Month: September 2024

Well, once again the majority – make that the vast majority – of “economisseds” were dead wrong, and as we noted earlier, 105 of 114 economists predicted a 25bps cut… and were wrong. But don’t blame them: it really is the Fed’s fault – again – because while odds of a 50bps rate cut were only 10% as the Fed entered its “blackout period”, these surged after an unprecedented media leak campaign in the past week pushed 50bps odds to 70% (and yes, we can now confirm that Powell used Nick “Nikileaks” Timiraos not once but twice in the past few days to ease the blow of the 50bps cut), which brought us to today, when the Fed shocked with a 50bps rate cut, and slashed its expectations for the 2025 rate cut…

… even though the conditions from June until September were barely changed:

• 2025 GDP forecast unchanged
• 2025 unemployment rate up just a fraction, from 4.2% to 4.4%
• 2025 core PCE dip tiny from 2.3% to 2.2%

And somehow that justified the FOMC predicting an additional 3 rates cuts from June to September and a whopping 4 additional rate cuts in 2025!!!

Just don’t call it political.

In any case, here is a snapshot of some of the kneejerk Wall Street reactions to today’s Fed rate cut, which as the Fed itself now admits, was far behind the curve as the economy was clearly in far worse shape than the Fed dared admit.

Diane Swonk, KPMG Chief Economist

“This was a huge victory for Jay Powell”

Anna Wong, Bloomberg Economics:

“The first question in Powell’s presser was what information caused the FOMC to opt for the larger cut, and Powell mentioned the Beige Book. We’ve long thought Powell gives strong consideration to the anecdotal information in the Beige Book — and the latest version was extremely downbeat. The Beige Book also was the key piece of information that led to Powell’s’ dovish pivot last December.”

More from Bloomberg Economics:

“The FOMC concluded one of its most suspenseful meetings ever by cutting rates 50 basis points, while cautioning markets that this type of jumbo cut won’t be the norm. The updated dot plot suggests a gradual path of rate cuts going forward, suggesting the Fed sees the 50-bp move as a preemptive one that will be enough to stabilize the labor market. The median participant still sees real GDP growing at a solid pace of 2% this year.

“In our view, the 50-bp cut was the right move with the labor market clearly weakening. If the economy is indeed heading toward a soft landing, the unemployment rate will likely stabilize at 4.4% as the Fed foresees. We think this move has increased the chance of that outcome.”

Ira Jersey, Bloomberg Intelligence:

“The 2024 median dot shows another 50 bps of cuts by year-end, but there’s a large minority thinking only one further cut might be needed. Market pricing hasn’t shifted toward the risk of fewer cuts this year. Chair Powell’s comments on this score may cause this pricing to move if he’s not as dovish as the median dots suggest.”

“The long-end dots are interesting, and over time the steepening of the curve may come in. The long end’s modest selloff reflects the market’s view that inflation might increase as the Fed cuts so aggressively.

“We’re not convinced this will turn into a trend, and see bull steepening continuing further. The 2025 dots moving lower by 75 bps wasn’t a shock at this point: The question is, will the market believe 2.75-3% terminal floor, or price for more?”

Kathy Bostjancic, Nationwide Chief Economist

“There’s more work to be done — and quickly. We foresee the Fed needing to continue to rapidly lower interest rates to underwrite a soft-landing – which is our baseline forecast.”

Nancy Tengler, CEO at Laffer Tengler Investments

“Stocks love a good Fed put. I think the Fed may have jumped the gun at 50 bps. The economy is slowing but still strong. Productivity robust and unit labor costs moderate. Unemployment may indeed rise but we are not seeing layoffs—JOLTs still a very large number, well above pre-pandemic levels. My criticism of the Fed has been a myopic focus on backward looking data. This feels like that. A single weak employment report and here we are.”

Eric Orenstein, senior director at Fitch Ratings

“The Fed’s 50bp rate cut likely adds downward momentum for mortgage rates, which have already come down materially since May as treasuries have rallied. While not enough for a full scale refi boom, an average 30-year rate approaching 6% does open up a meaningful slice of the market for refinancing. Mortgage originators stand to benefit, and will likely find the toughest times already behind them.”

Dean Baker, Center for Economic & Policy Research

“It is good that the Fed has now recognized the weakening of the labor market and responded with an aggressive cut. Given there is almost no risk of rekindling inflation, the greater boost to the labor market is largely costless. Also, it will help to spur the housing market where millions of people have put off selling homes because of high mortgage rates.”

Seema Shah, chief global strategist at Principal Asset Management:

“Despite the skepticism around economic need for an aggressive 50 bps cut, markets can and should only celebrate today’s move — and will continue to celebrate over coming months. We have a Fed that will go to historic lengths to avoid a hard landing. Recession, what recession?”

Maxine Waters, House Democrat and Court Jester:

“I am pleased that the Fed has not only remained independent, but shown the importance of remaining independent as it followed the data and not politics.”

Last – and least – here is Elizabeth Warren, Indian shaman of the Cherokee tribe

“This cut in interest rates is yet another acknowledgement that Powell waited too long to reduce rates. The Fed has finally changed course to follow its dual mandate on prices and jobs. Lower rates mean relief for consumers and aspiring homeowners. More rates cuts are needed.”

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The Pentagon has taken the rare step of deploying US Army ground forces to an Alaskan island on fears that Russian and Chinese warships are coming closer and closer to America’s shores.

Some 130 soldiers have been sent to an uninhabited, remote island in the Aleutian chain of western Alaska following a series of Russian and Chinese military assets being spotted of the coast, including warplanes. 

For example, just the past week saw a grouping consisting of 8 Russian planes and four navy vessels come close to Alaska. Moscow and Beijing recently ordered stepped-up joint patrols and naval drills in the Pacific region.

“It’s not the first time that we’ve seen the Russians and the Chinese flying, you know, in the vicinity, and that’s something that we obviously closely monitor, and it’s also something that we’re prepared to respond to,” Pentagon spokesman Maj. Gen. Pat Ryder described.

The island in question where US troops are newly deployed is called Shemya Island, which lies some 1,200 miles southwest of Anchorage.

The Army is calling it a “force projection operation” which began on Sept.12.

Below is the latest press release from the North American Aerospace Defense Command complaining of recent incursions in the Alaska Air Defense Identification Zone (ADIZ) off Alaska:

At least two High Mobility Artillery Rocket Systems (HIMARS) have been placed on the island, which has a US Air Force air station dating back to WWII.

According to more background on the location:

Shemya Island is home to the COBRA DANE radar system, operated by the United States Space Force (previously the Air Force oversaw it), that is used for tracking ballistic missiles and similar objects. It is also home to an air station.

The Aleutian Islands were also a battleground during World War II, with the Japanese military seizing several of the islands before the United States retook them. 

Already this year, Russian planes have buzzed the ADIZ off Alaska some 25 times, according to US defense sources. At this rate, a new record will be set by year’s end.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Not surprisingly, Donald Trump and Kamala Harris are taking opposite approaches to modifying the corporate tax code. If enacted, both proposals would significantly impact corporate profits and, thus, share prices. Currently, the plans are only campaign promises. History repeatedly reminds us that many political promises are meant to drum up votes.

“Read my lips, no new taxes” – George H.W. Bush 1988.

Predicting whether Trump or Harris will be the next president is challenging. Moreover, even if you know who will win, it’s even trickier to assess which legislation they will focus on and which bills can get through Congress.

Markets handicap unknown scenarios all the time. In some cases, stock prices can move violently as the odds of an event occurring change. Since corporate taxes may be the most significant short-term political factor affecting stock prices, it’s worth understanding what both candidates propose, allowing us to try and stay a step ahead of the market handicappers.

Furthermore, with the recent history of Donald Trump’s 2017 corporate tax cuts, we quantify which companies are best suited to take advantage of or be penalized by a change to the tax code.

Current Corporate Tax Code And History

The following graph charts the Federal corporate tax rate and the effective tax rate companies have actually paid since World War II. Trump’s 2017 Tax Cuts and Jobs Act (TCJA) reduced tax rates from 35% to 21%. The only other significant cut in America’s history of corporate taxes was in 1986, when President Reagan reduced them from 46% to 34%.

Like personal taxes, corporations have many loopholes. Thus, the effective tax rate can vary widely by company. Evaluating how tax rates affect corporate bottom lines in the aggregate is important but can be critical at a company level.

This article only addresses the proposals from the point of view of corporate profits. We do not opine on how they could impact the deficit or economy.

Donald Trump’s Tax Proposals

Trump’s current tax proposal calls for a tax reduction for corporations from 21% to 15%. However, the reduction would solely be for companies that make their products in America. Companies that “outsource, offshore or replace American workers” will not be eligible.

What’s unclear is whether companies can divide their revenue for tax purposes based on where goods are manufactured. Furthermore, how will companies providing services be taxed?

Also for consideration is the “Bonus Depreciation” tax break from the 2017 TCJA. The legislation allowed companies to depreciate 100% of equipment purchases in the year it was acquired. Previously, they could only write down the value of equipment over time according to its useful life.

The Institute of Taxation and Economic Policy (ITEP) analyzed the impact of the accelerated depreciation rule on 25 of the biggest beneficiaries (LINK). They write:

The federal statutory corporate income tax rate is 21 percent, which means that if corporations enjoyed no special breaks or loopholes at all, they would pay 21 percent of their profits in taxes. As a group these corporations used many kinds of tax breaks to drive their effective federal income tax rate down to 12.2 percent. For the whole group of companies, accelerated depreciation accounts for 86 percent of those tax breaks.

Some corporations have used accelerated depreciation to drive their effective tax rates down to single digits during this five-year period. These include Verizon, Amazon, Walt Disney, Con Edison, General Motors, Dish Network, and others.

While the accelerated depreciation has been a boon to some companies, the amount a company can depreciate declines over time. In 2024, a company can only depreciate 60% of equipment costs versus 100% from 2018 to 2022. Each year forward, the amount drops by 20%. In 2027 and beyond, it will be phased out unless it’s extended.

Kamala Harris’s Tax Proposals

Harris’s proposal is more straightforward to analyze. She supports raising the corporate tax rate to 28% for all companies. In addition, she would like to increase the corporate stock buyback tax from 1% to 4%.

Under her plan, companies would see a 7% increase in tax rates which essentially claws back half of Trump’s 2017 TCJA tax legislation.

Congress ultimately has the power to change tax rates. Ergo, whether it is Trump or Harris, it will be hard to change the tax code if one of the two houses of Congress is the opposing political party. The chart below from Gavekal Research shows the possibilities.

Analyzing The S&P 500 Companies

With some background on the candidate’s proposals, we now evaluate the constituents of the S&P 500 to assess the impact of the Trump tax cut. The analysis helps gauge which stocks are most at risk of tax hikes or could benefit from further tax reductions.

Our analysis is based on corporate tax data from 2010 to current for the 503 current S&P 500 stocks. To help improve the quality of the analysis, we only assessed companies with at least four years of earnings data before the Trump tax cuts and six years afterward. Further, we avoided companies with volatile earnings. That criteria narrowed the list to 306 companies.

Of this subset of the S&P 500, the average tax rate before the tax cut was 26.74%. Since then, it has been 17.37%. Almost 90% of the companies saw their effective tax rates decline. On average, the 306 companies’ earnings were 9.36% greater than they would have been.

We summarize the data for you because there are over three hundred companies.

The following table organizes the data by sector. Utilities were the apparent biggest beneficiary of tax cuts. This was partly from the bonus depreciation and recent tax incentives to promote green energy.  

On the other side of the coin is real estate. The cut was not meaningful because these companies tend to pay very little taxes. As shown, the rest of the sectors tended to gravitate around the average. 

The following table shows the largest stocks by market cap. We left out five stocks due to earnings volatility.

Who Pays If The Harris Plan Is Law

The following table lists the companies that saw an improvement of at least 20% to their bottom lines due to the 2017 change in the tax code. Some of these stocks may be at most risk if Harris’s tax plan to boost rates to 28% passes. Those with effective tax rates closer to 28% may be the least affected.

Part of the Harris plan is to raise the buyback tax rate from 1% to 4%. Doing so will weigh on the bottom lines of those perpetually buying back significant amounts of shares. Furthermore, some of these companies may find it more advantageous to increase their dividends instead of buybacks.

The following graph from Uptrends shows the top ten buyback programs of 2024. Clearly, Apple, META, and Google may have the most to lose from the potential tax increase.

Who Wins If Trump’s Plan Is Enacted

Conversely, those with the highest effective taxes and domestic production capabilities may benefit the most. Given that we do not have data on production facilities, we can only share the companies with the highest effective post-2018 tax rates.

In addition to the potential tax cut, we must consider any changes to the bonus depreciation roll-off schedule. Trump could try to bring back the 100% depreciation in year one or stop the bonus depreciation percentage from declining.  

To help us in this endeavor, we share the following table from ITEP with the biggest beneficiaries of the bonus deprecation.

Summary

As we sit here today and assess the stock market and individual stocks from a political perspective, it appears a Trump victory may provide investors with more potential upside. We are solely basing the argument on their respective tax cut proposals.  

The graph above shows that the S&P 500 rocketed by 35% in the two months following the passage of the legislation. Furthermore, the market rose before the legislation as investors gained confidence the legislation would pass Congress.

One can argue the gains were short-lived, as the market gave up its gains shortly after. Contrarily, higher corporate profits due to lower tax rates are an important factor driving the market significantly higher since 2017.

Well, now Fed Chair Powell has some ‘splaining to do…

While economists were heavily weighted towards a 25bps cut (just nine forecasters in Bloomberg’s survey of 113 (!) economists predicted 50), traders were almost all-in on the idea of a 50bps cut today (odds had sunk intraday from around 70%)… so what was it ‘economically’ that prompted the 50bps!!

Powell pissed a lot of people off (on one side or the other)…

What was it that Powell and his pals saw that prompted them to slash rates by 50bps?

Stocks and home-prices are at record highs, inflation’s path lower has stalled, and the latest labor market data was anything but clearly supportive of a cut (let alone a 50bps cut).

Could it be that The Fed is not as ‘apolitical’ as it proclaims?

There’s also the demands of Senator Elizabeth Warren who urged for a 75bps cut… to help Kamala?

Cue Republicans questioning The Fed’s crisis-level rate-cut just two-months out from the election?

Paging Arthur Burns…

…and of course, if this occurs, guess who will get the blame when he wins in November!

Good luck Mr.Powell (said in a James Bond villain tone) as you walk this tight-rope.

Watch Fed Chair Powell speak live (due to start at 1430ET):

Tl; dr: Despite only 9 of 113 economists surveyed expecting a 50bps rate-cut, Powell and his pals did it. At the same time they slashed their ‘DOTS’ expectations for rates, despite not adjust growth expectations, barely adjust unemployment, and hoping for lower inflation.

And all this two months before the election… amazing!

Amazing what an 818K downward jobs revision that “nobody could have seen coming because the Biden economy was so strong” will do… pic.twitter.com/xvTwmE4eUJ

— zerohedge (@zerohedge) September 18, 2024

Paging Arthur Burns…

…and of course, if this occurs, guess who will get the blame when he wins in November!

*  *  *

Since the last FOMC meeting on July 31st, a lot has happened – growth scares, Jackson Hole, weak data, strong data, and endless FedSpeak – but most notably, the market has practically convinced itself that it needs 50bps of cuts but a recession is not imminent. Bonds and Gold have dramatically outperformed while oil has been a big loser (along with the dollar)…

Source: Bloomberg

Stocks and bonds are in worlds of their own since the last FOMC meeting with the former unchanged (no recession) while the latter has seen yields puke 40-50bps (recession)…

Source: Bloomberg

US Macro data has surprised to the upside dramatically since the last FOMC (perfect time to cut rates?)

Source: Bloomberg

And both growth and inflation data has surprised to the upside (screw the inflation data, we’re cutting!!)

Source: Bloomberg

Overall rate-cut expectations have soared since the last FOMC meeting (adding 60bps of cuts to expectations to the end of 2025), with a heavy waiting to 2024 cuts…

Source: Bloomberg

Finally, before we get to the actual decision, we note that the odds of a 50bps cut today had drifted lower intraday (to 57% from 75%)…

Source: Bloomberg

Today will be not just about the size of the cut, but most focus will be on the messaging for what happens next, especially given the new DOTS, which will likely adjust dramatically more dovish (to catch down to the market’s expectation)….

Source: Bloomberg

At the last refresh of the SEP (dot-plot), 4 FOMC members expected no rate-cuts in 2024, 7 members expected 1 rate-cut in 2024, 8 members expected 2 rate-cuts.

So what did The Fed do?

Wow! The economy is so great, it needs an crisis-level rate cut 2 months before the election

• Federal Open Market Committee votes 11 to 1 to lower benchmark rate by 50 basis points to target range of 4.75%-5.0%, the first rate cut in more than four years

• Fed governor Miki Bowman dissented in favor of a smaller 25 bps cut. It’s the first dissent by a governor since 2005.

• Statement adds language to say the committee is “strongly committed to supporting maximum employment” in addition to returning inflation to its 2% goal

• Statement says that “in considering additional adjustments” to rates, officials will assess incoming data, evolving outlook and balance of risks

• Fed tweaks language to note job gains “have slowed;” says inflation “has made further progress toward the committee’s 2% objective but remains somewhat elevated”

The Fed Dots tumbled to meet market expectations, with 2024’s median dot slashed from 5.125% to 4.375%, 2025 cut from 4.125% to 3.375%, and 2026 from 3.125% to 2.875%…

Nine of 19 officials penciled in 75 basis points of cuts or less…

Close up on 2024 and 2025 – The Fed members literally abandoned all of June’s expectations…

But amid that massive easing adjustment in the dots, The Fed did not change its 2025 GDP forecast at all, it sees 2025 unemployment up just a fraction, from 4.2% to 4.4% and 2025 core PCE dip from 2.3% to 2.2%…

… and that justifies the FOMC predicting an additional 3 rates cuts from June to September…

Read the full FOMC Statement red-line below:

Authored by Peter Tchir via Academy Securities,

There is no doubt the Fed is driving markets right now.

The only question remains, is are they driving an EV (fast acceleration) or a traditional ICE vehicle (slower off the line but builds up speed nicely).

Before exploring our take on the various scenarios (which we covered a bit in this weekend’s Great Debates T-Report) it is a good time to remind everyone in the New York area that Academy’s Geopolitical Roundtable (with a Macro and Credit focus) is fast approaching.  Please register here for the event on Thursday October 10th from 5:30 to 7:30 pm at Bobby Vans (230 Park Ave location) for drinks and heavy Hors D’oeuvres. With General (ret.) Spider Marks leading the engagement on the Geopolitical side. I will chime in on some macro and credit, along with our debt capital markets, syndicate and corporate bond sales and trading teams! Should be informative and a good way to catch up on the progress Academy has made in the space over the past year. Please do register because while the space is comfortable it is limited and the initial response has been strong.

Thanks, now back to the main event.

40% probability of 25 bps.

If the Fed stuck to their messaging and was truly data dependent they would only go 25 bps, but they seem to be indicating and getting pushed by the market to go 50).

• 45% chance of a “dovish” 25.  To offset the disappointment in “only” going 25 bps, the dots would become more aggressive than the last meeting. Hints that 50 were coming would come out in the dots, the announcement and presser. Possibly see even one dissent, arguing for 50 bps. Bonds and stocks wind up not doing a whole lot at the end of the day, unless the “dovish” message hits very loud and very clearly.

• 50% chance of a “neutral” 25. No dissents. Messaging about remaining “data dependent”. Some expression of concern about the potential to stoke inflation. The dots, while coming in more aggressive than the last time, push back significantly on the terminal rate and when we get there. Mild selling in bonds and stocks.

• 5% chance of a “hawkish” 25. To be honest, 5% chance seems too much, as it is difficult to imagine, regardless of what is delivered in the announcement and the dots, that Powell could remain hawkish the entire press conference. It is not his nature. Stocks and bonds would both sell off, meaningfully, but I am not worried about this scenario.

60% probability of 50 bps.

The markets are steering them in this direction. I thought they should go 25 in July, so I support 50, but it doesn’t seem in line with much of their official messaging. Ultimately 50 would tell us to listen to a certain reporter at the WSJ (and if they don’t go 50, his reports will become less of a fixation).

• 25% chance of a “dovish” 50.  In addition to going 50 at this meeting, the dots would become much more aggressive. Not just for this year, but for next year as well. Powell might have to come across strongly than the terminal rate is “well known” (I don’t think it is) and that they are committed to getting there now that they’ve started, UNLESS, the data stops them. Basically, the Fed would make it clear they are going with a “Punch It, Margaret!” moment. Bonds and stocks would rally hard! Stops would get taken out on the short side and the stage would be set for an extremely strong rally in the coming days as every bear gets forced out or capitulates.

• 40% chance of a “neutral” 50. I think this is trickier to navigate as the market likes “dovish” or “hawkish” and is less keen on finding “neutrality” so whatever is said, done, or printed, will likely be interpreted as either hawkish or dovish, at least initially. But if they can walk the tightrope, of data dependence, a balance of risks, etc., they can maybe convince the market they slow down appreciably after the first 50 bps. In the end I don’t think the market will listen (after all they just jumped/pushed into 50). Some initial wavering in stocks and bonds, but then “rally mode”. While the rally won’t be quite as strong as a “dovish 50” and will take more time to settle in, you would not want to miss this rally.

• 35% chance of a “hawkish” 25. They will try and balance the 50 bps with a LOT of talk about data dependency, the risks of inflation resurging, and will use the dots to aggressively signal the market is far ahead of itself. I suspect that if the Fed goes 50, there is a 75% chance that this is the message they think they deliver, but unless don’t very aggressively and overtly, most attempts will fall into the “neutral” take, which will eventually be upgraded to the “dovish” take, as the markets will now KNOW that the Fed can be pushed into faster cuts than their own messaging sends. Stocks and bonds sell off, maybe for a day or two, then we can start watching the data and earnings

With a lot already priced in, I think stocks and bonds have more downside risk than upside, though, the risk of a big move, seems to be skewed more heavily to the upside, based on the probabilities above.

I will be most closely watching:

• Any dissent. That would be their strongest tool in the announcement to present either a dovish 25 or hawkish 50.

• The dots in 2025 and beyond. They should move to 100 bps for this year, but the question is, where do they set the terminal rate and how long do they think it will take to get there? With the market pricing in sub 3% by the July 2025 meeting, there is a LOT of potential disappoint here, if the Fed uses uncertainty about the terminal rate both in the dots and the press conference (I think they should and will do that). I just think, that in a day or two, even if they are successful, the market will fixate on the fact that they could push them to 50.

• Data dependency and balance of risks in the press conference. Do they try and return some semblance of “balanced” risk? Probably not much, or more precisely, probably not too effectively, even if Powell tries, but the market could be disappointed on this front (the last bits of data haven’t been too bad, and Atlanta GDP now just got back to 3%, from 2% just a few weeks ago).

As always, we will send our interpretation of “what the heck just happened” after the press conference, and suspect that we will have several big moves and reverses today, as the market seems more divided on possible outcomes than we’ve seen in some time (and the tools at the Fed’s disposal, spread over the entire hour or so, from the time of the announcement, the dots, until the end of the presser!

Good luck, I re-iterate my wish that they Fed did this at 10 am EST, so we had less time to second guess ourselves, and I highly encourage those in the New York area to check out (and register) for the Geopolitical (with Credit and Macro) roundtable on the 10th!

Police in Nassau County, New York are investigating a possible security breach after a reported discovery of explosives near the site of former President Donald Trump’s rally on Long Island, just hours before his scheduled speech Wednesday evening.

Sources within the Nassau County Police Department allegedly told One America News Network (OANN) journalist James Lalino that officers conducting a routine K9 sweep discovered an explosive device in a vehicle parked near the rally venue. The report comes just three days after a would-be assassin was arrested at Trump’s Palm Beach golf club.

According to the Daily Mail, the driver of the car with explosives ran into the woods. According to Lalino’s report on X, the suspect bolted from the car, leaving law enforcement scrambling to locate him.

Sources in the Nassau County Police Department just told me that “the perimeter was breached and a blue barrel was removed” from the area surrounding tonight’s Trump rally site.

Source said “During K9, doing their checks, they found an explosive device in one of the vehicles and…

— James Lalino (@JamesLalino) September 18, 2024

“No one saw if he had anything on him, they just saw him take off running,” one source reportedly told Lalino. “A lot of cars are now parking, they’re lining up on Hempstead Turnpike, just parking on the grass. Even over at Eisenhower Park, they’re just parking over there.”

The bomb scare comes as Trump continues to face heightened security threats. He has largely shifted to indoor venues since an attempt on his life in Butler, Pennsylvania, on July 13, when a would-be attacker was apprehended before getting close to the former president.

Trump has largely moved to indoor events since the first attempt on his life in Butler, Pennsylvania on July 13. 

He was shot in the right ear by would-be assassin Thomas Matthew Crooks as shots rang out at his mid-summer rally. 

Two months later, a gunman pointed an AK-47 at the former president while he was playing at the Trump International Golf Course in West Palm Beach on Sunday just after 1pm. 

The Republican nominee was rushed to safety as Secret Service agents opened fire on the suspect who had a GoPro camera and backpack, along with his rife. -Daily Mail

If confirmed, the presence of explosives at Wednesday’s event would mark a chilling escalation in the threats surrounding Trump’s public appearances as he continues to campaign for the 2024 Republican nomination. Law enforcement officials have not yet released an official statement, but the incident has put the rally site on high alert.

BREAKING: Police find “explosives” in a car near Donald Trump’s rally site on Long Island where he is speaking this evening according to @JamesLalino

Lalino reports that the rally site’s “perimeter was breached and a blue barrel was removed.”

The Nassau County Police… pic.twitter.com/fNxUehL9Zt

— Collin Rugg (@CollinRugg) September 18, 2024

Nassau County police are reportedly working to secure the area while the search for the suspect continues.

Developing…

oil prices continued their recent rally off three-year lows this morning (rebounding from weakness overnight following the unexpected crude build reported by API) ahead of today’s FOMC decision and pushed higher by re-awoken geopolitical risk premium after Israel’s pager-op on Hezbollah prompted the start of retaliations.

The weak preliminary inventory data from API and recent trends in product spreads are adding to concerns about demand in the US, said Robert Yawger, director of the energy futures division at Mizuho Securities USA.

“If you don’t need the product, you don’t need the crude oil to make the product,” Yawger said.

“That is the most important math in energy — everything else is noise.”

The big question is will the official US crude stockpile data confirm API’s.

API

• Crude +1.96MM (Exp. -0.5MM)

• Cushing -1.4MM

• Gasoline +2.34MM

• Distillates +2.3MM

DOE

• Crude -1.63MM (Exp. -0.5MM)

• Cushing -1.979MM – biggest draw since Jan

• Gasoline +69k

• Distillates +125k

The official data contradicted API with a 1.63mm barrel draw and Cushing saw stockpiles tumble 1.979mm barrels – the biggest draw since January…

Source: Bloomberg

The big draw at Cushing pushed stockpiles near ‘tank bottoms’…

Source: Bloomberg

Total crude stocks (ex-SPR) dropped to their lowest in a year as the battle between physical-demand and paper-punting continues…

Source: Bloomberg

Who could have seen that coming?

There it is: record shorting by funds/CTAs despite stable physical demand. Tank bottoms coming up https://t.co/AB1OobZVQE pic.twitter.com/BDD3fq58MH

— zerohedge (@zerohedge) September 10, 2024

The Biden admin added 655k barrels to the SPR last week…

Source: Bloomberg

US Crude production dipped to 132.mm barrels…

Source: Bloomberg

WTI had bounced back above $71 ahead of the official data.

Crude remains markedly lower year-to-date, reflecting China’s dour demand outlook and plans by OPEC+ to eventually restore some shuttered output. The headwinds have been partially countered by supply disruptions in Libya and the US and prospects for monetary easing, with investors expecting the Federal Reserve to start lowering interest rates.

In the Middle East, Iran-backed Hezbollah accused Israel of orchestrating an attack in Lebanon involving the explosion of pagers, which left a number of people dead and wounded thousands. The incident raised fears of an all-out war in the region, and buoyed prices on Tuesday.

Yet on the demand side, lackluster consumption has seen some refineries in Europe reduce processing rates. Meanwhile in China, the world’s largest oil-importing nation, poor margins have led to the bankruptcy of two small plants.

By Michael Every of Rabobank

2750 Beeps

The market is waiting for the Fed to cut rates today for the first time in years: the economist Bloomberg survey expects 25bps; markets are split between pricing 25bps and 50bps, with the most speculation in Fed Funds futures since they began trading in 1988; some joke the Fed should cut 37.5bps to please everyone; others are shifting ”50-50” to mean “fifty then fifty”, i.e., rates can keep being slashed as in crashes and recessions; and Democratic senators want 75bps.

There were hopes US retail sales data could make the case for 25 or 50bps, but they didn’t. The headline was stronger than consensus, but the ex-autos figure was weaker. That said, industrial production soared 0.8% m-o-m vs. 0.2% expected. Yet it would be ironic if that series, a sector neither the Fed nor financial markets have any interest in, derails interest rates falling as fast as they had hoped. Likewise, the Atlanta Fed GDP survey put its current Q3 estimate at 3.0% with only two weeks left of data before end-quarter, when trend US growth is 2%: either that Fed series is unconnected to the real economy, or the FOMC are, or markets are, or all three. Moreover, concerns grow that east coast US ports might see a crippling strike next month. We already had a report of Asia-East Coast routes commanding a $1,500 premium, working against a general softening of freight rates of late.

Meanwhile, in the Middle East we just got 2,750 beeps (Saudi media reporting as many as 4,000). A killer call triggered the simultaneous explosion of thousands of pagers held by members of Iran-backed Lebanese terrorist militia Hezbollah, choking hospitals with men losing fingers, eyes, and other key anatomy. Even the Iranian ambassador was reported to have been lightly injured – though why did he have a Hezbollah pager? The Middle East is on a knife-edge. However, that obvious analysis aside, there are several key facts to draw from this episode, which rightly takes the main headline in the Financial Times today online ahead of the Fed.

First, both the Lebanese government and Hezbollah have blamed Israel for the attack, the latter promising revenge – and not by email.

Second, the US took its now-usual step of denying any involvement. I’m sure that’s correct as nowadays US allies don’t tell it what they want to do ahead of time, given they never want to do anything: it’s far easier to ask for forgiveness than permission. To a Machiavellian, saying ‘non mea culpa’ does not make the US appear an honest broker, but reduces its perceived power – silence was the better option. That this has to be said partly explains why geopolitical tensions are so high, which matters to markets given the FT saying national security is reshaping economic policy.

Third, Israel hasn’t claimed responsibility, but has dealt Hezbollah a hammer blow. The militia had recently switched to low-tech pagers to avoid interceptions of its comms and GPS locations. This has backfired badly, badly injuring thousands of its men, and now leaving it unable to communicate as rumors swirl of a potential Israeli ground incursion ahead.

Fourth, is how this ‘Mission Impossible’ was achieved. Some say the encrypted pagers ordered from Taiwan –bringing in another geopolitical angle– were interdicted, Mossad injecting a compound into their lithium batteries to allow them to be hacked remotely to then overheat. However, lithium burns and videos show detonations with no flame, suggesting the replacement of some parts with plastic explosives, a far larger supply-chain feat.

This matters for more than the Middle East or pagers. Many of us worry about phone addiction. Others worry about our phones being listened to. Some are pushing for children not to be allowed phones in schools. From now on, we’ll have to be concerned about our devices exploding in our hands or pockets. This will seriously change how some serious business is done.

The weaponisation of common devices within a supply chain opens a Pandora’s box. The US is already trying to remove Chinese technology like Huawei’s 5G as a security threat, and that EVs record all we do is well-known by many. Yet how long will it now be until more banal made-in-China consumer products are also seen as being potentially too risky? If I can make those connections, others paid to worry about such things, and politicians who make money in doing so, will be front-running further national-security onshoring in the near future.

Paging the Fed: that deep China supply-chain deflation helping you consider a 50bps move today may not last long. Things could really overheat at that point. If you think we’ve seen market volatility in the past few years (and weeks on USD/JPY!), imagine normalising 75bps Fed hikes against rising inflation, then 50bps cuts in a fair economy… and then getting that call structurally wrong, and having to U-turn again.

Ironically, as the Fed is considering cutting bigly while some US data looks good, the ECB is playing its hand more cautiously even as the German ZEW survey collapsed like VW’s self-confidence. Relatedly, as the Financial Times editorial says, “Draghi is trying to save Europe from itself”, EU Commission President von der Leyen just named her new team to do that saving. The key thing to note is countries who favour dirigiste market intervention (i.e., France, Spain, and Italy) claimed prime posts like anti-trust, state aid, EU spending, and industrial policy. The outgoing free-market competition commissioner powerlessly warned of allowing pan-EU champions to emerge, as this would also be a “Pandora’s box” for Europe. Just a less explosive one than what we’ve seen in the Middle East; except to free-market purists who don’t understand that violent reality is what much of the world outside their happy bubble looks like.

In Australia, the government and RBA are still at daggers drawn, as a former senior Reserve Bank manager says reform of its board is needed to avoid groupthink: yes, but all the establishment and most of the population daily echo the Aussie TV advert that screamed, “I JUST WANNA SELL RUGS!” (Where for “rugs!”, read “rate cuts!”; or for “sell” read “buy”, and for “rugs!” read “houses!”) The RBA is also going to play with a wholesale banking CBDC for the next three years to try to streamline settlements processes. Nothing for retail or the government yet. But if you want to imagine something truly explosive on the device in your pocket, how about a central-bank controlled digital currency it can print or delete at will as part of an it’s-not-central-planning-when-we-do-it economy. Luckily, one of the last to try and plan the economy will be Australia, we can assume – unless it involves housing.

So, back to waiting for the Fed. Or the next geopolitical bang.