Month: March 2017

Having become a habitual response among the investing community, with sellside research reports dedicated to the phenomenon of buying the dip which no matter what the Fed does, refuses to go away…

…  it will probably not come as a surprise that as Bank of America writes in its latest weekly client flow trend report, following last Tuesday’s sharp selloff in stocks, “hedge funds & retail bought the dip“, in the words of the bank.

As BofA’s Jill Hall elaborates, last week, during which the S&P 500 fell 1.4% (the biggest weekly decline since early November), the bank’s clients resumed their post-election buying streak after a five-week break.

Among BofA’s main “smart money” clients, both hedge fund and private clients were net buyers for the second straight week, while institutional clients sold stocks for the sixth week.

Clients bought a little of everything: large, mid and small caps alike all saw inflows for the first time since early January, as a slowing in sales of single stocks was coupled with a pick-up in ETF inflows.

Predictably, Hall adds that “we could see more buying on dips by clients, as the strategy has worked in recent years and we expect to see both higher volatility and higher stock prices this year.” For those worried they may have missed the last of the BTFD opportunities out there, don’t worry: according to BofA, “the end of a bull market typically sees capitulation-like inflows, which have so far been absent, and the “Great Rotation” has yet to occur.“

BofA lays out the other notable flows in last week’s action, among which broad-based buying of small caps, ETFs

• Net purchases by hedge funds last week were the biggest since early January.
• Hedge funds, institutions and private clients all bought ETFs and small caps, while all three sold the defensive sectors of Staples Utilities, along with Materials.
• Pension fund clients were net buyers of US stocks after two weeks of selling, with inflows across all three size segments. Their biggest purchases were of Industrials and Energy stocks, while ETFs and Tech stocks saw the biggest sales by this group last week. For more details, see Pension fund flows.
• Buybacks by our corporate clients ticked up to their highest levels since early December, led by a pick-up in Tech buybacks. This helped bring cumulative YTD buybacks in-line with 2015 levels over the same period, but below 2014 and 2016 levels and with trailing 52-week buybacks still their lowest in nearly four years.

* * *

Below is a breakdown of the rolling four-week average trends by sector:

• Net buying: ETFs since early Oct 2016; Materials since late Feb. 2017; Staples since mid-March 2017.
• Net selling: Health Care since mid-March 2016; Consumer Discretionary since mid- Jan 2017; Real Estate (not shown—flows since Sept. 2016) since late Jan. 2017; Industrials since mid Feb. 2017; Energy since late Feb. 2017; Tech since early March 2017; Utilities since mid-March 2017.
• Notable changes in trends: Telecom is now seeing net buying after net sales since mid-February 2017.

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Seemingly no amount of empirical evidence will ever convince progressives that raising minimum wages to artificially elevated levels is a bad idea.  Somehow the basic idea that raising the cost of a good ultimately results in lower consumption of that good just doesn’t compute. 

And while roughly 50% of the country will promptly ignore it, below is yet another study, from Dr. David Macpherson of Trinity University and Dr. William Even or Miami University, pointing out the devastating consequences of minimum wage hikes.

This study takes a look at the city of St. Louis and its decision to hike minimum wage rates 43% by 2018 from $7.70 per hour to $11.00.  Macpherson figures such a hike will cost the city roughly 1,000 jobs and, as usual, will hurt the “young and less-skilled” workers the most.

Minimum wage proponents in the city have portrayed the proposed increase as a no-lose proposition. The labor union funded group Missouri Jobs With Justice has even suggested a minimum wage hike would help local businesses and the economy. But a wide body of economic research, including a 2014 Congressional Budget Office (CBO) report, concludes that minimum wage hikes reduce job opportunities especially for the young and less-skilled.

 

A new analysis by Dr. David Macpherson of Trinity University and Dr. William Even of Miami University finds that an $11 minimum wage in St. Louis would cost the city roughly 1,000 jobs, with the job loss mostly occurring among the city’s most vulnerable populations.

Meanwhile, Macpherson notes that minimum wage hikes often don’t even help poor families, at least those that are able to keep their jobs after the layoff notices are passed out, but instead flow to the teenage workers of more affluent families. 

Beyond the consequences to the labor market, raising the minimum wage has been criticized on the grounds that it’s poorly-targeted to low income families. For instance, an earlier analysis found that the average family income of a beneficiary of a $12 minimum in Missouri exceeds $57,000 a year. (Many of the employees are second- or third-earners in higher-income households.) Similarly, Census Bureau data show that over half (52 percent) of the state’s poor residents don’t work, and wouldn’t be impacted by a raise.

And here’s a look at who will get crushed the most by St. Louis’ ‘progressive’ policies.

Women…

Teens…

Low-skilled…

Of course, when all of these minimum wage hikes prove to be miserable failures, the responsible ‘progressives will effortlessly lay the blame at the feet of the wealthy 1%’ers who are behind all the layoffs.  Checkmate.

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Fox News’ legal analyst Andrew “Judge” Napolitano returned to the air on Wednesday morning, nine days after the network benched him when President Donald Trump cited the Fox talking head as the source of claims that Barack Obama used British intelligence to wiretap him. Napolitano refused to change his story saying he stood by his claim about spying on President Donald Trump that got him benched by the network on March 21 for an indefinite period.

“I stand by my statement on surveillance,” Napolitano told Bill Hemmer.

According to Deadline, Napolitano was there to talk about a Fox News report that the FBI allegedly wired a staffer of former Illinois Congressman Aaron Schock, who has been charged with fraud and corruption. But first, Hemmer asked Napolitano about that Obama/Brit intel wiretap claim he first made on Fox & Friends. Napolitano said that was his story and he was sticking to it.

“And the American public needs to know more about this rather than less because of a lot of the government’s surveillance authorities will expire in the fall and there will be a great debate about how much authority we want the government to have to surveil us.”

“We’ll see how the story plays out,” Hemmer said, noncommittally.

“I think a lot more is going to come,” Napolitano responded..

His return raises the question as to why Fox News benched Napolitano in the first place.

Following the joint press conference between Trump and Merkel, in which the president cited Napolitano’s allegation, Fox News reacted immediately saying it “cannot confirm Judge Napolitano’s commentary; Fox News knows of no evidence of any kind that the now President of the United States was surveilled at any time in any way. Full stop,” Shepard Smith said on the network’s air moments after Trump gave his don’t-look-at-me response to the German reporter.

Previously, a spokesperson for British PM Theresa May had called the claims “ridiculous” saying “they should be ignored and we’ve received assurances that these allegations will not be repeated” by the White House, which may explain why Trump pointed the finger at Fox.

It was White House Press Secretary Sean Spicer who initially got the ball rolling, the day before Trump’s Merkel photo-op, admonishing reporters for their coverage of Trump’s Twitter rant about Obama-ordered wiretaps on Trump Tower. To make his case, Spicer read from a prepared list of reports he said support Trump’s claims, including one from a Fox News Channel broadcast.

“On Fox News on March 14, Judge Andrew Napolitano made the following statement: Three intelligence sources have informed Fox News that President Obama went outside the chain of command…He didn’t use the NSA, he didn’t use the CIA, he didn’t use the FBI, he didn’t use the Department of Justice. He used GCHQ… the initials from the British intelligence spying agency. By having two people say to them the  president needs transcripts of conversations involving candidate Trump he’s able to get it and no American fingerprints on it.”

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Satellite imagery of North Korea’s Punggye-ri Nuclear Test Site taken on March 28, and published by 38 North, shows a contingent of 70-100 people standing in formation in an administrative area. Such a gathering suggests a nuclear test may be imminent: as 38 North notes, it had not observed such a formation at the test venue seen since Jan. 4, 2013, shortly prior a nuclear test on Feb. 12 of that year.

According to the Johns Hopkins University website, North Korea knows when commercial satellites are passing overhead and typically tries to avoid activities during that time. It adds that “the fact these formations can be seen suggests that Pyongyang is sending a political message that the sixth nuclear test will be conducted soon.” On the other hand, “it may be engaged in a well-planned game of brinkmanship.”

More details from 38 North:

Heightened Activity at North Korea’s Punggye-ri Nuclear Test Site

New commercial satellite imagery of the Punggye-ri Nuclear Test Site from March 28 shows a heightened level of activity over the past few days. Despite the recent snowfall, there has been continued pumping of water out of the North Portal, presumably to keep the tunnels dry for communications and monitoring equipment; the removal of material (probably rubble) and dumping on the tailings pile immediately to the east of the portal; and the probable removal of one or more vehicles or equipment trailers from in front of the portal.

Figure 1. Continued activity at the North Portal.

Figure 2. Material dumped at the North Portal tailings pile.

This activity is consistent with previous reports, while the rest of the Punggye-ri Nuclear Test Site has been generally quiet. However, there is now one vehicle and a large contingent (70-100) of people standing in formation or watching in the courtyard of the Main Administrative Area. Such a gathering hasn’t been seen since January 4, 2013, which was followed by a nuclear test on February 12.

Figure 3. Formations seen in the Main Administrative Area, similar to what was seen in lead up to 2013 nuclear test. (an interactive before and after image can be found on the source website).

The North Koreans know when commercial satellites are passing overhead and typically try to avoid activities during that time. The fact these formations can be seen suggests that Pyongyang is sending a political message that the sixth nuclear test will be conducted soon. Alternatively, it may be engaged in a well-planned game of brinkmanship.

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Following two medicore auction earlier in the week, moments ago the Treasury concluded the week’s issuance of paper with a strong sale of $28 billion in 7 Year Notes, which priced at a yield of 2.215%, (with a 19.2% allocation at the high yield), stopping through the When Issued of 2.219% by 0.4% bps, likely aided by this morning’s ECB news as well as a reduction in corporate issuance leading to less rate locks, which in turn offset the lack of a short interest heading into today’s auction where the repo rate on 7Y paper was a comfortable +0.30%.

The Bid to cover of 2.564 was an improvement from last month’s 2.491, and the highest of 2017, in fact it was the highest since November 2016; it was also higher than the last 6 auction average of 2.52.

Indirect Bidders, i.e., foreign buyers, once again stepped up their interest, taking down 71.1%, above the 63.8% from February, and well above the 65.7% 6 month prior average. Direct bidders declined modestly from 11.4% (and an average of 11.7%) to 8.4%, leaving 20.5% to Primary Dealers, below their average of 22.7% in the prior 6 auctions.

As discussed before, if potential bond buyers are concerned about a rapid rate rise in coming years, they are not indicating as much with declined interest at TSY auctions.

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Yesterday, President Trump and VP Pence hosted the Fraternal Order of Police (FOP), the nation’s largest police union and a big supporter of Trump’s 2016 campaign, at the White House as part of his effort to keep an ‘open dialogue’ with law enforcement officials of the country. 

It was an honor to welcome @GLFOP to the @WhiteHouse today with @VP Pence & Attorney General Sessions. THANK YOU for all you do 24/7/365! http://pic.twitter.com/UOKsiqMpsx

— Donald J. Trump (@realDonaldTrump) March 28, 2017

But the meeting likely got a little more controversial than expected when FOP Executive Director Jim Pasco pressed Trump on his decision to de-fund so-called ‘sanctuary cities’…a move which he argued would “endanger public safety.”  Per Reuters:

Leaders of the largest police union in the United States have warned President Donald Trump that he could endanger public safety if he follows through with cuts in federal grants to immigrant “sanctuary cities,” the union’s director told Reuters after a White House meeting.

 

In a move that concerned the Fraternal Order of Police, one of Trump’s biggest supporters in the 2016 election campaign, U.S. Attorney General Jeff Sessions said on Monday that the Justice Department would restrict grants to jurisdictions that do not cooperate with federal immigration authorities.

 

Sanctuary cities, such as San Francisco and New York, refuse to cooperate sometimes by not notifying Department of Homeland Security agents when illegal immigrants are being released from incarceration.

 

Dozens of local governments and cities have joined a “sanctuary” movement aimed at protecting immigrants. Trump has vowed to crack down on illegal immigration and in general, these cities offer safe harbor and often do not use municipal funds or resources to advance the enforcement of federal immigration laws.

We have to presume that Pasco overlooked the inherent irony of suggesting that the federal government taking steps to actually require state and local municipalities to enforce laws would make cities less safe.

Of course, the comments followed Attorney General Jeff Sessions’ surprise appearance at Sean Spicer’s daily White House press briefing earlier this week to announce that his DOJ would be taking steps to not only require that so-called “sanctuary cities” enforce federal immigration laws but would also be seeking to claw back past DOJ awards granted to those cities if they refuse to certify compliance.

“Today, I’m urging states and local jurisdictions to comply with these federal laws.  Moreover, the Department of Justice will require that jurisdictions seeking or applying for DOJ grants to certify compliance with 1373 as a condition for receiving those awards.”

 

“This policy is entirely consistent with the DOJ’s Office of Justice Programs guidance that was issued just last summer under the previous administration.”

 

“This guidance requires jurisdictions to comply and certify compliance with Section 1373 in order to be eligible for OJP grants.  It also made clear that failure to remedy violations could result in withholding grants, termination of grants and disbarment or ineligibility for future grants.”

 

“The DOJ will also take all lawful steps to claw back any fines awarded to a jurisdiction that willfully violates Section 1373.”

Sessions’ full comments can be viewed below:

Attorney General Sessions says sanctuary cities ‘cannot continue’ https://t.co/YiS9doT3IE http://pic.twitter.com/nGmICgmiA6

— FOX Business (@FoxBusiness) March 27, 2017

Of course, all of this just serves to once again illustrate why government only grows larger and more corrupt…because the guy looking to rein in spending or enforce some level of discipline is an easy political target…that said, we’re not sure the current President plays such games.

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The S&P 500, Banks, Small Caps and Transportation indices continue to climb higher, as the long-term trend remains up. The two charts below, look at performance over the past month and how each index is testing long-term breakout levels.

The chart below looks at how the above mentioned indices have performed over the past 30-days.

CLICK ON CHART TO ENLARGE

These key markets are a little soft the past 30-days. The Power of the Pattern below looks at where this softness is taking place.

CLICK ON CHART TO ENLARGE

Multi-year trends remain up for each of the indices above, as they create a series of higher lows and higher highs.

Each are testing key breakout levels at each (1), where a little softness has taken place the past month. Transports index (lower right) could be creating a pattern similar to what it did in 1999 and 2007. The odds of Transports creating an identical pattern to the 1999 and 2007 highs is low for sure. If Transports would turn weak at (1), bulls might want to keep a tight stop on positions.

Great news for the bulls if these breakout at (1). If they would breakout, each should attract buyers. Bulls don’t care to see weakness start taking place at each (1). Will be very interesting where each of these are 30 days from now!

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