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Americans Are The Most Confident In The Current Economic Situation Since The Peak Of The DotCom Bubble

While ‘Hope’ continues to fade (now at its lowest since Dec 2017), The Conference Board’s Consumer Confidence inched higher thanks to a surge in confidence about the Current Situation to the highest since March 2001.

“Consumers’ assessment of present-day conditions improved, suggesting that economic growth is still strong. However, while expectations continue to reflect optimism in the short-term economic outlook, back-to-back declines suggest consumers do not foresee growth accelerating.”

So, the last time Americans were this excited about the current economic situation was at the peak of the DotCom bubble (and what just happened in the last week to America’s new dotcom bubble?).

Americans aged 35-54 saw confidence collapse (while the younger cohorts confidence soared)…

The wealthier cohort remained confident but the poorest cohort slumped to Jan 2018 lows…

Those claiming jobs are “plentiful” increased from 40.4 percent to 43.1 percent, while those claiming jobs are “hard to get” was virtually unchanged at 15.0 percent. Consumers’ outlook for the labor market was also mixed. The proportion expecting more jobs in the months ahead increased from 20.0 percent to 22.5 percent, but those anticipating fewer jobs also increased, from 13.1 percent to 15.7 percent. Regarding their short-term income prospects, the percentage of consumers expecting an improvement rose from 19.7 percent to 20.8 percent, but the proportion expecting a decrease also rose, from 7.9 percent to 9.2 percent.

Finally, those with plans to buy a home in the next 6 months collapsed to 2-year lows as confidence in a rising stock market tumbled once again…

 

 

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3-Day Blowout In “Value/Growth” Is Biggest Since Lehman Bankruptcy: “A 4.3 Sigma Event”

By Charlie McElligott, head of Cross-asset strategy at Nomura

BOJ’s Dovish Forward Guidance Snuffs Curve Steepening – Yet Equities “Value over Growth” Performance tumult continues globally

Global rates markets see a modest “bull-flattening” overnight, as bond bears were left disappointed by BoJ’s “unch” YCC target and “dovish” forward guidance.

As I noted last week, it never made sense for the BoJ to “shoot themselves in the foot” in the near-term by “self-tightening” long-end financial conditions into a downgrade of their inflation forecast at the same time—instead, expect a painfully-protracting process of “conditioning the market” in coming-months to avoid a JGB VaR-event.

Topix Banks respond with disappointment -2.8%, as the YCC “non-event” disappoints those hoping for a steepening of the curve, while the ETF tweaks are simply “inline” relative to high-expectations.

However, despite the modest “re-flattening” of global yield curves off the back of the BoJ, the violent (and clearly “performance-negative”) unwind of the Equities “Long Growth, Short Value” legacy portfolio construct experienced since the start of last week continues, with both EU- and Japan- “Value” again seeing massive outperformance vs “Growth” factor categories (monitors below).

The collective three-day move in U.S. “Value / Growth” has been the largest since October 2008–a 4.3 standard deviation event relative to the returns of the past 10 year period–while conversely “1Y Price Momentum” sees its largest three-day drawdown since the Nov ’16 election post-trade.

Enormous underperformance of popular longs relative to shorts speaks to “net-down” behavior at the very least across Equities-funds, although seeing pockets of outright short squeeze speaks to a fair-bit of “de-grossing” as well—ESPECIALLY across the quant market-neutral universe.

The question now becomes whether Value continue to outperform Growth if the tape turns to an outright ‘risk off’ one over the next few weeks of seasonal weakness, prior to commence of heavy (Tech-led) buyback.

This “dovish” BoJ is now-paired with the increasingly “frantic”-looking PBoC, as misses in both Mfg / Non-Mfg PMIs for China out overnight further confirm the growth slowdown challenge.

Nomura Chinese Economist Ting Lu remains cautious on calling a Chinese growth rebound:

  • There are significant lag-times for infrastructure projects, especially as local govts face a credit squeeze
  • Unsustainable-nature of the PSL / cash settlement arrangement for the small-city renovation program
  • Time required to unwind previously-implemented deleveraging measures
  • Already high yields of Chinese corporate onshore and offshore high-yield dollar bonds have made bond financing much more difficult for of LGFVs and enterprises

Thus, the Chinese are all-but-certain to continue their “piecemeal” easing- and stimulus- efforts in 2H18 to satiate markets, which would instead desire a “BIG BANG” easing-approach—in meantime, CSI 300, SZCOMP and Shanghai Property Index all continue “lower” WTD along with Industrial Metals

This 1) “disappointing Chinese response” (THUS FAR in its current-form) alongside 2) the upcoming “tightening impulse” in October (escalation of “Quantitative Tightening” by both Fed’s balance-sheet runoff and ECB bond-buying taper) and 3) the breakdown in U.S. Equities leadership / paradigm-shift keeps me comfortable maintaining my “Downshift” call on risk as it currently stands (prefer RV / Mkt-neutral and less ‘directional’—e.g. Equities “Value” and “Quality” over “Growth” and “Momentum”)

LARGEST 3D MOVE IN U.S. ‘VALUE / GROWTH’ IN 10 YEARS AND A 4.3SD EVENT:

LARGEST 3D DRAWDOWN IN U.S. ‘1Y MOMENTUM’ FACTOR SINCE THE ELECTION AND A -3.2SD MOVE (2Y REL RETURNS):

U.S. EQUITIES FACTOR REVERSALS EVERYWHERE = QUANT- AND FUNDAMENTAL “NET-DOWN” OR OUTRIGHT “DE-GROSSING”:

EU EQUITIES FACTORS SHOWING ANOTHER POWERFUL “INTO VALUE, OUT OF GROWTH” MOVE:

“IT’S ALL THE SAME TRADE”—EQUITIES HF L/S PERFORMANCE IS AN ALMOST PURE-REFLECTION OF “LONG GROWTH, SHORT VALUE’ OVER THE PAST FIVE YEARS:

FLATTER CURVES / “EASY” CONDITIONS HAVE BEEN CRITICAL INPUT TO DESTRUCTION OF “VALUE / GROWTH” IN POST-GFC WINDOW:

 

 

 

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Chicago PMI Hits 6-Month Highs As ‘Soft Survey’ Rebound Continues

Chicago PMI beat expectations, printing at 65.5 – the highest economist forecast in the range – to its highest since January 2018.

Under the hood, everything looks awesome (prices continue to increase):

  • Prices paid rose at a faster pace, signaling expansion

  • New orders rose at a faster pace, signaling expansion

  • Employment rose at a faster pace, signaling expansion

  • Inventories fell and the direction reversed, signaling contraction

  • Supplier deliveries rose at a slower pace, signaling expansion

  • Production rose at a faster pace, signaling expansion

  • Order backlogs rose at a faster pace, signaling expansion

But Chicago’s PMI is just the latest in a series of ‘soft’ surveys that indicate a rebound as real hard economic data disappoints…

Which do you trust?

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Stocks, Yuan Surge After US, China Said To Seek Restart Of Trade Talks

With the next wave of US tariffs hitting as early as Wedensday and negotiations stalled for weeks, Beijing and Washington are looking to restart talks in order to avert a full-blown trade war between the world’s two largest economies, according to Bloomberg, citing two people familiar with the effort. 

Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to reengage in negotiations, according to the people who spoke about the deliberations on condition of anonymity. They cautioned that a specific timetable, the issues to be discussed and the format for talks aren’t finalized, but added there was agreement among the principals that more talks need to take place. –Bloomberg

Following weeks of stalled negotiations, the United States has been holding high-level internal discussions on trade posture with China, according to a third person who told Bloomberg on the condition of anonymity. 

Complicating matters, however, is a harder line approach taken by US trade representatitve Robert Lightizer, who is in charge of the US’s “301 investigation” that resulted in the tariffs, and which concluded that China has been stealing US technology. 

The next wave of tariffs is set to kick in as soon as Wednesday, with the possible imposition of $16 billion of duties on Chinese imports – a move Beijing has vowed to respond to with the same level of tariffs on US products. 

Stocks and the Yuan are surging on the heels of the announcement.

Developing…

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Senate Democrats Are Circulating Plans for Government Takeover of the Internet: Reason Roundup

All your base are belong to us. A leaked memo circulating among Senate Democrats contains a host of bonkers authoritarian proposals for regulating digital platforms, purportedly as a way to get tough on Russian bots and fake news. To save American trust in “our institutions, democracy, free press, and markets,” it suggests, we need unprecedented and undemocratic government intervention into online press and markets, including “comprehensive (GDPR-like) data protection legislation” of the sort enacted in the E.U.

Titled “Potential Policy Proposals for Regulation of Social Media and Technology Firms,” the draft policy paper—penned by Sen. Mark Warner and leaked by an unknown source to Axios—the paper starts out by noting that Russians have long spread disinformation, including when “the Soviets tried to spread ‘fake news’ denigrating Martin Luther King” (here he fails to mention that the Americans in charge at the time did the same). But NOW IT’S DIFFERENT, because technology. “Today’s tools seem almost built for Russian disinformation techniques,” Warner opines. And the ones to come, he assures us, will be even worse.

Here’s how Warner is suggesting we deal:

Mandatory location verification. The paper suggests forcing social media platforms to authenticate and disclose the geographic origin of all user accounts or posts.

Mandatory identity verification: The paper suggests forcing social media and tech platforms to authenticate user identities and only allow “authentic” accounts (“inauthentic accounts not only pose threats to our democratic process…but undermine the integrity of digital markets”), with “failure to appropriately address inauthentic account activity” punishable as “a violation of both SEC disclosure rules and/or Section 5 of the [Federal Trade Commission] Act.”

Bot labeling: Warner’s paper suggests forcing companies to somehow label bots or be penalized (no word from Warner on how this is remotely feasible)

Define popular tech as “essential facilities.” These would be subject to all sorts of heightened rules and controls, says the paper, offering Google Maps as an example of the kinds of apps or platforms that might count. “The law would not mandate that a dominant provider offer the serve for free,” writes Warner. “Rather, it would be required to offer it on reasonable and non-discriminatory terms” provided by the government.

Other proposals include more disclosure requirements for online political speech, more spending to counter supposed cybersecurity threats, more funding for the Federal Trade Commission, a requirement that companies’ algorithms can be audited by the feds (and this data shared with universities and others), and a requirement of “interoperability between dominant platforms.”

The paper also suggests making it a rule that tech platforms above a certain size must turn over internal data and processes to “independent public interest researchers” so they can identify potential “public health/addiction effects, anticompetitive behavior, radicalization,” scams, “user propagated misinformation,” and harassment—data that could be used to “inform actions by regulators or Congress.”

And—of course— these include further revisions to Section 230 of the Communications Decency Act, recently amended by Congress to exclude protections for prostitution-related content. A revision to Section 230 could provide the ability for users to demand takedowns of certain sorts of content and hold platforms liable if they don’t abide, it says, while admitting that “attempting to distinguish between true disinformation and legitimate satire could prove difficult.”

“The proposals in the paper are wide ranging and in some cases even politically impossible, and raise almost as many questions as they try to answer,” suggested Mathew Ingram, putting it very mildly at the Columbia Journalism Review.

FREE MINDS

FREE MARKETS

Telemedicine abortion test sanctioned by FDA. “A nonprofit group is testing whether it’s safe to let women take abortion pills in their own homes after taking screening tests and consulting with a doctor on their phones or computers,” notes Politico.

The group, called Gynuity Health Projects, is carrying out the trial in five states that already allow virtual doctors to oversee administration of the abortion pill, and may expand to others. If the trial proves that allowing women to take the pill at home is safe—under a virtual doctor’s supervision—the group hopes the FDA could eventually loosen restrictions to allow women to take pills mailed to them after the consult.

If FDA took that step, it could even help women in states with restrictive abortion laws get around them, potentially blurring the strict boundaries between abortion laws in different states if—as is likely—the Senate confirms a high court justice who is open to further limits on Roe.

Meanwhile, a rapidly increasing number of state attorneys general are suing over whether its safe to let people print guns in their own homes, after the group Defense Distributed posting of 3D-printed gun plans online.

QUICK HITS

  • Civil rights activist and former judge Faya Rose Touré, 73, “is facing charges of fourth-degree theft and attempting to elude a police officer after she led cops on a four-block chase through the city,” reports The Appeal. “Touré was the first Black female judge in Alabama and founder of the National Voting Rights Museum and Institute in Selma.”
  • The publisher of an upcoming book by renowned journalist Bob Woodward is promising that it “reveals in unprecedented detail the harrowing life inside President Donald Trump’s White House and precisely how he makes decisions on major foreign and domestic policies.”
  • “As a person seeking ‘substantive change,’ [Alexandria Ocasio-Cortez] insisted, she was bound to be told ‘you’re crazy’ or ‘you don’t know anything,'” writes Charles C.W. Cooke. “Perhaps she was. But do you know who else is told they’re crazy and don’t know anything? Crazy people who don’t know anything.”
  • A former head of the Federal Emergency Management Agency personnel department is under investigation for allegedly hiring “college friends and women he encountered on online dating sites, and then, he is accused of transferring some of those women into departments where his friends worked, so that his friends could have sex with them.”

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Ving Rhames Says Police Put a Gun in His Face After a Neighbor Thought He Was Robbing Himself

|||LIONEL HAHN/KRT/NewscomActor Ving Rhames recently recounted his harrowing encounter with police after a neighbor believed that he broke into his own California home.

As Page Six reports, Rhames spoke with the Clay Cane Show about what he said was his own personal experience with racism. In July 2016, Rhames was watching television at home when he heard a knock on the door. When he opened it, a gun was pointed at his face and a red dot rested on his forehead.

A neighbor had called emergency services to report a “large black man” burglarizing the home. Officers with the Santa Monica Police Department (SMPD) had arrived at Rhames’s home with guns drawn, thinking him to be the suspect. And while Rhames was technically the “large black man” for which they were looking, the police captain eventually realized that a mistake was made.

The captain recognized Rhames because their sons played for opposing schools in a high school sports game.

SMPD Lt. Saul Rodriguez confirmed the incident with PEOPLE, saying that the department responded to calls “from several neighbors” thinking they were watching a burglary unfold. When asked why the police acted as aggressively as they did, Rodriguez said that burglaries had the potential to be violent.

“You don’t know what you’re going to encounter,” he told PEOPLE. “Officers can be very cautious.”

Shortly after the situation was diffused, Rhames took the time to introduce himself to his neighbors to avoid future incidents. While he was personally still shaken by what happened, Rhames worried about the implications for his son.

“What if it was my son and he had a video game remote or something, and you thought it was a gun?” he said in the interview, comparing it to the bag of Skittles found in Trayon Martin’s pocket after he was shot in 2012.

SMPD responded by hosting a “Meet Your Neighbors” challenge in January 2017. Those who participated would have their names entered in a raffle for a chance to win an SMPD-hosted block party. The Santa Monica Police Department has also hosted a number of events to promote interactions between themselves and the community.

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Euro Tumbles As IMF Warns On Greek Debt Sustainability

As Greeks attempt to recover from the devastating and deadly wildfires, The IMF has decided to pile on the pain with a new report that raises questions about Greece’s debt sustainability, warning that the nation’s cash buffer is set to drop by half by end of 2022.


 

IMF Mission Chief for Greece Peter Dohlman told reporters on conference call this morning that Greece’s cash buffer will rise to EU24b as a result of debt relief measures agreed by euro-area finance ministers in June, but that amount is set to drop by half to EU12b by end of 2022.

Translating The IMF’s newspeak, it is explaining that without more generous debt relief measures, Greece “could struggle to maintain market access over the long run”, the fund said in its last economic assessment of the country before the end of its bailout on August 20.

The fund’s calculations find Greece’s debt costs will “begin an uninterrupted rise” after 2038 — costing around 20 per cent of the country’s GDP every year.

It is at this point that “additional relief would be needed to secure debt sustainability”, said the report.

While the world assumed that Greece was ‘fixed’, it apparently is not (surprise!!) and EURUSD is dropping on the news…

And this news hits right as ECB begins to ‘normalize’? Get back to work Mr Draghi…

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Trump Declares War On The Koch Brothers: They Are “A Total Joke”

Two days after Charles Koch voiced his growing displeasure with Trump’s domestic, foreign and economic policy, warning that Trump tariffs could trigger a US recession, President Trump responded on Tuesday by slamming the powerful Koch-led donor network as “globalist” and “a total joke,” rejecting the conservative group amid reports that the network was shifting away from him over trade and immigration issues.

Trump alleged that his policies have “made them richer” and that they “want to protect their companies outside the U.S. from being taxed,” while he supports the American worker. In another tweet Trump called them: “Two nice guys with bad ideas.”

“The globalist Koch Brothers, who have become a total joke in real Republican circles, are against strong borders and powerful trade. I never sought their support because I don’t need their money or bad ideas,” Trump said in a post on Twitter.

“They love my Tax & Regulation Cuts, Judicial picks & more. I made them richer” Trump continued his angry tirade: “Their network is highly overrated, I have beaten them at every turn. They want to protect their companies outside the U.S. from being taxed, I’m for America First & the American Worker – a puppet for no one. Two nice guys with bad ideas. Make America Great Again!”

Trump’s angry tweets echoed comments that Steve Bannon made a day earlier. “We don’t have time to have some theoretical discussion and to have their spokesman come out and say the president is divisive,” he told Politico.

Trump’s comments followed a Bloomberg report that the Koch donor network sought to distance itself from Trump and the Republican Party at a weekend gathering in Colorado where, among other concerns were also raised that his trade policies could fuel a recession.

Charles and David Koch have been a force in American politics for decades, channeling billions of dollars into conservative causes. But the billionaire industrialist pair didn’t support Trump in the 2016 campaign, even though their network has since praised his administration’s efforts to cut taxes and regulations. More recently, it has criticized his actions on trade issues.

Trump’s latest outburst is especially troubling because keeping the Koch donor network happy is important to Republicans, especially in election years.

It plans to spend about $400 million on state and federal policy and politics during the two-year cycle that culminates with November’s balloting, a 60 percent increase over 2015-16. Besides trying to influence electoral politics, the organization also works on education, criminal justice, workforce and poverty issues.

The Koch network’s decision Monday not to support Representative Kevin Cramer against Democratic Senator Heidi Heitkamp in North Dakota was cast as a warning to other Republicans who might be tempted to stray from the free-market, fiscally restrained approach backed by the Kochs and their followers. As Bloomberg noted, the decision not to back Cramer, as the network sought to put on a more bipartisan face, was announced at a briefing for more than 500 donors gathered for a three-day meeting at a luxury resort in Colorado Springs, Colorado.

“We can’t support him at this time,” said Tim Phillips, president of Americans for Prosperity, the network’s flagship political organization.

Heitkamp is one of 10 Senate Democrats who face re-election in November in states Trump won in 2016. While polls and analysts suggest Democrats have a strong chance of winning the 23 seats they need to gain control of the House, their odds of winning a Senate majority are much slimmer.

As we reported previously, Charles Koch, 82, the chief executive officer of Koch Industries, told reporters Sunday he worries Trump’s actions on trade and tariffs put the booming U.S. economy at risk of recession.

Yet while senior officials from the network had blamed Trump for the nation’s divisions a day earlier, Koch stopped short of that.

“We’ve had divisiveness long before Trump became president,” he said in rare on-the-record exchange with reporters. “I’m into hating the sin, not the sinner.”

That particular nuance was lost on Trump this morning, however, who just decided to launch yet another verbal war, this time with an especially powerful opponent.

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US Home Price Appreciation Slowest Since January As “Affordability” Issues Loom

Following April’s modest slowdown in home price appreciation (albeit still at record highs), Case-Shiller’s 20-City Composite continued to decelerate (modestly) in May, rising 6.51% YoY (weakest since Jan 2018).

 

A deluge of dismal housing data recently is modestly confirmed by the always lagged Case-Shiller price index which hit a new record high…

But is seeing annual growth rates slowing (weakest since January 2018)…

Recent reports have shown the weakest pace of housing starts in nine months, fewer construction permits and the slowest rate of new-home sales since October.

After seasonal adjustment, Seattle had the biggest month-over-month rise at 1.4 percent, followed by Phoenix with a 0.8 percent increase, however, home prices fell in New York and Detroit from the prior month.

“Affordability — a measure based on income, mortgage rates and home prices — has gotten consistently worse over the last 18 months,” David Blitzer, chairman of the S&P index committee, said in a statement.

“All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”

Seattle, Las Vegas and San Francisco led gains, with all cities posting an advance on-year.

 

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Up Close and Personal With Philadelphia’s Heroin Crisis: New at Reason

Stories about the death toll from the opioid crisis have focused largely on the plight of rural and small-town Americans in the Midwest and Appalachia. But the perils of drug abuse and drug prohibition have also visited urban environments, and none so dramatically as Philadelphia. In April, Reason‘s Mike Riggs spoke with journalist Christopher Moraff about he has learned from getting up close and personal with the city’s overdose crisis.

View this article.

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