Month: July 2019

Who knew Rand Paul could be such an effective negotator.

One day after the Republican senator and son of Ron Paul was reported to be Trump’s liaison to negotiate with Iran in hopes of easing tensions, sending the price of oil tumbling, the Guardian report that Iran has offered a deal with the US in which it would “formally and permanently” accept enhanced inspections of its nuclear program, in return for the permanent lifting of US sanctions.

The offer was made by Iran’s foreign minister, Mohammad Javad Zarif, on a visit to New York, although for those hoping that the US and Iran will become bffs, don’t get your hopes up: as the Guardian notes, the offer is unlikely to be warmly received by the Trump administration, which is currently demanding Iran make a range of sweeping concessions, including cessation of uranium enrichment and support for proxies and allies in the region.

To thise, Zarif countered that his offer was “a substantial move”.

“It’s not about photo ops. We are interested in substance,” he told reporters at the Iranian mission to the UN in New York on Thursday. “There are other substantial moves that can be made.”

“If they [the Trump administration] are putting their money where their mouth is, they are going to do it. They don’t need a photo op. They don’t need a two-page document with a big signature.”

In May of 2018, Trump unleashed an oil embargo on Iran, coupled with severe banking sanctions, when the US withdrew the US from the 2015 multilateral nuclear deal with Iran known as the Joint Comprehensive Programme of Action (JCPOA). The ongoing embargo has not only crippled Iran’s economy, but triggered a standoff in the Gulf that has escalated dramatically in recent months, with sabotage attacks on foreign tankers, blamed on Iran by the US. In the latest incident on Thursday, Iran said it had seized a foreign-owned vessel suspected of being used for oil smuggling out of Iran.

Zarif dismissed the incident as a routine marine policing matter.

He said: “It’s not a tanker. It’s a small ship carrying a million litres, not a million barrels, of oil. We do it every other day. These are people who are smuggling our fuel. This is … one of the things that we do in the Persian Gulf, because of the heavy subsidies that we provide for our own fuel products.”

An unexpected moment of diplomatic tenderness emerged when Zarif credited Trump with “prudence” for calling off missile attacks last month in reprisal for the downing of a US surveillance drone, and said that gave him confidence that diplomatic progress is possible.

He said: “I believe we were few minutes away from a war. Prudence prevailed and we’re not fighting. So that gives reason for us to be optimists. If we work, if we are serious, then we can find a way forward.”

But the reason why today’s olive leaf by Iran was notable is that until now, Iran’s supreme leader Ali Khamenei has rebuffed overtures for direct talks with Trump, citing US bad faith over the JCPOA, but Zarif signaled on Thursday that Iran was willing to do a deal that did not necessary involve the US returning to the JCPOA, Tehran’s official position until now.

The result: oil prices are tumbling for a fourth day…

… as a major source of geopolitical uncertainty now appears to be on its way out… or at least until Trump comments that nothing that Iran has offered is an acceptable basis for negotiation.

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Authored by Dave Huber via The College Fix,

The latest example of higher education employees looking for something to keep themselves occupied comes from Colorado State University where its Inclusive Communications Task Force has deemed the words “America” and “Americans” non-inclusive.

According to Campus Reform, the school’s Inclusive Language Guide lists terms and phrases to avoid and offers substitutes … all in the name of making “everyone on campus feel welcomed, respected, and valued.”

“America” and “Americans” are on the list because “America encompasses more than just the U.S.”

“There is South America, Central America, Mexico, Canada, and the Caribbean just to name a few of 42 countries in total,” the guide reads. “That’s why the word ‘americano’ in Spanish can refer to anything on the American continent.”

While this is true, many Latin Americans do refer to those from the United States as “americanos” or, at the very least, know the term typically refers to one from the US. “Norteamericano” is also very common, as is “estadounidense” (“one from the United States”).

Nevertheless, if you’re still determined to use “American,” the guide says you may be “eras[ing] other cultures and depict[ing] the United States as the dominant American country.”

From the story:

CSU states that the document listing terms and phrases to avoid is “not an official policy or required practice,” but rather “is intended as a resource to help our campus community reflect our Principles of Community, particularly inclusion, respect, and social justice.”

“The guide is not about political-correctness or policing grammar, but rather helping communicators practice inclusive language and helping everyone on our campus feel welcomed, respected, and valued,” the guide continues.

“The guide certainly does encompass a great deal of everyday, common expressions, and it is possible that the speech of some students will be chilled if they are confused into thinking that the document represents official policy of the university,” Azhar Majeed, spokesman for the free speech advocacy nonprofit Foundation for Individual Rights in Education, told Campus Reform.

“However, given the introductory language…I think it would be unlikely that any student carefully reading the guide would be mistaken and led to believe they could face disciplinary action for their speech,” Majeed added.

Other terms/phrases to avoid include “cake walk” (invokes slavery and black minstrelry), “basket case” (originally meant a soldier in World War I who had lost all his limbs), “freshman” (it’s got “man” in it), and “Hispanic” (something to do with “colonization”; hilariously, “Latinx,” which no one knows how to pronounce let alone what it actually means,is suggested as an alternative).

Read the article and the Inclusive Language Guide.

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In a speech titled “living life near the ZILB,” Fed’s Williams suggested the lesson learned is to “take swift action” and the market appears to have taken that as uber-dovish, dumping the dollar and bidding for bonds and stocks…

The dollar slumped…

Bond yields tumbled…

And stocks levitated (with Nasdaq getting back to unch)…

Another potential catalyst for the move was headlines from The Guardian claiming that Iran offered to agree to a nuclear deal if US dropped sanctions.

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A little over two years ago, when the labor market was just as tight as it is now (yet “oddly” the Fed was well on its hiking path and not about to cut rates), we quoted the April 2017 Beige Book to demonstrate just how bad the labor shortage was: what we found is that the hit rat

Labor markets in the First District continued to tighten somewhat. Many employers sought to add modestly to head counts (although one manufacturer laid off about 4 percent of staff over the last year), while wage increases were modest. Some smaller retailers noted increasing labor costs, in part driven by increases in state minimum wages being implemented over a multi-year period. Restaurant contacts, particularly in heavy tourism regions, expressed concern about possible labor shortages this summer, exacerbated by an expected slowdown in granting H-2B visas. Half of contacted manufacturers were hiring, though none in large numbers; several firms said it was hard to find workers.

One respondent said that during a recent six-month attempt to add to staff for a new product, two-thirds of applicants for assembly line jobs were screened out before hiring via math tests and drug tests; of 400 workers hired, only 180 worked out.

Our conclusion then was that “in retrospect, the US may indeed have a qualified worker crisis on its hands.”

Fast forward to today, when as we noted earlier, the latest Beige Book indeed confirmed that the “qualified worker crisis” is raging. And, more importantly, it also appears that employers have found some simple, if radical, solutions to the escalating labor shortage. Simply said, if it was drug tests that was the underlying cause for weeding out a growing number of potential candidates well then just do away with the drug tests entirely, and voila – skilled workers emerge… as the following anecdote from the San Francisco Fed published today reveals:

The labor market remained tight and employment growth was modest. Some contacts reported that employment growth would have been higher if not for persistent shortages of qualified labor. In Eastern Washington, a large employer in the utility sector shifted some of its existing workforce into information technology-related functions, given the difficulty of hiring for those roles. To fill vacancies in construction positions, some employers in Idaho discussed whether to relax certain hiring standards related to drug testing.

Because surely there can be no possible adverse consequences from hiring high construction workers.

But wait there’s more, because while no other Fed explicitly discussed hiring junkies, there were some other amusing anecdotes when it comes to America’s unique labor challenges such as this from…

The Boston Fed:

Five of seven contacts reported flat or reduced employment. A frozen fish manufacturer said it was unable to find workers. A manufacturer of electronic components said it had laid people off as a result of the tariffs, with headcount declining by about 10 percent. For example, the firm had moved an assembly line from the U.S. to Germany because most of the components in the product came from China and making the product in Germany allowed them to avoid the tariffs.

Philly Fed:

Commercial real estate contractors have stepped up training programs to replace their experienced workers as more baby boomers retire. A shore contact noted that the tight labor market nationwide led to greater demand for H-2B visas—widely used by seasonal vacation spots

Minneapolis Fed:

Wage pressures were moderate overall, but varied. Despite strong hiring demand and tight labor, nearly 70 percent of respondents to the ad hoc poll of greater Minnesota businesses said wages rose less than 3 percent over the past 12 months, and a notable share said they rose less than 1 percent. Their wage expectations for the coming 12 months were slightly lower.

But fear not, all of that will be magically resolved once the Fed cuts by 25 (or 50) basis points, because as everyone knows, every day before going to bed, both unemployed workers and short-staffed employers pray to the Fed to cut rates.

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Authored by Marie Huillet via CoinTelegraph.com,

Iranian authorities are wrestling with the rising number of citizens turning to Bitcoin mining and use as a means of coping with a sanctions-crippled economy.

image courtesy of CoinTelegraph

Iran’s minister for information and communications technology, Mohammad Javad Azari Jahromi, told the Associated Press (AP) that the country has become “a heaven for miners,” according to a July 18 report. He noted:

“The business of ‘mining’ is not forbidden in law but the government and the Central Bank have ordered the Customs Bureau to ban the import of [mining machines] until new regulations are introduced.”

An ailing economy fuels cryptocurrency production and use

In the wake of toughened U.S.-led sanctions, Tehran is now facing the specter of hyperinflation. Oil export revenues have tanked by almost 90%, new data reveals, unemployment is veering close to 20% and millions are working below national poverty-line estimates. 

As AP reports, subsidized electricity rates — currently at half-a-cent per kilowatt — have fueled a thriving crypto mining community, although this is now set to change. Police raids on mining farms are being televised to disincentivize citizens and Iran’s Electrical Industry Syndicate has revealed its intention to hike up electricity prices to 7 cents per kilowatt.

Beyond mining, cryptocurrencies have made national headlines due to authorities’ concern that locals could be using them to convert the rapidly devaluing rial into other currencies. 

In 2018, the head of the Iranian parliament’s economic commission, Mohammad Reza Pour-Ebrahimi, revealed that roughly $2.5 billion had been funnelled out of Iran via crypto — yet the matter has not been publicly raised since.

Even as the U.S. purportedly attempts to muscle in on Iranians’ mining and use of crypto to bypass sanctions, local officials have underplayed its systemic importance. Jahromi remarked:

“Cybercurrencies are effective in bypassing sanctions when it comes to small transactions, but we do not see any special impact in them as far as mega-transactions are concerned. We cannot use them to go around international monetary mechanisms.”

Is Bitcoin halal or haram? 

Cryptocurrencies have even caught the attention of the ayatollahs, with the conservative newspaper Tabnak citing three theologians’ opinions that Bitcoin is either problematic or definitively forbidden — haram — under Islamic law. Yet the matter remains open to debate, as Jahromi noted:

“Some of our top clerics have issued fatwas that say Bitcoin is money without a reserve, that it is rejected by Islamic and cybercurrencies are haram. When we explain to them this is not a currency but an asset, they change their mind.” 

As reported, Iranian authorities have ratcheted up their mining crackdown this summer, confiscating ~1,000 units of mining machines from two now-defunct factories and cutting offpower to miners ahead of the planned energy price hike. Some miners are allegedly weathering the authorities’ U-turn by taking refuge in the country’s mosques, which the government provides with free energy.

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A leveraged loan taken out by a company called Clover Technologies about five years ago lost about a third of its value without warning over the past week, according to Bloomberg. The “alarming” and “abrupt” collapse of the recycling company’s debt surprised even sophisticated investors that deal in leveraged loans.

And even though the loan isn’t large by Wall Street standards – $693 million – it serves as a much needed and stark reminder of the capital that has flocked to leveraged loans in search of yield. The leveraged loan market today is $1.3 trillion and low rates have caused an explosion in borrowing and lax standards in underwriting. The market can also be thin, and this means that collapses like Clover’s can happen quickly and without warning.

Soren Reynertson of investment bank GLC Advisers & Co said:

“When buyers head for the exits at the same time, prices can drop fast and furiously given the lack of liquidity.”

Clover had been operating since 1996 when it was an acquired by Golden Gate in 2010 for an undisclosed sum. Golden Gate piled debt onto the underlying company to extract dividends from it using the leveraged loan market as a wallet. The company took out loans that funded dividend payments totaling at least $278 million and then the company went back to the loan market in 2014, asking lenders for $100 million extra to make an acquisition.

The loans were bought mostly by mutual funds and collateralized loan obligations, which bundle this type of debt into higher rated securities. And there’s been little trouble finding buyers for CLOs in recent years, with high grade bond yields hovering near zero.

Clover’s loan deal was known as “covenant light” and contained no covenants that required the company to alert investors to signs of trouble after undergoing a financial test every quarter. This means that investors had little leverage over the company.

Jessica Reiss, head of leveraged loan research at Covenant Review, called the influx of covenant light loans “death by 1000 paper cuts.”

Clover’s substantial debt left little room for error and it wasn’t long until the company began struggling. In 2014, S&P lowered the company’s outlook to negative and Moody’s and S&P both downgraded it four years later. Regardless, the loan held most of its value in the secondary market until July 9.

That’s when Clover disclosed that it lost two key customers and had hired advisers to evaluate strategic options.

The loan quickly plummeted from $.97 to about $.65 and, two days later, Moody’s downgraded the company again to Caa3, citing its “aggressive financial policies, evidenced by its private equity ownership and history of shareholder distributions and large debt-funded acquisitions.’’

The downgrade didn’t help things – rather, it created a ton of offers from people that were likely forced to dump the loans due to the distressed rating. Moody’s is now predicting that Clover will likely default on its debt obligations going forward.

The ratings agency cites concerns over long-term viability of the business and “unexpected” operational developments. Its debt is just over 6 times its earnings, a level that typically raises lender concerns about the company’s ability to meet its financial obligations. Another warning sign came in May when the company pulled a seemingly attractive refinancing plan that offered a high yield of nearly 9% with a short, three-year maturity.

Other companies, like American Tire Distributors and Diebold Nixdorf Inc., experienced similar bond blowups in the credit market over the past few years.

Reynertson concluded: “Highly levered companies are even more sensitive to reductions in revenue. Cash flows can evaporate overnight.”

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One of the more confusing discrepancies in recent months was how, despite the weakening in the yuan and the escalating trade war between the US and China, there was virtually no drop in Chinese (official) reserves and thus, no capital flight.

Well, “confusion no more”, because as Goldman points out, amid the lingering trade tensions and continued depreciation of CNY in the first half of June, the bank’s preferred gauge of FX flows showed a dramatic jump in June outflows to the tune of $20 billion compared to an inflow of $13 billion in May, while the exporters’ trade repatriation ratio fell further in June. At the same time, the bond market saw a net inflow of around $11BN, modestly lower than the $16BN in May.

According to Goldman’s calculation using the SAFE dataset of “onshore FX settlement”, non-banks showed net FX outflows of around US$13bn (vs. an inflow of US$19bn in May). This was composed of US$23bn in net outflow via outright spot transactions, and US$11bn in net inflow via freshly entered and cancelled forward transactions. Meanwhile, another SAFE dataset on “cross-border RMB flows” shows that on a net basis, the amount of RMB flow from onshore to offshore was around US$7bn.

As a result, Goldman’s usual “preferred” gauge (FX settlement data mentioned above and the cross-border RMB flows) showed a net FX outflow of around US$20bn in June, vs an inflow of US$13bn in May.

Some more details on the flow composition:

The Chinese bond market showed an increase of inflow to around US$11bn, slower than May. Inflows to the bond market may continue in the future as China (government and policy bank bonds) was included in the Bloomberg Barclays Global Aggregate Index with a 20-month scale-in period from April 2019.

According to Goldman, “trade tensions lingered in June and CNY depreciated in the first half of the month, contributing to the increased FX outflows” which of course were visible well prior thanks to the surge in cryptos since April, a big part of which was due to Chinese capital flight, which however failed to be documented in official data. Until now, that is.

Meanwhile, exporters and importers’ net trade repatriation ratio continued to decline to 0.2 in June, from 0.4 in May and 0.9 in Q1 this year, implying exporters and importers having less incentives than before to repatriate their trade proceeds back when facing heightened trade uncertainties in June; this has an adverse impact on net capital flows.

Finally, this data contradicts the data released by the PBOC earlier in the month, which showed that FX reserves stood at $3,119 billion in June, up $18bn from May. Based on Goldman’s estimate, almost all the increase could be attributed to FX valuation effect. After adjusting for that, FX reserves were broadly unchanged in June. That is unlikely to be the case for longer now that capital flight from China has once again resumed in earnest.

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If you glimpsed at the headlines across the mainstream media, you would think a “smoking gun” had been discovered in the newly released unredacted documents related to possible campaign finance violations and ‘hush-money’ payments.

As NBC News reports, the documents, released Thursday, describe a “series of calls, text messages, and emails” between Cohen, Trump, Trump campaign aide Hope Hicks, Keith Davidson – an attorney for the woman, porn star Stormy Daniels – and David Pecker, an executive of the company that published the National Enquirer.

The unsealed documents say that Hicks called Cohen on the night of Oct. 8, 2016 at 7:20 p.m – the first time she had called him in weeks – and that Trump joined the call seconds later. The conversation lasted four minutes. Hicks and Cohen spoke privately after Trump left the call and, after that, Cohen called Pecker.

Moments after that conversation ended, Cohen received a phone call from Dylan Howard, the chief content officer of American Media. After that call, Cohen rang Hicks back, ended that call, and then took a call from Pecker. At 8:03 p.m., according to the unsealed court documents, Cohen called Trump. They spoke for eight minutes.

Other unsealed documents include search warrants, affidavits and court papers related to the case. Most of those were previously released with heavier redactions.

The release of the previously redacted documents comes a day after the federal judge in the case disclosed that prosecutors had concluded their probe into Cohen’s campaign finance crimes and ordered the release of search warrants tied to the case.

Cohen, Trump’s former lawyer and fixer, is serving a three-year prison sentence for a slew of crimes, including breaking campaign finance laws by hiding payments to two women who claimed they had affairs with Trump.

However, buried deep in most of the stories is this simple fact – Prosecutors have not announced any further charges beyond Cohen, a clear indication the inquiry will be shut down with no additional action.

Don’t think that is true?

Ask Cohen’s attorney, ex-Clinton confidante Lanny Davis, who expressed displeasure with prosecutors decision to drop the proceedings in his own statement issued Wednesday evening.

“Case closed? Why is Michael Cohen – after all his voluntary cooperation and testimony that Mr. Mueller said was credible and went to “core issues” and all the information and documents he voluntarily provided to prosecutors and to congress – the only member of the Trump company to be prosecuted and imprisoned?” Davis said in the statement.

“Especially since prosecutors found that virtually all of Michael’s admitted crimes were done at the direction of and for the benefit of Donald Trump? Why?”

As Bloomberg notes, prosecutors have said that at least two unidentified Trump company executives approved improper payments to Cohen. Allen Weisselberg, the Trump Organization’s chief financial officer, testified before the grand jury under a grant of limited immunity.

So another ‘win’ for Trump?

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