Markets Continue On Their Path Of Record Disconnects From Reality

Markets Continue On Their Path Of Record Disconnects From Reality

Authored by Sven Henrich via NorthmanTrader.com,

The ghost of 2013 indeed is hanging over this market. Nothing matters and the trend remains fully intact and new record market highs are made every month. November, December, January, February, March, and now April as any smaller pullbacks are continuously bought. Steady and guaranteed gains every month as markets continue to drown in liquidity and recovery optimism.

As such markets continue on their path of record disconnects of asset prices from the economy reaching over 201% vs GDP now:

As with any bubble, valuation metrics are disregarded and new narratives spring up to justify the price action and previous metrics are discarded as irrelevant. This process will work until it doesn’t and frankly it has to because equity inflows have taken on epic proportions with people piling into the highest valuations in history

Which brings us to an interesting technical area in the price action:

This was a technical price zone outlined as a technical risk/magnet in January of 2021. Now, like most Wall Street analysts, this was a view of what could happen by year end, but $SPX in April has already blown out the year end price targets for most Wall Street analysts. There are higher price targets out there into 4500 and I’ve outlined a technical view of that possibility as well.

But reaching this 1.618 fib extension so early in the year says something.

In the short term $SPY is again acting like it’s September 2020:

Overbought, stretched, vertical, with gains based on many unfilled overnight gaps beneath:

Back in September 2020 this type of action resulted in a 10.5% correction. Whether we will see something similar or worse at some point this month or next remains to be seen, but all things being equal one can now observe something we haven’t seen since February 2020. A divergence of equal weight:

Note that as earnings season is upon us (and earnings reports will not only speak to results but also outlooks which will shed light on the reality of ramping inflation and rising cost structures) small caps are suddenly lagging:

So this steady as she goes non stop melt up is exhibiting some signs that something is afoot right as markets are reaching a key technical zone. My view remains: This market has an appointment with many open gaps to fill to the downside. On $SPX as well as on $VIX, hence, in my view, it’s important to know where these levels are as they may represent actionable pivot points to come.

Tyler Durden
Mon, 04/12/2021 – 11:10

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Iran Blames Israel For Natanz Sabotage; Intel Sources Say Enrichment Set Back 9 Months

Iran Blames Israel For Natanz Sabotage; Intel Sources Say Enrichment Set Back 9 Months

On Monday Iran has formally laid blame on Israel for sabotaging its Natanz nuclear site following a Sunday blackout which brought its operations to a halt – believed to possibly be part of a cyberattack – and which some reports say will set back Iran’s enrichment ability by at least nine months, based on unnamed US and Israeli intelligence sources

However, Iranian nuclear energy chief Ali Akbar Salehi has claimed that a back-up emergency power system has successfully offset the power outage, saying, “Enrichment of uranium has not stopped in the site.”

After throughout the day Sunday there was finger pointing in Tehran toward Israel, a statement by Foreign Minister Javad Zarif Monday marked the first high level explicit blaming of Israel for the sabotage attack, which was earlier dubbed “nuclear terrorism”. Zarif said, “The Zionists want to take revenge because of our progress in the way to lift sanctions… We will not fall into their trap…We will not allow this act of sabotage to affect the nuclear talks,” he said as cited in state TV.

“But we will take our revenge against the Zionists,” he added, which comes on the heels of Iran’s nuclear energy chief Salehi underscoring that “Iran reserves the right to take action against the perpetrators.”

Meanwhile, amid conflicting reports that there was either a blast or a cyberattack mounted (or perhaps both) which caused the sudden blackout, Reuters reports these additional details which have come to light:

Multiple Israeli media outlets have quoted unnamed intelligence sources as saying the country’s Mossad spy service carried out a successful sabotage operation at the underground Natanz complex, potentially setting back enrichment work there by months. Israel has not formally commented on the incident.

…Iran’s semi-official Nournews website said the person who caused an electricity outage in one of the production halls at the underground uranium enrichment plant had been identified. “Necessary measures are being taken to arrest this person,” the website reported, without giving details about the person.

In the wake of this latest incident and others like the recent Red Sea mine attack against an alleged Iranian “spy ship” – also apparently conducted by Israeli intelligence, a number of observers have pointed out Iran has lost its deterrence capability.

Similar to what’s long been happening in Syria, it appears Israel is now able to mount severe sabotage attacks against the Islamic Republic at will, without fear of major retaliation. Of course this comes at the most sensitive time of ongoing talks with JCPOA signatories in Vienna, with progress also reportedly being made albeit “indirectly” with Washington as well.

But that appears to be the point behind the Israeli disruptive and destabilizing actions: not only does Tel Aviv want to see Iran’s nuclear capabilities permanently curtailed, but it wants to derail the Vienna talks by any means. 

Tyler Durden
Mon, 04/12/2021 – 10:51

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The Great Transition: Monetary Hopes To Fiscal Reality

The Great Transition: Monetary Hopes To Fiscal Reality

Authored by Bill Blain via MorningPorridge.com,

“Poyekhali! If you haven’t met on God on Earth, you won’t find him in space.”

How long can markets party on like there is no tomorrow? The thing is – there always is and the hangover is bound to hurt, which is an apt metaphor as English pubs reopen today ! Markets need to prepare for the inevitable consequences of the big transition from 12 mixed years of fairly useless monetary experimentation to a future of fiscal pump-prime policies. What will it all mean for speculative bubbles, inflation and investment preservation?

In this morning’s intro I mentioned a future of fiscal pump-primed policies – which is fascinating as Gordon Brown, who famously called the end of the boom and bust economic cycle, was on the Radio this morning. I like Brown – honest and hard working, but a bit of a temper. Compare and contrast….

Meanwhile…  it’s interesting to note the front page of the WSJ this morning. It explains why this is a great time to be running a major firm. The average earnings of the top 300 US corporate CEOs rose to $13.7 million in 2020, up $1 mm from 2019. What Pandemic? What global crisis you ask? Some CEOs, like the head of Norwegian Cruise Lines – which, as well all know had a superb 2020 – saw his renumeration double to $35mm. Meanwhile, Goldman is warning all these taxes President Biden wants to raise on US Corporates – which will no doubt be squandered on fripperies like rebuilding public infrastructure, improving schools, health, and social welfare and all that other government malarky, could hamstring US corporate earnings by 9%.

Go figure.

These are curious days…. Markets priced for absolute perfection and completely out of touch with the economic realities of environmental degradation, climate change and rising social pressures brought on by increasing inequality. The expectation the post pandemic recovery-rally is being used to justify everything from crazy high market valuations to the price of bitcons.

Everyone is piling into markets on the basis the next new, new thing is going to make them trillionaires. Fervid speculation is driving up the price of everything tangible – and increasingly everything intangible as well. I shall be the little boy who shouts the Emperor is in the buff (naked), as wildly impractical and useless stocks, NFT’s and digital baseball boots rise ever higher.

The reality… the crushing reality.. is the global economy is anything but perfect. It is, definitionally, an imperfect thing. We’ve got the most bizarrely conflabulated mismatch of monetary policies, government spending and fiscal interventions there have ever been. While investors are blithely dismissing the prospects for inflation, governments are praying for it to inflate away their debt bubbles. While rising markets assume growth trajectories are ballistic – investors forget the expression means they return to earth. With a bang.

These are curious times. We are undergoing a fundamental shift from the failed monetary experimentation and austerity of the 2010-20 era to a new age of fiscal hope – in other words, spend our way into growth. It will be interesting – which does not mean comfortable. At this point remember my mantra: “Things are never as good as you hope, but seldom as bad as you fear.”

According to all the reports and outlook puff the investment banks put out, this is going to be another good week for markets. The rising prospects for economic recovery, the continued promise of central banks to juice recovery by keeping rates low, and the repressed spending plans of billions of consumers – well, what can possibly go wrong?

Oh.. glad you asked that question.. there are so many:

Let’s start with US Treasury auctions. There is $271 billion of new US treasuries about to hit the market. As the 10-year rate is now the most watched risk indicator on the planet, what will potentially volatile yields do to fraxious expectations? Weak demand and poor Treasury auction cover ratios will not only set the Fed a’scramble to keep rates low by buying bonds, but could set off all kinds of stock fears.  It was a poor 7-year bond auction in Feb that wobbled markets. It could happen again.

Or what about a geopolitical shock? Like the Russian troops massing on the Ukraine borders threatening to test Europe and Biden’s resolve? Or the increasingly bellicose acts of China towards Taiwan – also straining the limits of Biden’s attention.

Or maybe it will be something here in the UK? The Telegraph has an insightful article: Traders warn of turmoil if Scotland backs independence bid. Yep, if I was holding 25-year Scottish debt (as a result of Gupta’s GFC alliance defaulting on its Greensill funded sludge, kicking in Scot’s guarantees), then I might be concerned….

Or maybe it will be unholy mess in choosing Merkel’s successor in Germany. Thankfully, apparently we don’t have to worry about France; the polls say Macron should be able to beat Le Pen in a run-off next year… by 4 percentage points! And that’s as long as he doesn’t feth-up running the nation any more than he already has…

However, I suspect the big event this week will be IPO of current market darling Coinbase. Whoop whoop who……. oop(s). I can’t admit to sharing the enthusiasm of the Crypto-fanboys who say its yet another reason to bet your future on invisible coins held in the digital interweb thingy that only really clever and smart people can understand.

Now, kudos to Coinbase founders. They saw a need and they have answered it. It was the need of folk desperate to bet their little cotton socks on Crypto, and they have facilitated it. Well done for reading the zeitgeist of the times, and becoming the Ask.Jeeves of the Crypto revolution. (Yeah… why did I mention Ask.Jeeves.. look it up.)

Coinbase is said to be worth $92 bln. It’s attracted 13 million new users in recent months, doubling its profits to $750mm. What’s it really worth? All depends on how long the crypto fashion continues. The key issue is it will be the author of its own destruction: If crypto currencies do go mainstream, then it will attract competitors who will do it better and cheaper. Which is why no one uses Ask.Jeeves to search the internet.

Regular readers will now I am not a fan of BitCoin – but I get the gist behind what’s happening in cryptocurrencies. The basis of today’s extraordinary Coinbase IPO valuation is to monetise its perceived value on the back of Bitcoin’s renewed popularity – which has occurred at a time when fervid speculation is driving every real and imaginary asset.  I’m bored of writing about the current hype around bitcoin – about its increasing adoption by big funds and institutions, and how it’s now a bona-fide finance asset and part of the establishment (just like Lex Greensill and Bill Hwang?). It’s all noise, and if you like the noise, then please participate.

Every puff piece on Bitcoin goes back to unknown Satoshi Nakomoto’s sacred texts – which said absolutely diddley-squat about the value of Bitcoin as a speculative investments, but presented an interesting new idea about decentralised money and how to avoid double counting.

Whatever Coinbase and Bitcoin fans think about adoption; Bitcoin is not money, its not a store of value, its not a unit of account, and it is not, and never shall be easily transactable money (remember the BC blockchain can handle a tiny number of simultaneous transactions.) Bitcoin was the first crypto to emerge from the evolutionary soup, and it is deeply flawed and imperfect. I suspect the only reason for its insane valuation is its scarcity – that only 21 million coins can exist. (Even though they don’t actually exist, except in a nebulous blockchain ledger on the net…)

Successive waves of cryptocurrencies are emerging. Some good, some bad, some ugly and some utterly fugly. As they evolve, some will find market niches as ways to transact, to store value, but they will increasingly run into government backed official digital-currencies. I suspect the main business of crypto-currencies in the future will be in laundering illegal transactions for either criminal or tax-avoidance purposes. (For instance, if I was paying my builder cash to reduce VAT I might use a crypto when cash vanishes.)

Evolution in all things.. and especially in crypto. I wish Coinbase well.. and who knows, if there is a Crypto out there that makes sense… I think I shall have a closer look at Cardano.

*  *  *

The Morning Porridge Subscription pages are now live.

Tyler Durden
Mon, 04/12/2021 – 10:31

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A “Fairly Rare Phenomenon” Occurs In Equity Options Land

A “Fairly Rare Phenomenon” Occurs In Equity Options Land

US equity futures have traded the high to low range of Friday’s late-day meltup mania since they opened last night as a modest Asian derisking (following disappointing Chinese credit data, particularly with concerns surrounding the sharp decline of bond financing as well as the weekend news that a new study shows that the South African variant may evade protection from the Pfizer vaccine.)

That meltup was odd as SpotGamma notes the strange and conflicting message from surging price and negative delta. What’s shown here is the traded delta (on a rolling basis) in blue, versus the SPX price in orange.

As you can see the traded delta was sharply negative from ~2pm on, and seemed to accelerate right at the time when the SPX went north.

What’s odd about this is that we think all of this delta should have made dealers long(er) delta and needing to add some short hedges.

Clearly not all moves in markets are options driven, but that correlation (red box) is rather striking. 

Nomura’s Charlie McElligott notes that Friday’s chaos left the lumpiest gamma strikes all higher, with 4100 at $6.046B, 4125 with $2.42B, 4150 with $3.58B and 4200 with $2.87B, with Dealers deeply in “long gamma” territory and an overall extreme “long delta” which makes sense near all-time highs, currently $385B and 92.8%ile.

However, as SpotGamma points out, the OCC data we sent out last night shows that there is a very large short put position on in index options.

If we consider this in with the SPX, it implies that the dealers options position is more market neutral than our model suggests (as dealers would hold these long puts that traders are selling). If dealers are buying put options, the number of futures they need to sell as a hedge is reduced.

Therefore as the market goes higher dealers have less futures to sell, and it could explain why the options resistance levels didn’t have as much “grip” Friday.

As you can see in the chart below, this (market being net short index puts) is a fairly rare phenomenon, and the previous times its occurred was after large market selloffs – not all time highs like we have now.

It likely added to the buying pressure seen last week, but also increases risk going forward.

Tyler Durden
Mon, 04/12/2021 – 10:15

via ZeroHedge News https://ift.tt/3g5okiO Tyler Durden

Three David Bernsteins Discuss Free Speech on Clubhouse Tonight at 8pm EST

If you are on Clubhouse, join me, <a href=”https://freedomfest2017.sched.com/speaker/david_s_bernstein.6vdtzvu”>David Bernstein</a>, and <a href=”https://jewishjournal.com/commentary/334702/my-cheshbon-hanefesh-for-cowardice-in-the-face-of-wokeness/”>David Bernstein </a>for a discussion of freedom of expression and wokeness Monday 4/12 at 8:00 pm.

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Three David Bernsteins Discuss Free Speech on Clubhouse Tonight at 8pm EST

If you are on Clubhouse, join me, <a href=”https://freedomfest2017.sched.com/speaker/david_s_bernstein.6vdtzvu”>David Bernstein</a>, and <a href=”https://jewishjournal.com/commentary/334702/my-cheshbon-hanefesh-for-cowardice-in-the-face-of-wokeness/”>David Bernstein </a>for a discussion of freedom of expression and wokeness Monday 4/12 at 8:00 pm.

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CNN Says 10 Percent of Vaccinated Air Travelers May Catch COVID. That’s Completely Wrong.


cewitness061362

Are airplanes more dangerous now than they were during the height of the COVID-19 pandemic? No, of course not. Yet that’s what CNN implied on Sunday, in an article on “how to fly safely.” Correctly noting that the Pfizer and Moderna vaccines are only 90 percent protective against COVID-19, CNN went on to assert (incorrectly) that “translated into reality, that means for every million fully vaccinated people who fly, some 100,000 could still become infected.”

COVID-19 can and has spread on flights, of course. But even before people started getting vaccinated, confirmed cases of transmission were relatively small. “The risk of contracting coronavirus disease 2019 (COVID-19) during air travel is lower than from an office building, classroom, supermarket, or commuter train,” an article in The Journal of the American Medical Association noted last fall. If CNN’s estimate were true, that would mean many more vaccinated people getting infected on planes as overall case counts dwindle than unvaccinated people did at the pandemic’s peak.

Luckily, CNN’s estimate is dead wrong. “NO NO NO. That’s not what that number means,” tweeted University of North Carolina at Chapel Hill Professor Zeynep Tufekci yesterday, adding “this didn’t even happen when millions flew unvaccinated. So how could it make sense now?”

When we talk about a 90 percent vaccine efficacy rate, it does not mean that every single vaccinated person who is exposed to COVID-19 has a 10 percent chance of getting it; individual immune responses and other factors still apply. And it certainly doesn’t mean that 10 percent of vaccinated people in the world, a country, or a given place will catch COVID-19.

“What a ‘90% effective vaccine’ means is that the number of people who would otherwise have gotten COVID is 90% lower. It doesn’t mean that only 90% of vaccinated people are immune,” Australian journalist and University of Technology Sydney fellow Josh Szeps points out.

One million vaccinated people flying does not mean all one million people will be on flights where another passenger has COVID-19.

Even if that were the case, it does not follow that conditions—air circulation patterns, ventilation system operation, masking, proximity to the infected person, etc.—would make it possible for each vaccinated person on a flight to be significantly exposed.

And even if that were the case—the highly, highly unlikely scenario that every vaccinated person is exposed to COVID-19 in-flight—it does not follow that 10 percent of those travelers will definitely catch it. Who catches it upon exposure isn’t just a pure percentages game; it also depends on individual immune responses, amount of exposure, and more.

“One common misunderstanding is that 95% efficacy means that in the Pfizer clinical trial, 5% of vaccinated people got COVID,” writes Anna Nowogrodzki at LiveScience. “But that’s not true; the actual percentage of vaccinated people in the Pfizer (and Moderna) trials who got COVID-19 was about a hundred times less than that: 0.04%.”

Reason‘s Ronald Bailey recently looked “at what a 95 percent vaccine efficacy rate would mean in a hypothetical case in which a population of 100,000 people have all been vaccinated.”

“Applying the 1 percent rate at which unvaccinated folks became ill during the vaccine trials over three months suggests that 1,000 people in an unvaccinated population of 100,000 would fall ill,” notes Bailey. “But because all 100,000 people are vaccinated, the actual rate in the vaccinated population would be just 50 cases (0.05 x 1,000 = 50 cases).”

The CNN article has since been updated to say that while the vaccines are 90 percent protective, “that means it’s still possible to get infected.” A correction at the end of the article says “A previous version of this article incorrectly extrapolated vaccine efficacy and the probability of becoming infected with Covid-19 aboard airplanes. The risk is much lower than stated in the original version.”


FREE MINDS

Tyler Cowen sketches out a new vision of libertarianism, after declaring last year that the libertarian movement was “pretty much hollowed out.” Taking a second look, Cowen asks: “What does it mean to be libertarian now? I would say that the purer forms of libertarianism are evolving: from a set of policy stances on political questions to a series of projects for building entire new political worlds.” With many past battles around regulation and communism won, and other old battles seemingly lost forever (health care) or unable to sustain much public interest (anti-war efforts), Cowen suggests that “much of the intellectual effort in libertarian circles is concentrated in two ideas in particular: charter cities and cryptocurrency.”

But Cowen’s piece ignores many areas where U.S. libertarians have long been focused, continue to focus, and could do real good—for the movement, and for the country more broadly—by focusing even more. Things like ending the drug war (which is arguable just as strong and destructive as ever, despite moving away from marijuana as a target), other criminal justice/police/prison reform efforts, fighting the surveillance state, dismantling oppressive occupational licensing, staving off a bloated and all-powerful antitrust regime, and fighting for free markets and free speech despite major political party figures who increasingly can’t stand either, to name a few. And anti-war efforts seem valuable even—or especially—in the face of waning popularity.

Cryptocurrency is great, and charter cities intriguing. But U.S. cities and systems as they exist leave plenty of room for valuable, influential, and perhaps even some winnable libertarian fights, too. Building new political worlds is all good, but libertarians shouldn’t give up just yet on the one we have, either.


FREE MARKETS

Are we headed for 1970s-style inflation? Reports about current commodity markets are eerily reminiscent of the ’70s, The Wall Street Journal says:

In 1973, the U.S. was coming off a two-year experiment in wage and price controls, which artificially depressed prices and muted signals that the economy was overheating. Then, too, the Fed pursued an easy-money policy, keeping interest rates low—though considerably higher than now, and without today’s purchases of bonds and mortgage securities….

In 2021 we’re emerging from the pandemic shutdown, which cratered growth and slammed the economy—depressing price pressures, not unlike what the price-control program did 50 years ago. Today’s Fed policies are even more expansive. And Congress has just enacted a $1.9 trillion stimulus bill—on top of earlier relief bills costing another nearly $2 trillion, a lot of which remains unspent and will continue to fuel demand this year and beyond.

Does that mean that we’re doomed to repeat the earlier disaster? Today’s fiscal stimulus clearly dwarfs anything even considered in the 1970s. Moreover, there is a palpable excitement that Americans will finally be able to discard the shackles of Covid and spend the money they saved last year and the wages they’re starting to earn again. So demand is likely to soar.

As was the case 50 years ago, there are constraints on supplies: shipping delays are blocking deliveries; manufacturers can’t get parts to ramp up production; real-estate values are skyrocketing, while lumber shortages constrain home building; and most commodity prices are rising precipitously. Experts reassure us that the annual inflation rate will rise only to about 2%. We hope they’re right, but when demand increases faster than supply, prices tend to go up.


QUICK HITS

• Minnesota police “fatally shot Daunte Wright, a 20-year-old Black man, during a traffic stop near Minneapolis Sunday, sparking protests and unrest that lasted into the night,” reports Axios.

• The Supreme Court says California can’t ban religious meetings in households.

• President Joe Biden is walking back a pledge to create a national commission on police oversight.

• Cartoonist Peter Bagge looks at the life of Henry David Thoreau.

• The term “‘BIPOC’ isn’t doing what you think it’s doing,” write Andrea Plaid and Christopher Macdonald-Dennis at Newsweek.

• “The Texas Supreme Court voided a restraining order against a salon owner who was jailed and fined last year for keeping her store open despite executive actions requiring the business to be closed,” reports The Hill.

• Maryland is passing a slew of criminal justice reforms.

• Defense Department police officer David Dixon, arrested last week on murder charges, is also being accused of assault.

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Rabo: Powell Can’t Wait To See “Actual Inflation” To Hike… But What Do We Have Right Now

Rabo: Powell Can’t Wait To See “Actual Inflation” To Hike… But What Do We Have Right Now

By Michael Every of Rabobank

Inflection/Infection Point

If you are still in the camp that all that really matters is what central banks say, then note “the US is now at an inflection point”. So says Fed Chair Powell on CBS TV. While positive, this does seem to lean in a more hawkish direction: could his credibility be “Gone in 60 Minutes”, after repeated messaging that rates are on hold for years to come? Or is this a special kind of inflection point which still necessitates the lowest rates and most QE ever? It seems so, as Powell added: “We can wait to see actual inflation before we raise interest rates.” What do we have right now, chopped liver?! Yet the primary concern for the Fed is not inflation, but infection. If Covid gets worse again, then the Fed needs to be there: but what if infection doesn’t?

Infection point is what markets will see as: France goes into another lock-down for schools; by contrast, the UK finally begins to open up; Australia and New Zealand launch a trans-Tasman travel bubble; Thailand, with a mass break-out of the UK variant, is nonetheless allowing the whole country to travel for a week for its new year; India is seeing huge vaccination success – and also huge daily Covid case numbers; a Chinese official admits their Covid vaccine isn’t very effective –as the Malaysian press reports several Chinese tourists in Sarawak tested positive for Covid despite having been vaccinated twice in China; and the EU is admitting that even if it buys Russia’s Sputnik vaccine, it will take months to get production numbers up to where they need to be, so no quick fix. This all seems to leans towards a market bias for the US and UK.

Yet one infection inflection point should terrify us: the island of St. Vincent is seeing a massive volcanic eruption – and yet only those with proof of vaccination, just 10% of the population, are being evacuated. And there you were worrying about the idea of needing to show papers or have a facial scan to sit in a pub garden in the UK.

Many other potentially-volcanic inflection points are evident. In China, Alibaba has been hit with a record USD2.8bn anti-monopoly fine, which follows Beijing forcing an elite business school backed by Jack Ma to halt enrolments. China analysts are trying very hard not to see the writing on the wall as large as that from a key scene in ‘The Life of Brian’: “Foreign capital they go the house?” Some things need even larger fonts, however.

The excited tech coverage of China’s launch of its digital CNY last week failed to notice one key detail: according to the Wall Street Journal, “The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start.” A point long made here is that a sovereign digital currency would not only mean all economic anonymity being removed; and capital flight, short of trading money for goods and shipping them offshore; and that interest rates could be set as negative as needed given no ability to hoard cash; but, crucially, that digital money could be switched off to force you to spend it on what the state wants – or ‘on’, to circumvent the banking system entirely. Would you, as a market player or a CFO, want to hold a digital currency that can disappear from your bank balance as needed?

The White House is catching on to the Great Power and Great Currency game here, Bloomberg reporting: “Biden Team Eyes Potential Threat From China’s Digital Yuan Plans”. For now the US remains concerned about the risk of sanctions evasion (as if that doesn’t already happen): yet the US is also considering a digital Dollar. All the criticisms of DNCY would apply to DUSD too.

Perhaps the more important question is if you will get a choice or not: this is going to be a political, not an economic decision. In May 2017, former Fed Chair Bernanke echoed my earlier warnings (e.g., 2015’s ‘FX Wars’ and 2016’s ‘Thin Ice’) and gave a speech flagging the next downturn would see fiscal and monetary policy cooperation: here we are four years later and that long-untouchable policy is suddenly normal. The same Kalecki/Polanyi logic that predicted Bernanke’s prediction says digital currency is likely to happen at some point too, because fiscal and monetary policy together still isn’t enough in a globalized world unless everyone is doing it – and not everyone can or will.

True, a digital inflection point could still just mean a cashless DUSD and DCNY battling it out for global economic favor. However, at any point they could be used in a truly radical manner. Indeed, digital currencies allow us to more easily replicate the 1930’s splitting of the global gold standard into bifurcated rival currency blocs: how about holding DCNY that can only be spent in China, or a DUSD that works the same way? (Some would say we already have that if you include US financial assets.)

Of course, this isn’t just political but geopolitical. After all, our global financial architecture sits on geopolitical plates. Day to day these don’t move, and markets don’t know how to price for them if they do: yet that doesn’t mean we aren’t moving closer to such an epic move:

  • US Secretary of State Blinken has warned China against encroaching on Taiwan – and also blamed it for helping the initial spread of Covid-19. That’s as the bill mandating deeper US-Taiwan ties works its way through Congress. The US is also sending more warships to the South China Sea, and the Philippines seems to be moving closer to the US once again given what it claims is further Chinese encroachment on its maritime territory. The very fat tail risks here are self-evident: more so given neither side can back down without a serious loss of relative power (which would flow through to FX markets);

  • Blinken has warned Russia any offensive against Ukraine would have “consequences”. It’s not clear what these would be, but military does not appear high on the list. Yet markets thinking this is “’A Small Country Far Away about Which We Know Little” fail to see the tail risks against the broader backdrop;

  • Iran’s Nantaz nuclear reactor was subject to Israeli sabotage (“nuclear terrorism”) according to Tehran, which follows an attack on an Israeli ship by Iran, and one on an Iranian ship by Israel. The Middle East is simmering on an axis involving key sea lanes for global energy; and

  • John Kerry is due in Beijing this week to try to get Chinese cooperation on all matters green. It may well suit Beijing to play nice here in an attempt to leverage that promise against other US actions. Let’s see if the climate crisis provides a genuine geopolitical inflection point or not.

Tyler Durden
Mon, 04/12/2021 – 09:56

via ZeroHedge News https://ift.tt/3tfCf9u Tyler Durden

CNN Says 10 Percent of Vaccinated Air Travelers May Catch COVID. That’s Completely Wrong.


cewitness061362

Are airplanes more dangerous now than they were during the height of the COVID-19 pandemic? No, of course not. Yet that’s what CNN implied on Sunday, in an article on “how to fly safely.” Correctly noting that the Pfizer and Moderna vaccines are only 90 percent protective against COVID-19, CNN went on to assert (incorrectly) that “translated into reality, that means for every million fully vaccinated people who fly, some 100,000 could still become infected.”

COVID-19 can and has spread on flights, of course. But even before people started getting vaccinated, confirmed cases of transmission were relatively small. “The risk of contracting coronavirus disease 2019 (COVID-19) during air travel is lower than from an office building, classroom, supermarket, or commuter train,” an article in The Journal of the American Medical Association noted last fall. If CNN’s estimate were true, that would mean many more vaccinated people getting infected on planes as overall case counts dwindle than unvaccinated people did at the pandemic’s peak.

Luckily, CNN’s estimate is dead wrong. “NO NO NO. That’s not what that number means,” tweeted University of North Carolina at Chapel Hill Professor Zeynep Tufekci yesterday, adding “this didn’t even happen when millions flew unvaccinated. So how could it make sense now?”

When we talk about a 90 percent vaccine efficacy rate, it does not mean that every single vaccinated person who is exposed to COVID-19 has a 10 percent chance of getting it; individual immune responses and other factors still apply. And it certainly doesn’t mean that 10 percent of vaccinated people in the world, a country, or a given place will catch COVID-19.

“What a ‘90% effective vaccine’ means is that the number of people who would otherwise have gotten COVID is 90% lower. It doesn’t mean that only 90% of vaccinated people are immune,” Australian journalist and University of Technology Sydney fellow Josh Szeps points out.

One million vaccinated people flying does not mean all one million people will be on flights where another passenger has COVID-19.

Even if that were the case, it does not follow that conditions—air circulation patterns, ventilation system operation, masking, proximity to the infected person, etc.—would make it possible for each vaccinated person on a flight to be significantly exposed.

And even if that were the case—the highly, highly unlikely scenario that every vaccinated person is exposed to COVID-19 in-flight—it does not follow that 10 percent of those travelers will definitely catch it. Who catches it upon exposure isn’t just a pure percentages game; it also depends on individual immune responses, amount of exposure, and more.

“One common misunderstanding is that 95% efficacy means that in the Pfizer clinical trial, 5% of vaccinated people got COVID,” writes Anna Nowogrodzki at LiveScience. “But that’s not true; the actual percentage of vaccinated people in the Pfizer (and Moderna) trials who got COVID-19 was about a hundred times less than that: 0.04%.”

Reason‘s Ronald Bailey recently looked “at what a 95 percent vaccine efficacy rate would mean in a hypothetical case in which a population of 100,000 people have all been vaccinated.”

“Applying the 1 percent rate at which unvaccinated folks became ill during the vaccine trials over three months suggests that 1,000 people in an unvaccinated population of 100,000 would fall ill,” notes Bailey. “But because all 100,000 people are vaccinated, the actual rate in the vaccinated population would be just 50 cases (0.05 x 1,000 = 50 cases).”

The CNN article has since been updated to say that while the vaccines are 90 percent protective, “that means it’s still possible to get infected.” A correction at the end of the article says “A previous version of this article incorrectly extrapolated vaccine efficacy and the probability of becoming infected with Covid-19 aboard airplanes. The risk is much lower than stated in the original version.”


FREE MINDS

Tyler Cowen sketches out a new vision of libertarianism, after declaring last year that the libertarian movement was “pretty much hollowed out.” Taking a second look, Cowen asks: “What does it mean to be libertarian now? I would say that the purer forms of libertarianism are evolving: from a set of policy stances on political questions to a series of projects for building entire new political worlds.” With many past battles around regulation and communism won, and other old battles seemingly lost forever (health care) or unable to sustain much public interest (anti-war efforts), Cowen suggests that “much of the intellectual effort in libertarian circles is concentrated in two ideas in particular: charter cities and cryptocurrency.”

But Cowen’s piece ignores many areas where U.S. libertarians have long been focused, continue to focus, and could do real good—for the movement, and for the country more broadly—by focusing even more. Things like ending the drug war (which is arguable just as strong and destructive as ever, despite moving away from marijuana as a target), other criminal justice/police/prison reform efforts, fighting the surveillance state, dismantling oppressive occupational licensing, staving off a bloated and all-powerful antitrust regime, and fighting for free markets and free speech despite major political party figures who increasingly can’t stand either, to name a few. And anti-war efforts seem valuable even—or especially—in the face of waning popularity.

Cryptocurrency is great, and charter cities intriguing. But U.S. cities and systems as they exist leave plenty of room for valuable, influential, and perhaps even some winnable libertarian fights, too. Building new political worlds is all good, but libertarians shouldn’t give up just yet on the one we have, either.


FREE MARKETS

Are we headed for 1970s-style inflation? Reports about current commodity markets are eerily reminiscent of the ’70s, The Wall Street Journal says:

In 1973, the U.S. was coming off a two-year experiment in wage and price controls, which artificially depressed prices and muted signals that the economy was overheating. Then, too, the Fed pursued an easy-money policy, keeping interest rates low—though considerably higher than now, and without today’s purchases of bonds and mortgage securities….

In 2021 we’re emerging from the pandemic shutdown, which cratered growth and slammed the economy—depressing price pressures, not unlike what the price-control program did 50 years ago. Today’s Fed policies are even more expansive. And Congress has just enacted a $1.9 trillion stimulus bill—on top of earlier relief bills costing another nearly $2 trillion, a lot of which remains unspent and will continue to fuel demand this year and beyond.

Does that mean that we’re doomed to repeat the earlier disaster? Today’s fiscal stimulus clearly dwarfs anything even considered in the 1970s. Moreover, there is a palpable excitement that Americans will finally be able to discard the shackles of Covid and spend the money they saved last year and the wages they’re starting to earn again. So demand is likely to soar.

As was the case 50 years ago, there are constraints on supplies: shipping delays are blocking deliveries; manufacturers can’t get parts to ramp up production; real-estate values are skyrocketing, while lumber shortages constrain home building; and most commodity prices are rising precipitously. Experts reassure us that the annual inflation rate will rise only to about 2%. We hope they’re right, but when demand increases faster than supply, prices tend to go up.


QUICK HITS

• Minnesota police “fatally shot Daunte Wright, a 20-year-old Black man, during a traffic stop near Minneapolis Sunday, sparking protests and unrest that lasted into the night,” reports Axios.

• The Supreme Court says California can’t ban religious meetings in households.

• President Joe Biden is walking back a pledge to create a national commission on police oversight.

• Cartoonist Peter Bagge looks at the life of Henry David Thoreau.

• The term “‘BIPOC’ isn’t doing what you think it’s doing,” write Andrea Plaid and Christopher Macdonald-Dennis at Newsweek.

• “The Texas Supreme Court voided a restraining order against a salon owner who was jailed and fined last year for keeping her store open despite executive actions requiring the business to be closed,” reports The Hill.

• Maryland is passing a slew of criminal justice reforms.

• Defense Department police officer David Dixon, arrested last week on murder charges, is also being accused of assault.

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Key Events This Very Busy Week: CPI, Retail Sales And Q1 Earnings Start

Key Events This Very Busy Week: CPI, Retail Sales And Q1 Earnings Start

Looking at the busy week ahead, the pandemic will remain in focus as the new case count is still moving higher at the global level even if the US now appears to have left covid behind. In the week ending last Friday April 9, the numbers recorded by John Hopkins University showed a 4.45m increase in cases globally, which compares with increases of 4.11m, 3.78m and 3.29m in the 3 weeks before that, so as Deutsche Bank notes, we’ve seen an acceleration in the past month, although the rate of increase is still shy of the peaks in December and January. Some countries have been hit particularly badly by the latest wave, with India seeing another record 152,879 cases on Saturday. Japan is another that’s seen some sharp rises lately, and the governor of Osaka prefecture said over the weekend that he could request a state of emergency be declared if the latest measures weren’t enough to stem the virus.

Over in Europe, there’s been more positive news in recent days, since the latest numbers from the biggest countries (Germany, France and Italy) indicate that cases have now begun to fall from their peak, albeit still at elevated levels. Furthermore, there are signs of the market narrative turning as the pace of vaccinations are continuing to pick up in the region, with the Euro strengthening +1.19% against the US dollar last week, in its best of 2021 so far, while 5y5y forward inflation swaps for the Euro Area closed at 1.57% on Friday, a level not seen since the very start of 2019. On top of that, the UK reported fewer than 2,000 cases yesterday for the first time since early September, which comes as today marks a notable easing of restrictions in England, with the reopening of non-essential retail and outdoor hospitality venues. Finally in other vaccine news, Pfizer and BioNTech said on Friday that they’d requested their Emergency Use Authorization for their vaccine in the US be extended to 12-15 year olds, following trial results that showed the vaccine was 100% effective among this group.

It’s a big week on the data side too, with a number of important releases out of the US set to offer more details on the strength of the recovery there. This comes against the backdrop of a very strong jobs report for March and an ISM services reading that was the highest since the series began back in 1997.

This week’s highlight will be the CPI report on Tuesday, as market participants have focused on the potential for a sharp rise in the reading over the months ahead. DB’s economists expect a blistering +0.48% month-on-month increase in the headline CPI, along with some strong releases elsewhere as well, with a projected +8.9% increase in retail sales for March thanks to the latest round of stimulus checks and payback from bad weather in February. As a reminder, BofA’s economists expect an even more blowout retail sales print, one in the 11%+ range.

The other big data release this week will come from China, where they’re releasing their Q1 GDP number on Friday. DB economists expect a surge in growth to +21.3% year-on-year, up from +6.5% in Q4, as the comparison will now be against the quarter when the pandemic first impacted the Chinese economy.

On the central bank side, we’ll have to wait until next week before the latest round of policy decisions, with the ECB announcing a week on Thursday, before the Fed and the Bank of Japan follow the week after that. Nevertheless, this week is the last chance various Fed speakers will have to offer their thoughts before their blackout period begins on Saturday, and markets will be looking out for Fed Chair Powell on Wednesday, who’s giving an interview at the Economic Club of Washington, as well as from Vice Chair Clarida later that day, who’s giving a speech on the Fed’s new framework and outcome-based forward guidance. In terms of what to expect, our US economists are expecting them to reiterate their familiar inflation mantra, in that they’ll look through the upcoming sharp rise in the year-on-year growth rate of consumer price measures, along with the “transitory” spikes caused by temporary supply-demand imbalances as the economy reopens.

It will be a busy week for US Treasury issuance, with the US auction cycle starting today with $58BN in 3-year notes auctioned off at 11:30am ET, followed by $38BN 10-year reopening at 1pm also today; It concludes with $24b 30-year reopening Tuesday.

Elsewhere, the latest earnings season will kick into gear over the week ahead, with the highlights including a number of US financials. In their preview of the Q1 season, our asset allocation team write that they see S&P 500 earnings coming in 7.5% above consensus, which although lower than the last 3 quarters, would still be well above the historical average (+4%). Looking at the biggest names releasing this week, they include JPMorgan Chase, Wells Fargo, Goldman Sachs and Tesco on Wednesday. Then on Thursday we’ll hear from UnitedHealth Group, Bank of America, PepsiCo, Citigroup, Charles Schwab, BlackRock and Delta Air Lines. And on Friday, releases will include Morgan Stanley and BNY Mellon.


Source: Earnings Whispers

A quick recap of the key daily events in the coming week courtesy of Deutsche Bank

Monday April 12

  • Data: Japan March PPI, preliminary March machine tool orders, Euro Area February retail sales, US March monthly budget statement
  • Central Banks: BoE’s Tenreyro speaks

Tuesday April 13

  • Data: UK February GDP, Italy February industrial production, Germany April ZEW survey, US March CPI, NFIB small business optimism index, China March trade balance
  • Central Banks: Fed’s Harker, Daly, Mester, Bostic and Rosengren speak

Wednesday April 14

  • Data: Japan February core machine orders, Euro Area February industrial production, US March import price index
  • Central Banks: Federal Reserve releases Beige Book, remarks from Fed Chair Powell, Vice Chair Clarida and Fed’s Williams and Bostic, ECB Vice President de Guindos and ECB’s Panetta and Schnabel, and BoE’s Haskel
  • Earnings: JPMorgan Chase, Wells Fargo, Goldman Sachs, Tesco

Thursday April 15

  • Data: Final March CPI from Germany, France and Italy, US weekly initial jobless claims, March retail sales, industrial production, capacity utilisation, April Empire State manufacturing survey, Philadelphia Fed business outlook, NAHB housing market index
  • Central Banks: Monetary policy decisions from the Bank of Korea and the Central Bank of Turkey, Fed Vice Chair Clairda, Fed’s Bostic, Daly and Mester speak
  • Earnings: UnitedHealth Group, Bank of America, PepsiCo, Citigroup, Charles Schwab, BlackRock, Delta Air Lines

Friday April 16

  • Data: China Q1 GDP, March industrial production, retail sales, EU27 March new car registrations, Euro Area February trade balance, final March CPI, US March housing starts, building permits, preliminary April University of Michigan consumer sentiment index
  • Central Banks:BoE Deputy Governor Cunliffe speaks

* * *

Finally, as Goldman summarizes, the key economic data releases this week are the CPI report on Tuesday and the retail sales and Philadelphia Fed manufacturing reports on Thursday. There are several speaking engagements from Fed officials this week, including speeches from Powell, Clarida, and Williams on Wednesday.

Monday, April 12

  • There are no major economic data releases scheduled.

Tuesday, April 13

  • 06:00 AM NFIB small business optimism, March (consensus 98.0, last 95.8)
  • 08:30 AM CPI (mom), March (GS +0.61%, consensus +0.5%, last +0.4%); Core CPI (mom), March (GS +0.26%, consensus +0.2%, last +0.1%); CPI (yoy), March (GS +2.63%, consensus +2.5%, last +1.7%); Core CPI (yoy), March (GS +1.57%, consensus +1.5%, last +1.3%): We estimate a 0.26% increase in March core CPI (mom sa), which would boost the year-on-year rate by three tenths to 1.6% on a rounded basis. Our monthly core inflation forecast reflects a reopening-driven rebound in airfares, hotel prices, and recreation prices. We also expect ARP Act stimulus payments and supply chain disruptions to boost core goods inflation in this week’s report, including for new and used cars, furniture, and apparel (despite negative residual seasonality in the apparel category). We estimate housing rent categories rose at a firm pace (we estimate rent and OER increases of 20-25 basis points), reflecting stabilization in our shelter tracker and the reversal of rent forgiveness effects. On the negative side, we believe college aid in the ARP Act could weigh on education CPI, and we note the possibility of normalizing alcohol prices in the wake of bars reopening. We estimate a 0.61% increase in headline CPI (mom sa), due to higher oil prices.
  • 12:00 PM Philadelphia Fed President Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will discuss the economic outlook at a virtual event hosted by the Delaware State Chamber of Commerce. Prepared text and audience Q&A are expected.
  • 12:00 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will participate in a Fed event on racism and the economy.
  • 04:00 PM Cleveland Fed President Mester (FOMC non-voter), Atlanta Fed President Bostic (FOMC voter), and Boston Fed President Rosengren (FOMC non-voter) speak: Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, and Boston Fed President Eric Rosengren will take part in a virtual discussion on racism and the economy.

Wednesday, April 14

  • 08:30 AM Import price index, March (consensus +1.0%, last +1.3%)
  • 12:00 PM Fed Chair Powell (FOMC voter) speaks: Fed Chair Jerome Powell will participate in a virtual discussion at the Economic Club of Washington. Moderated Q&A is expected.
  • 02:00 PM Beige Book, April FOMC meeting period: The Fed’s Beige Book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. In the April Beige Book, we look for anecdotes related to growth, labor markets, wages, price inflation, and the economic impacts of the ongoing coronavirus outbreak.
  • 02:30 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will participate in a virtual discussion hosted by Rutgers Finance Society. Moderated Q&A is expected.
  • 03:45 PM Fed Vice Chair Clarida (FOMC voter) speaks: Fed Vice Chair Richard Clarida will discuss the Fed’s new policy framework at the Shadow Open Market Committee meeting.
  • 04:00 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will participate in a virtual discussion on cities and systemic racism. Audience Q&A is expected.

Thursday, April 15

  • 08:30 AM Initial jobless claims, week ended April 10 (GS 700k, consensus 700k, last 744k); Continuing jobless claims, week ended April 3 (consensus 3,700k, last 3,734k); We estimate initial jobless claims decreased to 700k in the week ended April 10.
  • 08:30 AM Retail sales, March (GS +9.0%, consensus +5.5%, last -3.0%); Retail sales ex-auto, March (GS +9.0%, consensus +4.8%, last -2.7%); Retail sales ex-auto & gas, March (GS +9.0%, consensus +6.5%, last -3.3%); Core retail sales, March (GS +8.0%, consensus +7.0%, last -3.5%): We estimate that core retail sales (ex-autos, gasoline, and building materials) jumped by 8.0% in March (mom sa). High-frequency data suggest a very sharp rebound in retail goods spending from the winter storm-depressed February levels, and the intra-month spending pattern is consistent with a stimulus-driven spending surge. We believe the reopening of the economy shifted spending towards restaurants from grocers, which would create a positive wedge between the higher-level aggregates and retail control in this week’s reading. We estimate a 9.0% rise in the ex-auto ex-gas category. We also estimate a 9.0% rise in both the headline and ex-auto measures, due to large increases in gasoline prices and auto sales.
  • 08:30 AM Philadelphia Fed manufacturing index, April (GS 45.0, consensus 40.0, last 51.8): We estimate that the Philadelphia Fed manufacturing index declined by 6.8pt to 45.0 in April, after rising to the highest level since 1973 in March.
  • 08:30 AM Empire State manufacturing survey, April (consensus +18.0, last +17.4)
  • 09:15 AM Industrial production, March (GS +2.5%, consensus +2.7%, last -2.2%); Manufacturing production, March (GS +3.7%, consensus +4.0%, last -3.1%); Capacity utilization, March (GS 75.3%, consensus 75.6%, last 73.8%): We estimate industrial production rose by 2.5% in March, reflecting a rebound following winter storm-related weakness in February. We expect mining and manufacturing production to rebound while the utilities category likely retrenched following a large increase in February.
  • 10:00 AM Business inventories, February (consensus +0.5%, last +0.3%)
  • 10:00 AM NAHB housing market index, April (consensus 84, last 82)
  • 11:30 AM Atlanta Fed President Bostic (FOMC voter) speaks; Atlanta Fed President Raphael Bostic will participate in a virtual discussion on economic inequality.
  • 02:00 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will give a speech on financial stability and monetary policy. Prepared text and audience Q&A are expected.
  • 04:00 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will discuss economic inclusion at an event hosted by Swarthmore College. Prepared text and audience Q&A are expected.

Friday, April 16

  • 08:30 AM Housing starts, March (GS +13.5%, consensus +12.7%, last -10.3%); Building permits, March (consensus +1.7%, last -8.8%): We estimate housing starts increased by 13.5% in March. Our forecast incorporates higher permits and a sizeable rebound following delays in starts in February due to winter storms.
  • 10:00 AM University of Michigan consumer sentiment, April preliminary (GS 90.0, consensus 89.0, last 84.9): We expect the University of Michigan consumer sentiment index to increase by 5.1pt to 90.0 in the preliminary April reading.

Source: BofA, DB, Goldman

Tyler Durden
Mon, 04/12/2021 – 09:44

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