Month: June 2018

Special Counsel Robert Mueller is scrambling to limit pretrial evidence handed over to a Russian company he indicted in February over alleged meddling in the 2016 U.S. election, according to Bloomberg.

Mueller asked a Washington federal Judge for a protective order that would prevent the delivery of copious evidence to lawyers for Concord Management and Consulting, LLC, one of three Russian firms and 13 Russian nationals. The indictment accuses the firm of producing propaganda, pretending to be U.S. activists online and posting political content on social media in order to sow discord among American voters. 

The special counsel’s office argues that the risk of the evidence leaking or falling into the hands of foreign intelligence services, especially Russia, would assist the Kremlin’s active “interference operations” against the United States. 

“The substance of the government’s evidence identifies uncharged individuals and entities that the government believes are continuing to engage in interference operations like those charged in the present indictment,” prosecutors wrote.

Improper disclosure would tip foreign intelligence services about how the U.S. operates, which would “allow foreign actors to learn of those techniques and adjust their conduct, thus undermining ongoing and future national security operations,” according to the filing.

The evidence includes thousands of documents involving U.S. residents not charged with crimes who prosecutors say were unwittingly recruited by Russian defendants and co-conspirators to engage in political activity in the U.S., prosecutors wrote. –Bloomberg

Mueller also accused Concord of “knowingly and intentionally” conspiring to interfere with the election by using social media to disparage Hillary Clinton and support Donald Trump. 

And Concord Management decided to fight it… 

As Powerline notes, Mueller probably didn’t see that coming – and the indictment itself was perhaps nothing more than a PR stunt to bolster the Russian interference narrative. 

I don’t think anyone (including Mueller) anticipated that any of the defendants would appear in court to defend against the charges. Rather, the Mueller prosecutors seem to have obtained the indictment to serve a public relations purpose, laying out the case for interference as understood by the government and lending a veneer of respectability to the Mueller Switch Project.

One of the Russian corporate defendants nevertheless hired counsel to contest the charges. In April two Washington-area attorneys — Eric Dubelier and Kate Seikaly of the Reed Smith firm — filed appearances in court on behalf of Concord Management and Consulting. Josh Gerstein covered that turn of events for Politico here. –Powerline Blog

Politico’s Gerstein notes that by defending against the charges, “Concord could force prosecutors to turn over discovery about how the case was assembled as well as evidence that might undermine the prosecution’s theories.”

In a mad scramble to put the brakes on the case, Mueller’s team tried to delay the trial – saying that Concord never formally accepted the court summons related to the case, wrapping themselves in a “cloud of confusion” as Powerline puts it. “Until the Court has an opportunity to determine if Concord was properly served, it would be inadvisable to conduct an initial appearance and arraignment at which important rights will be communicated and a plea entertained.”

The Judge, Dabney Friedrich – a Trump appointee, didn’t buy it – denying Mueller a delay in the high-profile trial.

The Russians hit back – filing a response to let the court know that “[Concord] voluntarily appeared through counsel as provided for in [the Federal Rules of Criminal Procedure], and further intends to enter a plea of not guilty. [Concord] has not sought a limited appearance nor has it moved to quash the summons. As such, the briefing sought by the Special Counsel’s motion is pettifoggery.”

And the Judge agreed…

A federal judge has rejected special counsel Robert Mueller’s request to delay the first court hearing in a criminal case charging three Russian companies and 13 Russian citizens with using social media and other means to foment strife among Americans in advance of the 2016 U.S. presidential election.

In a brief order Saturday evening, U.S. District Court Judge Dabney Friedrich offered no explanation for her decision to deny a request prosecutors made Friday to put off the scheduled Wednesday arraignment for Concord Management and Consulting, one of the three firms charged in the case. –Politico

In other words, Mueller was denied the opportunity to kick the can down the road, forcing him to produce the requested evidence or withdraw the indictment, potentially jeopardizing the PR aspect of the entire “Trump collusion” probe.  

And now Mueller is pointing to Russian “interference operations” in a last-ditch effort. 

Of note, Facebook VP of advertising, Rob Goldman, tossed a major hand grenade in the “pro-Trump” Russian meddling narrative in February when he fired off a series of tweets the day of the Russian indictments. Most notably, Goldman pointed out that the majority of advertising purchased by Russians on Facebook occurred after the election, were hardly pro-Trump, and they was designed to “sow discord and divide Americans”, something which Americans have been quite adept at doing on their own ever since the Fed decided to unleash a record class, wealth, income divide by keeping capital markets artificially afloat at any cost.

The main goal of the Russian propaganda and misinformation effort is to divide America by using our institutions, like free speech and social media, against us. It has stoked fear and hatred amongst Americans. It is working incredibly well. We are quite divided as a nation.

— Rob Goldman (@robjective) February 17, 2018

via RSS https://ift.tt/2MmPf8w Tyler Durden

The US is starting to admit that it has a spending problem.

According to the latest Monthly Treasury Statement, in May, the US collected $217BN in receipts – consisting of $93BN in individual income tax, $103BN in social security and payroll tax, $3BN in corporate tax and $18BN in other taxes and duties- a drop of 9.7% from the $240.4BN collected last March and a clear reversal from the recent increasing trend…

… even as Federal spending surged, rising 10.7% from $328.8BN last March to $363.9BN last month.

… where the money was spent on social security ($83BN), defense ($56BN), Medicare ($53BN), Interest on Debt ($32BN), and Other ($141BN).

The surge in spending led to a May budget deficit of $146.8 billion, above the consensus estimate of $144BN, a swing from a surplus of $214.3 billion in April and far larger than the deficit of $88.4 billion recorded in May of 2017. This was the biggest March budget deficit since the financial crisis.

The May deficit brought the cumulative 2018F budget deficit to over $531bn during the first eight month of the fiscal year; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion.

The red ink for May deficit brought the deficit for the year to-date to $532.2 billion. Most Wall Street firms forecast a deficit for fiscal 2018 of about $850 billion, at which point things get… worse. As we showed In a recent report, CBO has also significantly raised its deficit projection over the 2018-2028 period.

But while out of control government spending is clearly a concern, an even bigger problem is what happens to not only the US debt, which recently surpassed $21 trillion, but to the interest on that debt, in a time of rising interest rates.

As the following chart shows, US government Interest Payments are already rising rapidly, and just hit an all time high in Q1 2018. 

Interest costs are increasing due to three factors: an increase in the amount of outstanding debt, higher interest rates and higher inflation. A rise in the inflation rate boosts the upward adjustment to the principal of TIPS, increasing the amount of debt on which the Treasury pays interest. For fiscal 2018 to-date, TIPS’ principal has been increased by boosted by $25.8 billion, an increase of 54.9% over the comparable period in 2017.

The bigger question is with short-term rates still in the mid-1% range, what happens when they reach 3% as the Fed’s dot plot suggests it will?

* * *

In a note released by Goldman after the blowout in the deficit was revealed, the bank once again revised its 2018 deficit forecast higher, and now expect the federal deficit to reach $825bn (4.1% of GDP) in FY2018 and to continue to rise, reaching $1050bn (5.0%) in FY2019, $1125bn (5.4%) in FY2020, and $1250bn (5.5%) in FY2021.

Goldman also notes that it expects that on its current financing schedule the Treasury still faces a financing gap of around $300bn in FY2019, rising to around $750bn by FY2021, and will thus need to raise auction sizes substantially over the next couple of years to accommodate higher deficits.

What does this mean for interest rates? The bank’s economic team explains:

The increase in Treasury issuance and the ongoing unwind of QE should put upward pressure on long-term interest rates. On issuance, the economic research literature suggests as a rule-of-thumb that a 1pp increase in the deficit/GDP ratio raises 10-year Treasury yields by 10-25bp. Multiplying the midpoint of this range by the roughly 1.5pp increase in the deficit due to the recent tax and spending bills implies a 25bp increase in the 10-year yield. On the Fed’s balance sheet reduction, our estimates suggest that about 40-45bp of upward pressure on the 10-year term premium remains.

And here a problem emerges, because while Goldman claims that “the deficit path is known to markets, but academic research suggests these effects might not be fully priced immediately… the balance sheet normalization plan is known too, but portfolio balance effect models imply that its impact should be gradual” the bank also admits that “the precise timing of these effects is uncertain.”

What this means is that it is quite likely that Treasurys fail to slide until well after they should only to plunge orders of magnitude more than they are expected to, in the process launching the biggest VaR shock in world history, because as a reminder, as of mid-2016, a 1% increase in rates would result in a $2.1 trillion loss to government bond P&L.

Meanwhile, as rates blow out, US debt is expected to keep rising, and  somehow hit $30 trillion by 2028…

… without launching a debt crisis in the process.

via RSS https://ift.tt/2JBpGTu Tyler Durden

No obvious catalysts for now but the crypto space just took another leg lower with Bitcoin now back below $6,500…

Bitcoin is back at its lowest since Feb 2018…which is perhaps the driver of the plunge as it breaks April support lows…

It’s been an ugly few days…

 

 

via RSS https://ift.tt/2JDAhJq Tyler Durden

You’re traveling through another dimension, a dimension not only of sight and sound but of mind. A journey into a wondrous land whose boundaries are that of imagination. That’s the signpost up ahead – your next stop, the Twilight Zone….

The attorney for adult film star Stormy Daniels is now blaming the Russian government, without any proof, for “trying to plant damaging stories about him in media outlets,” suggesting that he has been to Moscow and had a liaison with multiple Russian women, according to the Daily Beast. 

Avenatti did not offer concrete proof to support the claim, but said two media figures and a high-ranking American intelligence official have all told him about the alleged Russian effort. 

“They’re doing it because they see me as a threat, a considerable threat,” he said. “If we weren’t a threat, none of this would be happening.”
…

Avenatti said Russians have also been saying he previously represented Russian and Ukrainian legal interests before the U.S. government. He said he has never represented any Russian or Ukrainian entities. –Daily Beast

“They were trying to claim that I too had taken a trip to Moscow,” Avenatti said. “I’ve never been to Moscow in my life, I’ve never traveled to Russia in my life.”

“They suggested that I had had a liaison with multiple women in Russia,” he added. “I found that to be rather ironic.” 

Since representing Daniels, whose real name is Stephanie Clifford, skeletons in Avenatti’s closet have been pouring out – in large part due to reporting by the Daily Caller as well as citizen journalists. 

Questions have emerged over who’s funding Avenatti, how he was privy to Trump attorney Michael Cohen’s bank records – and how exactly did he obtain banking transactions for two men also named Michael Cohen, who he wrongly accused in a seven-page “dossier” released this week. 

Other questions have come to light over a bankrupt coffee chain Avenatti left in smoldering ashes with $5 million in unpaid taxes to the IRS, an alleged $160,000 owed for unpaid coffee, and over 45 lawsuits filed in connection with the failed venture. 

Bitter coffee deal

As outlined in a legal complaint seeking Avenatti’s disbarment, the balding provocateur “bought a company out of bankruptcy and then used it for a “pump and dump” scheme to deprive federal and state taxing authorities of millions of dollars,” which left over $5 million in unpaid taxes to the IRS.

Avenatti purchased Tully’s out of bankruptcy in 2013, in partnership with actor Patrick Dempsey, who is best known for his role as Derek “McDreamy” Shepherd in the TV show “Grey’s Anatomy.” Dempsey sued Avenatti in August 2013 to break off the partnership.

Since then, Tully’s has significantly struggled. More than 45 lawsuits have been filed against the chain’s parent company, which Avenatti says he no longer owns. In 2017, the company owed roughly $5 million in unpaid taxes to the Internal Revenue Service. And, in March, the coffee chain abruptly closed all locations. –Business Insider

Not everybody owes $5M+ in federal taxes…meet Michael Avenatti… pic.twitter.com/6TLLN7oJIC

— Robert Barnes (@Barnes_Law) May 9, 2018

According to Dempsey, Avenatti was supposed to bankroll the deal through his company, Global Baristas, but didn’t have the funds – instead borrowing $2 million at an “exorbitant” 15% to close on the transaction. The actor sued to get out of the partnership after he claimed “Avenatti concealed the Loan and the Security Agreement from Dempsey.” 

Since 2013, 46 cases have been filed against Global Baristas US LLC and its parent company, Global Baristas LLC in Washington’s King County Superior Court. 

Avenatti’s estranged wife also said under oath he’s “emotionally abusive” and “vindictive.” 

Lisa Storie-Avenatti said under oath that Michael Avenatti threatened to “burn” all of their money on their divorce, and would call the police to arrest both of them so that child protective services would take their son into protective custody. Storie-Avenatti’s attorneys argued in court that this was further proof that Avenatti “is angry and vindictive, and has no regard for emotional harm caused to his son, his daughter or to Lisa.” 

In a sworn court declaration TheDCNF reviewed, Lisa Storie-Avenatti asked a California court to grant her exclusive use of their marital home after she said her husband threatened and emotionally abused her. Both parties now dispute this account, as they finalize their divorce.

Despite these recent denials, Storie-Avenatti alleged her husband threatened to call the police and get them both arrested, which would cause her to lose custody of their son and put him into the hands of the state’s child protective services. –TheDCNF

Avenatti and his estranged wife both dispute her testimony – marking the second time he has been accused of wrongdoing, only for his accuser to retract their claim after the Daily Caller reached out for comment.

via RSS https://ift.tt/2t4fyas Tyler Durden

We have already reported extensively on the subprime auto market, which is somewhere in between topping out and completely imploding, over the last couple of weeks. It should come as no surprise to anyone that lending in the auto space has been redlining aggressively over the last few years, as the “recovery” that started in 2008 by manipulating lending standards (read: lowering interest rates) has now used and abused the auto space in every which way possible.

This leaves auto lenders, including those that aren’t just lending to subprime, with little to no choice but to continue to take on more risk to keep the lending business open and running. This includes issuing more loans that are longer than 5 years and extending credit to borrowers who, in laymen’s terms, can’t afford it. The Wall Street Journal reported this week about the new risks that automakers are taking on:

As loan growth slows, banks and other lenders have been tinkering with loan terms in an effort to gain more consumers. They are originating a greater share of loans with repayment periods of more than five years and, in some cases, extending loans to consumers who are stretching further to afford their purchases. Banks such as TD Bank,Santander Consumer USA Holdings Inc. and BB&T Corp. , meanwhile, have said they are increasing their loans to riskier applicants.

Their moves come at an unsettled time for auto lending. Sales growth has been choppy and missed payments are up from a year ago. Also, used-car prices are under pressure, raising the risk of higher losses for lenders when vehicles are repossessed. Faced with these headwinds, many lenders shunned applicants with low credit scores and have been looking for ways to make up the lost volume.

The latest underwriting efforts show that lenders, faced with conflicting signals about the health of the U.S. consumer, are engaged in a delicate balancing act to boost lending and profit without taking on overly risky customers. Though unemployment has reached an 18-year low and wages are creeping higher, some households are sliding deeper into debt and falling behind on their credit cards and other debt payments.

And what would taking on more credit risk be without a token excuse for doing so? Here’s a gem from TD Bank’s Chief Executive:

“[If] you only took on the financing for the top echelon of the super prime… [it’s] very, very hard to make money in and of itself,” TD Bank Chief Executive Greg Braca said at an industry conference this year.

The article notes that the timeline of most loans has been extended significantly, naturally yielding a higher interest rate for the bank. 

Many auto lenders, including banks, nonbanks and the finance arms of car manufacturers, have been offering more loans with longer terms. Generally, these terms allow borrowers to make lower monthly payments, but usually at a higher interest rate. That, combined with the longer payment period, means that borrowers can end up paying thousands more for their cars than if they opted for a shorter loan.

In the first quarter, the average loan term for a new car exceeded 69 months, the second consecutive quarter it had ever been above that level, according to credit-reporting firm Experian. Also in the first quarter, new car loans originated with repayment periods of between 73 and 84 months represented more than a third of total new car loans, up from 7% of loans in late 2009.

In addition to blaming the lack of creditworthy borrowers, banks are all blaming the rising prices of vehicles as a reason for their disintegrating lending standards. Not only that, but consumers seem to be convinced that taking on longer term loans with higher interest rates gives them more flexibility:

Lenders say borrowers need flexible terms because new vehicles are getting more expensive. Despite the longer repayment periods, average monthly loan payments continue to rise, hitting a record $523 for borrowers who bought new cars in the first quarter, according to Experian.

Zac Craft wanted a three-year loan when he bought his 2012 Chevy Cruze this year but opted for a five-year loan despite its slightly higher interest rate. Mr. Craft plans to pay off the loan in three years to cut down on interest but wanted the option to make lower monthly payments when money is tight.

“There’s some security in that,” said Mr. Craft, who lives in Hawaii.

Of course, as the article notes, these loans are actually more susceptible to eventually being defaulted on:

Loans with longer repayment periods are more prone to default, according to Moody’s. Loans of five years or longer extended to borrowers in 2015 with high credit scores had a cumulative net loss rate of 1.29% as of spring 2017. For shorter-term loans, the loss rate was 0.28%.

And if you don’t want to call it “subprime”, just call it “non-prime”. This is the term that the article says banks are usually to describe those who borrow and are less creditworthy than prime borrowers. Banks are swooning over this newly-discovered-group of borrowers who, just years ago, would have been called “subprime” because they’re – well, literally sub-prime.

“When you can kind of operate in the belly of credit and generate 7-plus-percent yields on new originations, that’s pretty attractive business,” Ally Financial Inc. Chief Executive Jeffrey Brown said at an industry conference this month. Ally, one of the largest U.S. auto lenders, does business with borrowers across the credit spectrum, including subprime.

Lenders say they typically make the longest loans to prime customers who can afford them and understand the risks. A report last month by Moody’s Investors Service, however, found that borrowers who sign up for loans that last six years or longer have lower credit scores and owe a larger share of the vehicle’s price than consumers with shorter loans. The loan payments also account for a larger share of their income, said Moody’s, which reviewed loans securitized since 2017 and that were mostly comprised of prime borrowers.

At Ally, for example, borrowers with loans stretching six years or longer owed on average around 100% of the car’s purchase price when those loans were originated, according to Moody’s. Borrowers with a shorter repayment period owed 83%. Credit scores for borrowers with the longer loans averaged roughly 725, compared with about 760 for borrowers with shorter-term loans.

As we pointed out just yesterday, investors in auto loan bonds are getting used to the crappier paper that’s being sold off. 

The longer an expansion lasts, the crappier its paper becomes.

That may seem like a baseless assertion, but it’s actually just simple math. Early in recoveries, borrowers and lenders are both shell-shocked by the last recession, so only high-quality deals get done. But as time passes, all the good borrowers get their loans and if banks want to keep the deals flowing, lower-quality borrowers must be found and financed. Eventually the deals become shockingly speculative and start blowing up en masse, bringing on the next downturn.

For a more sophisticated explanation of this process, see the work of the late/great Hyman Minsky, as described here:

Hyman Minsky has become famous in the aftermath of the financial crisis for his characterization of the three phases of markets – hedge finance, where the borrower can repay interest and principal out of cash flows; speculative finance, where cash flows can repay interest but not principal, and therefore need to roll over any financing; and Ponzi finance, where cash flows cannot pay either principal or interest and therefore must either borrow more or sell assets to support those costs.

The Minsky moment in a crisis is when Ponzi finance becomes the most common. My colleague John Rooney aptly compares these to a fully amortizing mortgage, an interest only mortgage, and a negative amortization mortgage – images from the housing collapse, which was the most recent Minsky moment.

Where are we in this cycle? Based on the following, it’s Ponzi time:

Sub-prime auto puts more junk in trunk

Car finance companies have pushed into fresh territory this year by selling Single B rated debt backed by loans made to sub-prime borrowers.

Selling Double B bonds was a bold trade not so long ago but as demand has grown for riskier assets, auto sellers are now able to sell further down the capital structure.

“It would appear that investors have grown comfortable with this collateral,” S&P auto ABS analyst Amy Martin told IFR.

“But some investors who are buying this class stand to lose principal if losses are just mildly higher than expected.”

American Credit Acceptance, First Investors, Foursight Capital, United Auto Credit and Westlake have each sold Single B bonds this year, according to Intex data.

By migrating to Single B from Double B, investors can pick up a bit of the spread that has vanished from less risky classes.

Last summer Double B spreads sank to a post-crisis low of around 300bp. But by last month, Westlake had cleared its Double B notes at 205bp, according to IFR data.

Its Single Bs fetched 325bp to yield 6.1%.

“It will be one area to watch,” a senior ABS banker told IFR this week. “We used to say that the Double B window was not always open. Now multiple companies are selling Single Bs.”

Already – with the economy growing nicely and interest rates still historically low – subprime auto loan defaults are trending upward, and are now above their Great Recession levels. So it’s reasonable to assume that when the next recession hits, hundreds of thousands of Americans who bought cars they couldn’t afford with money they didn’t have will find those never-ending payment terms more than they can handle. The sector will become a high-profile casualty and today’s “comfortable” investors will be a lot less so.

God forbid we should have a slowdown in lending when creditworthy borrowers disappear. 

Hey, maybe this time it’s different…

via RSS https://ift.tt/2JvpRzm Tyler Durden

Traditionally one of lowest-profile hedge fund managers, this morning legendary trader Paul Tudor Jones allowed CNBC to interview him from his trading floor in a broad discussion covering everything from North Korea, to Fed policy, to what keeps him up at night and what he is investing in, to the risks facing the current economy, to socially responsible investing and ETFs.

Among the numerous topics covered, several stood out. The first was what PTJ would do if he were Fed chair. The answer: an overnight hike of interest rates by 150bps: “it’s where they should be” because “we’ve got 3.8% unemployment and negative real rates. And we have a 5% on the way to a 7% budget deficit. The last time that we had the unemployment rate where it is now was 2000. And we are running a budget surplus at that time of 2.5%. We were talking about bond scarcity at that time.” The result is the cause for the stock bubble that Jones has complained about in the past:

“we’ve got fiscal policy that literally came from another galaxy and we have monetary laxity. And that brew is what has got the stock market so jacked up.”

And while the Fed continues to raise rates on the short-end, the one it can control, the real question is what happens to the long-end: flattening or steepening. Here PTJ is adamant: fireworks are coming:

I think we’ll see rates move significantly higher beginning some time late third quarter, early fourth quarter.  And I think it will interesting because I think the stock market also has the ability to go a lot higher at the end of the year.

At this point Becky Quick asks why a spike in long-term rates would lead to a surge in stocks, and understandably so. PTJ’s answer: thanks to the Fed and fiscal policy, the market is now “roided out of its brains” just like Arnold Schwarzenegger, and while it’s not sustainable, there will be another last minute melt up across the market, to wit:

So Arnold, right, the guy just looked flipping amazing in it, but he was roided out of his brains. Right? And so that’s not sustainable. So here we’ve got negative real rates. We’ve got interest rates that again look unlike anything that we’ve seen in the stock market top before and we’ve got a 6% budget deficit during peace time with 3.8% unemployment. So yes I think this is going to end with a lot higher prices and forcing the Fed to shut it off. And we’ll probably go through the same thing. It’s an old story. We’ll probably play it again.

In other words, markets surge until the Fed has no choice but to crash the party at which point it crashes down.

Here Andrew Ross Sorkin had an interesting question, asking Jones “when you wake up at about 3:00 in the morning and check the London markets every morning, what are you thinking about over the past couple of weeks? What’s been the issues that have consumed you at that hour?”

The answer:

At that hour, I think the first thing I’d do is I had this running debate whether I’m going to look at the prices first or I’m going to look at my P&L first, because I’m always expecting. So I’m just thinking “oh lord, just please let the be a slow transition. Nothing dramatic — that while I’ve been sleeping something really bad has happened.” so sometimes I look at the prices and sometimes I go look straight at my P&L. So that’s the first thing I do.

What I’m thinking at that point in time is has there been any significant change that I was anticipating when I went to sleep? And it’s a good day when there’s no – when there’s nothing significant. If it — another time, another thing that you’re always doing is — particularly if you’ve got global positions is what economic releases have come out that are going to be impacting your prices? So I’m always thinking about that.

And according to Jones, his nights are about to get much more nervous because he expects a volatility explosion to hit shortly. Asked by Sorkin what is his single best (and worst) investment right now, the hedge fund legend responds that “I’m literally as light as I’ve been. I can’t remember how many years it’s been since I’ve been this light” meaning “I don’t have a lot of macro positions on right now because I think the reward risk in a variety of things has diminished at this point in time. I like to have significant leverage positions when I think there’s an imminent price move directly ahead.”

What exactly is PTJ waiting for?

His answer: “there’s a lot I’m waiting for. I think the third and fourth quarter are going to be phenomenal trading times. I have a feeling we’re getting ready to go into a summer lull.“

Of course, by phenomenal trading times, one usually suggests a surge of volatility, which tends to have a negative impact on risk assets; here Jones – best known for timing the 1987 crash – predicts that a crash may come, but not immediately. In fact, when asked what he thinks will happens in Q3 and Q4, Jones answer nothing short of a repeat of 1987, only instead of a drop in stocks, he expects a melt up first in both stocks and yields… which will then be followed by a crash once the Fed ends the party:

I think you’ll see rates go up and stocks go up in tandem at the end of the year. If you ask me to kind of think of some analogy, I would pick 1987 in the U.S., not necessarily saying we’re going to have a crash but a time when you had a budget deficit, and you had stocks and rates going up for a period of time. 1999 in the U.S., that one also jumped to my mind when things got crazy the end of the year. 1989 in Japan. Again, they had strong fiscal monetary pulses that worked their way through the stock market. So I could see things getting crazy particularly at year end after the midterm elections. I could see them get crazy to the upside.

Finally, here is what Paul Tudor Jones believes will end the party:

We’ve got buybacks right now that are kind of, speaking of Arnold Schwarzenegger – they’re like the Terminator, they don’t stop. And we’re retiring equity as a percentage of total market cap and at unprecedented rate this year. Rates have got to go up enough to either shut the economy down and overwhelm from real money selling like we had ’07 – those buybacks — or to make it economically less compelling for companies to issue debt and buyback stock. This is real simple.

Indeed it is, and is precisely what we said in February in “Day Of Reckoning” Nears As Goldman Projects A Record $650BN In Stock Buybacks.”  The question is what interest rate will finally kill the Terminator unit known as Buyback 1 Trillion (2018 edition). But ultimately it really depends on just one thing:

“I think this is going to end with a lot higher prices and forcing the Fed to shut it off.“

* * *

Paul Tudor Jones’ key CNBC interview excerpts below:

Jones on key market drivers:

Sorkin: let’s look more broadly just for a moment just as a macro trader in terms of the way you look around the world, the way you look at growth around the United States. You’ve talked about a potential bubble emerging. Are you still in the same place?

Tudor Jones: I think that there’s three things that are kind of driving the world today, and they all start and end here in the United States. The rest of the world — I can’t remember a time when things are as kind of boring as they are. Right? Western Europe somewhat static policy there, even though we’re going to talk about the end of QE. Japan’s been relatively unimaginative in what they’re doing in the economic situations. Same thing with China. You have some idiosyncratic stories in emerging markets, Brazil and Mexico and Turkey. But where the action is is here in the United States and that’s ‘cause you’ve got three things that are kind of pushing the prices and all the asset classes. And that’s first fiscal policy. And really fiscal profligacy. Monetary policy. And then, of course we have — and I would call it more of a trade irritant than a real trade problem. Even though you have to monitor that one closely because it can escalate.

On the threat of trade war

Sorkin: are you worried about a trade war?

Tudor Jones: you know – again, you have to put it in perspective, right? If we just look at our four biggest trading partners, we have a simple way to average a tariff of about 6%. We have one of 3.5% – or 3.5%. So there’s a 2.5% gap in unfairness, right? If what the president was trying to do was just to normalize the tariffs, it’d be 2.5% on we have a trillion and a half dollars of exports — it’s a $40 or $50 billion problem in an $87 trillion world economy. The danger would be that he’s just not trying to equalize the playing field and equalize the tariff discrepancy. The danger is that he’s trying to do away with the bilateral trade deficits country by country. And there’s a problem with that. Because we’re running a structural budget deficit. If you just balance the accounts that — typically the way that balances is you run a trade deficit to do that. So on the one hand we had this massive budget deficit that the administration and congress has engineered. On the other hand, he’s trying to do away with bilateral trade deficits and the accounts don’t balance. So it could be dangerous if he’s focusing not just on trying to get free and fair trade but to actually do away with that bilateral trade deficit. Because it’s actually jamming a square peg in a round hole.

On the Fed far behind the curve:

Sorkin: The Fed is expected to raise interest rates later this week. If you were running the fed right now, what would you do?

Tudor Jones: I think rates would be 150 basis points higher right now. And that’s – it’s where they should be. We’ve got 3.8% unemployment and negative real rates. And we have a 5% on the way to a 7% budget deficit. The last time that we had the unemployment rate where it is now was 2000. And we are running a budget surplus at that time of 2.5%. We were talking about bond scarcity at that time. And now we have the exact opposite/ so we’ve got fiscal policy that literally came from another galaxy and we have monetary laxity. And that brew is what has got the stock market so jacked up.

On what he fears when he wakes up.

Sorkin: when you wake up, you wake up at about 3:00 in the morning and check the london markets every morning. What are you thinking about over the past couple of weeks? What’s been the issues that have consumed you at that hour?

Tudor Jones: At that hour. I think the first thing I’d do is I had this running debate whether I’m going to look at the prices first or I’m going to look at my P&L first, because I’m always expecting. So I’m just thinking “oh lord, just please let the be a slow transition. Nothing dramatic — that while I’ve been sleeping something really bad has happened.” so sometimes I look at the prices and sometimes I go look straight at my p&l. So that’s the first thing I do. What I’m thinking at that point in time is has there been any significant change that I was anticipating when I went to sleep? And it’s a good day when there’s no – when there’s nothing significant. If it — another time, another thing that you’re always doing is — particularly if you’ve got global positions is what economic releases have come out that are going to be impacting your prices? So I’m always thinking about that.

On his best/worst investment and how he is timing the next move:

Sorkin: Which single best investment that’s working for you right now? And single investment that maybe hasn’t worked for you the way you thought?

Tudor Jones: probably right now, in my position, I’m literally as light as I’ve been. I can’t remember how many years it’s been since I’ve been this light.

Sorkin: meaning you’re most in cash?

Tudor Jones: meaning I don’t have a lot of macro positions on right now cecause I think the reward/risk in a variety of things has diminished at this point in time. I like to have significant leverage positions when I think there’s an imminent price move directly ahead. I don’t like having positions and is probably a fault of mine at times just because I think ultimately interest rates are going up or I think ultimately the dollars going to go higher. I’d much prefer to be leveraged right at that point when they move the most so I’m not subject to unexpected events  overnight or over the course of weeks or months.

Sorkin: is there something you’re waiting for?

Tudor jones: There’s a lot I’m waiting for. I think the third and fourth quarter are going to be phenomenal trading times. I have a feeling we’re getting ready to go into a summer lull.

Sorkin: summer lull? And what do you think is gonna happen in the third and fourth quarter, though?

Tudor Jones: oh, I think we’ll see –– I think we’ll see rates move significantly higher beginning some time late third quarter, early fourth quarter.  And I think it will interesting because I think the stock market also has the ability to go a lot higher at the end of the year.

Why he sees a spike in yields and stocks, and why the US economy reminds him of 1987:

Becky Quick: You made a couple of comments about the broad market earlier. You said you think we may be headed into a summer lull right now but that you do think in the third and fourth quarter it will get more interesting and interest rates, you think are going to go much higher. You also said you thought stock prices have the potential to go much higher at the end of the year too. And I just wondered if you could tell us why. Because normally when people say interest rates are going to go up sharply, that that could act as gravity on stock prices. Why do you think they both go up?

Tudor Jones: Let’s just put things in perspective where interest rates are. We have negative rates. If you go look at what has shut off the stock market historically, it’s been real rates on the something in the neighborhood of like 200 basis points. We’re negative right now. So when you’ve got a lot of tech companies growing at 20% per year, who cares about a hundred basis points? Who cares, right? So I think you’ll see rates go up and stocks go up in tandem at the end of the year. If you had to — if you ask me to kind of think of some analogy — I would pick 1987 in the U.S., not necessarily saying we’re going to have a crash but a time when you had a budget deficit, and you had stocks and rates going up for a period of time. 99 in the U.S., that one also jumped to my mind when things got crazy the end of the year. 1989 in Japan. Again, they had strong fiscal monetary pulses that worked their way through the stock market. So I could see things getting crazy particularly at year end after the midterm elections. I could see them get crazy to the upside.

The market as Arnold Schwarzenegger: “all roided up”:

Sorkin: crazy to the upside. But you’ve been talking about a bubble in the equity markets as well on the downside.

Tudor jones: All right. You’re too young because you’ve never seen this movie “Pumping iron”…

Sorkin: This is the Arnold Schwarzenegger movie. I know the movie.

Tudor Jones: So Arnold, right, the guy just looked flipping amazing in it, but he was roided out of his brains. Right? And so that’s not sustainable. So here we’ve got negative real rates. We’ve got interest rates that again look unlike anything that we’ve seen in the stock market top before and we’ve got a 6% budget deficit during peace time with 3.8% unemployment. So yes I think this is going to end with a lot higher prices and forcing the fed to shut it off. And yes, the reason I picked a couple of those years is if you look at the stock market relative to gdp, we’re at levels that historically in some other countries led to a blowoff and some type of economic contraction. And we’ll probably go through the same thing. It’s an old story. We’ll probably play it again.

Sorkin: but what are you looking for as the top then? Or the tipping point?

Tudor jones: We’ve got buybacks right now that are kind of, speaking of Arnold Schwarzenegger – they’re like the terminator, they don’t stop. So — and we’re retiring equity as a percentage of total market cap and at unprecedented rate this year. Rates have got to go up enough to either shut the economy down and overwhelm from real money selling like we had ’07 – those buybacks — or to make it economically less compelling for companies to issue debt and buyback stock. This is real simple.

* * *

Full interview below:

Watch CNBC’s full interview with Paul Tudor Jones from CNBC.

via RSS https://ift.tt/2MkXrGb Tyler Durden

Authored by Fred Dunkley via SafeHaven.com,

Welcome to the demilitarized zone between North and South Korea, where real estate prices are reportedly skyrocketing as peace-profiteering makes an outsized bet that the unlikely trio of Donald Trump, Kim Jung-un and Dennis Rodman will end the nuclear threat and render the DMZ the place to be.

From February to March this year, land deals in Paju more than doubled, according to South Korean government data cited by Reuters, and it’s enough to outshine the trendy Seoul neighborhoods, like Gangnam.

Paju, located at the 38th parallel and right on the border with North Korea and the home of a strategic South Korean military base, is considered the gateway to the United Nations’ ‘truce’ village of Panmunjom—and then to North Korea itself.

(Click to enlarge)

And it’s turning into a major tourist attraction, land mines and all.

(Click to enlarge)

Source: YouTube

From Paju, visitors can hit up the Dora Observatory and view North Korea from binoculars. But while now it’s just a game of peeping Tom, if peace descends on the region, Paju may end up being the hub for a new, much more hands on type of tourism. At least that’s what investors are betting on.  

Past bundles of razor wire, reinforced fences, and guard posts, can be made out the cluster of gray, blue and salmon buildings which make up the Kaesong Industrial Complex.

According to the Wall Street Journal, while farmland in the DMZ could be found for about $2/square foot back in February, in May it was already over $5/square foot, in some places, and $13 in others.  

Now, with many believing that peace is just around the corner, the DMZ is experiencing a run on property, with a property agent in Munsan near the border who noted that even properties “riddled with landmines” had risen 100 percent.

Reuters cited a South Korean dentist near Paju who has acquired eight separate lots just since mid-March, bringing his total DMZ investment to 49 acres worth an estimated $2.8 million. And he bought them without seeing them.

But real estate sales can be fickle, with on-again-off-again. When Trump cancelled the June 12 summit earlier this month, no one moved on real estate, but when it was reinstated only days later, the run on real estate renewed.

And the DMZ between North and South isn’t the only swathe of land that’s on investor radar right now.

Real estate prices in the Chinese town of Dandong, on the border with North Korea, saw a 2-percent jump in prices from March to April, according to Quartz, citing Chinese official data.

New property sales in the town are almost double what they were a year ago, outperforming China’s biggest cities.

(Click to enlarge)

Source: Quartz

Investors are likely hoping that all hope does not rest solely on Trump, Kim and Rodman.

Indeed, there have been other signs of potential peace, as well.

In May, those interested in the potential real estate bonanza perked their ears up when South Korean Hyundai said it was considering relaunching projects in North Korea and was in the process of setting up a task force to that end.

There are also signs that North Korea could be ready to consider liberalizing a bit and loosening its stranglehold over business, including reports suggesting that some reformist politicians have arisen under Kim. Chief among them is said to be Pak Pong Ju, former North Korean premier, now responsible for the economy.

In the meantime, the real estate push is a gamble, but if peace does eventually come out of the Singapore summit or, more likely, efforts by South Korea and pure desperation on the part of Pyongyang, investors who got to the DMZ first could be sitting on a very nice profit margin.

via RSS https://ift.tt/2Jw1H82 Tyler Durden

After being panic bid for the last few days, TSLA shares are rolling over (but still up) after announcing a 9% across-the-company cut of the salaried workforce.

Tesla is careful to confirm that no production associates are being fired and it will not affect the Model 3 production targets.

Bloomberg reports that Musk wrote in an internal memo Tuesday that Tesla’s rapid growth in recent years contributed to “duplication of roles” and the creation of jobs that the company could no longer justify.

“Given that Tesla has never made an annual profit in the almost 15 years since we have existed, profit is obviously not what motivates us,” Musk wrote.

“What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable. That is a valid and fair criticism of Tesla’s history to date.”

We are sure all those who are being laid off are pleased to note that Musk is busily pitching his flamethrowers’ success…

For now, the stock is fading off early highs…

 

Additionally, Short interest in Tesla, the most bet-against stock in the US, hit a new record this week of $12.6 billion, according to data from financial analytics firm S3 Partners. That’s a 17% increase since May 21, when the previous record was nearly $2 billion less, at $11 billion.

And this is what a short-squeeze looks like…

via RSS https://ift.tt/2HIkcAi Tyler Durden

The last few years have seen the so-called FANG stocks (Facebook, Amazon, Netfliz, & Google (Alphabet)) have dominated the markets…

Which has dragged technology stocks to dot-com peak levels relative to financials…

 

And this momentum has done what it always does – spark mom-and-pop to chase the quick buck as Tech stocks have seen record inflows as they have emerged as the “defensive growth” sector of the late market cycle…

But while ‘average joe’ is busily loading up on hyper-valued tech in his 401k like never before, insiders at the FANG stocks have been puking their own shares at a record pace this year…

Senior executives and directors of Facebook, Amazon, Netflix, and Google parent Alphabet have dumped $4.58 billion of stock this year, according to data compiled by Bloomberg. They’re on track to exceed $5 billion for the first six months of 2018, the highest since Facebook went public in 2012.

Jonathan Moreland, director of research at InsiderInsights.com, which analyzes such transactions.

“If they continue to sell into weakness, then that’ll be a strong indicator of insider sentiment,” Moreland said in a phone interview.

During the tech bubble two decades ago, “the real tell was in the early aughts when the stocks were down 20, 30, 40 percent and insiders were still selling.”

This massive insider-selling in the market-driving FANG stocks confirms the recent warning from the SEC Commissioner about insiders selling stocks into their company’s buyback programs…

First, the percentage of insiders selling shares more than doubled immediately following their companies’ buyback announcements as many of the stocks popped.

Daily stock sales by the insiders rose from an average of $100,000 before the buyback announcements to $500,000 after them. The sellers received proceeds totaling $75 million more than had they sold before the announcement, the study concluded. At 32% of the companies, at least one insider sold in the first 10 days after the buyback announcement.

Second, the study found that in the days leading up to share repurchase announcements, the companies’ stocks underperformed the broader market by an average of 1.4%. During the 30 days after the announcement, the companies’ stocks outperformed the overall market by an average of 2.5%.

So who is the real sucker at this table? If you don’t know by now… it’s you!!

Because the smart money is bolting for the exits…

The Smart Money Flow Index (SMFI) is a leading-indicator in markets. That means when the SMFI drops sharply, usually the equity markets are right behind it.

And we haven’t seen the SMFI drop this much since the Great Recession of 2008 and the 2001 Recession. . .

via RSS https://ift.tt/2JDJBNf Tyler Durden

The Dollar is spiking after Dow Jones reports that Fed Chair Jay Powell is looking at following all Federal Reserve Meetings with a press conference.

And that means every meeting is live…

For now we are watching for a reaction in the interim date odds.

via RSS https://ift.tt/2JHERq5 Tyler Durden