Month: November 2018

Apple crapped the bed last night after the close and spoiled the short-squeeze party but overnight jawboning (noise) suggesting progress on a US-China trade deal has prompted that to all be forgotten…

When we went to bed, assets showed little propensity to do anything with a reddish tinge. We wake up to screens that are awash in green and everything is awesome.

Now, as former fund manager and FX trader Richard Breslow notes, make a note of how assets responded. It’s a crib note for what to do as events develop. And should put paid to any arguments still floating around that a global supply chain under threat is a manageable and, measurable down to the basis point, economic event.

Via Bloomberg,

The moves today have been very impressive. Especially in Asia. But if you look at the intraday charts the speed of the moves pretty much means you either had the position or didn’t. There wasn’t any two-way business going on as the markets mostly repriced in a digital fashion. I can just imagine the witty repartee as clients called to ask where they got done on their stops.

This development does matter because it so clearly isolates one event from everything else going on in the world. Buying and selling plans need to be made at a different price than planned when you mapped out a post-non farm payroll or pre-midterm strategy. With the added complication of having to decide if you believe the world has indeed fundamentally changed.

• No one is talking about the Mexico City airport or today’s horrid Italian manufacturing PMI.

• Suddenly, the economic fundamentals in Turkey are of no import as the currency not only has made a new high for this move, but is putting some serious technical hurt on the shorts.

• And I can’t find anyone this morning saying equity price action reminds them of 1987.

The offshore yuan has wiped out a month of steady gains for traders who had been comfortably short, certain that the stops at 7 were guaranteed to be triggered.

They now have to contend with USD/CNH breaking two levels of support — the trend line at 6.89 and the 55-day moving average at 6.8840. Not to mention that the currency pair failed right at the 21-DMA when it was rallying before the news. You absolutely must keep your eye on how China trades in the immediate term. It’s too important not to be on your must-watch list and will drive many other trading memes.

When markets gap reprice like this, it’s best to give your technicals a little room to breath. With that in mind, the dollar index is back to testing support at 96. It’s a big level with chart points littered all around it. And whether it holds or not could very well define the low or high of the trading range until the next seminal news hits. The index has been very well correlated with USD/CNH.

Lots of assets seem to have headed straight back to previous breakout levels and you must check the charts to validate your working assumptions. Of note is the S&P 500 futures that got right back up to the 200-day moving average that was of such note on the way down. Made all the more relevant as the 21-DMA has chosen today to cross below that longer measure

One thing is for sure. These prices are not stable and volatility is not going away.

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Following a court’s decision to free American pastor Andrew Brunson in October, Washington has decided to lift sanctions on some Turkish officials.

Specifically, Turkey’s Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu, who were sanctioned for their roles in organizations responsible for the arrest and detention of Pastor Andrew Brunson, were removed from Treasury’s sanctions list early Friday.

The Lira is rebounding further on the news…

To 3-month highs…

Of course, we are sure people will decry this move as Trump ‘promised’ there was no ‘deal’ to have Brunson released; but given the fact that the sanctions were placed because of Turkey’s decision not to release him, this seems redundant.

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President Trump’s rhetoric about the organized ‘caravans’ of migrants plodding toward the US border has been nothing short of incendiary, as the president has threatened to send as many as 15,000 troops to the border to stop the mobs of “dangerous people” from entering the country. Among other claims, Trump hinted that he might ask soldiers to fire on the migrants if they start pelting border agents with rocks, and that he would be building “massive cities of tents” to house the would-be asylum seekers as they await their hearings in an effort to end the “abuse” of the US asylum seekers.

Well, apparently these remarks haven’t sat well with members of the caravan and their shadowy financial backers, because a group of 12 migrants, six of them children, have filed a lawsuit against Trump, claiming his efforts to beef up security along the border, and threats to deprive them of asylum, represent “shockingly unconstitutional” attacks on their rights, according to Fox News.

The Fifth Amendment stipulates that “no person… shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law.” And ironically, none other than former Supreme Court Justice Antonin Scalia helped cement these protections by ruling in a 1993 case that “it is well established that the Fifth Amendment entitles aliens to due process of law in a deportation proceeding.”

Twelve Honduran nationals, including six children, were named as plaintiffs in the lawsuit, which was filed Thursday in the US District Court in Washington, D.C. The lawsuit alleges that it is widely known that Guatemala, Honduras and El Salvador are enmeshed in an “undergoing a well-documented human rights crisis.” Furthermore, the suit claims that Trump cannot stop migrants from entering the US when they have a credible claim of asylum, according to the Washington Examiner. 

Here’s more from Fox:

The lawsuit points to Trump’s claim that he will prevent the caravan from entering the U.S. It claims that the president cannot stop asylum-seekers by employing the military – when they have a fair claim. The suit criticized the president’s attempt at stoking “fear and hysteria,” by claiming that criminals and gang members have joined the caravan.

The suit cited a Trump interview with Fox News’ Laura Ingraham, where the president laid out plans to build tent cities to house migrants. The suit questioned the functionality of such a project, and asked if these living quarters would qualify under the Flores Agreement of 1997. The agreement protects asylum-seekers’ rights and limits how long minors can be held.

Earlier this summer, a federal judge in California rejected a request by the administration to modify Flores to allow for longer family detention. Administration officials say they have the authority to terminate the agreement, but that is likely to be tested in court.

The suit also alleges that the US can’t send troops across the US-Mexico border to stop migrants from entering the US. It also argues that Trump can’t demand that asylum seekers present themselves at lawful border-crossing points, as US law states that an asylum seeker can declare their intention to seek asylum anywhere (the president said last week that he intends to issue an executive order declaring that asylum seekers declare at lawful border checkpoints).

Nexus Services Inc. is funding the lawsuits through a civil rights law firm called Nexus Derechos Humanos (Human Rights) Attorneys Inc.

“Federal law enables migrants to apply for asylum in the United States. President Trump and his administration have used ‘increased enforcement,’ like separating families and lengthening detention to violate migrant rights,” Mike Donovan, president of Nexus Services, said in the release.

There is another legal issue at stake, according to the lawsuit. The U.S. cannot send troops into Mexico to cut off the caravan from crossing the border. Even with the National Guard at the border, once an immigrant indicates an intention to apply for asylum, the process has begun.

The White House, Department of Justice and the Department of Homeland Security were all named as defendants in the suit. The lawsuit is seeking an immediate judgment for the plaintiffs and a court declaration that Trump’s border plan is unconstitutional.

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Authored by John Rubino via DollarCollapse.com,

The “public pension crisis” is the kind of subject that’s easy to over-analyze, in part because there are so many different examples of bad behavior out there and in part because the aggregate damage these entities will do when they start blowing up is immense.

But most people see pensions as essentially an accounting issue – and therefore boring – so it doesn’t pay to go back to this particular well too often. Still, New York City’s missing $100 billion can’t be ignored:

New York City Owes Over $100 Billion for Retiree Health Care

(Bloomberg) – New York City faces future health costs for its retired workers of $103.2 billion, an increase of $40 billion over a decade. It has about $5 billion set aside to pay the bill.

The so-called “other post-employment benefits” liability was disclosed in New York’s comprehensive annual financial report released by the city comptroller’s office Wednesday. The city’s $98 billion unfunded liability for retiree health care exceeds the city’s $93 billion of bond debt and $48 billion pension-fund shortfall.

“The numbers are huge,” said Maria Doulis, a vice president at the Citizens Budget Commission, a budget watchdog group funded by the business community. “If you’re looking at the big three liabilities, this is the one that’s problematic, because there’s nothing set aside to address this and there’s absolutely no strategy on the part of the city.”

New York, the most populous U.S. city, has almost 300,000 current employees and is responsible for more than 230,000 retirees and their beneficiaries. City employees with 10 years of service qualify for free retiree health care.

The city’s post-employment benefits include health insurance, Medicare Part B reimbursements, and welfare fund contributions. Medicare Part B covers doctors’ services that are received from a federally approved facility or a medical practice. Welfare funds are administered by unions and provide supplemental benefits such as prescription drug, vision and dental coverage.

New York City should address its retiree health-care costs by requiring beneficiaries to share the cost of premiums for health insurance, eliminating the reimbursement for Medicare Part B and reducing contributions to the welfare funds, according to the CBC.

“Forget the private sector, this free retiree health insurance is not a benefit offered in the public sector,” said Doulis. “They’re not taking up that challenge. Limiting the growth and cost of retiree health insurance has not been on the agenda.”

Unlike debt, which is limited by statute, nothing restricts the level of retiree health liabilities.

Money set aside for retiree health benefits has been used as a rainy-day fund by mayors during times of fiscal stress, said Doulis. The $5 billion the city currently has set aside is projected to last until 2026. After that, the city will fund benefits on a pay-as-you go basis. The city paid $2.6 billion in retiree health benefits last year.

Let’s look at the highlights:

“The city’s $98 billion unfunded liability for retiree health care exceeds the city’s $93 billion of bond debt and $48 billion pension-fund shortfall.” Which means the retiree health care deficit is in addition to the pension shortfall. These are separate problems totalling nearly $150 billion – for one city.

NYC’s retiree health care unfunded liability rose by $40 billion in the past decade. But, “It has about $5 billion set aside to pay the bill.” So two years of just the increase in this liability wipes out the money on hand to pay it. That sounds like a cash flow rather than an accounting issue.

“New York … has almost 300,000 current employees and is responsible for more than 230,000 retirees and their beneficiaries.” There must be a ratio of employees to retirees where the numbers stop working and the system breaks down. 1-to-1, which NYC is approaching, has to be near that boundary.

“City employees with 10 years of service qualify for free retiree health care.” That has to be a typo, because if it’s not, public sector workers have cut themselves a deal that we in the private sector can only dream of. Historians will have a field day with this one.

The point? While Chicago and California hog the “unfunded pension liability” spotlight, it turns out that good old New York City has quietly been accumulating unfunded liabilities sufficient to make them members in good standing of the “imminent bankruptcy” club.

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With a number that many warned would be impacted by not one by two hurricanes and as such the forecast range was extremely wide, from 105K to 253K, moments ago the BLS reported that indeed consensus was way off when it announced that in October payrolls soared by 250K, just shy of the highest Wall Street estimate, and more than double last month’s downward revised 118K (down from 134K).

And while the BLS reported that a whopping 198K workers were unable to work due to bad weather, what is curious about the number is that according to the BLS, “Hurricane Michael had no discernible effect on the national employment and unemployment estimates for October, and response rates for the two surveys were within normal ranges” indicating that the US economy, all else equal, is back to overheating, and the Fed may once again be well behind the curve.

The unemployment rate in October remained unchanged at 3.7%, as the number of employed workers soared by 600K to 156.562MM, while the number unemployed rose modestly to 6.075MM from 5.964M.

But the most important part of today’s report is that the increase in average hourly earnings jumped by 3.1%, in line with expectations and up from 2.8% in September. As we previewed overnight, this was the highest print since April 2009.

While much of this jump is due to calendar and base effects, the Fed will certainly pay attention to what it increasingly sees as an overheating economy. As a result, expect odds of more rate hikes in 2019 to jump accordingly.

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It seems it was ‘noise‘ after all, CNBC’s Eamon Javers confirms that The White House is admitting that “there is a long way to go” on a trade-deal with China… stocks and yuan are rapidly erasing their hope-strewn ramp…

NEW: A senior administration official tells me that the report president Trump is ready to cut a trade deal with China is not true. “There is a long way to go” on negotiations, the official said.

NEW: A senior administration official tells me that the report president Trump is ready to cut a trade deal with China is not true. “There is a long way to go” on negotiations, the official said.

— Eamon Javers (@EamonJavers) November 2, 2018

Stocks are tumbling…

And Yuan is dropping notably…

So was it just a ruse to juice stocks ahead of midterms? Surely not?

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Blain’s Morning Porridge, submitted by Bill Blain

“If the women in the factories stopped work for twenty minutes, the Allies would lose the war..”

I can’t help but wonder if Apple just had its Ratners’ moment?

(For anyone unfamiliar with the term Ratners’ Moment – it most famously occurred when the CEO of the then top UK high-street jeweller utterly destroyed the value of the company in a heartbeat with one carelessly chosen comment about the ultra-cheap ear-rings he was selling.)

Last night Apple decided to stop releasing numbers on how many of each of its “bright-shiny-things” it sells. In that same heartbeat the company moved from Special to Dull & Ordinary.

Telling us unit sales helped kept the myth alive – that new models were selling strongly to a still growing number of Appleista’s, strengthening the perception they remained the market leader. Now they just sell a range of stuff. When they stop telling us these numbers.. what are they trying to hide?

I can pretty much guarantee that in the 20 minutes (after I send this morning’s porridge) I will get a reply from a good friend who is also a senior Apple exec. He will patiently explain why I am wrong.. but….

Apple hasn’t really innovated anything new in years. It’s lived off maintaining the dream Steve Jobs sold to customers. He’s a long time gone.

I am an Apple fan and I grew up with them. I was still at University when the famous 1984 smashing the screen Mac Ad hit the screens. I bot the early “Return of Jobs” Mac in the early 90s and the trendy one in 1999 (light blue), I was an early adopter of the fantastic Ipod in 2002, got my first iPhone in 2008 (it wasn’t that different to the Ericson I was using before it and for years I carried a Blackberry as well), and an IPad in 2011. I have bot (Zerohedge readers – I know its spelt bought, but IDGAF what Americans think about my spelling.. 😊 ) just about every piece of Apple kit – the Mac, the Mac Pro, the iPhone X, the Watch (bit peeved when it fell apart and they refused to fix it) and even the Homepod (which I really can’t find any real use for except as a glorified music centre).

I like them all, but to be honest, none of these have changed the world the way the iPod conclusively did, or tweaked it like the iPad.

The company’s new policy will be to give us revenue numbers – neatly hiding and obscuring the fact total numbers might be dropping and are being compensated by Apple’s policy of constantly upping the cost; like charging $200 more for the latest iPad (the new one with added gripping hand action).

So numbers sold will drop, prices will keep rising.. and revenues will look ok..  right up to what I now call the Apple Event Horizon…

That’s when the magic dies. Its when folk realise that Apple just aint sexy any more and its just a retailer of rather attractively packaged tech. Even I admit Mac Pros are actually quite difficult, fiddly, and incomprehensible to use compared to a much cheaper and user friendly piece of kit from Dell, HP or whoever else still makes computers.

My new Mac Pro cost £1500 and basically does exactly the same things as a HP costing 30% of that.. Perhaps I won’t buy the next iPhone because the back of my current X is already cracked and its getting temperamental to use.. I really don’t need a £1000 phone when a £300 one will do exactly the same.

That’s the danger Apple faces. That is looses its allure and becomes just an item and no longer a statement. Apple may be the world’s most profitable company today, but it only stands a small sentiment shift from just being another tech company. Letting us see unit sales was enough to convince us uptake was still on an upwards trajectory. Giving us revenues doesn’t.

I’d like to know things like footfall in the stores… when I was in Regent Street recently I got served in moments, meaning it was just about empty. Wouldn’t it be good to know about comparisons – how many folk compared the iPhone to the Samsung and bought the Korean instead? How many other young millennials aren’t buying iPhones – my 20 something kids think they are old fashioned.. (although Jenny has a Mac Air for emailing the Bank of Dad from Australia), and none of my younger nephews and nieces has or wants one.

It’s a bit like cars. Once, Ford was the market leading behemoth. Now its just a rather good car company, but not the most valuable – funnily enough the most valuable is the most fashionable but insignificant in numbers auto maker. I will always buy Land Rovers (or Astons if I get lucky), but that’s because I’m old fashioned. I reckon that’s where Apple is headed.. niche purveryor of tech to dedicated but aging Apple Fans.

I was 30 when I bot my first piece of Apple Kit.. rather not say what I am today..

Meanwhile..

One of my readers reminded me of my latest Blain’s Trading Mantra – about not looking to hard at the obvious problem, because the real crisis will be erupting somewhere else.

That place could be Germany. Merkel will remain and see out her term as Chancellor if one of her protégées get the CDU leader role she ducked earlier this week. But as Merkel is being blamed for the party’s collapse – that’s looking a risky bet. If she is forced out, then we could face a German triggered Euro crisis. Why?

Germans are generally pro-Europe, but its possible an intense period of German leadership turmoil might coincide with Trump deciding that’s the perfect time to slap tariffs on German Autos. Ouch – BMW, Volks and Merc will take a spanking. Europe could prove a far tougher proposition re trade for Trump – so he’ll be looking for a period of dislocation to strike.

Guess what Germany is about to give him.

Next week –

The US mid-terms?
Trump makes up with Xi on the phone?
Brexit solution – the noise about an Irish solution seems unlikely to appeal to the Ulster Taliban?
Hi-yield – see the charts and be worried?

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With global markets extending on torrid gains for the second day in a row on what has been just one catalyst: Trump’s apparent easing in tone over the trade war with China, which started with a Thursday morning tweet (just as the market had turned red after a disappointing mfg ISM report) saying trade discussions with China “are moving along nicely”, followed by a Bloomberg News report that Trump has asked key cabinet secretaries to have their staff draw up a draft deal that he hopes will signal an end to the trade conflict, skepticism abounds.

To be sure, the rally in US stocks and the Yuan has helped both Trump and Xi achieved short-term market goals: the US market is surging ahead of the midterms, while the Yuan is sharply higher and further away from the 7.00 level, giving Xi space to resume devaluation if and when he desires.

It is this peculiar confluence of interests that has prompted many on the sellside to question the credibility of the alleged “deal”.

Commenting on events in the past 24 hours, SocGen’s strategist Kit Juckes wrotes that “either President Trump is paving the way for a trade deal being agreed at the Buenos Aires G-20 summit later this month, or he’s cynically driving up equity indices ahead of U.S. mid-terms. What’s for sure, is that talk of a trade deal has added further juice to the last few day’s risk appetite.”

Sean George, Stockholm-based CIO at Strukturinvest, agreed that the rally sparked by the report would be at best short-term: “For us at Hamiltonian, we view this as a short-term tactical trade. We are cognizant of the elections on Tuesday, and the cynic in me says maybe this is being done for votes”, he told Bloomberg

“When Trump wants to bump the market ahead of the mid-terms the market likes it,” Saxo Bank’s head of FX strategy John Hardy said, and noted that while it might just be “political theater” from Trump for now, the real test would come when he and China’s President Xi Jinping meet at a summit of world leaders later this month in Argentina.

The bottom line, as Bloomberg’s Stephen Kirkland writes, is determining whether the comments of the past 2 days are “signal or noise”:

With the S&P 500 posting its worst month in seven years just days before midterms, it’s no wonder there’s skepticism over the timing of Trump-Xi call. The signal in this situation — which would rekindle the outlook for global trade and reduce risk premiums — will come from details on negotiated positions, and there’s been little released on this front.

To be sure, while Trump’s verbal optimism is easily explainable by short-term ulterior motives – a bounce in stocks – rather than nearing any compromise, Trump’s economic adviser Larry Kudlow noted the need to still reach agreement on intellectual property rights and cybersecurity. Meanwhile, on Thursday the Justice Department charged a Chinese state-owned company with conspiring to steal trade secrets from Micron Technology.

As Kirkland reminds us, back in May, “the last publicly reported phone call between the two, initial positive headlines deteriorated into a standoff days later.”

So can you really blame traders for thinking “Fool me once, shame on you”?

Actually, judging by S&P futures, which are up 165 points from Monday’s afternoon selloff, and up 50 points from Thursday’s intraday low…

… the market has no problem with either being “shamed” or “fooled” again.

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