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Crypto, Crude, & Credit Soar In April Amid Dollar, Bond Yield Explosion

For many investors in April…

Earnings up, stocks down…

Stocks managed to cling to gains in April for the first time since January…

And while Stocks ended almost unchanged, VIX tumbled in April – erasing all of February’s spike…

With VIX seeing its biggest monthly decline since July 2016… (NOTE – the seasonality in VIX in April/May in the last few years)…

Large speculators have cut their bets for turbulence in the stock market, as Bloomberg notes that After hitting a record earlier in April, the number of net-long positions on VIX futures plunged by more than 46,000 contracts, one of the fastest paces ever,

And finally on VIX, it appears the 15 level – seen as the ceiling for the vol index last year – is now the floor…

As Bloomberg reports, it doesn’t necessarily tells us where we go from here, but it shows that when the trading regime shifts, it tends to be swift and lasting. For what it is worth, the VIX averaged about 13 during the second half of the Fed’s tightening during the 2004-2006 cycle. So vol may have some room to decline, but not that much.

HY Credit spreads plunged in April (along with VIX) – the biggest monthly spread compression since Feb 2017…

Treasury yields ended the month higher across the curve…

Just as we warned, CTAs tried – and failed – to break 3.00% for good on the 10Y Treasury yield in April…

(And 10Y is now back the same level as the highs on fed rate hike day and 30Y Yield is 2bps below pre-rate-hike levels)

Despite the greatest short bond position in history…

And while yields were higher on the month, the yield continued its collapse – down 8 of the last 9 months, and 14 of the last 17 months… to the flattest since Oct 2007

The Dollar Index soared in April – its biggest monthly rise since Trump’s election in Nov 2016…

What is perhaps most notable in April is the surge in the USD and bond yields coincided with HKMA’s needing to intervene in the FX markets to sustain its peg band to the USD…

Cryptos had a yuuge April with Bitcoin up over 35% -the best month since 2017…but Bitcoin Cash was the big winner – up 100% in April…

Despite the huge gains in the dollar, April saw commodities generally unmoved (except Oil)…

WTI Crude was up for the 8th month in the last 10 in April to its highest monthly close since Nov 2014…

Silver notably outperformed gold mid-month but the last week or so has seen that unwound…

Finally, April saw a total collapse in ‘soft’ survey macro data – the biggest monthly drop since Feb 2015…

* * *

On the day, it was quite a frenetic day session as stocks opened higher, exuberant on earnings then gave it all back as Bibi broke the dead-cat-bounce’s back… Futures show the overnight exuberance faded at the open despite good earnings as hawkish comments from Bibi sent stocks reeling…

Cash markets ended the day “not off the lows”…

The Sprint, T-Mobile deal sparked some chaos…

Bank stocks gave up early gains…

Treasury yields were all lower on the day… (Japan was closed)

And the yield curve kept flattening…

The Dollar rebounded from Friday’s losses today but was unable to reach Friday’s highs…

Cryptos are up from Friday’s close…

Commodities were weaker on the dollar gains but crude managed to jump on Bibi statements…

WTI spiked today after Israeli Prime Minister Benjamin Netanyahu said Iran is lying about its nuclear weapons. But note that $69 was once again a resistance level…

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Trump Will Resign by the End of the Year, Right? New at Reason.

President Trump deserves more credit than he has gotten for at least one thing—outlasting his critics’ prediction of the length of his tenure.

Having failed to accurately predict Trump’s exit during the first year of his presidency, the press, or at least some of its members, have proceeded to move the goalposts another 12 months down the calendar. “Will 2018 Be The End of the Trump Presidency?” asks a headline in Vanity Fair. The usual rule of thumb applies: if the headline has to be phrased as a question, the answer is “no.” Otherwise it would be just phrased as a statement: “2018 Will Be The End of The Trump Presidency.”

What fuels these inaccurate predictions?

Part of the problem is a mismatch between the short-term commercial incentives of journalism-as-entertainment and the longer-term commercial incentives of journalism-as-credible-information. As a headline, “Trump Will Resign” gets a lot of clicks. There are the career incentives of pundits. Make an outrageous prediction, or write up someone else’s bold prediction into a news article, and by the time that prediction fails to materialize into reality, most people will have forgotten about it. If the prediction turns out to be true, however, it can pay off big time, writes Ira Stoll.

Read the whole thing.

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“Deja Vu All Over Again” In Korea

Via Global Macro Monitor,

That was then (2005),

North Korea vows to abandon nuclear weapons project

Cautious welcome by Bush for road map deal
Aid and US promise not to invade seals agreement

North Korea has agreed in principle to end its nuclear weapons programme and rejoin the international non-proliferation treaty, marking the biggest breakthrough in its three-year stand-off with the US.

Under a draft accord issued by North Korea and five other countries in Beijing yesterday, the reclusive state promised to give up its main bargaining chip in return for energy, economic aid and a US promise not to attack. – The Guardian, Sept 19, 2005

This is now,

Kim Prepared to Cede Nuclear Weapons if U.S. Pledges Not to Invade

SEOUL, South Korea — North Korea’s leader, Kim Jong Un, told President Moon Jae-in of South Korea when they met that he would abandon his nuclear weapons if the United States would agree to formally end the Korean War and promise that it would not invade his country, a South Korean government spokesman said Sunday.

In a faith-building gesture ahead of a summit meeting with President Trump, Mr. Kim also said he would invite experts and journalists from South Korea and the United States to watch the shutdown next month of his country’s only known underground nuclear test site. – NY Times, April 29, 2018

Eyes Wide Open

This administration has its eyes wide open. We know the history. We know the risks. We’re going to be very different. We’re going to negotiate in a different way than has been done before. We use the word irreversible with great intention. We’re going to require those steps that demonstrate that denuclearization is going to be achieved. We’re not going to make promises. We’re not going to take words. We’re going to look for actions and deeds. – Secretary of State Mike Pompeo, April 29

Like Father, Like Son

How do you know that the North Korean regime is lying? Answer: Their lips are moving. – National Security Adviser John Bolton

Curb Your Enthusiasm

George W. doesn’t have a Nobel Peace Prize that we know of.

We also hope it is not an all or nothing negotiation with Trump and Kim. The environment seems ripe to make the world safer and the lives better for the Koreans even if it just incremental and without achieving total victory as the administration sees it.

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No $100 Million Payday For Scaramucci: HNA Drops Deal To Acquire Skybridge: Dow Jones

Back on January 2017, we said that there was a reason why Anthony Scaramucci was smiling:

It was simple: the Davos regular, who just days earlier had been named assistant to president Trump, and shortly after would infamously be White House communications director for all of 10 days before he was fired, sold a majority stake in his SkyBridge Capital fund of funds to China’s HNA Capital, as part of eliminating his legacy conflicts of interest.

While terms of the deal were not disclosed, the deal, which includes the SkyBridge Alternatives Conference, or SALT, was said to be valued at about $200 million according to Bloomberg. SkyBridge’s senior management and investment teams will remain intact while Scaramucci will step down.

And since Scaramucci owned about 45% of SkyBridge, he was about to pocket $100 million.

So yes, it was a solid payday for the Mooch.

Unfortunately it was not meant to last, because as Dow Jones reported moments ago, it appears that the deal has fallen apart:

HNA IS SAID SET TO DROP DEAL TO BUY SKYBRIDGE CAPITAL: DJ

While many had expected the acquisition to fall apart following China’s crackdown on outbound M&A as well as the US crackdown on all deal by Chinese acquirors, it was unclear if Scaramucci would get a fast-track approval due to his (one-time) proximity to Donald Trump.

The answer, we now learn, was no.

What happens next? Well, there will be no $100 million payday for Scaramucci. Instead as Dow Jones adds, SkyBridge Capital may try to strike a (far less lucrative) partnership agreement instead, although it was uncertain, while neither the size nor the scope of the partnership were clear.

Scarmucci, who recently launched his own news website, the ScaramucciPost, has not commented yet on the report of the failed deal.

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Goldman President’s Stark Warning: “Markets Reprice Faster Than People Expect”

In the latest warning shot to investors from the world’s most influential bank that the good times are ending, this time coming not from some lowly Goldman strategist predicting that broken markets themselves will cause the next crash, or some chart showing that a bear market is dead ahead…

… but the replacement of Gary Cohn himself, Goldman president David Solomon, the man who is set to replace Lloyd Blankfein in the near future warned that investors who have gotten too used to the long bull market “are being motivated more by a search for yield than concern a correction is coming.”

While Solomon did not feel compelled to expose those responsible for said rush for yield, and also for the biggest asset bubble in history, he did warn that when the market turns, it will turn so fast, few will be able to get out.

“We’re down the road in the cycle, so there’s certainly places where people are further along the greed spectrum than the fear spectrum,” Solomon said Monday in an interview on Bloomberg Television. “In an environment where money has been so inexpensive for such a long period of time, there’s no question that people have been reaching for yield.”

Solomon then followed up with the most direct warning he was could without losing clients – after all Goldman is an underwriter to virtually every “growthy” public tech company in the world, and hopes to take the rest public – that “people have been reaching for growth, and if you look at a bunch of these growthy companies and the value that people will pay for forward growth has been very high,” he said.

“At some point that may correct” he warned ominously.

When? He did not give a timeframe but hinted that by the time it becomes obvious, it’s too late: “History shows markets reprice more abruptly than people expect.”

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Morgan Stanley Hikes Junior Banker Pay By 25%, Accelerates Promotions To Associate

With the market having gone nowhere in the first 4 months of 2018, the year is shaping up as a wash for most Wall Street professionals, but not for associates at the bank that recently overtook Goldman Sachs in total revenue. According to Bloomberg, Morgan Stanley will raise junior banker salaries and offer quicker promotions as part of its push to “improve working conditions.”

As part of the compensation boost, base salaries for most associates in investment banking and capital markets will rise by 20 percent to 25 percent, the first big raise for associates in almost four years. Indicatively, associates at major investment banks typically receive base salaries of $100,000 to $150,000, according to Options Group, a number that hasn’t changed much the decade. Bloomberg adds that according to a memo sent to staff, associates’ salaries will be raised on Aug. 1.

Meanwhile, in a major overhaul to the bank’s “tenure track”, Morgan Stanley analysts will be delighted to learn that they will be promoted to associate after just two years instead of three, according to the memo.

“The ability to recruit, develop and retain top talent by offering attractive career opportunities is a key priority,” according to the memo. “We will continue to maintain the finite nature of the program by assisting those who have decided to pursue other careers at the end.”

In its attempt to make the ibanking lifestyle more appropriate for the current wave of ubiquitous snowflakedom, the bank is also keeping a tradition of two mandatory one-week vacations annually and limiting staffing on Fridays and weekends. Newly promoted vice presidents also get a four-week sabbatical to rest before they rise in their careers.

Unlike many of its peers which are cutting back on headcount and tent to part ways with junior staffers under “adverse” conditions, Morgan Stanley is among Wall Street firms that have been boosting pay and perks to try to retain young talent.

Notably, the bank is also seeking to maintain good relationships with bankers who defect early in their careers for buy-side roles in private equity or hedge funds, or at corporations, with the thinking that the former employees will become clients, the people said.

Morgan Stanley, which has been boosting salaries since the financial crisis, currently employs a total of 57,633 bankers, nearly double the 37,300 employed by its biggest competitor, Goldman Sachs.

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Yikes! New Seattle Bike Lanes Were Supposed to Cost $860k per Mile. Some Are Costing $13 Million Instead.

When the $930 million “Move Seattle” transportation levy appeared on the ballot in 2015, voters were promised some very specific things in exchange for a $275 yearly bump in the city’s average property taxes. This included 50 miles of protected bike lanes, 180 miles of repaved arterial roads, and the redesign of seven transit corridors to allow for easier bus, bike, and pedestrian travel.

Then–City Council President Tom Rasmussen also promised “accountability and transparency in how the levy dollars are spent.”

Fast-forward three years. Ballooning cost estimates now have city officials saying they will not be able to fulfill every pledge made to voters in 2015—promises that were known to be unrealistic when they were made.

“We do not have enough funding right now to do everything that was promised, we just don’t,” said the city’s interim Department of Transportation (SDOT) chief, Goran Sparrman, at an oversight meeting last week. Sparrman added that “some of those dollar amounts estimated for what projects would cost were clearly insufficient, even at the time.”

Take the bike lanes.

The original 2015 levy budgeted about $860,000 for each promised mile of new protected bike lane and greenway. That’s a smidge lower than the actual cost of the four-block bike lane project on Seventh Avenue in Seattle’s downtown, which came in at $3.8 million (about $13 million per mile). Another bike lane, on Second Avenue, cost $12 million a mile.

A review of the levy’s progress gives no precise dollar figure on how insufficient the bike lane budget is, saying only that the program needs “further review and adjustment.”

The review says the same for those 180 miles of arterial road repaving that need to be done and those plans to increase bus speed and service on seven congested corridors, not to mention the curb repairs promised at 775 intersections.

Plans to replace any old tree removed by the city with two new trees is still on track, as are stepped-up crosswalk repainting and seismic upgrades to 16 vulnerable bridges.

SDOT blames the cost overruns on a 2016 Americans with Disabilities Act consent decree requiring the city to ugrade more sidewalks than anticipated (despite the city claiming earlier that the consent decree would not affect the delivery of Move Seattle projects), uncertainly about the availability of federal grants (despite the feds boosting transit funding this year and greenlighting several Seattle funding awards), and faster-than-anticipated growth in real estate costs.

That latter explanation has been trotted out for a number of recent transit cost overruns in the Seattle area. Sound Transit, a separate entity from SDOT, said much the same thing when it was revealed that the agency’s Lynnwood light rail extension was coming in $500 million overbudget.

Sound Transit also leaned on this excuse when Seattleites learned that a $32 million park-and-ride garage that the agency was building would cost $65 million, or $100,000 a space. Outside estimates put the typical per-space cost of a Seattle parking garage at $25,000–$35,000.

Then there’s the Center City Connector streetcar project, managed by SDOT, which started with cost estimates as low as $108 million but has since seen its price tag jump to $200 million, in part because SDOT officials knowingly lowballed some costs by as much as 50 percent. Construction has since been halted while an independent review of the project is performed.

The Seattle government’s inability to deliver on the promises it has made to voters and taxpayers has so far failed to produce a political backlash. As Seattle Times columnist Danny Westneat writes, “this pattern of overpromising or outright deception…never seems to get the city in too much hot water with voters. Maybe because we’re so desperate for transit and infrastructure improvements.”

A big part of the problem is that the department that receives money from a voter-approved transportation levy—SDOT in the Move Seattle case—is the same agency tasked with informing the public what their vote will get them. Levies need only pass once, after all, so the incentive to overpromise is strong.

In the run-up to the Move Seattle vote, SDOT and the mayor’s office hosted five community coffee hours (and one happy hour), 35 community meetings, and three mayoral round tables attended by 40 stakeholder groups. SDOT also circulated information via its blog, the Move Seattle website, and online surveys, and it distributed materials at farmers markets, press events, and pop-up tables at community centers.

The stated purpose of this community outreach was to hear what kind of projects community stakeholders wanted. It’s not hard to see this all as an effort to butter the public’s bread, particularly given that it resulted in an extra $30 million in projects added without any rise in the costs of the levy itself.

SDOT now has the uninviting task of paring down projects or scrapping up more revenue to give voters something close to what they’ve been promised.

This process is happening at the same time that development is getting underway for another Seattle-area transit expansion, the $54 billion Sound Transit 3 project, which includes a promise to build 62 miles of new light rail.

Expect to keep hearing about an unanticipated spike in real estate prices.

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Another Socialist Success: Venezuela Imports Oil from U.S.

VenezuelaCollapseAlessandroScagliusiDreamstime Venezuela has the world’s largest proven reserves of petroleum. In 1998, when Bolivarian socialist Hugo Chavez was elected president, the country was producing about 3.5 million barrels of oil a day. As recently as 2013, when Nicolas Maduro ascended to the presidencey upon Chavez’s death, the country was still pumping out about 2.8 million barrels a day. Since 2016, month daily production has dropped to 1.5 million barrels.

Venezuela’s heavy crude oil needs to be diluted with lighter petroleum products so that it can be refined into fuels. The Independent reports that as a result of the ongoing collapse of domestic refining, the South American country is now obliged to import about 200,000 barrels a day of diluents from the United States. The Venezuelan government sells gasoline at 1 cent per liter (80 cents in the U.S.). Even with the fanciful assumption that all the petroleum in a barrel could be refined into vehicle fuel, a rough calculation implies a value of $1.60 per barrel. The diluents from the U.S. cost about $80 to $90 per barrel.

“One of the craziest things is that a part of Venezuela’s imports is for the domestic market, but given its price, they practically give gasoline away for free,” Francisco Monaldi, a fellow in Latin American energy policy at Rice University, tells The Independent. “They are importing barrels that cost $80 to $90 and selling them at $0.”

Despite Chavez’s dysfunctional economic policies, Venezuela’s GDP ascended along with oil prices during the first decade of the 21st century. But since peaking at $334 billion in 2011, the country’s GDP has dropped to $215 billion. The economy shrank by 16 percent last year, and the International Monetary Fund projects it will shrink by another 15 percent this year. Inflation, meanwhile, is nearing an annual rate of 9,000 percent.

As The Independent notes:

Oil makes up more than 90 per cent of the nation’s exports, but a combination of government corruption, lack of investment and the migration of qualified staff have left the industry in ruins. It’s a crisis that has directly hit the country’s ability to import resources like food or medicine for the Venezuelan population.

It is a vicious spiral. It is estimated that 10 per cent of the population has emigrated. Almost two thirds of all households have at least one family member living abroad. And among those 3 million migrants are young and competent workers who have escaped from a country that sinks deeper into crisis.

This is what real socialism looks like.

For more background on the sad but entirely predictable collapse of Venezuelan socialism, see Reason‘s articles here, here, and here.

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Politics Is Not Pretty: Podcast

This is a real photograph. ||| STAFF/REUTERS/Newscom As there is no escape from the culture-war nontroversies surrounding this weekend’s White House Correspondents Dinner, the least you can do is go meta about the always-ugly apparitions of industrial self-congratulation and concentration of power in Washington, D.C.

And so this week’s editorial roundtable edition of the Reason Podcast, featuring Katherine Mangu-Ward, Nick Gillespie, Peter Suderman, and me, begins with a brief such discussion before pivoting quickly to other news, including peace talks on the Korean peninsula, tonight’s midnight deadline on steel/aluminum tariffs on the European Union, the looming Iran-nuclear-deal implosion, the strange and wonderful imagery from French President Emmanuel Macron’s state visit, and a surprise new book from Zora Neale Hurston.

Subscribe, rate, and review our podcast at iTunes. Listen at SoundCloud below:

Audio production by Ian Keyser.

Relevant links from the show:

“It’s Time To End the White House Correspondents’ Dinner,” by Nick Gillespie

“CNN Won’t Cut Away from White House Correspondents’ Dinner, Reassures Viewers They’ll ‘Find Out All of What Happened in the Streets of Baltimore by This Time Tomorrow’,” by Jesse Walker

“The White House Press Correspondents’ Dinner is About as Bad as You Think, Only a Little Bit Worse and a Little Bit More Fun,” by Lucy Steigerwald

“Is This Prom Dress an Act of Cultural Appropriation?,” by Nick Gillespie

“North Korea Claims It Will Suspend Its Nuclear Weapon and Missile Tests,” by Brian Doherty

“Trump’s Economic Illiteracy Has Deep Roots,” by Eric Boehm

“Shocker! American Steel Prices Spiked in April.,” by Eric Boehm

“How Trump’s Steel Tariffs Harm America,” by Veronique de Rugy

“3 Ways Kanye West Is Confounding Everyone with His MAGA Tweeting,” by Brian Doherty

“‘Black People Don’t Have To Be Democrats’,” by Nick Gillespie

“Fire!!: The Zora Neale Hurston Story,” by Brian Doherty

“Zora Neale Hurston: ‘America’s favorite black conservative’,” by Damon Root

“Zora Neale Hurston, Libertarian?,” by Damon Root

“Mostly Weekly: Why I’m Boycotting the White House Correspondents’ Dinner,” by Andrew Heaton and Sarah Rose Siskind

Don’t miss a single Reason Podcast! (Archive here.)

Subscribe at iTunes.

Subscribe at YouTube.

Like us on Facebook.

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There’s Nothing Golden About This Nazi Treasure Show: New at Reason

Hermann Goering Television critic Glenn Garvin checks out American Heroes Channel’s Nazi Treasure Hunters and finds the vault empty:

The first episode of Nazi Treasure Hunters concentrates on the incredible collection of stolen artwork amassed by Hermann Goering, head of the German air force and the second most powerful man in Hitler’s regime.

But whoever’s got the Goering goodies—If, indeed, they still exist; the final days of Hitler’s Germany were a frenzy of Allied bombing and Red Army annihilation—probably has nothing to fear from the wannabe Indiana Joneses of this show.

With much fanfare, they find a hole leading into a decrepit old bunker beneath the site of a Goebbels mansion where much of his art was stored. (Purloined paintings covered so much wall space that Goebbels began mounting them on the ceilings.) The magnificence of this discovery is only somewhat diminished by the fact that modern graffiti artists have preceded them; or that the bunker was thoroughly searched by East German authorities before they razed the house above it.

View this article.

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