learning may be based solely or primarily on mimicry. However, even if we would—for the sake of argument—agree that all we know and do is mere reproduction, humans have limited capacity to remember exactly and will make errors. We also fill in gaps with what subjectively (not objectively) makes sense to us (Rorschach test, anyone?). Even in this very limited scenario, which I disagree with, humans generate novelty beyond what AI is able to do.

Both the inability to distinguish fact from fiction and the inductive tether to existent data patterns are problems that can be alleviated programmatically—but are open for manipulation.

Manipulation and Propaganda

When Google launched its Gemini AI in February, it immediately became clear that the AI had a woke agenda. Among other things, the AI pushed woke diversity ideals into every conceivable response and, among other things, refused to show images of white people (including when asked to produce images of the Founding Fathers).

Tech guru and Silicon Valley investor Marc Andreessen summarized it on X (formerly Twitter): “I know it’s hard to believe, but Big Tech AI generates the output it does because it is precisely executing the specific ideological, radical, biased agenda of its creators. The apparently bizarre output is 100% intended. It is working as designed.”

There is indeed a design to these AIs beyond the basic categorization and generation engines. The responses are not perfectly inductive or generative. In part, this is necessary in order to make the AI useful: filters and rules are applied to make sure that the responses that the AI generates are appropriate, fit with user expectations, and are accurate and respectful. Given the legal situation, creators of AI must also make sure that the AI does not, for example, violate intellectual property laws or engage in hate speech. AI is also designed (directed) so that it does not go haywire or offend its users (remember Tay?).

However, because such filters are applied and the “behavior” of the AI is already directed, it is easy to take it a little further. After all, when is a response too offensive versus offensive but within the limits of allowable discourse? It is a fine and difficult line that must be specified programmatically.

It also opens the possibility for steering the generated responses beyond mere quality assurance. With filters already in place, it is easy to make the AI make statements of a specific type or that nudges the user in a certain direction (in terms of selected facts, interpretations, and worldviews). It can also be used to give the AI an agenda, as Andreessen suggests, such as making it relentlessly woke.

Thus, AI can be used as an effective propaganda tool, which both the corporations creating them and the governments and agencies regulating them have recognized.

Misinformation and Error

States have long refused to admit that they benefit from and use propaganda to steer and control their subjects. This is in part because they want to maintain a veneer of legitimacy as democratic governments that govern based on (rather than shape) people’s opinions. Propaganda has a bad ring to it; it’s a means of control.

However, the state’s enemies—both domestic and foreign—are said to understand the power of propaganda and do not hesitate to use it to cause chaos in our otherwise untainted democratic society. The government must save us from such manipulation, they claim. Of course, rarely does it stop at mere defense. We saw this clearly during the covid pandemic, in which the government together with social media companies in effect outlawed expressing opinions that were not the official line (see Murthy v. Missouri).

AI is just as easy to manipulate for propaganda purposes as social media algorithms but with the added bonus that it isn’t only people’s opinions and that users tend to trust that what the AI reports is true. As we saw in the previous article on the AI revolution, this is not a valid assumption, but it is nevertheless a widely held view.

If the AI then can be instructed to not comment on certain things that the creators (or regulators) do not want people to see or learn, then it is effectively “memory holed.” This type of “unwanted” information will not spread as people will not be exposed to it—such as showing only diverse representations of the Founding Fathers (as Google’s Gemini) or presenting, for example, only Keynesian macroeconomic truths to make it appear like there is no other perspective. People don’t know what they don’t know.

Of course, nothing is to say that what is presented to the user is true. In fact, the AI itself cannot distinguish fact from truth but only generates responses according to direction and only based on whatever the AI has been fed. This leaves plenty of scope for the misrepresentation of the truth and can make the world believe outright lies. AI, therefore, can easily be used to impose control, whether it is upon a state, the subjects under its rule, or even a foreign power.

The Real Threat of AI

What, then, is the real threat of AI? As we saw in the first article, large language models will not (cannot) evolve into artificial general intelligence as there is nothing about inductive sifting through large troves of (humanly) created information that will give rise to consciousness. To be frank, we haven’t even figured out what consciousness is, so to think that we will create it (or that it will somehow emerge from algorithms discovering statistical language correlations in existing texts) is quite hyperbolic. Artificial general intelligence is still hypothetical.

As we saw in the second article, there is also no economic threat from AI. It will not make humans economically superfluous and cause mass unemployment. AI is productive capital, which therefore has value to the extent that it serves consumers by contributing to the satisfaction of their wants. Misused AI is as valuable as a misused factory—it will tend to its scrap value. However, this doesn’t mean that AI will have no impact on the economy. It will, and already has, but it is not as big in the short-term as some fear, and it is likely bigger in the long-term than we expect.

No, the real threat is AI’s impact on information. This is in part because induction is an inappropriate source of knowledge—truth and fact are not a matter of frequency or statistical probabilities. The evidence and theories of Nicolaus Copernicus and Galileo Galilei would get weeded out as improbable (false) by an AI trained on all the (best and brightest) writings on geocentrism at the time. There is no progress and no learning of new truths if we trust only historical theories and presentations of fact.

However, this problem can probably be overcome by clever programming (meaning implementing rules—and fact-based limitations—to the induction problem), at least to some extent. The greater problem is the corruption of what AI presents: the misinformation, disinformation, and malinformation that its creators and administrators, as well as governments and pressure groups, direct it to create as a means of controlling or steering public opinion or knowledge.

This is the real danger that the now-famous open letter, signed by Elon Musk, Steve Wozniak, and others, pointed to:

“Should we let machines flood our information channels with propaganda and untruth? Should we automate away all the jobs, including the fulfilling ones? Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization?”

Other than the economically illiterate reference to “automat[ing] away all the jobs,” the warning is well-taken. AI will not Terminator-like start to hate us and attempt to exterminate mankind. It will not make us all into biological batteries, as in The Matrix. However, it will—especially when corrupted—misinform and mislead us, create chaos, and potentially make our lives “solitary, poor, nasty, brutish and short.”

Tyler Durden Fri, 03/15/2024 - 06:30

Read More

Continue Reading


‘Excess Mortality Skyrocketed’: Tucker Carlson and Dr. Pierre Kory Unpack ‘Criminal’ COVID Response

‘Excess Mortality Skyrocketed’: Tucker Carlson and Dr. Pierre Kory Unpack ‘Criminal’ COVID Response

As the global pandemic unfolded, government-funded…



'Excess Mortality Skyrocketed': Tucker Carlson and Dr. Pierre Kory Unpack 'Criminal' COVID Response

As the global pandemic unfolded, government-funded experimental vaccines were hastily developed for a virus which primarily killed the old and fat (and those with other obvious comorbidities), and an aggressive, global campaign to coerce billions into injecting them ensued.

Then there were the lockdowns - with some countries (New Zealand, for example) building internment camps for those who tested positive for Covid-19, and others such as China welding entire apartment buildings shut to trap people inside.

It was an egregious and unnecessary response to a virus that, while highly virulent, was survivable by the vast majority of the general population.

Oh, and the vaccines, which governments are still pushing, didn't work as advertised to the point where health officials changed the definition of "vaccine" multiple times.

Tucker Carlson recently sat down with Dr. Pierre Kory, a critical care specialist and vocal critic of vaccines. The two had a wide-ranging discussion, which included vaccine safety and efficacy, excess mortality, demographic impacts of the virus, big pharma, and the professional price Kory has paid for speaking out.

Keep reading below, or if you have roughly 50 minutes, watch it in its entirety for free on X:

"Do we have any real sense of what the cost, the physical cost to the country and world has been of those vaccines?" Carlson asked, kicking off the interview.

"I do think we have some understanding of the cost. I mean, I think, you know, you're aware of the work of of Ed Dowd, who's put together a team and looked, analytically at a lot of the epidemiologic data," Kory replied. "I mean, time with that vaccination rollout is when all of the numbers started going sideways, the excess mortality started to skyrocket."

When asked "what kind of death toll are we looking at?", Kory responded " 2023 alone, in the first nine months, we had what's called an excess mortality of 158,000 Americans," adding "But this is in 2023. I mean, we've  had Omicron now for two years, which is a mild variant. Not that many go to the hospital."

'Safe and Effective'

Tucker also asked Kory why the people who claimed the vaccine were "safe and effective" aren't being held criminally liable for abetting the "killing of all these Americans," to which Kory replied: "It’s my kind of belief, looking back, that [safe and effective] was a predetermined conclusion. There was no data to support that, but it was agreed upon that it would be presented as safe and effective."

Carlson and Kory then discussed the different segments of the population that experienced vaccine side effects, with Kory noting an "explosion in dying in the youngest and healthiest sectors of society," adding "And why did the employed fare far worse than those that weren't? And this particularly white collar, white collar, more than gray collar, more than blue collar."

Kory also said that Big Pharma is 'terrified' of Vitamin D because it "threatens the disease model." As journalist The Vigilant Fox notes on X, "Vitamin D showed about a 60% effectiveness against the incidence of COVID-19 in randomized control trials," and "showed about 40-50% effectiveness in reducing the incidence of COVID-19 in observational studies."

Professional costs

Kory - while risking professional suicide by speaking out, has undoubtedly helped save countless lives by advocating for alternate treatments such as Ivermectin.

Kory shared his own experiences of job loss and censorship, highlighting the challenges of advocating for a more nuanced understanding of vaccine safety in an environment often resistant to dissenting voices.

"I wrote a book called The War on Ivermectin and the the genesis of that book," he said, adding "Not only is my expertise on Ivermectin and my vast clinical experience, but and I tell the story before, but I got an email, during this journey from a guy named William B Grant, who's a professor out in California, and he wrote to me this email just one day, my life was going totally sideways because our protocols focused on Ivermectin. I was using a lot in my practice, as were tens of thousands of doctors around the world, to really good benefits. And I was getting attacked, hit jobs in the media, and he wrote me this email on and he said, Dear Dr. Kory, what they're doing to Ivermectin, they've been doing to vitamin D for decades..."

"And it's got five tactics. And these are the five tactics that all industries employ when science emerges, that's inconvenient to their interests. And so I'm just going to give you an example. Ivermectin science was extremely inconvenient to the interests of the pharmaceutical industrial complex. I mean, it threatened the vaccine campaign. It threatened vaccine hesitancy, which was public enemy number one. We know that, that everything, all the propaganda censorship was literally going after something called vaccine hesitancy."

Money makes the world go 'round

Carlson then hit on perhaps the most devious aspect of the relationship between drug companies and the medical establishment, and how special interests completely taint science to the point where public distrust of institutions has spiked in recent years.

"I think all of it starts at the level the medical journals," said Kory. "Because once you have something established in the medical journals as a, let's say, a proven fact or a generally accepted consensus, consensus comes out of the journals."

"I have dozens of rejection letters from investigators around the world who did good trials on ivermectin, tried to publish it. No thank you, no thank you, no thank you. And then the ones that do get in all purportedly prove that ivermectin didn't work," Kory continued.

"So and then when you look at the ones that actually got in and this is where like probably my biggest estrangement and why I don't recognize science and don't trust it anymore, is the trials that flew to publication in the top journals in the world were so brazenly manipulated and corrupted in the design and conduct in, many of us wrote about it. But they flew to publication, and then every time they were published, you saw these huge PR campaigns in the media. New York Times, Boston Globe, L.A. times, ivermectin doesn't work. Latest high quality, rigorous study says. I'm sitting here in my office watching these lies just ripple throughout the media sphere based on fraudulent studies published in the top journals. And that's that's that has changed. Now that's why I say I'm estranged and I don't know what to trust anymore."

Vaccine Injuries

Carlson asked Kory about his clinical experience with vaccine injuries.

"So how this is how I divide, this is just kind of my perception of vaccine injury is that when I use the term vaccine injury, I'm usually referring to what I call a single organ problem, like pericarditis, myocarditis, stroke, something like that. An autoimmune disease," he replied.

"What I specialize in my practice, is I treat patients with what we call a long Covid long vaxx. It's the same disease, just different triggers, right? One is triggered by Covid, the other one is triggered by the spike protein from the vaccine. Much more common is long vax. The only real differences between the two conditions is that the vaccinated are, on average, sicker and more disabled than the long Covids, with some pretty prominent exceptions to that."

Watch the entire interview above, and you can support Tucker Carlson's endeavors by joining the Tucker Carlson Network here...

Tyler Durden Thu, 03/14/2024 - 16:20

Read More

Continue Reading


For-profit nursing homes are cutting corners on safety and draining resources with financial shenanigans − especially at midsize chains that dodge public scrutiny

Owners of midsize nursing home chains drain billions from facilities, hiding behind opaque accounting practices and harming the elderly as government,…



The care at Landmark of Louisville Rehabilitation and Nursing was abysmal when state inspectors filed their survey report of the Kentucky facility on July 3, 2021.

Residents wandered the halls in a facility that can house up to 250 people, yelling at each other and stealing blankets. One resident beat a roommate with a stick, causing bruising and skin tears. Another was found in bed with a broken finger and a bloody forehead gash. That person was allowed to roam and enter the beds of other residents. In another case, there was sexual touching in the dayroom between residents, according to the report.

Meals were served from filthy meal carts on plastic foam trays, and residents struggled to cut their food with dull plastic cutlery. Broken tiles lined showers, and a mysterious black gunk marred the floors. The director of housekeeping reported that the dining room was unsanitary. Overall, there was a critical lack of training, staff and supervision.

The inspectors tagged Landmark as deficient in 29 areas, including six that put residents in immediate jeopardy of serious harm and three where actual harm was found. The issues were so severe that the government slapped Landmark with a fine of over $319,000more than 29 times the average for a nursing home in 2021 − and suspended payments to the home from federal Medicaid and Medicare funds.

This excerpt from the July 3, 2021, state inspection report of Landmark of Louisville Rehabilitation and Nursing includes an interview with a nurse who found an injured resident. New York State attorney general's office

Persistent problems

But problems persisted. Five months later, inspectors levied six additional deficiencies of immediate jeopardy − the highest level − including more sexual abuse among residents and a certified nursing assistant pushing someone down, bruising the person’s back and hip.

Landmark is just one of the 58 facilities run by parent company Infinity Healthcare Management across five states. The government issued penalties to the company almost 4½ times the national average, according to bimonthly data that the Centers for Medicare & Medicaid Services first started to make available in late 2022. All told, Infinity paid nearly $10 million in fines since 2021, the highest among nursing home chains with fewer than 100 facilities.

Infinity Healthcare Management and its executives did not respond to multiple requests for comment.

Such sanctions are nothing new for Infinity or other for-profit nursing home chains that have dominated an industry long known for cutting corners in pursuit of profits for private owners. But this race to the bottom to extract profits is accelerating despite demands by government officials, health care experts and advocacy groups to protect the nation’s most vulnerable citizens.

To uncover the reasons why, The Conversation’s investigative unit Inquiry delved into the nursing home industry, where for-profit facilities make up more than 72% of the nation’s nearly 14,900 facilities. The probe, which paired an academic expert with an investigative reporter, used the most recent government data on ownership, facility information and penalties, combined with CMS data on affiliated entities for nursing homes.

The investigation revealed an industry that places a premium on cost cutting and big profits, with low staffing and poor quality, often to the detriment of patient well-being. Operating under weak and poorly enforced regulations with financially insignificant penalties, the for-profit sector fosters an environment where corners are frequently cut, compromising the quality of care and endangering patient health. Meanwhile, owners make the facilities look less profitable by siphoning money from the homes through byzantine networks of interconnected corporations. Federal regulators have neglected the problem as each year likely billions of dollars are funneled out of nursing homes through related parties and into owners’ pockets.

More trouble at midsize

Analyzing newly released government data, our investigation found that these problems are most pronounced in nursing homes like Infinity − midsize chains that operate between 11 and 100 facilities. This subsection of the industry has higher average fines per home, lower overall quality ratings, and are more likely to be tagged with resident abuse compared with both the larger and smaller networks. Indeed, while such chains account for about 39% of all facilities, they operate 11 of the 15 most-fined facilities.

With few impediments, private investors who own the midsize chains have quietly swooped in to purchase underperforming homes, expanding their holdings even further as larger chains divest and close facilities. As a result of the industry’s churn of facility ownership, over one fifth of the country’s nursing facilities changed ownership between 2016 and 2021, four times more changes than hospitals.

A 2023 report by Good Jobs First, a nonprofit watchdog, noted that a dozen of these chains in the midsize range have doubled or tripled in size while racking up fines averaging over $100,000 per facility since 2018. But unlike the large, multistate chains with easily recognizable names, the midsize networks slip through without the same level of public scrutiny, The Conversation’s investigations unit found.

“They are really bad, but the names − we don’t know these names,” said Toby Edelman, senior policy attorney with the Center for Medicare Advocacy, a nonprofit law organization.

“When we used to have those multistate chains, the facilities all had the same name, so you know what the quality is you’re getting,” she said. “It’s not that good − but at least you know what you’re getting.”

In response to The Conversation’s findings on nursing homes and request for an interview, a CMS spokesperson emailed a statement that said the CMS is “unwavering in its commitment to improve safety and quality of care for the more than 1.2 million residents receiving care in Medicare- and Medicaid-certified nursing homes.”

The statement pointed to data released by the oversight body on mergers, acquisitions, consolidations and changes of ownership in April 2023 along with additional ownership data released the following September. CMS also proposed a rule change that aims to increase transparency in nursing home ownership by collecting more information on facility owners and their affiliations.

“Our focus is on advancing implementable solutions that promote safe, high-quality care for residents and consider the challenging circumstances some long-term care facilities face,” the statement reads. “We believe the proposed requirements are achievable and necessary.”

CMS is slated to implement the disclosure rules in the fall and release the new data to the public later this year.

“We support transparency and accountability,” the American Health Care Association/National Center for Assisted Living, a trade organization representing the nursing home industry, wrote in response to The Conversation‘s request for comment. “But neither ownership nor line items on a budget sheet prove whether a nursing home is committed to its residents. Over the decades, we’ve found that strong organizations tend to have supportive and trusted leadership as well as a staff culture that empowers frontline caregivers to think critically and solve problems. These characteristics are not unique to a specific type or size of provider.”

It often takes years to improve a poor nursing home − or run one into the ground. The analysis of midsize chains shows that most owners have been associated with their current facilities for less than eight years, making it difficult to separate operators who have taken long-term investments in resident care from those who are looking to quickly extract money and resources before closing them down or moving on. These chains control roughly 41% of nursing home beds in the U.S., according to CMS’s provider data, making the lack of transparency especially ripe for abuse.

A churn of nursing home purchases even during the COVID-19 pandemic shows that investors view the sector as highly profitable, especially when staffing costs are kept low and fines for poor care can easily be covered by the money extracted from residents, their families and taxpayers.

“This is the model of their care: They come in, they understaff and they make their money,” said Sam Brooks, director of public policy at the Consumer Voice, a national resident advocacy organization. “Then they multiply it over a series of different facilities.”

Side-by-side pictures of different nursing home residents asleep with their heads near dishes of food
These pictures showing residents asleep in their food appeared in the 2022 New York attorney general’s lawsuit against The Villages of Orleans Health and Rehabilitation Center in Albion, N.Y. New York State attorney general's office

Investor race

The explosion of a billion-dollar private marketplace found its beginnings in government spending.

The adoption of Medicare and Medicaid in 1965 set loose a race among investors to load up on nursing homes, with a surge in for-profit homes gaining momentum because of a reliable stream of government payouts. By 1972, a mere seven years after the inception of the programs, a whopping 106 companies had rushed to Wall Street to sell shares in nursing home companies. And little wonder: They pulled in profits through their ownership of 18% of the industry’s beds, securing about a third of the hefty $3.2 billion of government cash.

The 1990s saw substantial expansion in for-profit nursing home chains, marked by a wave of acquisitions and mergers. At the same time, increasing difficulties emerged in the model for publicly traded chains. Shareholders increasingly demanded rapid growth, and researchers have found that the publicly traded chains tried to appease that hunger by reducing nursing staff and cutting corners on other measures meant to improve quality and safety.

“I began to suspect a possibly inherent contradiction between publicly traded and other large investor-operated nursing home companies and the prerequisites for quality care,” Paul R. Willging, former chief lobbyist for the industry, wrote in a 2007 letter to the editor of The New York Times. “For many investors … earnings growth, quarter after quarter, is often paramount. Long-term investments in quality can work at cross purposes with a mandate for an unending progression of favorable earnings reports.”

One example of that clash can be found at the Ensign Group, founded in 1999 as a private chain of five facilities. Using a strategy of acquiring struggling nursing homes, the company went public in 2007 with more than 60 facilities. What followed was a year-after-year acquisition binge and a track record of growing profits almost every year. Yet the company kept staffing levels below the national average and levels recommended by experts. Its facilities had higher than average inspection deficiencies and higher COVID infection rates. Since 2021, it has racked up more than $6.5 million in penalties.

Ensign did not respond to requests for comment.

Even with that kind of expense cutting, not all publicly traded nursing homes survived as the costs of providing poor care added up. Residents sued over mistreatment. Legal fees and settlements ate into profits, shareholders grumbled, and executives searched for a way out of this Catch-22.

Recognizing the long-term potential for profit growth, private investors snapped up publicly traded for-profit chains, reducing the previous levels of public transparency and oversight. Between 2000 and 2017, 1,674 nursing homes were acquired by private-equity firms in 128 unique deals out of 18,485 facilities. But the same poor-quality problems persisted. Research shows that after snagging a big chain, private investors tended to follow the same playbook: They rebrand the company, increase corporate control and dump unprofitable homes to other investment groups willing to take shortcuts for profit.

Multiple academic studies show the results, highlighting the lower staffing and quality in for-profit homes compared with nonprofits and government-run facilities. Elderly residents staying long term in nursing homes owned by private investment groups experienced a significant uptick in trips to the emergency department and hospitalizations between 2013 and 2017, translating into higher costs for Medicare.

Overall, private-equity investors wreak havoc on nursing homes, slashing registered nurse hours per resident day by 12%, outpacing other for-profit facilities. The aftermath is grim, with a daunting 14% surge in the deficiency score index, a standardized metric for determining issues with facilities, according to a U.S. Department of Health and Human Services report.

The human toll comes in death and suffering. A study updated in 2023 by the National Bureau of Economic Research calculated that 22,500 additional deaths over a 12-year span were attributable to private-equity ownership, equating to about 172,400 lost life years. The calculations also showed that private-equity ownership was responsible for a 6.2% reduction in mobility, an 8.5% increase in ulcer development and a 10.5% uptick in pain intensity.

Hiding in complexity

Exposing the identities of who should be held responsible for such anguish poses a formidable task. Private investors in nursing home chains often employ a convoluted system of limited liability corporations, related companies and family relationships to obscure who controls the nursing homes.

These adjustments are crafted to minimize liability, capitalize on favorable tax policies, diminish regulatory scrutiny and disguise nursing home profitability. In this investigation, entities at every level of involvement with a nursing home denied ownership, even though the same people controlled each organization.

A rule put in place in 2023 by the Centers for Medicare & Medicaid Services requires the identification of all private-equity and real estate investment trust investors in a facility and the release of all related party names. But this hasn’t been enough to surface the players and relationships. More than half of ownership data provided to CMS is incomplete across all facilities, according to a March 2024 analysis of the newly released data.

Complicated graphic with 21 intertwined items
Nursing home investors drained more than $18 million out of a single facility through a complex web of related party transactions. New York State attorney general's office

Even the land under the nursing home is often owned by someone else. In 2021, publicly traded or private real estate investment trusts held a sizable chunk of the approximately $120 billion of nursing home real estate. As with homes owned by private-equity investors, quality measures collapse after REITs get involved, with facilities witnessing a 7% decline in registered nurses’ hours per resident day and an alarming 14% ascent in the deficiency score index. It’s a blatant pattern of disruption, leaving facilities and care standards in a dire state.

Part of that quality collapse comes from the way these investment entities make their money. REITs and their owners can drain cash out of the nursing homes in a number of different ways. The standard tactic for grabbing the money is known as a triple-net lease, where the REIT buys the property then leases it back to the nursing home, often at exorbitant rates. Although the nursing home then lacks possession of the property, it still gets slammed with costs typically shouldered by an owner − real estate taxes, insurance, maintenance and more. Topping it off, the facilities then must typically pay annual rent hikes.

A second tactic that REITs use involves a contracting façade that serves no purpose other than enriching the owners of the trusts. Since triple-net lease agreements prohibit REITs from taking profits from operating the facilities, the investors create a subsidiary to get past that hurdle. The subsidiary then contracts with a nursing home operator − often owned or controlled by another related party − and then demands a fee for providing operational guidance. The use of REITs for near-risk-free profits from nursing homes has proven to be an ever-growing technique, and the midsize chains, which our investigation found generally provided the worst care, grew in their reliance on REITs during the pandemic.

“When these REITs start coming in … nursing homes are saddled with these enormous rents, and then they wind up going out of business,” said Richard Mollot, executive director of the Long-Term Care Community Coalition, a nonprofit organization that advocates for better care at nursing homes. “It’s no longer a viable facility.”

The churn of nursing home purchases by midsize chains underscores investors’ perception of the sector’s profitability, particularly when staffing expenses are minimized and penalties for subpar care can be offset by money extracted through related transactions and payments from residents, their families and taxpayers. Lawsuits can drag out over years, and in the worst case, if a facility is forced to close, its land and other assets can be sold to minimize the financial loss.

Take Brius Healthcare, a name that resonates with a disturbing cadence in the world of nursing home ownership. A search of the federal database for nursing home ownership and penalties shows that Brius was responsible for 32 facilities as of the start of 2024, but the true number is closer to 80, according to, which tracks violations. At the helm of this still midsize network stands Shlomo Rechnitz, who became a billionaire in part by siphoning from government payments to his facilities scattered across California, according to a federal and state lawsuit.

In lawsuits and regulators’ criticisms, Rechnitz’s homes have been associated with tales of abuse, as well as several lawsuits alleging terrible care. The track record was so bad that, in the summer of 2014, then-California Attorney General Kamala Harris filed an emergency motion to block Rechnitz from acquiring 19 facilities, writing that he was “a serial violator of rules within the skilled nursing industry” and was “not qualified to assume such an important role.”

Yet, Rechnitz’s empire in California surged forward, scooping up more facilities that drained hundreds of millions of federal and state funds as they racked up pain and profit. The narrative played out at Windsor Redding Care Center in Redding, California. Rechnitz bought it from a competing nursing home chain and attempted to obtain a license to operate the facility. But in 2016, the California Department of Public Health refused the application, citing a staggering 265 federal regulatory violations across his other nursing homes over just three years.

According to court filings, Rechnitz formed a joint venture with other investors who in turn held the license. Rechnitz, through the Brius joint venture, became the unlicensed owner and operator of Windsor Redding.

Brius carved away at expenses, slashing staff and other care necessities, according to a 2022 California lawsuit. One resident was left to sit in her urine and feces for hours at a time. Overwhelmed staff often did not respond to her call light, so once she instead climbed out of bed unassisted, fell and fractured her hip. Other negligence led to pressure ulcers, and when she was finally transferred to a hospital, she was suffering from sepsis. She was not alone in her suffering. Numerous other residents experienced an unrelenting litany of injuries and illnesses, including pressure ulcers, urinary tract infections from poor hygiene, falls, and skin damage from excess moisture, according to the lawsuit.

In 2023, California moved forward with licensing two dozen of Rechnitz’s facilities with an agreement that included a two-year monitoring period, right before statewide reforms were set to take effect. The reforms don’t prevent existing owners like Rechnitz from continuing to run a nursing home without a license, but they do prevent new operators from doing so.

“We’re seeing more of that, I think, where you have a proliferation of really bad operators that keep being provided homes,” said Brooks, the director of public policy at the Consumer Voice. “There’s just so much money to be made here for unscrupulous people, and it just happens all the time.”

Rechnitz did not respond to multiple requests for comment. Bruis also did not respond.

Perhaps no other chain showcases the havoc that can be caused by one individual’s acquisition of multiple nursing homes than Skyline Health Care. The company’s owner, Joseph Schwartz, parlayed the sale of his insurance business into ownership of 90 facilities between mid-2016 and December 2017, according to a federal indictment. He ran the company out of an office above a New Jersey pizzeria and at its peak managed facilities in 11 states.

Schwartz went all-in on cost cutting, and by early 2018, residents were suffering from the shortage of staff. The company wasn’t paying its bills or its workers. More than a dozen lawsuits piled up. Last year, Schwartz was arrested and faced charges in federal district court in New Jersey for his role in a $38 million payroll tax scheme. In 2024, Schwartz pleaded guilty to his role in the fraud scheme. He is awaiting sentencing, where he faces a year in prison along with paying at least $5 million in restitution.

Skyline collapsed and disrupted thousands of lives. Some states took over facilities; others closed, forcing residents to relocate and throwing families into chaos. The case also highlights the ease with which some bad operators can snap up nursing homes with little difficulty, with federal and state governments allowing ownership changes with little or no review.

Schwartz’s lawyer did not respond to requests for comment.

Not that nursing homes have much to fear in the public perception of their reputation for quality. CMS uses what is known as the Five-Star Quality Rating System, designed to help consumers compare nursing homes to find one that provides good care. Theoretically, nursing homes with five-star ratings are supposed to be exceptional, while those with one-star ratings are deemed the worst. But research shows that nursing homes can game the system, with the result that a top star rating might reflect little more than a facility’s willingness to cheat.

A star rating is composed of three parts: The score from a government inspection and the facility’s self-reports of staffing and quality. This means that what the nursing homes say about themselves can boost the star rating of facilities even if they have poor inspection results.

Multiple studies have highlighted a concerning trend: Some nursing homes, especially for-profit ones, inflate their self-reported measures, resulting in a disconnect from actual inspection findings. Notably, research suggests that for-profit nursing homes, driven by significant financial motives, are more likely to engage in this practice of inflating their self-reported assessments.

At bottom, the elderly and their families seeking quality care unknowingly find themselves in an impossible situation with for-profit nursing homes: Those facilities tend to provide the worst quality, and the only measure available for consumers to determine where they will be treated well can be rigged. The result is the transformation of an industry meant to care for the most vulnerable into a profit-driven circus.

Close-up of an elderly woman's head leaning on her hand
The for-profit nursing home sector is growing, and it places a premium on cost cutting and big profits, which has led to low staffing and patient neglect and mistreatment. picture alliance via Getty Images

The pandemic

Nothing more clearly exposed the problems rampant in nursing homes than the pandemic. Throughout that time, nursing homes reported that almost 2 million residents had infections and 170,000 died.

No one should have been surprised by the mass death in nursing homes − the warning signs of what was to come had been visible for years. Between 2013 and 2017, infection control was the most frequently cited deficiency in nursing homes, with 40% of facilities cited each year and 82% cited at least once in the five-year period. Almost half were cited over multiple consecutive years for these deficiencies − if fixed, one of the big causes of the widespread transmission of COVID in these facilities would have been eliminated.

But shortly after coming into office in 2017, the Trump administration weakened what was already a deteriorating system to regulate nursing homes. The administration directed regulators to issue one-time fines against nursing homes for violations of federal rules rather than for the full time they were out of compliance. This shift meant that even nursing homes with severe infractions lasting weeks were exempted from fines surpassing the maximum per-instance penalty of $20,965.

Even that near-worthless level of regulation was not feeble enough for the industry, so lobbyists pressed for less. In response, just a few months before COVID emerged in China, the Trump administration implemented new regulations that effectively abolished a mandate for each to hire a full-time infection control expert, instead recommending outside consultants for the job.

The perfect storm had been reached, with no experts required to be on site, prepared to combat any infection outbreaks. On Jan. 20, 2020 − just 186 days after the change in rules on infection control − the CDC reported that the first laboratory-confirmed case of COVID had been found at a nursing home in Washington state.

The least prepared in this explosion of disease were the for-profit nursing homes, compared with nonprofit and government facilities. Research from the University of California at San Francisco found those facilities were linked to higher numbers of COVID cases. For-profits not only had fewer nurses on staff but also high numbers of infection-control deficiencies and lower compliance with health regulations.

Even as the United States went through the crisis, some owners of midsize chains continued snapping up nursing homes. For example, two Brooklyn businessmen named Simcha Hyman and Naftali Zanziper were going on a nursing home buying spree through their private-equity company, the Portopiccolo Group. Despite poor ratings in their previously owned facilities, nothing blocked the acquisitions.

One such facility was a struggling nursing home in North Carolina now known as The Citadel Salisbury. Following the traditional pattern forged by private investors in the industry, the new owners set up a convoluted network of business entities and then used them to charge the nursing home for services and property. A 2021 federal lawsuit of many plaintiffs claimed that they deliberately kept the facility understaffed and undersupplied to maximize profit.

Within months of the first case of COVID reported in America, The Citadel Salisbury experienced the largest nursing home outbreak in the state. The situation was so dire that on April 20, 2020, the local medical director of the emergency room took to the local newspaper to express his distress, revealing that he had pressed the facility’s leadership and the local health department to address the known shortcomings.

The situation was “a blueprint for exactly what not to do in a crisis,” medical director John Bream wrote. “Patients died at the Citadel without family members being notified. Families were denied the ability to have one last meaningful interaction with their family. Employees were wrongly denied personal protective equipment. There has been no transparency.”

After a series of scathing inspection reports, the facility finally closed in the spring of 2022. As for the federal lawsuit, court documents show that a tentative agreement was reached in 2023. But the case dragged out for nearly three years, and one of the plaintiffs, Sybil Rummage, died while seeking accountability through the court.

Still, the pandemic had been a time of great success for Hyman and Zanziper. At the end of 2020, they owned more than 70 facilities. By 2021, their portfolio had exploded to more than 120. Now, according to data from the Centers for Medicare & Medicaid Services, Hyman and Zanziper are associated with at least 131 facilities and have the highest amount of total fines recorded by the agency for affiliated entities, totaling nearly $12 million since 2021. And their average fine per facility, as calculated by CMS, is more than twice the national average at almost $90,000.

In a written statement, Portopiccolo Group spokesperson John Collins disputed that the facilities had skimped on care and argued that they were not managed by the firm. “We hire experienced, local health care teams who are in charge of making all on-the-ground decisions and are committed to putting residents first.” He added that the number of facilities given by CMS was inaccurate but declined to say how many are connected to its network of affiliates or owned by Hyman and Zanziper.

With the nearly 170,000 resident deaths from COVID and many related fatalities from isolation and neglect in nursing homes, in February 2022 President Biden announced an initiative aimed at improving the industry. In addition to promising to set a minimum staffing standard, the initiative is focused on improving ownership and financial transparency.

“As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch,” Biden said during his 2022 State of the Union address. “Medicare is going to set higher standards for nursing homes and make sure your loved ones get the care they deserve and expect.”

President Biden sitting at a desk signing with a crowd gathered around him
President Joe Biden signed an executive order on April 18, 2023, that directed the secretary of health and human services to consider actions that would build on nursing home minimum staffing standards and improve staff retention. Nathan Posner/Anadolu Agency via Getty Images

Still, the current trajectory of actions appears to fall short of what’s needed. While penalties against facilities have sharply increased under Biden, some of the Trump administration’s weak regulations have not been replaced.

A rule proposed by CMS in September 2023 and released for review in March 2024 would require states to report what percentage of Medicaid funding is used to pay direct care workers and support staff and would require an RN on duty 24/7. It would also require a minimum of three hours of skilled staffing care per patient per day. But the three-hour minimum is substantially lower than the 4.1 hours of skilled staffing for nursing home residents suggested by CMS over two decades ago.

The requirements are also lower than the 3.8 average nursing staff hours already employed by U.S. facilities.

The current administration has also let stand the Trump administration reversal of an Obama rule that banned binding arbitration agreements in nursing homes.

It breaks a village

The Villages of Orleans Health and Rehabilitation Center in Albion, New York, was, by any reasonable measure, broken. Court records show that on some days there was no nurse and no medication for the more than 100 elderly residents. Underpaid staff spent their own cash for soap to keep residents clean. At times, the home didn’t feed its frail occupants.

Meanwhile, according to a 2022 lawsuit filed by the New York attorney general, riches were siphoned out of the nursing home and into the pockets of the official owner, Bernard Fuchs, as well as assorted friends, business associates and family. The lawsuit says $18.7 million flowed from the facility to entities owned by a group of men who controlled the Village’s operations.

Although these men own various nursing homes, Medicare records show few connections between them, despite them all being investors in Comprehensive Healthcare Management, which provided administrative services to the Villages. Either they or their families were also owners of Telegraph Realty, which leased what was once the Villages’ own property back to the facility at rates the New York attorney general deemed exorbitant, predatory and a sham.

So it goes in the world of nursing home ownership, where overlapping entities and investors obscure the interrelationships between them to such a degree that Medicare itself is never quite sure who owns what.

Glenn Jones, a lawyer representing Comprehensive Healthcare Management, declined to comment on the pending litigation, but he forwarded a court document his law firm filed that labels the allegations brought by the New York attorney general “unfounded” and reliant on “a mere fraction” of its residents.

Side-by-side pictures of a man in a wheelchair with glasses in November, 2019 and the same man looking less alert, unshaven and with an eye wound in December, 2019
These pictures of the same resident one month apart at the Holliswood Center for Rehabilitation and Healthcare in Queens appeared in a 2023 New York attorney general lawsuit against 13 LLCs and 14 individuals. The group owns multiple nursing homes and allegedly neglected residents, while owners siphoned Medicare and Medicaid money into their own pockets. New York attorney general's office

The shadowy structure of ownership and related party transactions plays an enormous role in how investors enrich themselves, even as the nursing homes they control struggle financially. Compounding the issue, the figures reported by nursing homes regarding payments to related parties frequently diverge from the disclosures made by the related parties themselves.

As an illustration of the problems, consider Pruitt Health, a midsize chain with 87 nursing homes spread across Georgia, South Carolina, North Carolina and Florida that had low overall federal quality ratings and about $2 million in penalties. A report by The National Consumer Voice For Quality Long-Term Care, a consumer advocacy group, shows that Pruitt disclosed general related party costs nearing $482 million from 2018 to 2020. Yet in that same time frame, Pruitt reported payments to specific related parties amounting to about $570 million, indicating a $90 million excess. Its federal disclosures offer no explanation for the discrepancy. Meanwhile, the company reported $77 million in overall losses on its homes.

The same pattern holds in the major chains such as the Cleveland, Tennessee-based Life Care Centers of America, which operates roughly 200 nursing homes across 27 states, according to the report. Life Care’s financial disbursements are fed into a diverse spectrum of related entities, including management, staffing, insurance and therapy companies, all firmly under the umbrella of the organization’s ownership. In fiscal year 2018, the financial commitment to these affiliated entities reached $386,449,502; over the three-year period from 2018 to 2020, Life Care’s documented payments to such parties hit an eye-popping $1.25 billion.

Pruitt Health and Life Care Centers did not respond to requests for comment.

Overall, 77% of US nursing homes reported $11 billion in related-party transactions in 2019 − nearly 10% of total net revenues − but the data is unaudited and unverified. The facilities are not required to provide any details of what specific services were provided by the related parties, or what were the specific profits and administrative costs, creating a lack of transparency regarding expenses that are ambiguously categorized under generic labels such as “maintenance.” Significantly, there is no mandate to disclose whether any of these costs exceed fair market value.

What that means is that nursing home owners can profit handsomely through related parties even if their facilities are being hit with repeated fines for providing substandard care.

“What we would consider to be a big penalty really doesn’t matter because there’s so much money coming in,” said Mollot of the Long-Term Care Community Coalition. “If the facility fails, so what? It doesn’t matter. They pulled out the resources.’’

Hiding profit

Ultimately, experts say, this ability to drain cash out of nursing homes makes it almost impossible for anyone to assess the profitability of these facilities based on their public financial filings, known as cost reports.

"The profit margins (for nursing homes) also should be taken with a grain of salt in the cost reports,” said Dr. R. Tamara Konetzka, a University of Chicago professor of public health sciences, at a recent meeting of the Medicare Payment Advisory Commission. “If you sell the real estate to a REIT or to some other entity, and you pay sort of inflated rent back to make your profit margins look lower, and then you recoup that profit because it’s a related party, we’re not going to find that in the cost reports.”

That ability to hide profits is key to nursing homes’ ability to block regulations to improve quality of care and to demand greater government payments. For decades, the industry’s refrain has been that cuts in reimbursements or requirements to increase staffing will drive facilities into bankruptcy; already, they claim, half of all nursing homes are teetering on the edge of collapse, the result, they say, of inadequate Medicaid rates. All in all, the industry reports that less than 3% of their revenue goes to earnings.

But that does not include any of the revenue pulled out of the homes to boost profits of related parties controlled by the same owners pleading poverty. And this tactic is only one of several ways that the nursing home industry disguises its true profits, giving it the power to plead poverty to an unknowing government.

Under the regulations, only certain nursing home expenses are reimbursable, such as money spent for care. Many others − unreasonable payments to the headquarters of chains, luxury items, and fees for lobbyists and lawyers − are disallowed after Medicare reviews the cost reports. But by that time, the government has already reimbursed the nursing homes for those expenses − and none of those revenues have to be returned.

Data indicates that owners also profit by overcharging nursing homes for services and leases provided by related entities. A March 2024 study from Lehigh University and the University of California, Los Angeles shows that costs were inflated when nursing home owners changed from independent contractors to businesses owned or controlled directly or indirectly by the same people. Overall, spending on real estate increased 20.4%, and spending on management increased 24.6% when the businesses were affiliated, the research showed.

Nursing homes also claim that noncash depreciation cuts into their profits. Those expenses, which show up only in accounting ledgers, assume that assets such as equipment and facilities are gradually decreasing in value and ultimately will need to be replaced.

That might be reasonable if the chains purchased new items once their value depreciated to zero, but that is not always true. A 2004 report by the Medicare Payment Advisory Commission found that the depreciation claimed by health care companies, including nursing homes, may not reflect actual capital expenditures or the actual market value.

If disallowed expenses and noncash depreciation were not included, profit margins for the nursing home industry would jump to 8.8%, far more than the 3% it claims. And given that these numbers all come from nursing home cost reports submitted to the government, they may underestimate the profits even more. Audited cost reports are not required, and the Government Accountability Office has found that CMS does little to ensure the numbers are correct and complete.

This lack of basic oversight essentially gives dishonest nursing home owners the power to grab more money from Medicare and Medicaid while being empowered to claim that their financials prove they need more.

“They face no repercussions,” Brooks of Consumer Voice said, commenting on the current state of nursing home operations and their unscrupulous owners. “That’s why these people are here. It’s a bonanza to them.”

Ultimately, experts say, finding ways to force nursing homes to provide quality care has remained elusive. Michael Gelder, former senior health policy adviser to then-Gov. Pat Quinn of Illinois, learned that brutal lesson in 2010 as head of a task force formed by Quinn to investigate nursing home quality. That group successfully pushed a new law, but Gelder now says his success failed to protect this country’s most vulnerable citizens.

“I was perhaps naively convinced that someone like myself being in the right place at the right time with enough resources could really fix this problem,” he said. “I think we did the absolute best we could, and the best that had ever been done in modern history up to that point. But it wasn’t enough. It’s a battle every generation has to fight.”

Click here to learn more about how some existing tools can address problems with for-profit nursing homes.

Sean Campbell is an adjunct assistant professor at Columbia University and a contributing writer at the Garrison Project, an independent news organization that focuses on mass incarceration and criminal justice.

Harrington is an advisory board member of the nonprofit Veteran's Health Policy Institute and a board member of the nonprofit Center for Health Information and Policy. Harrington served as an expert witness on nursing home litigation cases by residents against facilities owned or operated by Brius and Shlomo Rechnitz in the past and in 2022. She also served as an expert witness in a case against The Citadel Salisbury in North Carolina in 2021.

Read More

Continue Reading