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Oil prices spiked today with WTI back above $70 for the first time since Oct 2018 as traders edged down their odds of a completed Iran nuclear deal (which would likely bring new supply). US told Iran on Tuesday that it must let the UN atomic agency continue to monitor its activities, as laid out in an agreement that has been extended until June 24, or put wider talks on reviving the Iran nuclear deal at risk…

“I would anticipate that even in the event of a return to compliance with the JCPOA (2015 Joint Comprehensive Plan of Action), hundreds of sanctions will remain in place, including sanctions imposed by the Trump administration,” U.S. Secretary of State Antony Blinken said.

The record surge in Job Openings also helped ignite today’s momentum higher in oil.

“Blinken is looking at the reality of the situation and saying even if we do get a deal, there’s a long way to go,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.

“All those people expecting a flood of oil are going to be disappointed.”

On the more bearish side overnight, data showing China’s crude imports were down 14.6% in May on a yearly basis weighed on futures (before the buying panic arrived).

“We’re looking for a pretty sizable drawdown in U.S. crude oil inventories, while the demand thesis keeps improving,” said John Kilduff, a partner at Again Capital LLC. “This atmosphere remains bullish, as we’re heading into a structural deficit in terms of supply versus demand.”

API

• Crude -2.108mm (-3.5mm exp)

• Cushing -420k

• Gasoline +2.405mm

• Distillates +3.752mm

Analysts expected a sizable crude draw last week (the third in a row) but were disappointed in its magnitude which combined with significant product builds is less than the perfect bullish setup so many expected

Source: Bloomberg

WTI hovered just above $70 ahead of the API data and dipped after the notable product builds…

“The fundamental environment on the oil market remains favorable: fuel demand is recovering strongly not only in the United States, but also in Europe following the (partial) lifting of restrictions,” Commerzbank said.

 

 

It’s that time of the month when Bond King Jeff Gundlach regales his subjects, and investors in his DoubleLine, with his latest monthly thoughts revealed in the periodic webcast for this Total Return Fund.

Since it’s been about three months since Gundlach’s March 9 webcast when he laid out his outlook for the year, here is a recap of what he said then courtesy of Bloomberg:

• Gundlach reiterated his bearish dollar call in the short-term, saying the greenback will be correlated to the budget. The Bloomberg Dollar Index has since declined 2.4% since he said that.
• He called the Nasdaq “dicey,” making a daring call that it could eventually drop as much as it did from 2000 to 2003 (after the dot-com bubble deflated.) He also said it was unlikely to outperform, which he ended up being right about. Since those comments, the Nasdaq Composite rallied 6% relative to the S&P 500’s 9% gain.
• He called for a modest or moderate decline for long bond yields, but held his call for the 10-year yield eventually hitting 3%. Since then, the 10-year yield has remained unchanged, but the yield on the 30-year declined by two basis points.

Bottom line, as Bloomberg grundglingly admits, “in the last three months, his call on the Nasdaq, dollar and long bond yields have all been correct.”

Looking ahead, fans of Gundlach will be curious to hear his updated thoughts on inflation and the stock market. In April, Gundlach said it wasn’t clear that U.S. inflation will be “transitory,” as Federal Reserve economists have been trying to convey this year (and as Deutsche Bank dramatically posited this week). “How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively,” he told BNN Bloomberg at the time.

Gundlach also added that the U.S. stock market was overvalued by virtually every important metric versus foreign markets such as those in Asia and Europe. He disclosed that he’d bought European stocks “literally for the first time in many years. I can’t remember the last time I did it. And that’s largely because I think the U.S. dollar is almost certain to decline over the intermediate to long term.”

With the Stoxx 600 trading at a record high, this was yet another correct call.

Focusing on the economy, in his last call Gundlach put an emphasis on the jobs market, where only idiots and Fed employees don’t realize that we are facing a historic crisis due to labor shortages resulting from Biden’s massive handouts. Gundlach is likely to comment on the last two payrolls reports,  both of which were major disappointments. This will likely be key to his arguments on where markets are going next because he likes to dive into savings, income and spending trends, all of which are tied to the labor market.

With that in mind, here is Gundlach’s latest webcast “Clampdown” – click on the image below to get to the webcast page (registration required).

 

 

 

Throughout 2020, investors left the commodity sector discarded at the trash heap of the market, focusing instead entirely on growth and deflation names. Fast forward to today and boy have things changed: not only have growth names done little to nothing in 2021, a year which has seen near record shorting of tech names and a constant outflow of equity funds…

… but as sentiment shifts toward “value”, commodity-linked stocks have been rising every day, and even such boring names as Exxon and Chevron have recently turned into hedge fund darlings, attracting a bevy of activist shareholders and pushing higher by the day.

And now, according to JPMorgan, we may be poised for an even more powerful move higher in the commodity space, where estimated market open interest surged by ~$34 billion WoW to a record-seasonal high value of ~$1.25 trillion and is now only 2% shy of the historical peak of May 2018.

In the report authored by Ruhani Aggrawal, the largest US bank notes that price-led gains across crude oil and G&O drove the weekly increase, coupled with price- and contract-based gains across petroleum products, bulks, natural gas and softs. In contrast, precious and base metals open interest posted a combined weekly decline of ~$3.9 billion.

The report also reveals that contract inflows into base metals, petroleum products and bulks drove net commodity market inflows of ~$8.7 billion WOW, increasing the year-todate inflows to ~$18.6 billion. While energy is not nearly at a record level yet, it may soon get there: as shown in the next chart, energy market open interest surged by the most since April and has surpassed the near-term mid-March peak of $553 billion.

Some more details:

• Managed Money net length in oil F&O (NYMEX WTI and ICE Brent) jumped by 4% WoW over the week ending June 1 after three straight weeks of declines though, at ~649,520 lots,the net length is 12% below the near-term mid-February peak. Here JPM notes that “with summer now underway inthe northern hemisphere, oil demand tracking will be critical over the coming months.” As a reminder, last week we noted that JPM’s fundamental strategists’ base case is for a peak in prices around $80/bbl in late 2021; however if demand were to come in hotter than their projections over the next months, prices could peak towards $80/bbl earlier than their expectations.
• Non-Commercial net length across US traded agri markets bounced by 7% WOW to ~737,760 lots (June 1) after a month of declines, as the ongoing Brazilian drought supported net length additions, notably across ICE #11 Sugar, CBOT Corn and ICE Coffee. Moreover, F&O open interest rose by 2% WOW led by G&O, with contributions from softs.

Due to the reflexive nature of the derivatives sector, where positioning often dictates price, price momentum across energy markets increased in the past week, in part due to the near-record accumulation of bullish bets.

But what is perhaps most notable for oil bulls, JPM notes that the long-term NYMEX WTI trading signal is approaching a ‘sell-to-buy’ switch for the first time since January 2020.

Sadly for precious metal bulls, price momentum across precious and base metals slumped WoW with the short-term trading signals across COMEX Silver, NYMEX Palladium and LME Aluminum tracking close to a negative switch. At the same time, positive momentum across ags rose WOW, led by G&O.

Bottom line: with oil already trading at the highest level since 2018, and on pace to surpass its October 2018 highs, bets are surging that the next stop could be prices not seen since before the 2014 OPEC Massacre…

Authored by Bruce Wilds via Advancing Time blog,

Damn near every economist and analyst seem oblivious to the point being made in this article. The Fed should be ecstatic so many people are willing to invest in intangible assets. By not buying  tangible and real items they help to minimize inflation. In our bullshit world where media outlets like Bloomberg tout the message if you are not in this rising market, you are missing out, it is understandable that people want in. With this in mind, it is no wonder the investment world has become a minefield that is often compared to a casino.

An intangible asset is a useful resource that lacks physical substance. Examples are patents, copyrights, trademarks, and goodwill. Such assets produce economic benefits but you can’t touch them and their value can be very difficult to determine. These intangible assets are often in sharp contrast to physical assets like machinery, vehicles, and buildings.

This Does Not Tell The Whole Story

The term tangible assets, in this case, could be used to describe shorter-term assets, such as inventory since these items are intended for sale or conversion to cash. Most tangible assets can be easily converted to cash, this is why most people include as “tangible” the amount of money in a bank account. Even though money held by a bank is a paper promise, it falls into a “grey area” in that it holds the characteristic of being rapidly converted to something real like property such as cars, houses, or boats. Some of these accounts can also be used as collateral in case you want a loan.

Another example of quasi-intangibles is stock, when you buy stock what do you really have? You no longer get a certificate as in days of old, this should send the fear of God into those that worry about hackers. What you get is a glorified memo in a computer base somewhere, good luck proving what you have if things go bad. Most likely even getting a government official to listen will be a huge task. If you do get action most likely it would be years before you get any of your money back.

This Chart Is Proof It Is All “Bullshit”!

For a long time, I have taken the view that many “financial assets” have slipped into the intangible class. Assets such as stocks, pensions, and annuities harbor many of these qualities. These are things we can not touch and often live in the land of future promises. Today many are recorded on a computer somewhere and paper records of them are having a difficult time remaining current and in good order. Simply put, many people are not even sure where they have stored their wealth.

The theory that investments in intangible assets minimize inflation may be a chief reason government savings and wealth-building programs are centered on driving money into such assets. Over time, this has the potential to result in the collapse of the financial system. In our complex interdependent world, this would most likely hit the economy extremely hard, and the contagion from such an event could easily spill over and tear apart society.

To divert criticism of the fact no bona fide program exists which allows people to truly protect their wealth or preserve their purchasing power from inflation the U.S. government issues a type of Treasury security known as TIPS. This stands for, Treasury inflation-protected securities, these are indexed to inflation in order to protect investors from a decline in the purchasing power of their money. Sadly, even TIPS fail to hold up under scrutiny in that they are tied to the CPI which understates the true rate of inflation.

To be clear, I view the dollar as the best of the four fiat currencies, however, I expect all of them to come under attack in the near future. Circling back to the growing danger resulting in policies encouraging people to invest in intangibles to lessen inflation. When money is created or printed it has to go somewhere, this has been fueling the “everything bubble” and is not the key driver of inflation. The main reason it is not a main source of inflation is rooted in the fact this money is often diverted from goods everyone needs to live such as the intangible assets described above.

When you consider the amount of interest in cryptocurrencies and other inflation hedges it is easy to argue many investors are losing faith in the central banks and fiat currencies. A monetary crisis and the chaos that comes with it may very likely be coming down the road. The fact that over the decades, growth in intangible assets and the money supply has vastly exceeded the growth in real and tangible assets is problematic. 

There has been little resistance to moving investors into intangible or quasi-intangible assets because it is easier to own intangibles than deal with taking care of “real things.” This could account for part of the mismatch in growth between these two kinds of assets. Currently, the gap is so large that even if you allow for a great deal of the wealth stored in intangible assets to be washed away there will still be enough cash and credit available to create inflation. Ironically a huge washout in the value of this type of asset could be become a driver of inflation by igniting a shift into hard assets.

All this can be a difficult concept to grasp. When looking at soaring house prices, we should view the cause as more driven by inflation than because of a falling dollar. The important point is that everything is relevant and values and prices change. With this in mind, the one thing we as individuals should try to avoid is putting our wealth into something intangible that could vanish during the night.   

Now that it’s confirmed that G7 officials are seeking to enacted a global minimum tax rate of at least 15% (which however is unlikely to be uniformly implemented, and may not even pass in the US where Reuters reports that Senate Republicans have rejected Janet Yellen’s G7 deal), the question on investors’ minds is what impact will such a policy – if ever implemented – will have on corporate earnings.

Answering this question, Goldman’s Ben Snider estimates that such a policy would have a small aggregate impact on S&P 500 earnings, noting that “the direct impact of a 15% global minimum tax on US corporate profits would depend on which other tax reforms, if any, become legislation later this year.”

The tax plans proposed by President Biden even prior to his 2020 election included a15% minimum book tax for US companies along with hikes to the tax rates on both domestic and foreign income. We

Specifically, Snider says that in his estimates a 15% minimum tax – in the context of a larger tax plan – would represent a headwind of less than 1% toS&P 500 earnings. To be sure, a minimum tax rate would have a larger impact absent other tax reforms, especially if implemented on a country-by-country basis as suggested by the G7 agreement. However, Goldman estimates that a 15% global minimum tax rate would represent downside of just 1%-2% relative to current consensus S&P500 2022 EPS estimates.

There are some exceptions: drilling down within the US equity market, Goldman cautions that industries with low current effective tax rates and high foreign income exposure face the greatest risk. At the sector level, InfoTech and Health Care would face the greatest earnings risk, but even those sectors appear to face aggregate downside of less than 5% relative to current consensus estimates

So if one wishes to short any particular sector as a hedge to the latest G7 tax policy, the best bet would be to focus on semiconductors, which account for the largest number of S&P 500 stocks with consensus effective tax rates below 15%. The table below shows 41 S&P 500 companies with 2019 and consensus 2022 and 2023 effective tax rates all below 15%. The overwhelming majority of these companies have reported greater than 50% foreign income exposure in recent years.

 

Authored by Steve Watson via Summit News,

A leading advisor for the World Health Organisation said Monday that China is still engaged in a “massive cover up” of the coronavirus pandemic, calling for a “full investigation” to be conducted by the US government and it’s international allies.

Appearing on Fox News, Jamie Metzl urged that “The Chinese have engaged in a massive cover-up that is going on until this day, involving destroying samples, hiding records, placing a universal gag order on Chinese scientists and imprisoning Chinese citizen journalists asking the most basic questions.”

Metzl, a former State Department official and Senate Foreign Relations Committee staffer, added that “The more that China stonewalls, the more suspicious that it looks.”

“We can’t give China a veto over whether or not we investigate the world’s worst pandemic in a century and then do everything we can to make everybody safe,” Metzl asserted.

Watch:

Metzl also pointed out that the World Health Organisation “doesn’t have the mandate to have its own surveillance capabilities,” and was therefore easily batted away by China in the early days of the outbreak when it requested to send responders.

He previously acknowledged that the WHO’s investigation into the origins of the coronavirus outbreak was “entirely inadequate”.

Metzl also recently described Dr Peter Daszak’s attempts to have the scientific community dismiss the lab leak theory out of hand as “scientific propaganda and a form of thuggery and intimidation.”

Daszak, the scientist at the centre of the gain of function funding controversy, used his influence to have The Lancet journal publish a letter, signed by 27 other scientists, labelling the lab leak possibility as a dangerous conspiracy theory before any robust scientific investigation had occurred.

“By labelling anyone with different views a conspiracy theorist, the Lancet letter was the worst form of bullying in full contravention of the scientific method,” Metzl noted.

Calling for a robust investigation into the origins of the outbreak and its aftermath, Metzl explained “There’s a reason why after a plane crashes, we do everything possible to understand what happened.”

“If we don’t learn those lessons, there are other planes that are in the air. For all we know, the next pandemic is just around the corner and if we don’t understand and fix our biggest problems, we’re going to be at unnecessary risk. We have to get to the bottom of this, which means asking that tough questions and following the data wherever it leads,” Metzl emphasised.

Indeed, reports indicate that China is planning on opening scores of bio-labs just like the Wuhan Institute of Virology, over the next five years.

The Financial Times reports that “some Chinese officials have warned about poor security at existing facilities. In 2019 Yuan Zhiming, the director of the Wuhan Institute of Virology’s BSL-4 lab, wrote a review of the safety deficiencies in China’s laboratories. ‘Several high-level BSLs have insufficient operational funds for routine yet vital processes,’ Yuan wrote, adding that maintenance costs were ‘generally neglected.’”

The report adds that Yuan warned “Due to the limited resources, some BSL-3 laboratories run on extremely minimal operational costs or in some cases none at all.”

Lab leaks have happened multiple times from such facilities in China, with SARS escaping twice from the Chinese Institute of Virology in Beijing in 2004, one year after its spread was brought under control.

Former FDA head Scott Gottlieb has also urged that “These kinds of lab leaks happen all the time.”

Gottlieb recently warned that “In China, the last six known outbreaks of SARS-1 have been out of labs, including the last known outbreak, which was a pretty extensive outbreak that China initially wouldn’t disclose that it came out of lab.”

“It was only disclosed finally by some journalists who were able to trace that outbreak back to a laboratory,” Gottlieb explained.

Watch:

Gottlieb also noted that China has failed to make public blood samples from workers who got sick at the Wuhan lab, which would be vital to determining the origin of the outbreak.

Former head of British intelligence agency MI6, Sir Richard Dearlove, has warned that it may be too late now to hold the communist state accountable because it will have probably destroyed all that evidence. Dearlove is on record with his form belief that the pandemic was caused by a lab leak and then covered up.

As both Senator Rand Paul and former CIA director and secretary of state Mike Pompeo also warned recently, the Wuhan Institute of Virology is still up and running, and there is evidence pointing to its involvement with the Chinese military in bioweapons research.

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