Month: November 2018

Via Bloomberg’s Richard Breslow,

We’ve been told for months that this vote will matter more than most, not just for the U.S. but for the rest of the world. We are here and now. Give us a couple of quiet days to start the week and all of a sudden we are now getting variations on, it won’t really have much of an effect or, my least favorite, the “base case” is all priced in.

Whatever markets choose to do, or not do, between now and the near future, nothing is priced in but some overly simplified assumptions of potential outcomes. Even if you were to look at the upcoming vote only through the blinkered eyes of financial market chauvinism, it’s a dangerous conceit to declare that the show’s over folks and it is time to move on.

Of course, what makes this particular election unique is that despite some pretty strong numbers, and a wonderfully low unemployment rate, it isn’t about the economy, stupid. If it were, we wouldn’t be looking at so many races that are too close to call.

In the run-up to the vote, volumes are running low and ranges have been nonthreatening. That shows traders are more nervous than usual but not much else.

What is more useful is to look at what price is being commanded through overnight options to compensate for the perceived headline risk. It’s worth looking at because, barring the completely unexpected, these instruments often have an uncanny ability to contain, or at least slow, the price action. Makes sense because we know some business will be transacted at these levels. And they can, as a result, end up being nice intraday chart points that get revisited.

Ten-year U.S. Treasury futures are currently pricing around 8 basis points for the straddle.

For context, they went into last Friday’s non-farm payrolls report at 5 basis points. The cash yield is currently just shy of 3.20%, and that strikes me as pretty clever pricing given the meaningful support and resistance levels.

It would take some awfully big news to smash through either side on a first go around. And remember, no one thinks this week’s FOMC meeting will be a rates game changer.

To get a look at the euro through the event, you would have to pony up just over 70 pips worth of premium. That’s a price tag we haven’t seen since earlier this past summer. And certainly doesn’t feel like the holiday sales are upon us. The downside exposure drops you right into the teeth of hefty support and the upside is playing for a break-out from an area we have seen supply before. If this straddle pays off, we could be in for some fun, he said as Italian BTPs just made a new low on the day.

Now here’s the tough one. The cost for the SPDR S&P 500 straddle is roughly 2%.

At first blush that seems high, but after further review from the replay booth known as my chart pack, it looks reasonable. After October, emotions are running high in the equity markets. We find ourselves this morning sitting right on top of the 38.2% retracement level of the move down that started October 3rd.

Momentum off the lows from Oct. 29 looked good but has since stalled. We are going into this event, I imagine not coincidentally, at a very important technical level, with room to move in either direction.

Whatever happens after the fact, don’t let anyone tell you it was all obvious. Consensus base cases or not.

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The mainstream media, or MSM, has been furiously backpedaling on grand prognostications of Democrat victory in Tuesday’s midterms. Talk in April of a “blue wave” ran out of steam mid-summer, with MSM prognosticators shifting tone to assure audiences that “well, Democrats will surely take the House.” 

Now, they’re not so sure about that either. 

As Politico reports, CNN and other networks are determined not to be caught flat-footed like they were in 2016, warning their journalists and editors to prepare for any outcome.

CNN Washington bureau chief Sam Feist has spent a lot of time talking about the race in Kentucky’s 6th Congressional District. A lot.

His team at CNN — including anchors, reporters, producers, chyron writers, alert senders and pretty much anyone else whose hand touches election night coverage — has rehearsed 16 scenarios of what might happen in Tuesday’s midterms. A red wave, a blue wave, a purple ripple — all have been covered in the run-throughs, which play out hypothetical election nights in real time. Some have stretched six, seven, eight and even nine hours long. –Politico

At the end of the day, CNN’s Feist admits “I have no idea what’s going to happen,” adding “We’re ready for every outcome.” 

The Washington Post‘s national editor Steven Ginsberg, meanwhile, has encouraged reporters and editors to “embrace not knowing” what’s going to happen on Tuesday – while the New York Times is drilling “prepare, prepare, prepare” into their journos according to politics editor Patrick Healy – who has told them to keep their “eyes wide open for a number of scenarios.” 

Even Democratic pollster Nate Silver, pictured above, has gone from 88% sure in November that Democrats would win the House, to “anything can happen.” 

Never again

As Politico notes, the media’s premature celebration at a Hillary Clinton victory was a major embarrassment across the industry – one which outlets are desperately seeking to avoid. 

Two years ago, the media was pilloried for giving viewers and readers the impression there was little chance Hillary Clinton could lose and, worse, for “missing” the Trump phenomenon. Conservatives mocked the reactions of television anchors as his victory became apparent. This year, editors and executives from the Times, Post, CNN, NBC, ABC, CBS and Fox News all told POLITICO that they will be prepared for any outcome — and will make sure their readers and viewers are, too.

Marc Burstein, ABC News senior executive producer of special events, acknowledged “there were assumptions made in 2016 by lots of news organizations,” a trap he intends to avoid this time around. “We’re going to be nimble. We’re going to follow the results,” Burstein said. “We’re not going to assume anything.” –Politico

According to Chris Stirewalt, political editor at Fox News, was that many news organizations simply dismissed the notion that Trump could win, even as polls indicated he had a 20% chance of victory. “If somebody told you there was a 1 in 5 chance that an airplane was going to crash, you would not get on the airplane,” said Stirewalt – who added that news organizations should take care not to prime their audiences for any outcome. 

“I’m sort of like the weatherman,” he said. “I’m not in control of the storm. But I can tell you where on the map it’s likely to go.” 

Rashida Jones, senior VP of specials for NBC News and MSNBC echoed other network executives in their warnings against predictions – telling Politico that the strategy for Tuesday is simply to “guide the viewers through a big night” while “being focused on telling them what’s happening in real time”

“Where we are now is just so different from four, eight years ago,” says The Post‘s Ginsberg regarding the past two midterm elections, adding that the “takeaway from 2016 is that we should be careful about the metrics we use to judge election results.”

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WTI Crude futures are down 20% from their early October highs, with the front-month contract back to a $61 handle at its lowest level since April.

As more details emerged of US sanctions exemptions and the US-China trade war stoked concerns over slowing global growth that underpins energy consumption, WTI has plummeted…

WTI is down 7 days in a row. Every big figure on the way down saw technical support/resistance…

“The U.S. has for now given a lifeline to Iran,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland.

“The end result of the sanctions is softer than expected. The final outcome of the sanctions also confirms the political fear of high gasoline prices.”

Meanwhile, after the close today, API will report U.S. crude inventories – which are forecast to have risen a seventh week.

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The Wall Street Journal has just published a new report on the state of affairs within Under Armour as the sports-apparel company goes through the process of “grappling with concerns about the treatment of women in the workplace.”

Otherwise known as the #MeToo movement, WSJ exposes the male-dominated culture at the Under Armour Global Headquarters in Baltimore, Maryland, that allowed Chairman and Chief Executive Kevin Plank, along with other executives to use company credit cards at strip clubs and host wild parties at his farm, all on the shareholder’s dime as the stock crashed.

According to WSJ sources, executives and employees, including Plank, went with athletes or co-workers to Baltimore’s best strip clubs after corporate and sporting events, and the company often footed the bill.

“Strip-club visits were symptomatic of practices women at Under Armour found demeaning,” according to the WSJ report of more than 12 current and former employees and executives.

Some of these sources said top male executives violated company policy by misbehaving with strippers. They even said women were invited to annual company events based on attractiveness.

In response to inquiries about the company’s out of control, male-dominated culture, Plank said in a statement:

“Our teammates deserve to work in a respectful and empowering environment. We believe that there is systemic inequality in the global workplace and we will embrace this moment to accelerate the ongoing meaningful cultural transformation that is already underway at Under Armour. We can and will do better.”

Kelley McCormick, senior vice president of corporate communications at Under Armour, said the company did not approve the use of adult entertainment for business and denied that Plank conducts business at strip clubs.

Current and former executives said many top spots in the company were filled with friends of Plank, and most women did not get a fair chance at climbing the corporate ladder.

“The industry has a problem, but Under Armour is truly culturally anemic,” said Drew Greer, a former Under Armour vice president who said he previously worked at Nike for more than a decade. He was one of the few black men in a senior role at Under Armour in 2015, where he worked for six months.

WSJ notes that Plank’s brother Scott, one of the company’s first employees, quietly left in 2012 amid allegations of sexual misconduct, according to WSJ sources.

Kip Fulks, Under Armour’s co-founder and a longtime executive, violated the company policy when he had a romantic relationship with a subordinate. Fulks stepped down from his role as chief product officer and was named a strategic adviser in May 2017.

SEC filings did not give a reason for the change. In October 2017, Fulks left the company to go on leave.

“We have addressed these serious allegations of the past and will continue to address workplace behavior that violates our policies,” McCormick said. Fulks and Scott Plank “no longer work here, and we have no further comment,” she added.

Former employees said Plank hosted wild parties for “executives, athletes, and VIP guests” at his Sagamore Farm, located at 3366 Belmont Ave, Reisterstown, Maryland. Managers invited young female employees based on attractiveness, according to WSJ sources — a practice the event managers called “stocking the pond.”

Plank did not hold the event this year. “This characterization misrepresents the tasteful nature of the annual Preakness party, which included teammates and significant others, partners, athletes and public officials,” McCormick said.

WSJ notes that Under Armour sent an email to its employees earlier this year, informing them that the “longstanding” company practice of expensing work visits to the strip club would no longer be allowed.

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Authored by Joseph Jankowski via PlanetFreeWill.com,

Hundreds of now deceased people have been found to be still eligible to vote in LA county with one dead man voting in multiple elections years after he died.

An investigation conducted by David Goldstein of CBS Los Angeles discovered 561 people who are now dead are registered as active voters in LA County.

A 2016 Goldstein investigation found the names of 906 dead people still registered to vote in L.A. County.

After inputting those names into the county registrar’s voter verification website to see how many are still eligible to vote in Tuesday’s election, CBSLA discovered 561 people who are dead but still registered to vote.

And it wasn’t people who just recently passed away – they died at least five years ago.

Of the dead registered voters, 336 were listed as Democrats, 173 were Republicans and 52 had another party or no party affiliation, reports the local CBS affiliate.

Records show that at least 17 of these deceased voters casted support for a candidate in 2016.

One deceased name that showed up in the records, Ralph Howey, was found to have voted in 2010, 2012 and 2014, despite having passed away in 2009 at the age of 104.

“I’m a little shocked,” said one Los Angeles man who witnessed an official mail-in voting pamphlet addressed to his mother. “My mother passed away approximately eight years ago.”

CBS Investigator David Goldstein says the dead voter issue in LA, which he exposed in 2016, is “still happening.”

While the county registrar claims to have purged more than 100,000 dead registered voters since Goldstein’s report two years ago, it is clear there still is a risk of dead voters skewing election results in LA County.

The question now is, how how big is the risk of dead votes effecting elections nation wide?

With a report out of Ohio showing that residents are finding the names of deceased neighbors in voter registries, you can only expect that this is happening everywhere.

Republicans and Independents sure better hope Ted Cruz isn’t right…

Hollywood liberals all in for Beto. But (self-described socialist) Jim Carrey made a mistake here: Vampires are dead, and everyone knows the dead vote Democrat…. https://t.co/pz2g4RYmMp

— Ted Cruz (@tedcruz) November 5, 2018

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While European bond traders have been focused on the escalating standoff between Italy and Brussels over Italy’s budget-busting deficit proposal, which culminated this morning with EU’s Dombrovskis warning that the European Commission is considering a sanction procedure against Italy if the budget does not change – even as Italy has sternly refused to change the budget – this morning the head of Fitch’s sovereign ratings, James McCormack, warned that uncertainty involving Italy’s coalition government is as great a risk for BTP investors as the budget for the simple reason that the government may not survive as its members are “too  different.”

Speaking on Bloomberg TV, the Fitch strategist said that there are not many things that the coalition partners agree on, and that raises questions about the government’s survival.

“We are not convinced that this coalition government is actually going to survive. It has very different coalition partners” and there are “not many things that they agree on”, McCormack said.

“Then the question becomes: what happens then? Political uncertainty is not finished in Italy,” he added, expecting Italian political fireworks to continue well into 2019. As a reminder, there is a November 30 deadline for the Italian budget to be approved by European Commission, which then has to pass Italy’s parliament by December 31, with an April 30 “Plan B” extended deadline for Italian approval.

The Fitch analyst also said that if yields on Italian bonds go higher – whether with the active involvement of the ECB, which can be quite convincing as Berlusconi recalls all too well, or without – “this could force the Italian government to think of a different strategy.”

The silver lining to McCormack is that there hasn’t been a blowout in debt-to-GDP, yet: “the debt dynamics are not great, because we are not seeing declining debt. But the debt is not increasing. The debt is pretty stable. It’s high, but it’s stable.”

That will change if the Italian budget passes, as proposed. Which is also why the European Commission will not allow it to happen.

As Bloomberg notes, this means the Italian bond drama could drag on well beyond the budget standoff deadline and volatility may rise as the market deals with two-way risks. Furthermore, if this government collapses in the near future, it would not mean the end of fiscal challenges for Italy. On the other hand, the coalition cabinet has little choice: with Italian growth so weak, it’s not clear if any government can stick to the EU’s budget rules given potential economic and social costs.

Which is why Salvini, Di Mateo and company are trapped, are damned if they cut the deficit, damned if they don’t.

The market is starting to realize this, and the BTP yield spread is edging back toward 300 bps, which is already 1.35% above the five-year average.

The one thing Italy has going for it, is that its debt-to-GDP ratio, while high, has been steady around 133% over the past five years (if still the highest in Europe after Greece).

But that can change with this or another government. As Bloomberg concludes, “with the EU’s Moscovici raising pressure on the budget, the situation might get much worse before it gets better.”

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After the Job Openings and Labor Turnover Survey (JOLTS) reported record prints for virtually every notable labor market series last month, in September there was a modest easing across the board.

According to the BLS, after an upward revision in the August job openings from 7.136MM to 7.293MM, a record high, in September this number tumbled by 284K to 7.009 million, the biggest monthly drop since May 2017.

Despite the job openings drop, this was still the 3rd consecutive print above 7 million, confirming how labor-starved US employers are, and the 4th consecutive month in which there were more job openings then unemployed workers: considering that according to the payrolls report there were 6.075MM unemployed workers in October, there is just under 1 million more job openings than unemployed workers currently, a modest drop from last month’s record 1.2 million (how accurate the BLS data is, is another matter entirely).

In other words, in an economy in which there was a perfect match between worker skills and employer needs, there would be zero unemployed people at this moment (of course, that is not the case.)

According to the BLS, rhe number of job openings edged down for total private (-188,000) and fell in government (-96,000). Job openings increased in health care and social assistance (+71,000). The number of job openings decreased in many industries, with the largest decreases in professional and business services (-118,000), finance and insurance (-82,000), and state and local government, excluding education (-67,000). The biggest drop in job openings was observed in the South region.

Adding to the exuberant labor picture, while job openings remained above total unemployment, the number of total hires also remained surprisingly high, if also dipping slightly from record highs, and in September it printed at 5.744 million, down from an upward revised, and all time high, 5.906 million in August.  According to the historical correlation between the number of hires and the 12 month cumulative job change (per the Establishment Survey), either the pace of hiring needs to drop, or else the number of new jobs will rise significantly in the coming months.

A similar easing was observed when looking at the number of quits – or the so-called “take this jobs and shove it” indicator – which shows worker confidence that they can leave their current job and find a better paying job elsewhere. In September, one month after hitting an upward revised all time high, there was a modest, -47,000 dip to 3.601 million in September, further confirmation that Americans are increasingly confident in their job prospects should they part ways with their current employer.

Putting all this in in context:

• Job openings have increased since a low in July 2009. They returned to the prerecession level in March 2014 and
  surpassed the prerecession peak in August 2014. There were 7.0 million open jobs on the last business day of
  September 2018.
• Hires have increased since a low in June 2009 and have surpassed prerecession levels. In September 2018, there
  were 5.7 million hires.
• Quits have increased since a low in September 2009 and have surpassed prerecession levels. In September 2018,
  there were 3.6 million quits.
• For most of the JOLTS history, the number of hires (measured throughout the month) has exceeded the number of
  job openings (measured only on the last business day of the month). Since January 2015, however, this relationship
  has reversed with job openings outnumbering hires in most months.
• At the end of the most recent recession in June 2009, there were 1.2 million more hires throughout the month than
  there were job openings on the last business day of the month. In September 2018, there were 1.3 million fewer
  hires than job openings

 

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Since Nov. 9, 2016, it seems, every political poll has called for Democrats to exact their desperately needed revenge on President Trump and his Republican ‘Party of Trump’ during the 2018 midterms. Of course, the historical precedent is solidly in their favor. While factors like the economy and stock market loom large in the minds of voters, the trend shows that midterm elections are often a wash for the president’s party. But Trump isn’t exactly the typical US president, and his 2016 victory was a repudiation of the status quo. And while his name may not be on the ballot, Trump has encouraged his followers to vote as if it was. To wit, the brutal campaign season culminated with the president holding 11 rallies in 8 days to whip up support for Republican candidates in battleground states and districts across the country and ensure maximum turnout among his base.

Early voting totals suggest that this approach is already yielding results. Enthusiasm among Republican voters surged during October as Democrats’ lead in the polls narrowed, something that pundits have attributed to the contentious confirmation battle of SCOTUS Justice Brett Kavanaugh and anxieties surrounding the migrant caravans making their way toward the US border.

Of course, Democrats have been doing everything they can to get out the vote, since historical data suggest that a higher turnout typically benefits Democratic candidates. Their efforts have helped yield the highest early voting turnout in recent memory. Still, at least one major poll – Rasmussen – is calling for Republicans to retain control of the House and Senate. This is significant because Rasmussen was the only shop to accurately forecast Trump’s upset win in 2016.

(Poll courtesy of RealClearPolitics)

In any case, the polls are actually closer than the headlines would have voters believe. According to the betting website predictit.org, the base case for Democrats taking the House, but the Republicans retaining the Senate, has been assigned odds of around 60%. The odds that the Republicans hold both chambers is around 30%, and the odds that the Democrats take both chambers is a piddling 10%.   

So, what are the implications for policy and markets if Republicans hold the House and expand their majority in the Senate? It’s a scenario that ING is calling “Trump Unbound”. A brief overview is sketched out in the flow chart below. In short, expect Trump to “double down” on his “America First” policies, including more hard-line immigration and trade policies, more tax cuts and expanded fiscal spending.

But in a more detailed explainer published on Tuesday, Bloomberg delves into more detail, in the following summary:

• Two years ago, pollsters got it wrong on Hillary Clinton.
• If Republicans hold on to both chambers, Trump will take all the credit and he would deserve it. The president did 11 rallies in eight states over six days to stir up his voters, leaning on immigration and painting Democrats as coddling law-breakers.
• Trump unbound: He still would have both houses of Congress, but more than that, would say his unorthodox approach worked. He and his advisers will feel ever freer to “let Trump be Trump.”
• Democratic despair could not be overstated: Why can’t we stop this guy?
• Trump gets the government shutdown he’s long wanted over the border wall on Dec. 7

To this list, we’d like to add one more: If the Republicans win despite the best efforts of grassroots Democrats, expect an explosion of political unrest as leftists around the country take to the streets in protest – potentially triggering a wave of political violence – as Trump begins the push for some of his most-hated (by Democrats) policy proposals, including authorizing the construction of a wall across the US’s southern border.

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Italy’s populist interior minister, and de facto most important politician, Matteo Salvini has continued his assault on what he views as Italy’s biggest problem, and is expected to drastically cut the daily allowance for migrants in Italy, claiming the country could see save up to €400 million by 2019.

According to Il Giornale, the proposal would slash by almost half the current daily allowance of €35 per day to only €19 per day, which would be one of the lowest rates in western Europe. And, according to the Interior Ministry, the cuts would lead to a saving of €400 million in 2019, rising to €500 million in 2020 and €600 million in the years thereafter, unlocking much needed budgetary savings for a country that remains l

The move would also be part of the broader migration and security decree released by Salvini in late September, which also banned residency permits for so-called humanitarian reasons. Migrants will now be classified into two groups: those with recognized asylum claims and those without according to the Italian press. Those with refugee status and recognized underage migrants will have broader access to funding and government programs.

Salvini, who came into power riding on a platform vowing to crackdown on the number of inbound refugees, has managed to greatly reduce the number of migrants coming into Italy by closing Italian ports to migrant rescue NGO vessels who have been accused in the past of co-operating with people smugglers.

Having dealt with the issue of migrants entering Italy illegally, Salvini has recently set his sights on deportations of existing illegals according to Breitbart. Earlier this week he announced a new plan to invest €12 million to fund the deportation of at least 2,700 illegals starting in February and ending in 2021.

As reported back in 2015, one of the arguments proposed by advocates of mass migration and open borders has been using mass migration to counter the falling birthrates in western European nations, helping to boost Europe’s flagging GDP.

Salvini has made his opposition to this so-called “replacement migration” argument clear, saying: “I believe that I’m in government in order to see that our young people have the number of children that they used to a few years ago, and not to transplant the best of Africa’s youth to Europe.”

Instead, and pulling a page out of China’s playbook, Salvini has trying to motivate Italians to have more children, with the government offering free farmland to couples having three or more children. It is unclear if this strategy has any hope of working in a nation in which two-thirds of young adults still live with their parents.

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