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Nasdaq Futures Tumble, Stocks Slide As SoftBank Unwinds, Dollar Jumps

Nasdaq Futures Tumble, Stocks Slide As SoftBank Unwinds, Dollar Jumps

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Nasdaq Futures Tumble, Stocks Slide As SoftBank Unwinds, Dollar Jumps Tyler Durden Tue, 09/08/2020 - 07:51

If SoftBank's presence in the public markets was enough to send global markets to 9 consecutive all time highs while stretching tech valuations to unprecedented levels, then it is to be expected that SoftBank's unwind of its notorious "Nasdaq Whale" trade as we reported yesterday, would send risk tumbling and sure enough Nasdaq futures plunged over 2% on Tuesday, leading a drop in European stocks and S&P futures, while the dollar jumped as the euro dropped and the pound weakened for a fifth day amid Brexit fears.

After U.S. markets were shut on Monday for Labor Day, S&P 500 futures fell more than 1% reversing gains made in Asian hours, while futures in tech-heavy Nasdaq fell 1.3% after having lost more than 6% late last week. The tech drop was led by Tesla, which plunged over 12% - now trading below Friday's low - after it failed to make the S&P500 on Friday, having lost a third of its value in the past week dropping to $366 this morning after hitting an all time high of $538.75 last Tuesday...

... while AAPL slumped 3.5% after Goldman analyst Rod Hall said the shares look risky, as the company’s growth potential doesn’t appear strong enough to justify the stock’s valuation, saying "the iPhone is a very tough act to follow," while Apple’s Services and Wearables businesses are "not likely to be large enough to return the company to growth."

And here is what happens when a Nasdaq whale exits the market: as Nomura's Charlie McElligott shows, as of this moment dealer gamma is about to turn negative after being torn apart by Masa Son for the past month. This means that any continued Emini selling is about to become reinforcing.

As a result traders are bracing for another ugly equity day, as Nasdaq 100 futures are down over 2% and S&P 500 contracts are steadily declining to fresh lows.

“The path of least resistance for the market may well be to test the downside,” said Peter Chatwell, head of multi-asset strategy at Mizuho International Plc. “Ultimately, if there is more selloff, I suspect real money investors will take the opportunity to buy the dip.”

Traders also braced for fresh tensions between Washington and Beijing after U.S. President Donald Trump again raised the idea of decoupling the U.S. and Chinese economies to end America’s reliance on the country. Trump also threatened to punish any American companies that create jobs overseas, and to forbid those that do business in China from winning federal contracts. Trump’s remarks followed the possible U.S. blacklisting of China’s largest chip maker, Semiconductor Manufacturing International Corp (SMIC), which has hit many Chinese tech firms listed onshore and offshore.

“I think the market will shrug this off as electioneering but may find the lining up of technology stock sellers harder to process as the U.S. market returns from a holiday yesterday,” said Chris Bailey, European Strategist at Raymond James.

World shares fell 0.2% in early trade, following gains in Asia overnight and a negative start in Europe, where fresh pressure on tech stocks dragged the STOXX 600 benchmark down 0.9% following strong gains on Monday: the FTSE MIB dropped over 1.5% to underperform peers, local back shed 1.4%. Travel, tech and oil & gas names weigh.  In the UK, Royal Mail Plc, the privatized British postal service, surged 15% after saying it wants to overhaul its business and shift service to the parcels market.

Earlier in the session, Asian stocks gained, led by IT and finance, after falling in the last session. The MSCI's index of Asia-Pacific shares outside Japan rose 0.4% and Japan's Nikkei ended up 0.8%. China's blue-chip index and Hong Kong's Hang Seng meanwhile gained 0.5% and 0.2% respectively, both erasing early losses made after Trump's remarks. The Shanghai Composite Index rose 0.7%, with Shandong Xinchao Energy and Sichuan Hebang Biotech posting the biggest advances. Australia's S&P/ASX 200 gained 1.1% and South Korea's Kospi Index rose 0.7%, while Thailand's SET dropped 1.2%. The Topix gained 0.7%, with Fuji Pharma and Scinex rising the most. After slumping as much as 5% earlier in the session, SoftBank shares closed just barely in the red as traders reassessed the company's (non) exposure to derivative positions.

In rates, the 10-year U.S. Treasury yield stood at 0.684%, off a five-month low of 0.504% touched in August. Yields were lower by more than 3bp at long end, flattening 5s30s by 1.5bp, 2s10s by 2.2bp; 10-year yields around 0.69% with gilts outperforming by ~1bp. Treasuries bull-flattened despite a wave of coupon and corporate supply expected this week. Risk-aversion is widespread, with European stocks and U.S. futures lower led by technology companies and oil down more than 5%. Gilts outperform and the pound weakened for a fifth straight day on Brexit concerns. The US Treasury auction cycle starts with $50BN 3-year notes (+$4b vs previous) at 1pm ET, followed Wednesday and Thursday by $35b 10-year and $23b 30-year reopenings (+$6b and +$4b vs previous reopenings).

Price action in FX dominated the European morning, as an early slump in USD reverses, resulting in a broad move toward the dollar in G-10 and EMFX. NOK and GBP are the worst G-10 performers; cable was weighed down by renewed Brexit discord and plans for a tighter limit to home gatherings due to a surge in virus cases. ZAR drops 1% after 2Q GDP fell an annualized 51% q/q alongside downbeat comments from Fitch. The EURUSD continued to drop, and after hitting 1.20 last week - a level which prompted aggressive verbal intervention from the ECB - the pair slumped as low as 1.178 this morning, in line with our expectations. For the Euro, the main focus on this week's ECB policy meeting, where most analysts do not expect a change in the central bank’s policy stance but are looking at its inflation forecasts and whether it seems concerned by the euro’s strength.

“Rangebound trading will likely remain predominant until Thursday when the ECB meets,” UniCredit analysts said in a note.

Sterling fell to a two-week low against the dollar after the European Union told Britain on Monday there would be no trade deal if London tries to override the Brexit divorce deal it signed in January. The pound slipped more 0.3% at $1.3135 while against the euro it touched 0.90 pence, also a two-week low.

In commodities, Oil fell below $42 a barrel, its fifth session of decline, pressured by concerns that a recovery in demand could weaken as coronavirus infections flare up around the world. Meanwhile WTI futures fell even more, dropping 5.4% to $37.63 per barrel. Meanwhile, gold prices softened on Tuesday, although rising doubts over the economic recovery from the COVID-19 slump limited losses. Spot gold last traded at $1,912.83 per ounce.

Market Snapshot

  • S&P 500 futures down 1% to 3,375.25
  • STOXX Europe 600 down 0.9% to 364.77
  • MXAP up 0.4% to 171.51
  • MXAPJ up 0.3% to 565.99
  • Nikkei up 0.8% to 23,274.13
  • Topix up 0.7% to 1,620.89
  • Hang Seng Index up 0.1% to 24,624.34
  • Shanghai Composite up 0.7% to 3,316.42
  • Sensex up 0.5% to 38,619.40
  • Australia S&P/ASX 200 up 1.1% to 6,007.84
  • Kospi up 0.7% to 2,401.91
  • Brent futures down 1.5% to $41.37/bbl
  • Gold spot down 0.3% to $1,928.29
  • U.S. Dollar Index up 0.4% to 93.12
  • German 10Y yield unchanged at -0.463%
  • Euro unchanged at $1.1817
  • Italian 10Y yield rose 3.0 bps to 0.92%
  • Spanish 10Y yield rose 0.4 bps to 0.356%

 

 

A Look at global markets courtesy of NewsSquawk

Asian equity markets traded mostly positive, following the upbeat performance in EU counterparts given the lack of handover from US due to Labor Day, but with gains in the region moderated by inconclusive data and after US President Trump suggested the idea of decoupling the US economy from China. ASX 200 (+1.1%) attempted to reclaim the 6,000 level with Healthcare and real estate frontrunning the advances despite mixed data which showed Business Confidence slightly improved but remained in negative territory. Nikkei 225 (+0.8%) was kept afloat as participants digested the better than feared revisions to Q2 GDP which still showed large contractions, while KOSPI (+0.7%) was boosted as index heavyweight Samsung Electronics gains on reports it is to produce Qualcomm chips for 5G phones. Conversely, Hang Seng (+0.1%) and Shanghai Comp. (+0.7%) underperformed after US President Trump upped the anti-China rhetoric in which he said he is thinking about the possibility of decoupling the US economy from China and that it would not lead to monetary losses, while he suggested that China either faces decoupling or massive tariffs. Furthermore, the US is considering a ban on cotton from China's Xinjiang region over human rights concerns, and China unveiled an initiative to set global data security regulations in an effort to counter US attempts of banning Chinese technology from other countries. Finally, 10yr JGBs were higher in a continuation of Monday’s rebound with prices unfazed by the mostly positive risk tone and with today’s 5yr JGB auction results somewhat inconsequential as it printed relatively inline with the prior.

Top Asian News

  • Jump in Hottest H.K. IPO Reshapes Landscape of China’s Richest
  • Bank of Thailand Chief Plays Down Possibility of More Rate Cuts
  • Currency Decoupling From Virus-Hit Economy to Bank of Israel
  • Thailand Says Revised Gold Trading Rules to Shield Baht Due Soon

Stocks in European have given up the mild gains seen at the cash open and some more (Euro Stoxx 50 -0.8%), as the region failed to sustain the positive APAC lead. US equity futures have also been sliding, with losses more pronounced in NQ as the tech unwind continues – with Apple down almost 3%, Amazon -1.7%, Netflix -2.5% and Tesla -10%. Back to Europe, sectors have somewhat solidified a defensive bias as the US tech downturn has reverberated into the region, with IT the standout underperforming sector; whilst the cushioned healthcare sector sees Switzerland’s SMI (-0.3%) the winner in Europe, but subdued nonetheless. Travel & Leisure also experiences steep losses as easyJet (-6.2%) shares plumb the depths as it now expects to fly less than 40% of planned capacity in Q4 in a sign of reduced demand for travel. Thus, the likes of Ryanair (-2.3%), Lufthansa (-1.9%) and Air-France KLM (-1.6%) are lower in sympathy. In terms of other movers and shakers, Royal Mail (+17.8%) shares top the charts after a trading update in which it reported bolstered business from its parcel deliver service. Swiss Re (+1.7%) is propped up by an update in which it sees a positive outlook for renewals and further market hardening. Volkswagen (-1.2%) is softer as the CEO said they are not seeking a deal with Tesla after a meeting with Elon Musk. Apple (AAPL) are to begin initial production of 5G iPhones in mid-September, reducing the production delay to weeks instead of months, according to Nikkei sources. (Nikkei)

In FX, the Dollar is holding a firm line in wake of Friday’s mostly encouraging labour report and yesterday’s Labour Day market holiday, with the DXY anchored around 93.000 awaiting the NFIB optimism index, employment trends and consumer credit alongside the return of Wall Street to see whether the tech sector correction continues to weigh on broader stock sentiment and keeps Treasuries elevated in futures terms.

  • GBP – Yet more downside pressure and Sterling underperformance as no deal Brexit jitters intensify before the latest round of UK-EU trade negotiations amidst reports that PM Johnson is now questioning the Withdrawal Agreement and wants the deal to be rewritten. In response, Cable has given up the 1.3100 handle and has rebounded firmly beyond 0.9000.
  • AUD – Somewhat mixed impulses via NAB’s August business survey, as confidence improved vs conditions deteriorating, but the Aussie may be deriving some traction or comfort from the latest jobs update given only a 0.4% decline in payrolls over the month to August 22, with a 2% drop in the state of Victoria and 0.1% increase elsewhere. However, Aud/Usd is drifting back from just over 0.7300, while Aud/Nzd is closer to 1.0900 than unusually hefty option expiry interest in the cross residing down at 1.0860 (1.87 bn).
  • CAD/NOK/NZD/CHF – The other major laggards, as the Loonie and Norwegian Krona trade softer with oil sub-1.3100 vs the Greenback and circa 10.6100 against the Euro respectively, with the latter also taking on board softer than forecast monthly mainland GDP. Meanwhile, the Kiwi retreats from 0.6700+ and Franc pivots 0.9170/1.0830 ahead of NZ manufacturing sales later tonight and Swiss jobs tomorrow.
  • EUR/JPY/SEK – The Euro is straddling 1.1800 vs the Buck and largely treading water in advance of Thursday’s ECB policy meeting, while the Yen is even more constrained below 106.00 following minor Japanese GDP revisions and the Swedish Crown seems to be gleaning a degree of underlying support from ip as Eur/Sek meanders either side of 10.3700.
  • EM – The Try’s slide will grab headlines as it slumps to fresh record depths nearer the psychological 7.5000 mark, but other regional currencies are also depreciating, like the Rub on the back of Brent weakness and the Zar after a bigger than expected Q2 GDP contraction (SA economy shrank 50%+ in q/q annualised terms).

In commodities, WTI and Brent front month futures are on a downwards trajectory in what seems to be a sentiment driven move as it coincided with losses in stocks markets and the fixed income bid. UAE’s ADNOC moved in lockstep with Saudi Aramco in lowering their flagship crude grade in a sign that demand is faltering. On this front, easyJet has cut its flights amid the UK government announcing more quarantine measures – a sign of reduced demand for travel and fears that have been flagged by the IEA MOMR last month. Furthermore, crude imports from China have continued to ebb lower from June’s record levels (11.23mln BPD in August vs. 12.13mln BPD in July vs. 12.99mln BPD in June). Meanwhile, Russian Energy Minister Novak also remarked that it is important Russian production, alongside other oil producers, returns quickly or even undertakes an increase in market share upon the oil demand recovery – comments that come ahead of this month’s JMMC meeting. WTI sees more pronounced losses than its Brent counterpart on account of no settlement for the former yesterday given the Labor Day holiday. WTI October resides just under USD 38.50/bbl whilst Brent November lost its USD 41.50+/bbl status (vs. high USD 42.23/bbl). Elsewhere, spot gold and silver move in tandem with the Dollar as the index sees somewhat of a revival from early EU hours. The yellow metal trades closer to session lows around USD 1923/oz whilst spot silver gave up its USD 27/oz handle. Finally, LME copper prices have eased due to the downbeat sentiment coupled with a firmer Buck.

Top European News

  • Merkel Ready to Link Nord Stream With Russian Navalny Response
  • EU Makes Latvia’s Dombrovskis Trade Chief to Deal With U.S.
  • Commerzbank Board Rebukes Retail Head for Turnaround Failure
  • Irish PM Warns Johnson Over Backsliding From Brexit Divorce Deal

DB's Jim Reid concludes the overnight wrap

So after three days cooling off, the US market reopens today after last week’s late and so far brief tech rout. At the lows on Friday the Nasdaq was down c.10% in just over 24 hours. It did stabilise and recover soon after the Friday open but this will be the first full trading session where specific news of the recent fevered options market activity has been fully revealed to the market. So it’s a big session today. Futures on the S&P 500 and Nasdaq are +0.25% and -0.57% respectively.

Overnight in Asia markets are mostly firm outside of China/HK with the Nikkei (+0.51%), Kospi (+0.67%) and Asx (+0.80%) all up while the Hang Seng (-0.57%) and Shanghai Comp (-0.34%) are down. Its seems like the latter two are underperforming on yesterday’s news that President Trump is intending to decouple the US economic relationship with China as he threatened to punish any American companies that creates jobs overseas and to forbid those that do business in China from winning federal contracts. He added, “Whether it’s decoupling or putting massive tariffs on China, which I’ve been doing already, we’re going to end our reliance on China because we can’t rely on China ”. In FX, the US dollar index is up +0.45% this morning. Yields on 10y USTs are trading down -1.2bps while WTI crude oil price are down -1.9% to $39.02. In terms of overnight data releases Japan’s final Q2 GDP was confirmed at -7.9% qoq, a touch better than consensus of -8.0% yoy while July household spending came in at -7.6% yoy (vs. -3.7% yoy expected).

In other overnight news, the BoE Chief Economist Andy Haldane warned against extending the UK government’s flagship coronavirus furlough program as he said that “Keeping all those jobs on life support is in some ways prolonging the inevitable in a way that actually doesn’t help either the individual or the business.” He added that the UK firms should look to wage restraint or reduced hours as a “less painful way of adapting” than job cuts. Meanwhile, on the economy, he had a bit better view than his colleagues as he said that “Right now the prevailing narrative is a bit gloomier than I think is justified by the data.”

With the US out on holiday yesterday for Labor Day, European equities shrugged off the selloff in risk assets at the end of last week to make solid advances. By the close, the STOXX 600 had climbed +1.67% with every sector moving higher on the day, while the DAX (+2.01%), the CAC 40 (+1.79%) and the FTSE 100 (+2.39%) also saw notable gains. These solid advances came in spite of continued negative news on the coronavirus in Europe, as signs of a rise in cases continued to accumulate as we head towards the winter months. Here in the UK, a further 2,951 cases were reported yesterday, which sent the 7-day average to its highest level in over 3 months. Overnight, the UK government has imposed a 14-day quarantine requirement for travellers arriving from seven Greek islands, thereby taking a regional approach for the first time. Meanwhile in Denmark, restrictions were reintroduced yesterday, with public gatherings now limited to 50, having been 100 before. Across, the other side of world, as new cases in Japan have started to come down, Kyodo has reported this morning that the Japanese government is considering eliminating the cap of 5,000 people it has on event sizes as soon as September 19. Hong Kong’s government is also planning to further ease virus-related restrictions and allow restaurants to seat four people per table instead of the current limit of two.

Amidst the recent rise in cases, a common pattern across multiple countries is that younger people are increasingly contracting the virus. We looked at this in our Chart of the Day yesterday (link here) which showed how the age composition of cases has changed over time. There is an element of increased testing but I still think the trend is valid. At the first peak of the virus in late March (using data from England), 61% of the confirmed cases were among those over 60, while just 12% came from the 20-39 age group. On the latest data however, the over-60s make up just 11% of cases, while the 20-39 group are now at 48%. So a big transition that goes some way to explaining why hospitalisations and deaths have remained subdued relative to the first wave, even as cases have started to rise again.

In foreign exchange markets, sterling slumped against other major currencies yesterday as the spectre of a no-deal Brexit returned to markets following the FT’s report that the UK could seek to undermine parts of the Withdrawal Agreement. In terms of the details, the report said that the UK government’s new internal market bill – which is scheduled for publication tomorrow – will override parts of the Brexit Withdrawal Agreement reached last year, specifically the Northern Ireland protocol that is designed to avoid a hard border between Northern Ireland and the Republic of Ireland. This is potentially very problematic for the ongoing trade negotiations between the two sides, since the Withdrawal Agreement is an international treaty between the UK and the EU that came into force at the end of January, having been signed by Prime Minister Johnson and passed by both houses of the UK Parliament.

On the UK side, a spokesman for Prime Minister Johnson said to reporters that “we are fully committed to implementing the Withdrawal Agreement and the Northern Ireland Protocol”, and said that these steps were “minor clarifications in extremely specific areas”, in order to avoid legal confusion. However, the news was not met so positively on the EU side, with Irish foreign minister Coveney tweeting that “This would be a very unwise way to proceed”. Even Commission President von der Leyen weighed in, tweeting that “I trust the British government to implement the Withdrawal Agreement, an obligation under international law & a prerequisite for any future partnership”.

Concerningly for markets however, the reports on the internal market bill come against the backdrop of a broader increase in tensions between the two sides. Over the weekend, the UK’s chief negotiator David Frost gave an interview to the Mail on Sunday, in which he said that the UK was “not going to be a client state. We are not going to compromise on the fundamentals of having control over our own laws.” Meanwhile Prime Minister Johnson said yesterday that there needed to be an agreement by October 15, and that if an agreement weren’t reached by that point, “then I do not see that there will be a free trade agreement between us, and we should both accept that and move on.” So a clear escalation in rhetoric, which was reflected in FX markets as sterling fell by -0.85% against the US dollar (a further -0.14% this morning), being the worst-performer in the G10 yesterday. We should get some more headlines on this later in the week, since the 8th round of negotiations starts today between the two sides, and is due to wrap up this Thursday.

In terms of other markets yesterday, sovereign bonds lost ground somewhat as investors moved into riskier assets. 10yr yields on bunds (+1.1bps), OATs (+1.0bps) and BTPs (+3.0bps) all moved higher. Oil saw declines too, with Brent crude falling to a 2-month low as it fell a further -1.52%. Finally, there was little data to speak of with the US on holiday, but we did get German industrial production for July, which rose for a 3rd consecutive month, but by a less-than-expected +1.2% (vs. +4.5% expected).

To the day ahead now, and as mentioned the 8th round of negotiations kicks off between the UK and the EU on their future relationship. There isn’t a great deal of data, though we will get the German and French trade balances for July, along with Italian retail sales for that month. In the US, we’ll also get the NFIB small business optimism index for August, and July’s consumer credit.

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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…

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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

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‘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…

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'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 "...in 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

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Government

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,…

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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 BriusWatch.org, 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.

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