Month: July 2024

Usage of The Fed’s Reverse Repo facility is down $220 Billion in the last two days as the massive surge in demand across month- and quarter-end pulls back (mirroring December’s stress, and not the prior quarter-ends), but notably this pull back is far less than the $313 billion drop seen at 2023 year-end (suggesting banks are clinging to the liquidity a little more than normal)…

Source: Bloomberg

As we noted on X at the time:

“that banks are in such dire need to window-dress their books is concerning.”

And now we get more to ‘concern’ ourselves with as a key measure of stress in the financial system’s plumbing is showing signs of cloggage…

The Secured Overnight Financing Rate – A key rate tied to the day-to-day borrowing needs of the financial system – surged to its highest level ever (spiking 7bps to 5.40%) on July 1 as chunky Treasury auction settlements and clogged primary dealer balance sheets curbed lending capacity.

Source: Bloomberg

With The Fed still removing liquidity from the system via quantitative tightening (albeit having signaled this will be at a significantly slower rate as they taper QT), volatility underlying the financial system (which just got it clean bill of health from The Fed, remember) is starting to reignite in a replay of last year’s stress. This stress was exaggerated by crucial quarter-end funding periods as seen last week, when, as Bloomberg reports, banks tend to pare repo activity to shore up balance sheets for regulatory purposes and borrowers either find alternatives or pay up.

At the same time, the glut of government debt sales means more collateral needs financing from the repo market.

And so pay up they did…

“This might be the new normal and explains why the Fed reduced the cap on runoffs,” said Subadra Rajappa, head of US rates strategy at Societe Generale SA.

“Record coupon issuance sizes and bond settlements, primary dealer holdings near highs, so ultimately balance-sheet constraints.

This feels more like what we saw year-end and repo might take a few days to normalize.”

Source: Bloomberg

Admittedly this spike in the SOFR spread is far from the extremes we saw in March 2020 (COVID) and Sept 2019 (Repo crisis), but it is heading in the right (well, wrong) direction as Bloomberg highlights, the indicators that warned of strains in 2018-2019 have started to re-appear – dealer holdings of Treasuries are near all-time highs and overnight repo rates continue to creep up.

The Fed’s Standing Repo Facility has helped put a ceiling on repo rates, though questions remain on how it handles moments of stress.

Excluding The Fed’s now halted bank bailout facility, Small Banks appear to be at their reserve constraints and now the Discount Window is their only choice should all hell break loose again (and the de-stigamtization of that facility will, we are sure, pick up soon in Fed Speak)…

Source: Bloomberg

The Fed may have no choice to cut rates and/or reverse course to QE – but with Biden’s poll numbers now puking, that would look even more politicized…

“Stopping QT would help prevent the background from deteriorating further, but I don’t think stopping QT would materially improve the environment,” said Gennadiy Goldberg, head of US interest rate strategy at TD Securities.

“It’s really a function of the cost of cash starting to rise somewhat as we go from extreme abundance of liquidity to a more ‘normal’ environment.”

Finally, not everyone is fearful:

“This might be the new normal and explains why the Fed reduced the cap on runoffs,” said Subadra Rajappa, head of US rates strategy at Societe Generale SA.

“Record coupon issuance sizes and bond settlements, primary dealer holdings near highs, so ultimately balance-sheet constraints. This feels more like what we saw year-end and repo might take a few days to normalize.”

But, for now, we will be keeping an eye on reverse repo usage (and the SOFR spread) for any further signs of deterioration.

Authored by Jonathan Turley,

President Joe Biden delivered an address from the White House last night on the presidential immunity decision by the Supreme Court. While pledging that he will defend the rule of law, President Biden misrepresented what that law is in the aftermath of Trump v. United States.

While we have often discussed false constitutional claims by the President as well as other false statements, an address of this kind is particularly concerning in misleading citizens on the meaning of one of the most important decisions in history.

As I have previously written, I am not someone who has favored expansive presidential powers. As a Madisonian scholar, I favor Congress in most disputes with presidents. However, I saw good-faith arguments on both sides of this case and the Court adopted a middle road on immunity — rejecting the extreme positions of both the Trump team and the lower court.

One of the most glaring moments in the address came when President Biden declared that “for all…for all practical purposes, today’s decision almost certainly means that there are virtually no limits on what a president can do.”

That is not true.

The Court found that there was absolute immunity for actions that fall within their “exclusive sphere of constitutional authority” while they enjoy presumptive immunity for other official acts. They do not enjoy immunity for unofficial, or private, actions.

The Court has often adopted tiered approaches in balancing the powers of the branches. For example, in his famous concurrence to Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), Justice Robert Jackson broke down the line of authority between Congress and the White House into three groups where the President is acting with express or implied authority from Congress; where Congress is silent (“the zone of twilight” area); and where the President is acting in defiance of Congress.

Here the Court separated cases into actions taken in core areas of executive authority, official actions taken outside those core areas, and unofficial actions.  Actions deemed personal or unofficial are not protected under this ruling.

It is certainly true that the case affords considerable immunity, including for conversations with subordinates. However, this did not spring suddenly from the head Zeus. As Chief Justice John Roberts lays out in the majority opinion, there has long been robust protections afforded to presidents.

There are also a host of checks and balances on executive authority in our constitutional system. This includes judicial intervention to prevent violations of the law as well as impeachment for high crimes and misdemeanors.

President Biden’s hyper-ventilated response is crushingly ironic. He was vice president when President Barack Obama killed an American citizen without a trial or a charge. When former Attorney General Eric Holder announced the “kill list” policy (that included the right to kill any American citizen), he was met with applause, not condemnation.

The Obama-Biden administration then fought every effort by the family to sue the government. President Biden would have been outraged by any attempt of a Republican district attorney to charge him or President Obama with murder.

He would also be outraged by prosecutors pursuing criminal charges for the deaths associated with the deluge of undocumented persons over the Southern border.

In his address, President Biden also claimed that “the law would no longer” define “the limits of the presidency.”

That is also untrue. This case was remanded for the purpose of defining what of these functions would be deemed private as opposed to official. Even on official actions, former president Donald Trump could be prosecuted if the presumptive immunity is rebutted by prosecutors.

What was most glaring for many civil libertarians was President Biden’s portrayal of himself as a paragon of constitutional fealty.  He declared that “I know I will respect the limits of the presidential powers as I have for the last three-and-a-half years.”

That was also untrue. President Biden has racked up an impressive array of losses in federal courts where he was found to have violated the constitution.

This includes rulings that his administration has exceeded his authority and engaged in racial discrimination in federal programs. Indeed, Biden has often displayed a cavalier attitude toward such violations.

For example, the Biden administration was found to have violated the Constitution in its imposition of a nationwide eviction moratorium through the Centers for Disease Control and Prevention (CDC).  Biden admitted that his White House counsel and most legal experts told him the move was unconstitutional. But he ignored their advice and went with that of Harvard University Professor Laurence Tribe, the one person who would tell him what he wanted to hear. It was, of course, then quickly found to be unconstitutional.

Biden showed the same disregard over the unconstitutionality of his effort to unilaterally forgive roughly half a trillion dollars in student debt. Courts have already enjoined that effort as presumptively unconstitutional (though an appellate court in one of those cases relaxed aspects of the injunction).

The address was used to reinforce his “democracy is on the ballot” campaign theme. Pundits have repeated the mantra, claiming that if Biden is not elected, American democracy will perish.

While some of us have challenged these predictions, the other presidential candidates are missing a far more compelling argument going into this election. While democracy is not on the ballot this election, free speech is.

For many of us in the free speech community, President Biden has become the most anti-free speech president since John Adams.

As discussed in my new book,  “The Indispensable Right: Free Speech in an Age of Rage,” the Biden Administration has helped fund and maintain an unprecedented censorship system in the United States.

That record is hardly supportive for a president claiming to be the defender, if not the savior, of the Constitution.

Authored by Andrew Moran via The Epoch Times,

The federal government completed the sale of 1 million barrels of gasoline from the Northeast Gasoline Supply Reserve (NGSR), the White House said in a statement shared with The Epoch Times on Tuesday.

Last month, the government announced it would release 42 million gallons of gas from storage facilities in Maine and New Jersey to help lower pump prices heading into the typically busy summer driving season.

After receiving 19 proposals from five companies since May 21, the federal government awarded contracts to all the firms: BP (500,000 barrels), Vitol (200,000 barrels), Freepoint Commodities (100,000 barrels), George E. Warren (100,000 barrels), and Irving Oil (98,824 barrels).

Gas reserves were sold at an average $2.34 per gallon.

Senior administration officials touted the news as another victory for the federal government’s inflation-fighting efforts.

“The Biden-Harris Administration continues to take strategic action to lower prices for American consumers in every aspect of their lives—especially as summer driving season ramps up,” said Energy Secretary Jennifer Granholm.

“By releasing this reserve ahead of July 4th, we are ensuring sufficient supply flows to the northeast at a time hardworking Americans need it the most.”

But while gasoline prices have not rocketed this summer, the White House is trying to build on the plethora of measures to reduce energy costs, says National Economic Advisor Lael Brainard.

“Gas prices have come down nearly 20 cents in the last two months, but we know there is more to do,” said Ms. Brainard.

“This release will help lower prices at the pump, building on other actions by President Biden, including historic releases from the Strategic Petroleum Reserve, record energy production, and the largest-ever investment in clean energy.”

[ZH: Yeah Ms. Brainard, but prices are surging again now.]

According to the American Automobile Association (AAA), gas prices are around $3.49 per gallon, down 5 cents from a year ago.

The cost of gas could start ticking higher because of the jump in crude oil prices.

U.S. crude topped $83 a barrel on the New York Mercantile Exchange during the July 1 trading session. Year-to-date, the West Texas Intermediate crude oil benchmark is up about 17 percent.

Oil prices had cooled since the end of April, but the revival of geopolitical tensions, investors bracing for the Federal Reserve to cut interest rates, an active hurricane season, and tight international energy markets have bolstered oil prices in recent sessions.

“Summer got off to a slow start last week with low gas demand,” said AAA spokesperson Andrew Gross.

“But with a record 60 million travelers forecast to hit the road for the July 4th holiday, that number could pop over the next 10 days. But will oil stay above $80 a barrel, or will it sag again? Stay tuned.”

The latest Energy Information Administration (EIA) data show that gasoline demand was 8.96 million barrels last week, down 240,000 barrels from the same period a year ago.

Since January 2021, gas prices have soared cumulatively 55 percent, and oil has surged 66 percent.

Tapping Into Reserves

In 2012, President Barack Obama created the Northeast Gasoline Supply Reserve following Hurricane Sandy, which destroyed refineries in the region.

Recent EIA figures revealed domestic gas inventories totaled 233.886 million barrels for the week ending June 21, down more than 3 percent from the same period three years ago.

Additionally, following Russian President Vladimir Putin’s invasion of Ukraine, President Biden tapped into the nation’s emergency oil stockpiles to curb prices, drawing down 180 million barrels of oil. The White House estimates this trimmed gas prices by about 80 cents.

The SPR is approximately 40 percent lower than in January 2021. Since hitting a bottom of 346.758 million barrels in July 2023, the U.S. government has been gradually refilling reserves. As of June 21, the SPR was 372.197 million barrels, the highest since December 2022.

The White House has repeatedly shifted its position to replenish the SPR.

In April, the Department of Energy abruptly canceled a 2.8-million-barrel offer to refill a significant storage facility in Louisiana. This decision occurred one month after issuing a solicitation for August and September deliveries.

However, Ms. Granholm told Reuters in a June 28 interview that the administration could rush offers to replenish U.S. reserves beyond a 3-million-barrel-a-month pace.

“It could pick up more than that,” she said, adding that two SPR locations in Louisiana and Texas have been in maintenance.

“All four sites will be back up by the end of the year, so one could imagine that pace would pick up, depending on the market.”

The federal government established the Strategic Petroleum Reserve in 1975 in response to the 1973–1974 oil embargo. The purpose was to limit the impact of disruptions in global petroleum markets. Officials could withdraw from the SPR during emergencies, energy interruptions, or supply troubles.

The world’s largest economy consumes about 20 million barrels of oil per day, meaning current reserves would be exhausted in 18 days if production ceased.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Wall Street analysts continue significantly lowering the earnings bar as we enter the Q2 reporting period. Even as analysts lower that earnings bar, stocks have rallied sharply over the last few months.

As we have discussed previously, it will be unsurprising that we will see a high percentage of companies “beat” Wall Street estimates. Of course, the high beat rate is always the case due to the sharp downward revisions in analysts’ estimates as the reporting period begins. The chart below shows the changes for the Q2 earnings period from when analysts provided their first estimates in March 2023. Analysts have slashed estimates over the last 30 days, dropping estimates by roughly $5/share.

That is why we call it “Millennial Earnings Season.” Wall Street continuously lowers estimates as the reporting period approaches so “everyone gets a trophy.” An easy way to see this is the number of companies beating estimates each quarter, regardless of economic and financial conditions. Since 2000, roughly 70% of companies regularly beat estimates by 5%, but since 2017, that average has risen to approximately 75%. Again, that “beat rate” would be substantially lower if investors held analysts to their original estimates.

Analysts remain optimistic about earnings even with economic growth weakening, inflation remaining elevated, and liquidity declining. However, despite the decline in Q2 earnings estimates, analysts still believe that the first quarter of 2023 marked the bottom for the earnings decline. Again, this is despite the Fed rate hikes and tighter bank lending standards that will act to slow economic growth.

However, between March and June of this year, analysts cut forward expectations for 2025 by roughly $9/share.

However, even with the earnings bar lowered going forward, earnings estimates remain detached from the long-term growth trend.

As discussed previously, economic growth, from which companies derive revenue and earnings, must also strongly grow for earnings to grow at such an expected pace.

Since 1947, earnings per share have grown at 7.72%, while the economy has expanded by 6.35% annually. That close relationship in growth rates is logical, given the significant role that consumer spending has in the GDP equation. However, while nominal stock prices have averaged 9.35% (including dividends), reversions to underlying economic growth will eventually occur. Such is because corporate earnings are a function of consumptive spending, corporate investments, imports, and exports. The same goes for corporate profits, where stock prices have significantly deviated.

Such is essential to investors due to the coming impact on “valuations.”

Given current economic assessments from Wall Street to the Federal Reserve, strong growth rates are unlikely. The data also suggest a reversion to the mean is entirely possible.

The Reversion To The Mean

Following the pandemic-driven surge in monetary policy and a shuttering of the economy, the economy is slowly returning to normal. Of course, normal may seem very different compared to the economic activity we have witnessed over the last several years. Numerous factors at play support the idea of weaker economic growth rates and, subsequently, weaker earnings over the next few years.

1. The economy is returning to a slow growth environment with a risk of recession.

2. Inflation is falling, meaning less pricing power for corporations.

3. No artificial stimulus to support demand.

4. Over the last three years, the pull forward of consumption will now drag on future demand.

5. Interest rates remain substantially higher, impacting consumption.

6. Consumers have sharply reduced savings and higher debt loads.

7. Previous inventory droughts are now surpluses.

Notably, this reversion of activity will become exacerbated by the “void” created by pulling forward consumption from future years.

“We have previously noted an inherent problem with ongoing monetary interventions. Notably, the fiscal policies implemented post the pandemic-driven economic shutdown created a surge in demand and unprecedented corporate earnings.”

As shown below, the surge in the M2 money supply is over. Without further stimulus, economic growth will revert to more sustainable and lower levels.

While the media often states that “stocks are not the economy,” as noted, economic activity creates corporate revenues and earnings. As such, stocks can not grow faster than the economy over long periods. A decent correlation exists between the expansion and contraction of M2 less GDP growth (a measure of liquidity excess) and the annual rate of change in the S&P 500 index. Currently, the deviation seems unsustainable. More notably, the current percentage annual change in the S&P 500 is approaching levels that have preceded a reversal of that growth rate.

So, either the annualized rate of return from the S&P 500 will decline due to repricing the market for lower-than-expected earnings growth rates, or the liquidity measure is about to turn sharply higher.

Valuations Remain A Risk

The problem with Wall Street consistently lowering the earnings bar by reducing forward estimates should be obvious. Given that Wall Street touts forward earnings estimates, investors overpay for investments. As should be obvious, overpaying for an investment today leads to lower future returns.

Even with the decline in earnings from the peak, valuations remain historically expensive on both a trailing and forward basis. (Notice the significant divergences in valuations during recessionary periods as adjusted earnings do NOT reflect what is occurring with actual earnings.)

Most companies report “operating” earnings, which obfuscate profitability by excluding all the “bad stuff.” A significant divergence exists between operating (or adjusted) and GAAP earnings. When such a wide gap exists, you must question the “quality” of those earnings.

The chart below uses GAAP earnings. If we assume current earnings are correct, then such leaves the market trading above 27x earnings. (That valuation level remains near previous bull market peak valuations.)

Since markets are already trading well above historical valuation ranges, this suggests that outcomes will likely not be as “bullish” as many currently expect. Such is particularly the case if more monetary accommodations from the Federal Reserve and the Government are absent.

Trojan Horses

As always, the hope is that Q2 earnings and the entire coming year’s reports will rise to justify the market’s overvaluation. However, when earnings are rising, so are the markets.

Most importantly, analysts have a long and sordid history of being overly bullish on growth expectations, which fall short. Such is particularly the case today. Much of the economic and earnings growth was not organic. Instead, it was from the flood of stimulus into the economy, which is now evaporating.

Overpaying for assets has never worked out well for investors.

With the Federal Reserve intent on slowing economic growth to quell inflation, it is only logical that earnings will decline. If this is the case, prices must accommodate lower earnings by reducing current valuation multiples.

When it comes to analysts’ estimates, always remain wary of “Greeks bearing gifts.”

Hours after the US Supreme Court granted Donald Trump immunity for official acts committed in office, the former president began an effort to toss his recent conviction in Manhattan and postpone his upcoming sentencing over 34 felony counts related to his cover-up of a sex scandal leading up to the 2016 US election.

In a letter to judge Juan Merchan just hours after the Supreme Court ruling – and 10 days before he’s set for sentencing, Trump’s lawyers sought permission to file a motion to set aside the verdict while Merchan considers whether the Supreme Court ruling affects the conviction.

That said, Trump’s attempt might be a long shot given the fact that the Manhattan case revolves around acts Trump took as a candidate, not as president.

As the NY Times notes, however, Trump’s lawyers are likely to argue that prosecutors partially built their case using evidence from his time in office. Under the Supreme Court’s new ruling, prosecutors may not charge a president for official acts, but also cannot cite evidence involving official acts that affect other accusations.

It is unclear how the Manhattan district attorney’s office, which brought the case, will respond, or whether the judge will delay the first sentencing of an American president. But Mr. Trump’s effort appeared to cause at least a brief interruption: The district attorney’s office did not on Monday make a sentencing recommendation to the judge about whether to imprison Mr. Trump, as was expected.

Merchan may also punt on the request, as the deadline for filing post-trial motions ended last month. Instead, Merchan may instruct Trump’s attorneys to raise the issue when they appeal the conviction post-sentencing.

As the Times further notes, Merchan faces an ‘unprecedented conundrum’ with massive legal and political ramifications. Imprisoning Trump would drop-kick a hornet’s nest, while sparing Trump from prison would immediately draw the wrath of vengeful Democrats who say he gave Trump special treatment.

While there’s no requirement that Trump be sentenced to time behind bars, Merchan could sentence him to months or several years in prison – or he could be sentenced to home confinement or probation. He could also postpone any sentence until after the election, or after Trump serves another term in office, should be he reelected.

Meanwhile, Trump’s other criminal cases have been largely derailed or otherwise postponed – including his trial in Washington DC, where he stands accused of mishandling classified information while still in office.

Authored by Charles Hugh Smith via OfTwoMinds blog,

That monkey on your back comes in many forms.

We’ve all heard of Disaster Capitalism: the Powers That Be either initiate or amplify a crisis as a means of granting themselves “emergency powers” which just so happen to further concentrate the nation’s wealth and power in the hands of the few at the expense of the many.

Naomi Klein described the concept and cited examples in her 2008 book The Shock Doctrine: The Rise of Disaster Capitalism, and summarized the core dynamic: “Disaster capitalism perpetuates cycles of poverty and exploitation.”

Move over, Disaster Capitalism–make room for Addiction Capitalism.

Addiction Capitalism is my term for the last-ditch / desperation method of guaranteeing sales and profits when everybody already has everything: reduce the quality so everything fails and must be replaced, and addict your customers to your product or service which–what a surprise–only you or your cartel provide.

And since you’ve bought up all the competition and moated your monopoly via regulatory thickets / regulatory capture, consumers must continue paying–or suffer the consequences. Addiction Capitalism is capital’s last best hope when the essentials of life and novelties are both over-supplied. So the only ways to juice demand and maintain profits are 1) lower the quality of goods so they must be constantly replaced (Cory Doctorow’s “ensh**tification”) and 2) addict consumers to services such as social media and products such as smartphones, or create dependencies which are equivalent to addiction, such as dependency on weight-loss medications.

Just as the addict is dependent on a drug, patients are dependent on medications that must be taken until the end of their lives.

Jonathan Haidt’s new book offers a scathing indictment of the intentionally addictive–and destructive–nature of social media and smartphones The Anxious Generation: How the Great Rewiring of Childhood Is Causing an Epidemic of Mental Illness.

For another example of how Addiction Capitalism works, consider how tech companies sell a basic accounting software system for a small sum until it becomes a standard for households and small businesses. Then they eliminate outright purchase of the software and switch to a high-cost subscription model. Nice little history of all your financial records you got there; it would be a shame to lose all that by refusing to pay our monthly fee.

Put another way: going cold turkey and refusing to pay the subscription / prescription is going to be painful. That monkey on your back comes in many forms: checking your phone 300 times a day, obsessively counting “likes,” binging on streaming TV and snacks, junk food, fast food, and other addictive glop–the list is long indeed.

Addiction Capitalism is neatly summarized in this scene from Bruce Lee’s 1973 martial arts film Enter the Dragon, where the villain Han reveals his opium empire to martial artist Roper, played by John Saxon:

Han: “We are investing in corruption, Mr Roper. The business of corruption is like any other.”

Roper: “Oh yeah! Provide your customers with products they need and, uh, charge a little bit to stimulate your market and before you know it customers come to depend on you, I mean really need you. It’s the law of economics.”

That’s Addiction Capitalism in a nutshell: “customers come to depend on you, I mean really need you.” 

That presents us with a choice: “and you want me to join this?”

*  *  *

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By Bas van Geffen, CFA, Senior Macro Strategist at Rabobank

Yesterday evening, President Lagarde opened the ECB’s annual policymaking conference. Unsurprisingly, the this year’s theme revolves around structural changes in the economy, and (model) uncertainty about the outlook for growth and inflation. Many of the discussions will be quite academic of nature. But Lagarde also offered a glimpse of the path forward. She noted that the ECB needs more time to assess inflation uncertainties, and that the strong labour market allows the central bank to gather more data before making a decision. That’s July definitely off the table then. However, policymakers still appear relatively confident that they can resume the cutting cycle in September – data permitting, of course.

This morning, the ECB’s policymakers will probably be egged on further. The ECB Forum on Central Banking starts with a discussion on the drivers of post-pandemic inflation. The authors of the paper argue “that there are reasons to be optimistic about inflation, both in the immediate and the more distant future.” Their model predicts an “easy last kilometre” back to target in the coming quarters.

That’s definitely what policymakers want to hear, even though several of their colleagues are warning against cutting rates to hastily from here on. Interestingly, the authors also conclude that the recent episode of high inflation was driven more by a unexpectedly strong demand, rather than just an (energy) supply shock. And consumption is expected to pick up again in the coming quarters; it’s unclear whether that is embedded in their projections, or whether such a development could drown out their cheer of an easy last kilometre.

And, while the ECB’s rate setters get a peptalk in Sintra, the EUR OIS market has further priced out the odds of rate cuts in the second half of the year.  Part of that was probably a side-effect of the relief rally after investors’ worst-case scenarios for the French elections did not play out. That said, incoming inflation data were not very constructive either.

At first glance, the German inflation rate may have given the Governing Council a bit of a confidence boost, ahead of today’s estimate for the Eurozone aggregate. The HICP inflation rate cooled from 2.8% to 2.5% y/y in June. However, scratching just a bit below the surface, the picture becomes mixed at best.

Data for the individual German states indicates that prices for goods, and in particular furnishing and household equipment, slowed whereas prices at hotels, and restaurants appear to have re-accelerated. Indeed, the breakdown of the CPI inflation showed that services inflation remained stable at 3.9% y/y – indicating that the rebound in May was not a one-off. The ongoing price pressures in labour-intensive areas of the economy is especially concerning if one takes into account that IG Metall, Germany’s largest union, is currently demanding a 7% pay increase.

This domestically driven inflation should be the key concern. A large part of the disinflation to date has been the result of lower price pressures in various goods, as supply chains and energy shocks fade. However, as we’ve warned on various earlier occasions, goods inflation alone cannot durably return inflation to target. A case in point is this morning’s flash estimate for Dutch inflation. Headline inflation accelerated unexpectedly to 3.4% y/y after 2.3% in May. That upside surprise was brought about by goods disinflation losing steam, while services inflation remains far too high at 4.6% (an increase from 4.5%).

On the sidelines of the ECB conference, Wunsch told Bloomberg that he would need convincing to support more than two cuts this year. “The first two cuts are relatively easy,” but to support further cuts, “we would need to have strong indications that [inflation is] moving below 2.5% to 2%.”

Such concerns about the last kilometer are not just a European thing. Persistent US inflation has forced the Fed to delay its first rate cut. And Australian policymakers have been on high alert ever since incoming data suggested that disinflation may not only have run its course, but that it may establish a new uptrend. It was a reason for our RBA-watcher to put additional rate hikes into his forecast. That view that is now increasingly finding support elsewhere in the market. The minutes of the previous RBA meeting note that policymakers judged the case for holding rates stronger than the case for a rate hike. However, they are certainly keeping the door open. Officials decided that updated economic projections will allow them to make a more careful assessment in August.

And that’s all based on inflation data and an inflation outlook based on the status quo. Policymakers traditionally do not include (expected) changes in, e.g., fiscal policy. Our US strategist has flagged the likely inflationary impulse should Trump be re-elected into office. Such a scenario is being seen as increasingly plausible. Trump continues to poll well, and yesterday the Supreme Court ruled that the former-President may enjoy some immunity from criminal charges over his attempt to challenge the 2020 election results. The ruling is bound to delay any trial to after the elections. This clears another hurdle to a Trump victory in November, following President Biden’s dismal performance in their first head-to-head last week.

After two months of sharp declines in the number of job openings, moments ago Biden’s highly politicized Department of Labor reported that in May, the number of job openings unexpectedly spiked by a whopping 221K, to 8.140 million – far above the 7.950 million estimate – from a downward revised April print of 7.919 million, down 140K from the original print of 8.059 million.

The 194K beat of estimates was the biggest since last August…

… but was only possible thanks to the huge downward revision in the past month; indeed, when we look back we find that the Biden DOL(ies) has now revised lower 14th of the past 17 months, something which statisticians would normally call “bullshit.”

Ok, fine revisions blah labh, but the current number of job openings was up no matter what. Well, when you look at the composition you get a slightly different idea: you see, of the 221K total increase in job openings, virtually all – or some 179K – were government jobs, which as everyone knows, are not real jobs but are simply parasites on taxpayers and create no actual economic output. And as shown below, government job openings are fast approaching record high.

And since virtually all the job growth was government jobs, one would expect that private job openings was a disaster…

… and sure enough, at 7.055 million it remained at a three year low.

To summarize: government job openings, which contribute nothing to the economy and are just a form of wealth redistribution, are soaring while private sector job openings are crashing.

Ignoring the data manipulation, in the context of the broader jobs report, in May the number of job openings was 1.5 million more than the number of unemployed workers (which the BLS reported was 6.649 million), up modestly from last month’s 1.427 million but otherwise the second lowest since the summer of 2021.

Said otherwise, in April the number of job openings to unemployed dropped to just 1.24, a sharp slide from the March print of 1.30, the lowest level since June 2021 and now officially back to pre-covid levels.

A quick look at the number of quits, an indicator closely associated with labor market strength as it shows workers are confident they can find a better wage elsewhere, shows that after March’s unexpected plunge by 118K (revised from a collapse 198K), in April and May we saw modest increases here, with the number of quits rising by 43K and 7K, respectively, but still holding at multi-year lows.

Linked to this, we find that amid the stagnant level of quits, the number of hires actually rose by 141K to 5.746 million, the highest since February.

Finally, no matter what the “data” shows, let’s not forget that it is all just estimated, and it is safe to say that the real number of job openings remains still far lower since half of it – or some 70% to be specific – is guesswork. As the BLS itself admits, while the response rate to most of its various labor (and other) surveys has collapsed in recent years, nothing is as bad as the JOLTS report where the actual response rate remains near a record low 33%

In other words, more than two thirds, or 70% of the final number of job openings, is estimated!

And at a time when it is critical for Biden to still maintain the illusion that at least the labor market remains strong when everything else in Biden’s economy is crashing and burning, we’ll let readers decide if the near record number of government job openings is an accurate reflection of a strong labor market, or is merely a reflection of a debt-funded deep state gone full tilt.

Authored by Steve Watson via Modernity.news,

Sources close to the Democratic Party have claimed that the debate last week was purposefully setup for Biden to fail as part of a “soft coup,” by insiders who know he is incapable of winning or serving a second term.

A former Hillary Clinton aide told The Daily Mail that they wanted Biden to be exposed so he can be replaced by a more capable candidate.

“There has never been a debate this early before,” the source stated, adding Traditionally, the debates are held after the Republican and Democratic conventions, which are in July and August.”

“There is a growing belief this was a ‘soft coup’ because they know he isn’t fit to govern and have known for some time,” the aide further asserted.

As pressure mounts on Joe Biden to quit and Elton John turns up to back him… Democrat insiders reveal the President was set up to fail in a ‘soft coup’ https://t.co/e89Rp564MV pic.twitter.com/cBK7CJ6tFU

— Daily Mail US (@DailyMail) June 29, 2024

“They wanted to test him against Trump early while there was still time to replace him if he failed to rise to the occasion. Which, of course, he did spectacularly,” the source added.

Another insider told the Mail that “Publicly, the Democratic leadership has been backing Biden because they can’t appear to be disloyal to the President. But privately, there have been discussions going on for a long time that he’s too old to beat Trump.”

“There were whispers for weeks that ‘Joe’s going down at the debate,’” the source further stated.

The Mail also claims that Michigan Governor Gretchen Whitmer “secretly” sent out an advance team to Washington DC weeks ago to prepare a snap presidential campaign.

The report claims “The team has been ‘on manoeuvres’ and meeting with Democratic officials,” with one source saying “Gretchen was the first to act. Now the floodgates have been opened.”

Despite these claims, prominent Democrats including the Clintons, Obama and Nancy Pelosi are still defending Biden and publicly stating he remain the nominee.

Pelosi told CNN Sunday that Biden “has the stamina (to continue)” and that “there are uh, uh, health care professionals, who think that uh, Trump has dementia. That his connection, his thoughts do not go together.”

NEW: Nancy Pelosi claims ‘healthcare professionals’ say Trump is actually the candidate with dementia before having a senior moment of her own.

This gaslighting is crazy.

During an interview with CNN, Pelosi gaslit the American people before she was seen seizing up, appearing… pic.twitter.com/qm92OY1fL8

— Collin Rugg (@CollinRugg) June 30, 2024

Meanwhile, despite his public support for Biden, Obama is privately lobbying to get rid of him, telling insiders he cannot defeat Trump, according to another insider.

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Despite the downbeat talk about the EV market globally, Tesla found a way to surprise investors with better than expected deliveries data for Q2

The carmaker said Tuesday that it delivered 443,956 vehicles in the second quarter, better than the 439,302 average analyst estimate.

While sales were down 4.8% from a year ago, Tesla improved on a sequential basis from the 386,810 vehicles delivered in the first three months of the year.

The Austin-based carmaker delivered 422,405 of its top-selling Model 3 and Model Y vehicles in the second quarter, down from 446,915 a year ago.

The company produced 410,831 vehicles during the quarter.

TSLA shares are up around 5% in the pre-market, having soared from below $170 to almost $220 in the last three weeks to its highest since January…

…helped by a major short-squeeze (up 25% since this tweet)…

TSLA remains one of the most shorted names in the hedge fund space and is one of the biggest mutual fund underweights pic.twitter.com/fr3Rxju9Wq

— zerohedge (@zerohedge) June 4, 2024

…which we suspect has more legs…

…and the countdown to the unveiling of Musk’s fully autonomous robotaxi concept on August 8th begins.