Month: April 2017

Via The Daily Bell

Uber is psychologically manipulating their drivers in order to exploit them. I know this because a New York Times article told me so. The article is titled, How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons, and starts, “The secretive ride-hailing giant Uber rarely discusses internal matters in public.”

From this alone, I can deduce that Uber is run by tricksters who are manipulative of their employees and very guarded in their tactics for profit, which makes me assume they are unethical practices.

The New York Times piece does mention that Uber is trying to be more friendly and engaging with its drivers since they have gotten some bad press on that front. But the article goes on to inform me further of the exploitation:

And yet even as Uber talks up its determination to treat drivers more humanely, it is engaged in an extraordinary behind-the-scenes experiment in behavioral science to manipulate them in the service of its corporate growth…

Uber’s innovations reflect the changing ways companies are managing workers amid the rise of the freelance-based “gig economy.” Its drivers are officially independent business owners rather than traditional employees with set schedules. This allows Uber to minimize labor costs, but means it cannot compel drivers to show up at a specific place and time. And this lack of control can wreak havoc on a service whose goal is to seamlessly transport passengers whenever and wherever they want.

Uber helps solve this fundamental problem by using psychological inducements and other techniques unearthed by social science to influence when, where and how long drivers work. It’s a quest for a perfectly efficient system: a balance between rider demand and driver supply at the lowest cost to passengers and the company.

Employing hundreds of social scientists and data scientists, Uber has experimented with video game techniques, graphics and noncash rewards of little value that can prod drivers into working longer and harder — and sometimes at hours and locations that are less lucrative for them.

Basically, the article admits that drivers have more freedom and independence, but casts it as a bad thing since they are psychologically manipulated into working harder, or at particular times. But doesn’t that beat being basically literally manipulated into working harder or longer at a typical company?

If you are a corporate worker you are still often “asked” to work longer hours, and still given the type of assignments the corporation wants you to complete. And if you don’t like it, you need to find a different job.

Uber drivers can simply turn off their app and suffer no consequences. Yes, even though a prompt with a big button encouraging them to keep driving shows up, and even though the app tells them how close they are to earning a certain amount of money, the power still rests with the driver.

When it comes to contractors, corporations basically have to tread lightly in order to keep them happier, since they have less control over the workforce.

Uber has to make their work appealing, and using psychological “tricks” is how they are doing it. Why should a company be faulted for being clever in how they attract and encourage employees? Companies have been doing the same in order to attract and engage customers for years.

So it feels like a video game when you are driving for Uber. Great! Because with Uber, you actually make money and with video games, you spend money.

Could it be that many Uber drivers would either be driving for Uber, or at home playing video games? Uber has basically found a way to provide a great fit for gamers to contribute to the economy in a way that doesn’t feel unnatural to them.

Uber is giving an option, not forcing anyone to work for them. But that’s not the way the New York Times spins it.

To keep drivers on the road, the company has exploited some people’s tendency to set earnings goals… It has even concocted an algorithm similar to a Netflix feature that automatically loads the next program, which many experts believe encourages binge-watching. In Uber’s case, this means sending drivers their next fare opportunity before their current ride is even over.

And most of this happens without giving off a whiff of coercion…

But an examination by The New York Times found that Uber is continuing apace in its struggle to wield the upper hand with drivers.

Well, that almost sounds like it is harder for Uber to keep the upper hand than for a typical corporation. It sounds like workers and employers are closer to an even playing field when it comes to negotiation over their mutually beneficial transactions.

But no, I shouldn’t let the corporate giant manipulate me too! Exploiting the tendency to strive towards goals! Providing an interface which makes them want to work longer and earn more money! Adding addictive video game elements which make work feel like leisure! The horror!

Uber exists in a kind of legal and ethical purgatory, however. Because its drivers are independent contractors, they lack most of the protections associated with employment. By mastering their workers’ mental circuitry, Uber and the like may be taking the economy back toward a pre-New Deal era when businesses had enormous power over workers and few checks on their ability to exploit it.

If only our dear leader FDR could have ruled forever. Alas! His dictatorial controls on the economy could not last. Instead, we must live in a world where workers cannot control by threat of government violence what they get from their employers.

Instead, they are forced to work for evil corporations like Uber… Or go drive for a competitor like Lyft… Or work for a gig-based delivery service like Postmates… Or go to an entirely different sector of the economy, which only has hundreds of thousands of businesses to choose to work for… Or start their own business if they feel they have something to offer and don’t want to deal with an employer…

But still, super-exploited.

Mr. Amodeo, the Uber spokesman, defended the practice. “We try to make the early experience as good as possible, but also as realistic as possible,” he said. “We want people to decide for themselves if driving is right for them.”

That making drivers feel good could be compatible with treating them as lab subjects was no surprise. None other than Lyft itself had shown as much several years earlier.

In 2013, the company hired a consulting firm to figure out how to encourage more driving during the platform’s busiest hours.

At the time, Lyft drivers could voluntarily sign up in advance for shifts. The consultants devised an experiment in which the company showed one group of inexperienced drivers how much more they would make by moving from a slow period like Tuesday morning to a busy time like Friday night — about $15 more per hour.

For another group, Lyft reversed the calculation, displaying how much drivers were losing by sticking with Tuesdays.

The latter had a more significant effect on increasing the hours drivers scheduled during busy periods.

So companies are being forced to make their employees feel good about working.

Isn’t psychology the way to voluntarily induce certain behaviors, versus force? Companies need their employees to do certain things to optimize business. Getting the employees to want to comply is a positive approach, especially when the alternative is, “Do this or get fired,” which has basically been the dominant approach of companies for years.

The article says that these tactics have been employed by video games for decades to induce a waste of time, so why is it suddenly horrible to use these tactics to induce productive use of time?

And just to make sure there is no mistake about whose side the New York Times is on, they close with a quote from an Obama official about a contract style, gig-based economy.

“You have all these players entering into this space, and the assumption is they’ll do it through vast armies of underemployed people looking for extra hours, and we can control every nuance about what they do but not have to pay them,” said David Weil, the top wage-and-hour official under President Barack Obama.

Somebody high up doesn’t want the peasants participating in a freelance economy. Yet the government is the one exploiting the masses as tax slaves.

Maybe they have a vested interest in keeping the old employment model, where you are under the control of one company rather than free to take a contract here or there. Maybe the government wants to make sure the corporation is on their side when it comes to health insurance, social security, and tax withholding.

Uber doesn’t withhold taxes from paychecks. That means instead of filing taxes to get money back, when (if?) you file taxes, you owe the government a big chunk of cash. Maybe that isn’t exactly beneficial to the psychological manipulation the government employs to make citizens comply.

And at the end of the day, the government can still use their guns to get your money. Uber needs your consent.

Uber Undermines Regulation

There are certainly unethical practices companies use towards their employees, but I am failing to see what the big deal is with Uber. No one is being forced to drive for them, and this isn’t the industrial revolution where the only option available in your village is to work for a toxic factory or starve.

It really seems like the New York Times has it out for Uber. Their long piece talking about the psychological manipulation Uber uses on their employees is really just psychological propaganda to make readers feel emotional about the situation.

They want people to think that this unregulated company is dangerous. They want people to support more control over the economy by the government, just like the good old days of FDR. They want people to clamor to bring Uber into the fold of government controlled corporations. They want people to want the government to save them from the scary manipulations of big business!

But government’s whole business is manipulation, and the same goes for the media outlets they control.

If you can read deeper, the New York Times’ hit-pieces often give hope for Uber. It is a modern business model which doesn’t need to use force like the government. And they have even implemented programs to undermine government regulation.

A different New York Times piece on Uber is called How Uber Deceives Authorities Worldwide and continues to explain as if it was a bad thing, that Uber uses something called greyballing to deliver a fake version of the app to thwart government stings and protect their drivers from official harassment.

…Uber had just started its ride-hailing service in Portland without seeking permission from the city, which later declared the service illegal. To build a case against the company, [code enforcement] officers like Mr. England posed as riders, opening the Uber app to hail a car and watching as miniature vehicles on the screen made their way toward the potential fares.

But unknown to Mr. England and other authorities, some of the digital cars they saw in the app did not represent actual vehicles. And the Uber drivers they were able to hail also quickly canceled. That was because Uber had tagged Mr. England and his colleagues — essentially Greyballing them as city officials — based on data collected from the app and in other ways. The company then served up a fake version of the app, populated with ghost cars, to evade capture…

The mayor of Portland, Ted Wheeler, said in a statement, “I am very concerned that Uber may have purposefully worked to thwart the city’s job to protect the public.”

Any company that is getting around government coercion can’t be all bad. The cities are trying to protect the cab companies, wasting tax dollars in the process of chasing people delivering a service clearly in demand from Portland residents.

[It is interesting to note that both New York Times articles start with the word “How,” which is a psychological trick to get more clicks, the idea being that people think they will find more practical knowledge in the articles that start with “How”. But it is okay when the New York Times uses psychology to promote its business, just not when Uber uses it to run its business.]

But anyway, the poor exploited Uber drivers won’t have to labor too long seeing as they will be replaced by driverless cars within about a decade.

 You can exploit the masses just like Uber, with lessons from this book on how psychology is used to sell! (Of course, you could also use the book to avoid being manipulated into buying.)

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Despite the warning by “some” Fed members that stocks are “quite high”, and another even more implicit warning, that the Fed may have to revise its forecast if “financial markets were to experience a significant correction”, the market’s initial reaction to the Fed’s warning was to ignore it, although in recent minutes there has been a modest acceleration to the downside across equity markets…

… while bonds initially sold off in a kneejerk reaction to the Fed’s balance sheet reduction warning, only to recoup some of the losses.

 

Finally, despite the Fed’s attempt to tighten financial conditions – if indeed it is worried about a bubble – so far it has failed, with the market refusing to budge in its rate hike expectations, and even after the minutes, the Fed Fund Futures market still expects at most one more hike, in September 2017.

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As new details surrounding the Susan Rice “unmasking” scandal continue to slowly leak out, President Trump told a group of reporters at the White House earlier today that he is convinced that the former national security adviser to President Obama may have committed a crime by seeking the identities of his associates who were ‘incidentally surveilled.”

Per the New York Times, while Trump refused to offer any additional details pending an ongoing investigation, he described the scandal as “one of the big stories of our time” and vowed to follow-up “at the right time.”

“I think it’s going to be the biggest story,” Mr. Trump said in an interview in the Oval Office, declining repeated requests for evidence for his allegations or the names of other Obama administration officials. “It’s such an important story for our country and the world. It is one of the big stories of our time.”

 

He declined to say if he had personally reviewed new intelligence to bolster his claim but pledged to explain himself “at the right time.”

 

When asked if Ms. Rice, who has denied leaking the names of Trump associates under surveillance by United States intelligence agencies, had committed a crime, the president said, “Do I think? Yes, I think.”

Of course, as we noted earlier, if anyone expects former National Security Advisor Susan Rice, the same Susan Rice who “stretched the truth” repeatedly about Benghazi, to unilaterally admit she did something wrong they will be severly disappointed. Instead, just yesterday she took an interview on the always Obama-friendly Andrea Mitchell show on MSNBC to categorically deny that the Obama administration inappropriately spied on members of the Trump transition team.

“The allegation is that somehow, Obama administration officials utilized intelligence for political purposes…That’s absolutely false…. My job is to protect the American people and the security of our country.”

 

“There was no such collection or surveillance on Trump Tower or Trump individuals, it is important to understand, directed by the White House or targeted at Trump individuals.”

EXCLUSIVE: Susan Rice says the claim that intelligence was used for political purposes is “absolutely false” Watch: https://t.co/JdbgCtSgEN

— MSNBC (@MSNBC) April 4, 2017

 

Rice also flatly denied exposing President Trump’s former national security advisor Michael Flynn, who was forced to resign in February after media reports revealed that he misled Vice President Pence about the contents of a phone call with the Russian ambassador.

Asked by Mitchell if she sought to unmask the names of people involved in the Trump campaign in order to spy on them, Rice says: “absolutely not, for any political purpose, to spy, expose, anything.” And yet, that is what happened. She was then asked if she leaked the name of Mike Flynn: “I leaked nothing to nobody.”

WATCH: Susan Rice insists “I leaked nothing to nobody” https://t.co/kAsbu4VJDN

— MSNBC (@MSNBC) April 4, 2017

 

Of course, only time will tell which version of the truth proves to be accurate and/or whether this is just another attempt by Republicans to “criminalize behavior that is normal.“

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As previewed, the focus on the just released Fed minutes was on two things: the path of the rate hike, which the Fed said it can change its assessment if warranted, and on the future of the Fed’s balance sheet, where the FOMC said said a reinvestment shift was warranted

• MOST FED OFFICIALS SAW REINVESTMENT SHIFT WARRANTED LATER IN YR
• FED: BOTH TREASURIES, MBS SHOULD BE PART OF REINVESTMENT CHANGE
• FED OFFICIALS READY TO CHANGE RATE-PATH ASSESSMENT IF WARRANTED
• FOMC TO CONTINUE DISCUSSING REINVESTMENT SHIFT AT UPCOMING MTGS
• FOMC OFFICIALS DIVIDED OVER LEVEL OF SLACK IN LABOR MARKET

To be sure, this is hardly the news the bond complex wanted, which has sold off following this latest warning that the Fed may begin shrinking its balance sheet. 

However the biggest surprise was in the latest caution by “some” Fed members that stock prices are quite high, and that the Fed is increasingly worried about asset bubbles, to wit:

• SOME FED OFFICIALS VIEWED STOCK PRICES AS `QUITE HIGH’

Here is the section in question:

In their discussion of recent developments in financial markets, participants noted that financial conditions remained accommodative despite the rise in longer-term interest rates in recent months and continued to support the expansion of economic activity. Many participants discussed the implications of the rise in equity prices over the past few months, with several of them citing it as contributing to an easing of financial conditions. A few participants attributed the recent equity price appreciation to expectations for corporate tax cuts or to increased risk tolerance among investors rather than to expectations of stronger economic growth. Some participants viewed equity prices as quite high relative to standard valuation measures.

And then the following stark admission that the Fed is clearly focused on stock price:

… a number of participants remarked that recent and prospective changes in financial conditions posed upside risks to their economic projections, to the extent that financial developments provided greater stimulus to spending than currently anticipated, as well as downside risks to their economic projections if, for example, financial markets were to experience a significant correction. Participants also mentioned potential developments abroad that could have adverse implications for the U.S. economy.

Below are selected excerpts from the FOMC meeting minutes that concluded on March 15:

• When the time comes to implement a change to reinvestment policy, participants generally preferred to phase out or cease reinvestments of both Treasury securities and agency MBS.
  • The staff provided several briefings that summarized issues related to potential changes to the Committee’s policy of reinvesting principal payments from securities held in the SOMA. These briefings discussed the macroeconomic implications of alternative strategies the Committee could employ with respect to reinvestments, including making the timing of an end to reinvestments either date dependent or dependent on economic conditions.
  • The briefings also considered the advantages and disadvantages of phasing out reinvestments or ending them all at once as well as whether using the same approach would be appropriate for both Treasury securities and agency mortgage-backed securities (MBS).
  • Nearly all participants agreed that the Committee’s intentions regarding reinvestment policy should be communicated to the public well in advance of an actual change. It was noted that the Committee would continue its deliberations on reinvestment policy during upcoming meetings and would release additional information as it becomes available.
• Some participants viewed equity prices as quite high relative to standard valuation measures. It was observed that prices of other risk assets, such as emerging market stocks, high-yield corporate bonds, and commercial real estate, had also risen significantly in recent months.
• With their views of the outlook for the economy little changed, participants generally continued to judge that a gradual pace of rate increases was likely to be appropriate to promote the Committee’s objectives of maximum employment and 2 percent inflation.
  • In contrast, several other participants cited evidence that some slack remained in the labor market, such as still-modest aggregate wage growth and the unevenness of wage gains across industries, an elevated share of employees working part time for economic reasons, or other broad measures of labor underutilization.
  • In contrast, participants held different views regarding prospects for the attainment of the Committee’s inflation goal. A number of participants noted that core inflation was a useful indicator of future headline inflation, and the latest reading on 12-month core inflation suggested that it could still be some time before headline inflation reached 2 percent on a sustained basis.
• Several participants now anticipated that meaningful fiscal stimulus would likely not begin until 2018. In view of the substantial uncertainty, about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections. Nonetheless, most participants continued to view the prospect of more expansionary fiscal policies as an upside risk to their economic forecasts.
• Participants generally viewed the downside risks associated with the global economic outlook, particularly those related to the economic situation in China and Europe, as having diminished over recent months.
• Although motor vehicle sales had fallen early in the year and some other components of PCE had also declined, many participants suggested that the slowdown in consumer spending in January would likely be temporary. The slowing appeared to mainly reflect transitory factors like lower energy consumption induced by warm weather or delays in processing income tax refunds.
• Nearly all participants judged that the U.S. economy was operating at or near maximum employment.
• Participants emphasized that they stood ready to change their assessments of, and communications about, the appropriate path for the federal funds rate in response to unanticipated developments.

And the full minutes:

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With the March FOMC Minutes due out shortly, here are the key items to focus on, courtesy of RanSquawk which reminds us that at the March meeting, the FOMC decided to hike rates by 25bps, the third hike of the tightening cycle, taking the rate to 0.75%-1.00%. Although the Fed signalled further tightening this year, markets had expected the Fed to indicate four hikes in 2017, however, the median stayed at three and market expectations for four or more hikes declined.

As a result, the minutes will be scoured for clues on why the Fed decided to push forward with hiking rates at this meeting but not signal a faster path to the neutral rate, which they kept at 3.0%. Markets will also be looking for the Fed to give any hints on what it will take for the Fed to raise rates for a fourth time in the cycle.

A key topic for the Fed recently has been about how and when they will shrink the balance. Minneapolis Fed President Kashkari dissented at the decision for two reasons; firstly, key data hadn’t changed since the prior meeting, and secondly, because he would have preferred the Fed to publish a plan on balance sheet normalisation before the next rate hike.

The Fed announced that they have begun the discussion about normalisation at the latest meeting but at the moment the details are scarce so the minutes should at least give a hint on timing. Recently, Harker said reinvestments may be appropriate at the end of 2017 but timing will depend on how the economy evolves. Dudley said the reinvestments could also start late this year.

Dudley also added that when normalisation starts, that could be a substitute for short-term rate hikes, meaning that if the Fed does begin to wind down the balance sheet then rate increases might be postponed.

The Fed will be wary of creating a situation similar to that observed during the taper tantrum in 2013 when the then Fed chair Bernanke spooked markets by suggesting that QE would end abruptly. Soc Gen strategist Rajappa writes, “People are not paying nearly as much attention to or pricing-in the potential impact of Fed tapering reinvestments.”

In summary, the 4 key things to keep an eye on, via the WSJ:

• Balancing Act: The Portfolio

Federal Reserve officials are zeroing in on a strategy to begin winding down their $4.5 trillion portfolio of mortgage and Treasury securities, possibly later this year, as part of their broader effort to wind down their extraordinary postcrisis stimulus efforts. The approach would involve raising rates two more times this year and then pausing rate moves while they start reducing the holdings, also called the balance sheet, in a gradual way.

• The Balance of Risks

Will the Fed change its outlook on the balance of risks facing the economy? For years, central bankers around the world have worried more about the possibility the economy could perform worse than forecast than the chance it could perform better than expected. The Fed, in its statement after the March meeting, said the near-term risks to the economy appeared “roughly balanced.” But officials have been a touch sunnier in recent public statements, noting more often the possibility it could grow faster than expected because of its own momentum or rising stock prices or possible new economic policies from the Trump administration and Congress. The minutes could clarify their differences.

• The Next Move

Officials indicated at the March meeting they remained on track to raise short-term rates two more times this year, but didn’t indicate when they expected to move. The minutes could signal whether they could move as soon as their meetings in May or in June. Nearly seven in 10 economists surveyed by The Wall Street Journal last month said they expect the next rate increase in June. Nearly seven in 10 economists surveyed by The Wall Street Journal last month said they expect the next rate increase in June.

• Fiscal Policy

Fed officials have kept a close eye on the White House and Capitol Hill as they assess the likelihood of tax cuts, regulatory changes, spending increases or other policies that could boost economic growth and potentially drive up inflation. Washington hasn’t offered much clarity. The minutes of their January meeting showed officials were split over whether they should begin planning for such fiscal stimulus or wait for more concrete details on policy proposals. The minutes of the March meeting could offer new insight into whether they expect action soon.

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With stocks blasting off the moment today’s stellar ADP report hit (even if subsequent PMI and ISM soft data roundly refuted the highest surge in private payrolls in over two years), pushed higher by the momentum ignition in USDJPY, some traders have declared today the day the reflation trade has (again) come back. Perhaps, however as RBC’s Charlie McElligott correctly points out, something sticks out: “conversations with a number of clients shows me that many have been recently debating internally on ‘throwing in the towel’ on the trade—especially after the brutal start to the week with the US rates rally.  That is what makes today’s move in US rates after the strong headline ADP print so remarkable and FURTHER anxiety-inducing for said ‘reflationistas.’  Treasuries suddenly cannot sell-off.“

And without both the 10Y – and crude – validating the move in stocks, it is only a matter of time before the anti-reflation trade takes hold in stocks.

Here are some thoughts from RBC’s McElligott  as to what may be causing today’s persistent bid in the Treasury complex.

RBC Big Picture: THINKING OUT LOUD

#HOTTAKE: Crude +2.8% off WTD lows.  Breakevens ‘firming’ after their recent weakness.  Energy leading S&P sectors MTD / ‘value’ factor and cyclical ‘longs’ outperforming WTD in equities, while HY has led IG in credit over the same period.  US banks index BKX is +2.0% off its lows made Monday morning.  Booyah. 

These are the things that the ‘reflationists’ have so desperately needed to see, as PNL from the trade in 2017 has been quite ugly relative to generic ‘index’ and / or ‘peer’ returns—whether for macro or ‘unconstrained’ funds.  In fact, conversations with a number of clients shows me that many have been recently debating internally on ‘throwing in the towel’ on the trade—especially after the brutal start to the week with the US rates rally.

That is what makes today’s move in US rates after the strong headline ADP print so remarkable and FURTHER anxiety-inducing for said ‘reflationistas.’  Treasuries suddenly cannot sell-off.

The ADP number should speak positively of course for potential upside in Friday’s NFP and thus, likely higher US rates (labor mkt impact on Fed hike trajectory)….yet on the day, TY is now FLAT (aided by an ISM non-manu which mean-reverted modestly lower on the headline print, as the ISM employment component printed weakest in 6m—although the ‘export orders’ index jumped to 62.5 from 57 prior and best since 2007, per RBC Econ Jacob Oubina). 

So what is happening here?  I believe that the Asian buyers of USTs are back—especially the Japanese—in conjunction with the start of their new fiscal year.  Posit: they are ready to deploy cash after having significantly scaled-back activity over the past months into YE.  The year-end Yen repatriation flows are done with…so they are back ‘buying dollars’ as USTs look cheap, especially with hedging costs so low (as cross-currency basis has cheapened enormously since January) and USDJPY at year’s lows (USD assets attractive).    Makes some sense right?  New incremental buyer returns to market, especially after having missed a buying opportunity at the start of their fiscal year, as the rally forced them to miss the move yet again. 

Back to ‘reflation’ though and the funds who’ve been ‘long it.’  With USTs currently unable to sell-off (admittedly aided by heavy US IG issuance as well, and what is I’m sure ongoing short-covers from ‘late-comers’ to the ‘short rates’ trade), it’s going to again be getting nervy from the PNL side.  IF these folks were to commence ‘capitulation,’ we’d likely see that ‘Maginot line’ at 2.30 level in 10s challenged and likely, broken.  Obviously a break lower in yields would then impact the cross-asset world, with a thematic “up in quality” move, with money rotating into defensives and out of ‘high beta.’  In credit, this is an IG +++ move with HY as source of funds.  In equities, this would only perpetuate the YTD trend of “into growth, out of value” / “out of cyclicals into seculars,” and also drive further strong performance in ‘low vol’ bond proxy sectors (Utes, Staples, REITS, Telcos).

All of this said, I still wouldn’t be throwing in the towel on ‘reflation’ completely at this point, simply on account of the sudden ‘one-sidedness’ of the sentiment shift AWAY from ‘reflation’ over the course of the year (especially post the ACA repeal failure).  The two keys: oil and / or tax-policy ‘optionality.’  This is why I pushed the thematic ‘XLF upside / XLK downside’ trade earlier in the week, at the chance you get an upside surprise ‘trigger’ in either of the two x-factors.  This trade would look interesting too bc of the positioning ‘kicker,’ with so much crowded into ‘secular growth’ tech as a new ‘safe haven’ free of business cycle and Trump policy risk, while conversely, $$$ is tactically coming out of banks as rates reverse lower. 

The key for ‘higher oil’ is to see the ‘rest of world’ inventory drawdown to ‘flow through’ to US.  Currently, that’s a nothing-done.  The good news though (as noted the other day here) is that WTI Cushing crack-spreads remain at year plus highs, showing strong demand for refined product like gasoline ahead of the Summer driving season.  And of course too, I believe the market is already in motion working to ‘price-in’ an OPEC extension, or even-better, larger inventories increase the likelihood for perhaps even DEEPER OPEC cuts which could get crude (and inflation expectations) again ‘going’—taking stocks higher, credit tighter and equity vol lower.  We’d then see a new ‘kicker’ as the crude-triggered inflation impulse YoY gets new ‘legs.’

Tax policy ‘optionality’ is a MUCH hazier dynamic…because just as the market began sniffing potential movement for VAT compromise, the White House stated that last night it was off the table.  Ugh.  Nonetheless, because it’s ‘growthy’ and ‘reflationary’ impact is so theoretically massive, very few are going to ‘short’ it with a desperate Trump and GOP likely to pull out all stops to get something done that WILL at the very-least lower rates from current effective levels.

So now to the flipside: lower crude and NO tax policy movement.  This would almost certainly-drive the full ‘reflation liquidation,’ with rates seeing NEW LONGS (already being built per open interest breakdowns, but likely to then catch systematic / CTA buyers on the momentum of the rally) while too driving further money into ‘defensives’ and ‘secular growth’ stocks, which almost by themselves can keep the SPX at the index-level supported (think Facebook, Apple, Amazon, Netflix and Google and their embarrassingly high contribution to SPX index return YTD).  Energy, Financials, Materials and Industrials would be in a truly bad spot.  Add in concerns around the read on the state of the US auto industry (-4.0% in the past week) and you get a really bad sentiment swing. 

And as per the nearly two-year macro factor regime, any swoon in ‘inflation expectations’ via 1) a move lower in crude and alongside 2) the impact of potential slowing of economic confidence (reversion of data as ‘fiscal policy / deregulation joy’ were to fade with ‘no news’ on taxes), it’s almost certain that FINALLY, stocks would see a repricing in risky-assets. 

As for now though and as discussed with a colleague and client today, the ‘TINA’ regime remains: equities on a relative basis are perceived to be the most attractive vehicle to capture a view on ‘directionally better US economic’ trend and earnings growth—especially versus such distorted risk / reward in credit.

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With worries about mass migration having largely faded from Germany’s consciousness after a record surge in 2015, and an angry popular reaction, prompted Angela Merkel to curb the inflow of refugees, there is renewed concern in Germany following a report that up to 270,000 Syrians in Germany have the right to bring in their family members, a “revelation” that could refuel the debate about migration less than six months before a national election. Germany’s Bild cited a government paper showing that a total of 431,376 Syrians applied for asylum in Germany in 2015 and 2016 and said that of those 267,500 are allowed to bring their families to Germany.

As Reuters observes, Germany blessing such a material migration could play into the hands of the anti-immigrant Alternative for Germany (AfD) party, which has lost support in recent months as the refugee issue has receded from the headlines ahead of a Sept. 24 election.  Sure enough, senior AfD member Alexander Gauland condemned the figures, saying it was “absolute madness” to allow so many people to bring their families to Germany: “Billions and billions of tax money are being swallowed and the social state is being steered toward breakdown while our eyes are wide open.”

In 2016 Germany suspended family re-unifications for two years for migrants who get “subsidiary protection” – granted to people who are not considered as being persecuted individually but in whose home country there is war, torture or other inhumane treatment.

According to Reuters, Syrians are the biggest group of asylum applicants in Germany. They are increasingly being granted subsidiary protection rather than refugee status and that means they are only granted the right of residence for a year, although this can be extended. But Chancellor Angela Merkel’s Christian Democrats (CDU), their Bavarian sister party – the Christian Social Union (CSU) – and the Social Democrats (SPD), their junior coalition partner, decided last week to make exceptions for people with subsidiary protection status in hardship cases.

More than a million migrants flocked to Germany in 2015 and 2016 but arrivals have dropped significantly.

The AfD, which has made immigration one of its key rallying points, is currently on between 7 and 11 percent in opinion polls, above the 5 percent threshold to enter parliament. CSU leader Horst Seehofer told German magazine Stern tackling the AfD was a main aim.

 

“If we govern the country sensibly and don’t attack each other personally in the election campaign, we can push the AfD under 5 percent,” Seehofer said. However, while his party is behind Merkel in the election campaign he said it was sticking to its demand for a cap on the number of migrants coming here – a proposal which the chancellor has rejected.

In 2016, some 280,000 migrants arrived in Germany, a sharp drop compared with 890,000 the previous year. Bild said while there were no numbers for 2017 yet, the federal police had already caught more than 20,000 illegal migrants on the borders in the first three months of this year.

via http://ift.tt/2oaqxyw Tyler Durden