Month: September 2017

President Trump is busy this morning commenting on the mainstream media's news-du-jour.

After reports showing that former FBI Director Comey had decided to exonerate Hillary (and grant immunity to her staffers) long before any interviews were undertaken, Trump lashes out at the swamp's "rigged system"…

Wow, looks like James Comey exonerated Hillary Clinton long before the investigation was over…and so much more. A rigged system!

— Donald J. Trump (@realDonaldTrump) September 1, 2017

And then, dismissing 'sourced' rumors that he is upset at his new Chief of Staff's "handling" of him, President Trump confirmed the "great job" Kelly is doing…

General John Kelly is doing a great job as Chief of Staff. I could not be happier or more impressed – and this Administration continues to..

— Donald J. Trump (@realDonaldTrump) September 1, 2017

…get things done at a record clip. Many big decisions to be made over the coming days and weeks. AMERICA FIRST!

— Donald J. Trump (@realDonaldTrump) September 1, 2017

As The Hill reports, the president's defense of Kelly comes after The Washington Post on Thursday reported Trump was growing peeved with Kelly's strict regulation of the Oval Office.

"He doesn’t like how Kelly’s handling him. He’s turning on people that are very close to him," a friend of Trump's told The Post.

The Post also reported that Trump loyalists in the White House refer to Kelly as "the church lady" for his strict handling and that the president has reached out to people outside of the White House, including his former chief strategist Stephen Bannon.

We look forward to more 'sourced' reports dismissing Trump's dismissals.

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Having spiked briefly on the back of dollar weakness following a piss-poor payrolls print, EURUSD is tumbling back to unchanged on the day after Bloomberg reports that European Central Bank policy makers may not be ready to finalize their decision on next year’s bond-purchase program until December, according to euro-area officials familiar with the matter.

As Bloomberg reports, the Governing Council has no appetite to rush into decision at Sept. 7 meeting, and complexity of the topic means full details of the plan may not be settled at Oct. 26 meeting, people say. Policy makers don’t want to surprise markets, two of the people say, in a sign that broader signals, lacking full detail, could be given at Sept. and/or Oct. meetings.

Euro’s rise after President Mario Draghi’s comment in June on “reflationary forces” and currency’s jump again last week when he opted not to try to talk it down in a speech in Jackson Hole, Wyoming, shows how sensitive markets are.

Policy makers want extreme prudence, with changes to communication and policy likely to move even slower than originally expected, two of the people say

The dovish jawboning for the second day in a row sent EURUSD back down after the payrolls pump…

 

It appears a new policy is emerging as currency wars reappear…

Yesterday it was leaked reports or concerns about “strong currency” and today it is delaying a decision that many expected to titl towards tapering QE.

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While the excuses are already flowing for the big miss in August’s payrolls, markets are reacting with currencies the biggest factor.

 

The dollar dumped immediately and precious metals spiked, bond yields fell marginally and while Nasdaq jumped a little initially, stocks are now all modestly lower…

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We warned readers yesterday to “Prepare For Disappointment” with today’s jobs report, and sure enough that’s precisely what we got when moments ago the BLS reported that in August just 156K jobs were created, a big miss to the 180K expected, and following a sharp downward revision to June and July, which were revised to 210K and 189K, respectively, a 41K drop combined.

Not helping matters was the Household Survey, according to which the number of employed Americans declined by 74,000 to 153,439K.

The unemployment rate also disappointed, rising from 4.3% to 4.4%, while avg hourly earnings missed, increasing by 2.5% Y/Y in August, below the 2.6% estimate and the same as July.

The sequential increase in earnings was just 0.1%, also below the 0.2% expected, and far below the 0.3% in July. Furthermore, since average weekly hours declined also, from 34.5 to 34.4, average weekly earnings declined outright from $909.42 to $907.82 in August. Furthermore, average weekly earnings rose just 2.2% Y/Y, the lowest rate of increase since January.

While the labor force participation rate remained unchanged at 62.9%, the number of Americans not in the labor force increased once again, growing by 128K in August to 94.785 million.

Developing

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"It's only just beginning," warned one seasoned veteran energy trader as the hangover from Hurricane Harvey flows downstream to retail gas prices and jet fuel premiums.

As Bloomberg notes, Harvey impact currently includes:

• Colonial says it’ll commingle Rbob and conventional gasoline
• Explorer Pipeline planning to start lines Saturday, Sunday
• Logjam grows to 29 oil tankers as 11 ports remain closed
• Total Port Arthur is said facing extended shutdown on power loss
• Texas storm bucks N.Y. traders with wild gasoline expiry swings
• NHC issues final advisory on Harvey; losing tropical character

Which has left retail gas prices at the pump are now at their highest in 2 years…

 

And judging by their usual lagged response to RBOB, are set to go dramaticaly higher in the next few weeks…

 

And while inventories are high, deliveries are slow and fears of shortages have created lines at many Texas gas stations…

 "This is going to be a substantial ouch for consumers," said Tom Kloza, global head of energy analysis for Oil Price Information Service. "Satan could not have drawn up a more horrible geographic scenario for knocking out Texas refining."

But it is Jet Fuel premiums that are even more worrisome…

New York jet fuel’s premium to Nymex futures rises 20.5c to 36c/gal., widest since 2008, data compiled by Bloomberg show.

 

And U.S. Gulf jet fuel premium widens 10.25c to 19c/gal., also widest since 2008…

 

And unlike Gasoline – where inventories are high – Jet fuel inventories are below average.

The latest EIA data implies jet fuel inventory levels are just over 23 days of forward cover, seasonally-adjusted, 8% below the five-year average. Flooding and crude oil supply disruptions have led to the temporary closing of more than 21% of the country's refining capacity, primarily in the Gulf Coast, contributing to further draws on jet fuel inventories.

 

All of which could be a problem for Delta, United, and American who have shunned hedging after some incurred losses when oil prices collapsed in 2014.

• American – No open hedge contracts, unhedged since 2014
• Delta – Stopped entering fuel hedge contracts in 3Q 2014, no plans to resume hedging, co. says in Dec.
• United – No fuel hedges as of June 30

“We are definitely watching this closely,” said Josh Freed, a spokesman for American Airlines Group Inc., the world’s largest carrier. “We don’t expect any immediate impact on our ability to operate our schedule. We are continuing to manage our fuel supplies and monitoring inventory levels regularly.”

Southwest has some fuel hedges…

• 2H 2017: 62% using derivatives tied to WTI, Brent
• 2018: 78% using derivatives tied to WTI, Brent – 79% was hedged in 1Q
• 2019: 61% using derivatives tied to WTI, Brent – 36% was hedged in 1Q
• 2020: 7% using derivatives tied to WTI

But the largest U.S. airline by domestic passengers, is working to ensure a steady supply of jet fuel after Hurricane Harvey forced the shutdown of crude-oil refineries and pipelines along the Gulf Coast. “It’s something we are concerned about and are working very aggressively to manage,” Chief Executive Officer Gary Kelly said in an interview Thursday. “I don’t expect any problem, but this is an evolving crisis.”

The rush to guarantee the fuel supply underscores the fallout on U.S. supply chains from widespread flooding in Houston and along the Texas and Louisiana coast after record rainfall. Southwest relies on the region for more than a third of its jet kerosene, although not all refineries were affected, Kelly said. Two pipelines that supply the Dallas-based carrier have been closed.

“It’s not to the point where there should be panic,” Kelly said. “The concern is along the lines of, we know there’s an issue and we have to take steps to mitigate it and that work is underway. We won’t have trouble based on what we know right now sourcing jet fuel to power our flights.”

But somehow, Airlines stocks are soaring post-Harvey.

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Moments ago, Bloomberg blasted that unlike every other payrolls Friday when at 8:30am precisely, news feeds are flooded with headlines breaking down the jobs report, prompting algos to buy or buy stocks, this time that won’t happen:

• LABOR DEPT HAVING LOCKUP TECH PROBLEMS; RELEASE ON WEB AT 8:30

This means that anyone, algos included, who wants to get the jobs number will either have to wait several minutes until others have done the work for them (so roughly 90% of Wall Street analysts) or have to go to the BLS.gov website, scrape it manually and break down the data on their own.

It also means that today’s market reaction to the jobs report will likely be a mess.

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• August Jobs Report Expected to Show a Slowdown in Hiring (WSJ)
• Emotions Swell as Houston Begins Cleanup (WSJ)
• Fuel shortages to hamper Labor Day travel (Reuters)
• Harvey’s Made the World’s Most Important Chemical a Rare Commodity (BBG)
• Economists Consistently Overestimate U.S. August Payrolls (BBG)
• New Jersey Senator Menendez’s graft trial could sway D.C. power balance (Reuters)
• Harvey Relief Bill Could Help Congress Raise Debt Ceiling (WSJ)
• Russia-Linked Bots Hone Online Attack Plans for 2018 U.S. Vote (BBG)
• Britain faces huge costs to avoid power shortages with electric car plan (Reuters)
• Trump Lawyers Say Probe of Comey Firing Shouldn’t Target President (WSJ)
• Job Satisfaction Highest in a Decade Ahead of Jobs Data (WSJ)
• Ex-JPMorgan Trader Spots a MiFID Gift for His Brokerage (BBG)
• Russia Private-Bank Experiment Just Imploded (BBG)
• Oil Firms That Cheered Regulatory Rollback Are Quaking Over Nafta (BBG)
• Lululemon Gets Lift From Men’s Business, Product Investments (WSJ)
• In North Carolina county, strong support for Confederate statue (Reuters)
• The Death of Stocks Has Been Exaggerated (BBG)
• Trump Trade Upside-Down in S&P 500 as Drugmakers Overtake Banks (BBG)
• White House Cutting Ads, Grants Aimed at Encouraging ACA Sign-ups (WSJ)

 

Overnight Media Digest

WSJ

– The chief executive Tenet Healthcare Corp, one of the nation’s largest for-profit hospital chains, will resign by early next year as the company deals with investor pushback over its corporate strategy and recent board defections. on.wsj.com/2wrjza9

– Insys Therapeutics Inc’s legal woes worsened Thursday when the state of Arizona filed a lawsuit claiming the company improperly marketed a powerful opioid painkiller. on.wsj.com/2ws9VnU

– Wyoming can’t sue Volkswagen AG for environmental damage allegedly caused by the company’s polluting diesel vehicles, a federal judge in San Francisco ruled Thursday, finding the penalties resulting from actions brought by consumers and federal authorities are enough. on.wsj.com/2wrxMUD

– Vanguard Group, one of the world’s largest asset managers, voted against Wells Fargo & Co non-executive chairman Stephen W. Sanger and two other directors this year, according to new regulatory filings. on.wsj.com/2wrGjal

– The National Labor Relations Board filed a complaint Thursday against Tesla Inc based on allegations of unfair labor practices from workers at the company’s Fremont, California, factory. on.wsj.com/2wrvEfJ

– Amazon.com Inc is working on plans to roll out its one- and two-hour membership delivery service into Canada later this year, a move that marks a broader push into the country by the Seattle-based retailer, according to people familiar with the matter. on.wsj.com/2wrGYZn

– Dong Energy A/S, Denmark’s majority state-owned energy company, is selling off its last oil and natural-gas fields in a deal expected to close by the end of September. The billion-dollar-plus sale is part of a broader plan to significantly reduce the company’s exposure to fossil fuels and produce energy primarily from renewable sources. on.wsj.com/2wrDdms

 

FT

* Britain’s exit negotiations with the European Union this week failed to make the kind of progress needed to open talks on their future relationship in October, the bloc’s chief negotiator, Michel Barnier, said on Thursday.

* Volkswagen is offering drivers in Britain up to 7,000 pounds to scrap their old diesel cars for newer models hours after rival Toyota unveiled a similar scheme.

* French President Emmanuel Macron’s government announced reforms to loosen labour regulations and drive down unemployment, drawing criticism from unions but limited support for the street protests that have hindered previous reform bids.

 

NYT

– Nearly a year after Wells Fargo & Co’s fraudulent account scandal burst into public view, the bank said it had turned up more than a million additional accounts that customers may not have authorized. nyti.ms/2wrkiIt

– Toshiba Corp, the embattled Japanese conglomerate, said on Thursday it needed more time to choose an outside investor for its microchip business, extending a period of uncertainty for the company as it seeks a multibillion-dollar cash infusion to stabilize its finances. nyti.ms/2gv3zjT

– The average price of a gallon of regular gasoline in the United States on Thursday jumped 5 cents from the day before, to $2.45, the highest price of the year, according to the AAA motor club. Contracts for September wholesale deliveries rose 25.5 cents a gallon, signaling that the worst is yet to come. Experts said prices at the pump could easily rise an additional 30 cents a gallon. nyti.ms/2wWqdbK

– Thirteen of The Village Voice’s 17 union workers were laid off and were told they would no longer have jobs after the third week of September, a union representative said. nyti.ms/2iKsVe7

 

Britain

The Times

– Petrofac Ltd’s chief executive Ayman Asfari made more than 300,000 euros ($357,210.00) by betting on a share price fall at a rival oil services company after its boss tipped him off about his imminent resignation, financial regulators in Italy have said. bit.ly/2xBzSS4

– Interest rates need to increase in order to offset the rapid rise in inflation, a member of the Bank of England’s rate-setting committee has warned. bit.ly/2xBeBbn

The Guardian

– The British gambling industry’s income has ballooned in size over the past decade, according to figures from the Gambling Commission. bit.ly/2xBdNDi

– Ryanair Holdings PLC has stepped up warnings that flights between UK and Europe are imperilled by Brexit, with the airline’s Chief Executive Michael O’Leary claiming that the prospect of disrupting aviation was one of the quickest and best ways for the EU27 to “stick it to the British”. bit.ly/2xAX1UG

The Telegraph

– Britain’s second largest energy supplier, SSE Plc has steadily grown the profits it makes from supplying energy to households for a third year in a row despite mounting political pressure to keep bills low. bit.ly/2xBpDxg

– Philip Green has threatened Labour MP Frank Field with legal action over allegations made in a radio interview last week, as tensions between the pair escalated. bit.ly/2xAYme5

Sky News

– The chief executive of New Look Group Ltd Anders Kristiansen is to step down just over two years after his turnaround of the high street fashion chain paved the way for its 2 billion pound ($2.59 billion) sale. bit.ly/2xBJmgc

– Boots UK Ltd issued a legal warning to a pregnancy charity over its public campaign for more affordable emergency contraception, it has emerged. bit.ly/2xB5XcR

The Independent

– Six new banks have joined UBS Group AG -led effort to create a digital cash system that would allow financial markets to make payments and settle transactions quickly via blockchain technology. ind.pn/2xAYTNc

– The amount of money flowing into cash ISAs has fallen dramatically in the most recent financial year, as consumers have been put off by low interest rates and a change in taxes. ind.pn/2xBqHkr

 

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Authored by Charles Hugh Smith via OfTwoMinds blog,

The point is the present system cannot endure.

Despite all the happy talk about "recovery" and higher growth, wages have gone nowhere since 2000–and for the bottom 20% of workers, they've gone nowhere since the 1970s.

Gross domestic product (GDP) has risen smartly since 2000, but the share of GDP going to wages and salaries has plummeted: this is simply an extension of a 47-year downtrend.

Last month I posted one reason Why We're Doomed: Our Economy's Toxic Inequality (August 16, 2017). The second half of why we're doomed is stagnant wages. Why do stagnating wages for the bottom 95% doom our status quo? As I noted yesterday in Why Wages Have Lost Ground in the 21st Century, our system requires ever-higher household incomes to function–not just in the top 5%, but in the top 80%.

Our federal social programs–Social Security, Medicare and Medicaid–are pay-as-you-go: all the expenditures this year are paid by taxes collected this year. As I have detailed many times, the so-called "Trust Funds" are fictions; when Social Security runs a deficit, the difference between receipts and expenses are filled by selling Treasury bonds in the open market–the exact same mechanism ther government uses to fund any other deficit.

The demographics of the nation have changed in the past two generations. The Baby Boom is retiring en masse, expanding the number of beneficiaries of these programs, while the number of full-time workers to retirees is down from 10-to-1 in the good old days to 2-to-1: there are 60 million beneficiaries of Social Security and Medicare and about 120 million full-time workers in the U.S.

Meanwhile, medical expenses per person are soaring. Profiteering by healthcare cartels, new and ever-more costly treatments, the rise of chronic lifestyle illnesses–there are many drivers of this trend. There is absolutely no evidence to support the fantasy that this trend will magically reverse.

Costs are skyrocketing and the number of retirees is ballooning, but wages are going nowhere. Do you see the problem? All pay-as-you-go programs are based on the assumption that the number of workers and the wages they earn will both rise at a rate that is above the underlying rate of inflation and equal to the rate of increase in pay-as-you-go programs.

If 95% of the households are earning less money when adjusted for inflation, and their wealth has also declined or stagnated, then how can we pay for programs which expand by 6% or more every year?

The short answer is you can't.

The budgets of state and local governments also expand every year as citizens demand more services, infrastructure requires costly maintenance and upgrades, and the overall costs of providing government services rises (soaring healthcare premiums are a major driver of higher government expenses). How can households pay higher property and sales taxes if their incomes are going nowhere?

Stagnant wages = stagnant income tax revenues.

Then there's the consumer economy that depends on ever-higher consumer spending. If wages are stagnant, how can households spend more money? The conventional answer is: we'll blow asset bubbles in stocks, bonds and housing, and households can spend this newfound wealth.

Nice theory, but only the top slice of American households own enough of these assets to matter. Feast your eyes on these two charts of skyrocketing income and wealth inequality. This chart shows that the majority of income growth is now concentrated in the top 1/0th of 1%, and most of what's left has gone to the top 5%. This is the only possible outcome of financialization and central-bank inflated asset bubbles.

Here's another look at the same dynamic, but excluding capital gains, which flow to those who own most of the assets, i.e. the top 1%: the bottom 90% lost 10% in the decade 2002-2012, the top 5% gained 6% and the very top of the wealth-power pyramid, the top 1/100th of the 1%, gained 76%.

The conclusion is sobering: wages/salaries are no longer an adequate means to distribute income or paid work. Our system is broken at the deepest levels–not just economically broken, but socially broken as well. Clinging to this broken model and filling the widening gap between the super-wealthy and everyone else with more debt will doom the system.

This is why I've proposed a new way to organize production, consumption, work and income in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All.

The point is the present system cannot endure. Borrowing trillions of dollars to paper over this failure won't work for much longer. We need a new system, or we're well and truly doomed.

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