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Forget Dudley’s Op-Ed, Trader Warns “The World Simply Can’t Afford A US Recession”

Authored by Richard Breslow via Bloomberg,

When I sat down to write this morning, S&P 500 futures were up nearly one-half of 1%, having spent the start of today comfortably in the green. A headline hit that Google is going to shift Pixel smartphone production to Vietnam from China and the market was sent promptly back to flat on the day. And, while it is still very early going to be sure, and recent intraday volatility makes it a mug’s game to predict what the day will bring, that’s about all that was worth. The market immediately attempted to bounce. It’s tempting to make a comment about the disconnect between markets and the real world. But that’s not possible when one shifts focus to the bond screens.

In many ways, the world has taken leave of its senses.

Global fixed-income yields reflect that quite convincingly. Germany auctioned 10-year bunds this morning at negative 70 basis points. Which is close to, but not quite at, year-to-date lows. But, as I said, the day is young and the market has stayed bid. At the last auction — a mere month ago — it raised eyebrows that investors and liability managers were willing to accept negative 41 basis points. Bring on the ECB.

Of course, since then, the German economic numbers have been hugely disappointing. And just this morning the German Institute for Economic Research (it sounds more impressive if you just say DIW) forecast that the economy will shrink by 0.2% in the third quarter. And that is what recessions are made of. As they pointed out in their report, manufacturing is so weak that it is dragging the service sector down with it.

And still the German government refuses to properly loosen the fiscal purse strings. The number of respected commentators who are wondering why, or screaming bloody murder, keeps growing. The chancellor, inexplicably, seems willing to keep a wait-and-see approach. Bundesbank President Jens Weidmann has reverted to type, saying this past weekend that the government and the ECB shouldn’t “act for action’s sake.” Huh.

But why wouldn’t you think those yields are attractive when Italian two-year paper passed negative 15 basis points earlier this morning?

Former New York Fed President Bill Dudley, unsurprisingly, got the lion’s share of the headlines yesterday with his column saying the central bank shouldn’t encourage President Trump’s trade war. It immediately provoked rebuttals. The market didn’t alter its pricing on it. But I’ve been amazed how many people said to me that they have thought the same thing. Forget about it. What seems like muscular politics on paper would most likely have some very unfortunate unintended consequences. And with everything else going on, the world simply can’t afford a U.S. recession. Nor is it clear how we would get out of one.

Slash rates and do more QE?

Good luck with that.

Driving Treasury yields into negative territory is a prescription for economic and political disaster far worse than “waiting it out.” Forcing pension plans into an even more aggressive feeding frenzy for whatever yield they can get could lead to some mighty cold winters for retirees. Heat doesn’t trickle down. The only thing that is likely to work is the passage of time. And when it comes to lowering rates, patience is not something the central bank will be very good at.

It’s maddening that the makers of monetary policy now realize that they need to reconsider the assumptions built into their models. No one is feeling particularly over-confident anymore. On the other hand, they have no choice but to do so. And the sooner the better.

I have a lunch today and my host will ask me how the markets are doing. If I can tell him stocks and bonds are up, he will smile and assume all is right with the world. That’s a big reason how we got here.

via ZeroHedge News https://ift.tt/2ZCvOh3 Tyler Durden

“A Narrative Summary Describing How the … Taxpayer … Shares California’s Values with Regard to Women’s Reproductive Rights”

Jon Healey, L.A. Times Deputy Editorial Page Editor, flags this today:

The bill … would offer an additional $50 million in tax credits to film and TV producers who locate their productions in California at least in part because of the restrictive abortion laws in other states. Subsidy applicants would have to submit “a narrative summary describing how the qualified taxpayer, and any relevant activities during the production period, shares California’s values with regard to women’s reproductive rights,” which would be a factor in the California Film Commission’s decisions about whom to fund.

Not to put too fine a point on it, but the bill’s title is the “Share Our Values Tax Credit.”

Healey condemns this, and I agree: Denying a grant or other benefit (including a tax credit) to a person or group based on its ideology is a clear First Amendment violation.

The Court reaffirmed that just in 2013, in U.S. Agency for International Development v. Alliance for Open Society International, when it struck down a policy that denied HIV-prevention grants to any organization “that does not have a policy explicitly opposing prostitution and sex trafficking.” “[T]he Government,” the Court held “may not deny a benefit to a person on a basis that infringes his constitutionally protected … freedom of speech even if he has no entitlement to that benefit.”  And this of course applies just as much to tax rules—”a discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech” (Speiser v. Randall (1958)).

Now, unlike the law in USAID v. AOSI, this law merely requires people to describe how the applicant “shares California’s values with regard to women’s reproductive rights.” But why would it ask for such a description if it didn’t plan on giving an advantage to people and organizations who have certain “values” on this subject, and discriminating against those who have the opposite values? And indeed the very process of asking about this can deter applicants from expressing “values” contrary to the government’s.

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“A Narrative Summary Describing How the … Taxpayer … Shares California’s Values with Regard to Women’s Reproductive Rights”

Jon Healey, L.A. Times Deputy Editorial Page Editor, flags this today:

The bill … would offer an additional $50 million in tax credits to film and TV producers who locate their productions in California at least in part because of the restrictive abortion laws in other states. Subsidy applicants would have to submit “a narrative summary describing how the qualified taxpayer, and any relevant activities during the production period, shares California’s values with regard to women’s reproductive rights,” which would be a factor in the California Film Commission’s decisions about whom to fund.

Not to put too fine a point on it, but the bill’s title is the “Share Our Values Tax Credit.”

Healey condemns this, and I agree: Denying a grant or other benefit (including a tax credit) to a person or group based on its ideology is a clear First Amendment violation.

The Court reaffirmed that just in 2013, in U.S. Agency for International Development v. Alliance for Open Society International, when it struck down a policy that denied HIV-prevention grants to any organization “that does not have a policy explicitly opposing prostitution and sex trafficking.” “[T]he Government,” the Court held “may not deny a benefit to a person on a basis that infringes his constitutionally protected … freedom of speech even if he has no entitlement to that benefit.”  And this of course applies just as much to tax rules—”a discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech” (Speiser v. Randall (1958)).

Now, unlike the law in USAID v. AOSI, this law merely requires people to describe how the applicant “shares California’s values with regard to women’s reproductive rights.” But why would it ask for such a description if it didn’t plan on giving an advantage to people and organizations who have certain “values” on this subject, and discriminating against those who have the opposite values? And indeed the very process of asking about this can deter applicants from expressing “values” contrary to the government’s.

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TSA Bans Coke Bottles That Resemble Fictional Star Wars Explosives

The Transportation Security Administration (TSA) has banned passengers from bringing special bottles of Coca-Cola sold at Disney theme parks onto planes because the containers resemble the fictional “thermal detonator” devices in the Star Wars universe.

The bottles are being sold at the newly opened Galaxy’s Edge, a Star Wars–themed attraction at Disneyland in California and at Disney’s Hollywood Studios in Florida. It’s a clever bit of marketing, but any parkgoers who want to take their Coke bottles home as soveigners will be out of luck if they plan to fly.

“It could create concern that it’s the real thing,” TSA spokesperson Jim Gregory told the Orange County Register, which first reported on the ban.

Really? Let’s think through this. Anyone familiar enough with Star Wars to recognize a Coke bottle made to resemble a thermal detonator is also going to be aware of the fact that thermal detonators are fictional. Anyone else is just going to think, “Wow, that’s an odd-looking Coke bottle.”

Even a lot of casual Star Wars fans might not know what the bottle is supposed to mimic, since the thermal detonator isn’t a well-known weapon. It’s mostly just a minor plot device. Introduced in 1983’s Return of the Jedi, the thermal detonator is a baseball-sized explosive that is implied to be very powerful. One is brandished menacingly by a disguised Princess Leia in the movie, but it never actually explodes on-screen. (Anton Chekov would be disappointed.)

But you know what does get used pretty often in Star Wars movies to kill and maim a lot of people and aliens? Lightsabers. And do you know what the TSA’s policy regarding lightsabers is? They’re perfectly fine—even in carry-on luggage!

That’s because plastic reproductions of laser swords carried by fictional space warriors are obviously not actual weapons. No one worries about confusing a lightsaber with “the real thing,” because that’s ridiculous. But plastic Coke bottles shaped like a fictional explosive device that never actually explodes? Those are so dangerous that they can’t even be packed in checked bags.

“The issue concerning Star Wars Galaxy’s Edge-themed soda bottles has recently been brought to our attention by the general public, as these items could reasonably be seen by some as replica hand grenades,” the TSA said in a statement Wednesday. “While we continue to review this issue, TSA officers will maintain the discretion to prohibit any item through the screening checkpoint if they believe it poses a security threat.”

Sadly, the TSA has a long and inglorious history of making arbitrary decisions about what counts as a “security threat.” The “thermal detonator” Coke bottles are forbidden under the same broad ban on replica weapons and explosives—except for lightsabers, I guess?—that has previously led TSA agents to seize items as innocuous as whiskey stones shaped like bullets.

This nonsensical prohibition is another good reminder that, nearly two decades after it was created, the TSA is not the last line of defense against terrorism. It’s a bloated, wasteful bureaucracy that treats innocent Americans like criminals and then shares those stories for laughs on social media. It kills bunnies, gropes grandmothers, detains kids, and still can’t find most of the actual weapons that get smuggled onto planes.

Are airline passengers safer travelling without Coke bottles shaped like fictional Star Wars bombs? No, they are exactly as safe as they would have been otherwise.

 

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TSA Bans Coke Bottles That Resemble Fictional Star Wars Explosives

The Transportation Security Administration (TSA) has banned passengers from bringing special bottles of Coca-Cola sold at Disney theme parks onto planes because the containers resemble the fictional “thermal detonator” devices in the Star Wars universe.

The bottles are being sold at the newly opened Galaxy’s Edge, a Star Wars–themed attraction at Disneyland in California and at Disney’s Hollywood Studios in Florida. It’s a clever bit of marketing, but any parkgoers who want to take their Coke bottles home as soveigners will be out of luck if they plan to fly.

“It could create concern that it’s the real thing,” TSA spokesperson Jim Gregory told the Orange County Register, which first reported on the ban.

Really? Let’s think through this. Anyone familiar enough with Star Wars to recognize a Coke bottle made to resemble a thermal detonator is also going to be aware of the fact that thermal detonators are fictional. Anyone else is just going to think, “Wow, that’s an odd-looking Coke bottle.”

Even a lot of casual Star Wars fans might not know what the bottle is supposed to mimic, since the thermal detonator isn’t a well-known weapon. It’s mostly just a minor plot device. Introduced in 1983’s Return of the Jedi, the thermal detonator is a baseball-sized explosive that is implied to be very powerful. One is brandished menacingly by a disguised Princess Leia in the movie, but it never actually explodes on-screen. (Anton Chekov would be disappointed.)

But you know what does get used pretty often in Star Wars movies to kill and maim a lot of people and aliens? Lightsabers. And do you know what the TSA’s policy regarding lightsabers is? They’re perfectly fine—even in carry-on luggage!

That’s because plastic reproductions of laser swords carried by fictional space warriors are obviously not actual weapons. No one worries about confusing a lightsaber with “the real thing,” because that’s ridiculous. But plastic Coke bottles shaped like a fictional explosive device that never actually explodes? Those are so dangerous that they can’t even be packed in checked bags.

“The issue concerning Star Wars Galaxy’s Edge-themed soda bottles has recently been brought to our attention by the general public, as these items could reasonably be seen by some as replica hand grenades,” the TSA said in a statement Wednesday. “While we continue to review this issue, TSA officers will maintain the discretion to prohibit any item through the screening checkpoint if they believe it poses a security threat.”

Sadly, the TSA has a long and inglorious history of making arbitrary decisions about what counts as a “security threat.” The “thermal detonator” Coke bottles are forbidden under the same broad ban on replica weapons and explosives—except for lightsabers, I guess?—that has previously led TSA agents to seize items as innocuous as whiskey stones shaped like bullets.

This nonsensical prohibition is another good reminder that, nearly two decades after it was created, the TSA is not the last line of defense against terrorism. It’s a bloated, wasteful bureaucracy that treats innocent Americans like criminals and then shares those stories for laughs on social media. It kills bunnies, gropes grandmothers, detains kids, and still can’t find most of the actual weapons that get smuggled onto planes.

Are airline passengers safer travelling without Coke bottles shaped like fictional Star Wars bombs? No, they are exactly as safe as they would have been otherwise.

 

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Iranian Tanker Makes Drastic Course Reversal As It Entered Turkish Waters

While en route to southern Turkey on Thursday the Iranian tanker Adrian Darya made a sudden 180 degree course alteration, and is now headed away from the Turkish coast and again in the direction of EU-member Greece. 

Refinitiv ship tracking data as well as MarineTraffic.com showed the drastic change in course as the ship’s data signals a destination “For Order” designation, meaning the vessel isn’t disclosing any destination, after it previously listed Mersin, Turkey just days ago. It made the drastic maneuver just as it began entering Turkish territorial waters.

Current tracking data shows the ship between the coasts of Turkey and Cyprus, heading west, at a moment there’s still an active US seizure warrant for the vessel.

On Monday an Iranian government spokesman announced the 2.1 million barrels have been sold to an unnamed buyer while en route across the Mediterranean after it was released.

Image source: Reuters

In statements made to reporters in Tehran, spokesman Ali Rabiei, said of the oil’s as yet unmentioned unloading point, “The buyer of the oil decides where its destination is.” 

He added that the world is “witnessing the wrong policy by the U.S. in monitoring and intervention in others’ internal affairs.”

The Unites States says the tanker is controlled by the Iranian Revolutionary Guards and thus deems any state’s interaction with it support of a formally designated terrorist group.

It’s expected that it will at some point attempt a ship-to-ship transfer at sea before the oil is transferred and ultimately offloaded at a port of the undisclosed purchaser’s choice.

via ZeroHedge News https://ift.tt/2zwmNM8 Tyler Durden

Dalio Burned As Bridgewater Emerges As One Of The Biggest Treasury Shorts

After we published Ray Dalio’s latest LinkedIn commentary, in which the founder of the world’s largest hedge fund ominously warned that central banks are on the verge of losing control of the global economy as their ammunition is now virtually non-existent in a world where interest rates are the lowest on record, and explicitly compared the current period to the one just preceding World War II, stating that he would “recommend that you understand the workings of the 1935-45 period closely, which is the last time similar forces were at work to produce a similar dynamic“, many immediately suggested that Dalio was merely talking his book.

As it now turns out, a hypocritical take of Dalio’s recent media appearances and write ups appears appropriate, because as Bloomberg reports today, the losing ways at Bridgewater’s Pure Alpha fund – which we first noted last month had “suffered one of its worst first-half performances in two decades after being whipsawed and wrong-footed by rebounding markets” – continued, and this time it was due to the fund’s Treasury shorts.

As a result of its paradoxical Treasury short – “paradoxical”, because if Dalio really believed that central bankers were on the verge of losing control, i.e., the ability to stoke inflation, he would be buying not selling bonds – Pure Alpha was down 6% through Aug. 23, and a more levered version of the fund, Pure Alpha II, was down 9% YTD. The pain was not limited to just the fund’s biggest discretionary fund: Bridgewater’s Pure Alpha Major Markets fund, which invests in a subset of the markets traded by the broader strategy, was down 18% through Aug. 23. It manages about $16 billion and since its 1991 inception has gained an annualized 12.5%.

Not every Bridegwater fund is suffering. Offsetting much of the Pure Alpha embarrassment, Bridgewater’s passively managed All-Weather fund, which unlike Pure Alpha is immune from macro-economic shifts and is instead a risk-parity, “balanced” fund, returned 12.5% YTD, which was to be expected in a year where both stocks and bonds have soared, resulting in the best returns for risk parity funds in over two decades.

As Bloomberg notes, Pure Alpha’s performance contrast to many peers who unlike Dalio, instead of writing long essays about this or that, simply bought bonds and collected what may be record annual profits as the following chart of the 30Y TSY price shows.

While macro funds have gained 4.7% this year through July, the performance of many managers has been limited due to continue bets that bond yields would rise. Of course, this has been a terrible trade as Treasury yields across the world have never been lower.

Meanwhile, with the latest CFTC Commitment of Traders report showing the Ultra-Long Treasury futures net spec positions are just shy of all time shorts, one thing is certain: the next move in 30Y Treasury yields will not be higher.

via ZeroHedge News https://ift.tt/2LeeBWi Tyler Durden

Feds Kick Incoming Harvard Freshman Out of the Country Because of His Friend’s Social Media Posts

Ismail Ajjawi flew to the U.S. from his native Lebanon last week. He had gained admission to Harvard University, and was excited to begin classes.

When he arrived at Logan Airport in Boston, a U.S. Customs and Border Protect agent detained him for eight hours.

“She called me into a room, and she started screaming at me,” Ajjawi later told The Harvard Crimson. “She said that she found people posting political points of view that oppose the US on my friend[s] list.”

Ajjawi protested that he was not responsible for his friends’ political opinions—and noted that he had not liked or shared them.

“I have no single post on my timeline discussing politics,” he said.

The officer was unmoved. She canceled Ajjawi’s visa and put him on a plane back to Lebanon.

Harvard’s administration is justifiably outraged, and it is working with Ajjawi and a team of lawyers to remedy the situation. They hope to have him back in the U.S. by September 3, the first day of fall classes.

It’s a terrible situation, and it at least partly reflects the Trump administration’s warped immigration priorities. In 2018, the State Department issued just 362,929 student visas, a 43 percent drop since 2015, according to Fox News.

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The Argentina Siren-Song (And Where Else It’s Being Sung)

Via Macro Man blog,

I’m back! After an extended leave of absence I’ve decided to start writing again.

Let’s start with a story familiar to those that read MM in my first term: Argentina. 

That cute little fella above is already back, only a few short years after Macri’s victory put an end to the sordid story of Argentina’s last debt default in 2001. 

I’m not going to get into the economics or the various mistakes made by the current government and the IMF.

Take a step back and think about how we got here, and the investor psychology required to move headlong back into Argentine debt: 

  • October 2015: Mauricio Macri defeats the ruling party-backed Daniel Scioli, putting a non-Peronist government back in power for the first time in a really long time. 

  • Macri appoints one of the most technocratic governments in the history of emerging markets. Argentine economists up and down the tri-state area that had sought refuge on Wall Street over the past 15 years came home to work for and support the new government. 

  • This new economic team quickly implements a series of orthodox policies and pitches a market friendly reform agenda with the goal of kick starting investment and growth. 

  • Macri quickly negotiates an agreement with holdouts from the previous debt default, and issues a ton of bonds to pay them off and fund massive twin deficits 

  • Investors rejoice and welcome Argentina back into the loving embrace of EM

None of these really look like mistakes, do they?

It started off well. The new bonds did well enough that the government was able to issue the famous Argentina century bond in June 2017. Later that year the government won important midterm elections that were seen as an important barometer for Macri’s success, political capital and chances of winning re-election.

Less than two years later, this is the chart on the Argentina 2021 bond…which traded at 110 in Q3-17:

That’s what they call a “sudden stop” in emerging markets. That influx of foreign capital has gone to money heaven. It doesn’t come back…the next one to bring capital to Argentina is that bird–which is why we’re already at this stage:

You can cite a few reasons for the descent from ten points over par to recovery value in less than 24 months. The government failed to deliver on growth, didn’t get pension reform done, there was a drought, low soybean prices, crappy growth in Brazil, USD strength, global manufacturing slowdown, you name it. Sure, maybe a confluence of all those things.

But let’s look back at the initial bullet points. Where did Macri go wrong?

I’d argue it was in the hiring of a ton of technocrats to run the economic program.

One can imagine how the conversations went. We’ll pay off Elliott. We’ll float the peso. We’ll institute inflation targeting at the central bank. Investors will love it. They’ll come to us in droves.

Yep, that’s how it went down. These guys played a siren song for EM investors, and they ate it up. They played every tune that is music to their ears….abolish capital controls, reform, inflation targeting, de-regulation, tax cuts…liquidity….oh yeah baby…

Before you know it, by mid-2018 there is $100bn in debt on the books and the fundamentals are deteriorating. Suddenly the IMF is back in town, an organization that has a favorability rating in Argentina on par with Trump on your average university campus. 

By 2019 the IMF has stabilized the situation well enough to buy Macri some time ahead of the October election. The economy wheezes along. Do investors take advantage of the opportunity to scale out of Argentine debt, given the poisonous political nature of the government’s economic record–and one that got into bed with the IMF?

No, instead foreign investors ate it up! This is a list of the top ten holders of the Argentina 2021:

Same chart for the Argentina 2028 (the only one that is reducing is blackrock, and only because they updated their data already):

Real money was not only holding these bonds, they were buying more. They were convinced Macri was going to win and make them a fortune. Take a look at the country weights of some of these mutual funds: you’ll find one after another is, or was anyway…overweight Argentina.

They bought into the swan song that the government told them. They succumbed to one of the classic behavioral biases: affinity bias. “These guys are just like us! They say they’ll win the election. We can trust them.”

There is also some confirmation bias there–where investors believed the orthodox path the government had taken was going to work. Why? Because that’s what they taught us in school! And the election?? Well, those Argentines….they know better than to bring the Kirchners back in, right?

And there is the last big mistake. Can you name one technocratic, dare I say, elitist, candidate that has won an election lately? One might say Macron…but look how that’s turned out. Sank without a trace.

Yet despite a terrible economic record, a leg shackled to a hated foreign organization and a global trend against orthodox, technocratic politics, foreign investors convinced themselves that Macri was going to win.

Right until he lost big.

And that brings us back to what Argentina can teach us about the rest of the world. Where else are investors buying into the swan song?

  • Brazil: sing it to me Captain…pension reform….deregulation….but growth still sucks and the government is still drowning in debt and red tape

  • Italy: wait, it is POSITIVE the most popular politician in the country just got heaved out of the government? That is going to make him LESS popular? 

  • UK: Maybe Boris can pull it off. Or maybe people still believe he can. 

  • United States: I can think of one good scenario going into the 2020 election, but it involves Joe Biden. With the S&P 4% off the highs, investors believe the most beautiful song is still sung by US multinationals. 

This was a big land mine for foreign investors. They stepped on it–not just because they got the story wrong–which happens to everyone. But because they had a few behavioral blind spots that we can all learn from.

via ZeroHedge News https://ift.tt/2zy7p1y Tyler Durden

Feds Kick Incoming Harvard Freshman Out of the Country Because of His Friend’s Social Media Posts

Ismail Ajjawi flew to the U.S. from his native Lebanon last week. He had gained admission to Harvard University, and was excited to begin classes.

When he arrived at Logan Airport in Boston, a U.S. Customs and Border Protect agent detained him for eight hours.

“She called me into a room, and she started screaming at me,” Ajjawi later told The Harvard Crimson. “She said that she found people posting political points of view that oppose the US on my friend[s] list.”

Ajjawi protested that he was not responsible for his friends’ political opinions—and noted that he had not liked or shared them.

“I have no single post on my timeline discussing politics,” he said.

The officer was unmoved. She canceled Ajjawi’s visa and put him on a plane back to Lebanon.

Harvard’s administration is justifiably outraged, and it is working with Ajjawi and a team of lawyers to remedy the situation. They hope to have him back in the U.S. by September 3, the first day of fall classes.

It’s a terrible situation, and it at least partly reflects the Trump administration’s warped immigration priorities. In 2018, the State Department issued just 362,929 student visas, a 43 percent drop since 2015, according to Fox News.

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