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Scaramucci Says “General Jackass” John Kelly “Blacklisted” Him From The West Wing

Anthony Scaramucci said Thursday that he had been “blacklisted” from the White House by Chief of Staff John Kelly during an interview with CNN’s “New Day,” where he also anticipated that more West Wing staffers would follow Hope Hicks out the door thanks to the “terrible” morale under the notoriously strict retired general.

“The morale’s terrible, and the reason why the morale is terrible is that the rule by fear and intimidation does not work in a civilian environment,” Scaramucci said, adding that “there will be a further evacuation of talent.”

Of course, it’s important to remember that Kelly was responsible for ousting Scaramucci 11 days after he stepped in to the (perpetually vacant) communications director job, allegedly because of a profanity-filled statement he made to the New Yorker.

But the Mooch apparently couldn’t resist kicking his old nemesis while he’s down, blasting Kelly for purportedly ignoring former White House Staff Secretary Rob Porter’s history of domestic abuse. He also claimed that the erstwhile Marine General rules through “fear and intimidation.”

In addition to Hicks, longtime WH deputy communications director Josh Raffel said earlier this week that he is planning to leave the White House, too. Exits might be hastened thanks to dozens of staffers losing their top-level security clearance.

“This is how it works…I guess he’s an honorable marine so he’s got to look himself in the mirror and come to grips with what he knew and when he knew it. I’ll tell you what I don’t like. I talked a little bit of smack about two guys that we were trying to get rid of, he fires me in five seconds,” Scaramucci said.

“These guys are smacking up their wives and he’s trying to figure out a way to keep them inside the White House. So it’s very dishonest to me.”

Finally, Scaramucci predicted that Kelly will eventually drive the entire staff out of the West Wing, while also insinuating that the general is too tough on “Trump loyalists” – presumably referring, in part, to himself.

“Does the president want to lose everyone because of General Jackass?” Scaramucci said.

“If you want to kill Trump loyalists because you’re into martial law, go ahead and do that,” he said of Kelly. “But it’s not helping the president.”

Scaramucci reportedly still talks with Trump, who has a notorious habit for keeping in touch with former employees.

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Stocks Jump, Dollar Dumps As Powell Flip-Flops On Inflation

Who could have seen that coming?

On Tuesday Fed Chair Powell proclaimed hawkishly: “CONFIDENCE ON INFLATION GETTING STRONGER“

700 Dow points lower and VIX back above 20 and we arrive at this morning: “NO STRONG EVIDENCE OF DECISIVE MOVE UP IN WAGES, MORE LABOR MARKET GAINS CAN OCCUR WITHOUT CAUSING INFLATION”

So dovish Powell is back and stocks are ripping higher…

 

And the dollar is dumping as gold pops…

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Global Growth Narrative Stumbles As Nomura Warns “Best May Now Be Behind Us”

The ongoing demise of the “synchronised global growth” narrative – which started showing up in macro-economic data disappointments world-wide over a month ago – is beginning to become evident in capital markets as Nomura’s Charlie McElligott points out that risk-asset weakness (and fixed income strength) hints at a growth peak and investor narratives shifting to a developing-acknowledgement that “the best may be behind us.”

 

This perspective echoes SocGen’s view that “the growth spurt is now behind us” as China’s credit impulse fades.

Via Nomura’s Charlie McElligott

Punchline – Risk assets are getting heavy (SPX -3.1% over past three sessions; WTI -4.4%; Copper -3.5%;  EMFX -1.1% all over same period, with NKY -1.6% and DAX -1.7% overnight)while USD and US rates continue to “pain trade” squeeze higher, as a fresh trough of data shows the global growth narrative in danger of shifting lower (“still expansive but slowing”).  Effectively, the “synchronized global growth” story is now beginning to be questioned by investors who are now open to the “evolved” idea we’ve been discussing recently–that “the best is now behind us,” as financial conditions continue their nascent “tightening.”

Overnight, we saw broad EZ and country-level Mfg PMIs falling from their peaks made in Dec / Jan.  Week-to-date, we have now seen misses too with China Mfg PMI (both imports and new export orders saw outright CONTRACTION sub-50), slowing China Non-Manu PMI (contractions in selling prices, employment, new export orders and work backlogs), Japan Retail Sales (largest decline since Jan ’16) and Japan Industrial Production (largest drop since the tsunami in ’11).  And despite the positives of recent US inflation-, wage- and labor- data, we are too seeing a “slowing,” with four consecutive “misses” the past few days in Durable Goods, Wholesale Inventories, Pending Home Sales and Chicago PMI. 

Clients are increasingly cognizant of this “slowing” theme—especially with regards to China (see attached note from Nomura’s Rob Subbaraman et al“China is resuming its slowdown”).  As previously discussed, China’s role in the global economy via both consumption, its role in the global supply chain and credit creation–thus, global inflation—is something I try to capture in the following “flow” chart:

Source: Bloomberg

With regards to this “slow data” impact on markets, as I have mentioned a few times recently, some feel that a slowing of data is actually a positive for risk-assets at this juncture, as it will force central banks to slow their “normalization” efforts and in-turn pause the tightening of financial conditions which have been behind this reintroduction to volatility in 2018.  That makes a lot of sense in theory—however, I think it’s more nuanced than that.

The areas you’d want to see “slowing” are in the aforementioned inflation- and wages- categories…and not in industrial sectors, not in personal and household, not in retail and wholesale etc.  And with focus on the Trump administration NAFTA dialogue and tariffs expected today on Steel and Aluminum (with the MUCH larger story in the background on “Section 301” / “intellectual property” area which would affect the Consumer Electronics space), we are talking about VERY REAL potential to dramatically accelerate US inflation in a “growth negative way.”  So while still nowhere close to this environment at this instant, you are going to see a greater openness to discuss the potential of the dreaded “stagflation” in the months-ahead, which of course doesn’t speak positively for asset returns and / or sentiment. 

Besides the data, what else has changed?  Well, I think the Jerome Powell testimony played some part as well—and not simply the acknowledgement that a fourth dot will be added in March—as instead, his “upbeat” economic message was coupled with absolutely zero mention of downside risks, while downplaying the recent “tightening” of financial conditions.  And that “non-mention mention” is important, coming from a guy who we know as per the recently released Fed transcripts from 2012 spoke about the impact of QE—and the ultimately reversal of the balance-sheet via “quantitative tightening”–in very “market-astute” terms. 

Namely, Powell identified that markets were running with scissors due to the collectively central bank largesse which was incentivizing risk-taking and leverage.  He acknowledged then that the Fed was essentially running a “short volatility position”!  And that was in 2012, well before the global melt-up in financial asset valuations.  Point-being, he “gets the joke” that some air needs to come out of the balloon. 

“SHORT USD” EXPRESSIONS AT RISK INTO FURTHER SQUEEZE, AS EEM FINALLY CRACKS YESTERDAY:

As I’ve been highlighting since my first note at Nomura back in January, a stronger USD stands as the key “macro reversal risk” for much of the performance landscape, as many “crowded” macro trades (especially in the systematic / trend community) are effectively “short USD” expressions – namely, long SPX or NDX; long EM Equities and FX; long Euro; long Crude; long Gold; long Industrial Metals as starters. 

CTA POSITIONING UPDATE:

 So as one of the most-crowded yet too most-illiquid, it was critical to see EEM then lead the breakdown yesterday ahead of the pack, and crack SHARPLY below its 50dma.  In conjunction with the “still-ongoing” break lower in commodities (energy and both precious- and industrial- metals), this one has potential to accelerate as it remains so overweight.

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Debt Matters…

Authored by Sven Henrich via NorthmanTrader.com,

My take: Consumer debt is a massive problem. There are people that don’t see it that way. I think that’s a mistake and I’ll outline my case here with some charts/thoughts and you are of course free to draw your own conclusions.

I don’t think it’s an accident that markets have been reacting negatively to yields spiking. And it’s also not an accident that home sales are dropping in the face of higher rates.

How sensitive to higher rates is the entire construct? Currently every spike in the 10 year invites selling during the day. Jerome Powell’s words led to yesterday’s 10 year spike above 2.9% and it flushed stocks.

Yesterday we also learned that 72% of earnings growth since 2012 was due to buybacks, or financial engineering in short:

“Volatility is an instrument of truth, and the more you deny the truth, the more the truth will find you through volatility.” Over the past decade, there has been no corporate instrument of mistruth more powerful than buybacks, an issue we have dissected in these pages for years. U.S. firms have spent roughly $4 trillion on buybacks since 2009, making corporations the biggest single source of demand for U.S. shares. According to Artemis’s calculations, buybacks have “accounted for +40% of the total earnings-per-share growth since 2009, and an astounding +72% of the earnings growth since 2012.”

That’s a big number and it reveals the extent of the mirage that has been propagated for the past few years. Consumers and the government are drowning in debt and the construct continues to be held up by low rates, hence the sensitivity.

And I think principally people understand this. After all it’s not often that a macro chart goes viral:

There are some that claim if you ratio that and right size this it’s not so bad. They are frankly missing the point. We are still in a low rate environment and unemployment is still at the lowest it’s been in a long time. This is not normal. It’s the abnormal.

Unemployment does not stay low forever, its historic mean is always higher:

And yes record debt levels look sustainable in context of still historic low rates:

From my perch taking the most favorable debt conditions, low rates and full employment, and project sustainability into the future is playing tennis without the net.

Rates have been rising and we see stress emerging any way you cut or slice the data.

And sustaining debt payments, which are already rising, in a much higher rate environment is a huge headwind:

So I submit the Fed and markets find themselves in a narrative trap inside the bubble they have created. Hence the Fed’s tinkering with ‘gradual, patient, rate hikes’. Oh just shut up, you know exactly why you are trying to send that calm message because we saw yesterday what happens when the message gets interpreted differently: Stocks drop.

Here’s the reality: Earnings growth is heavily reliant on buybacks which have been financed with debt and now with tax cuts, courtesy unwitting tax payers, but the structural growth component remains MIA.

So let’s take a look at various consumer debt/leverage charts with a view of higher rates yet to come.

Let’s start with the basics:

Expanding consumer debt has been financed with lower rates for decades and a lot of it makes sense as the population and wages are growing.

All this is fun and giggles as long as rates stay low, but when they start rising things change as we just started to see in the past 2 years.

The logical conclusion:

Interest payments on debt have been rising dramatically as well, despite rates still historically low:

Now some say, it’s not so bad because of inflation, more households, higher incomes, etc. Really? I disagree. The message is the same and perhaps even more concerning.

Fact is credit growth has exceeded real wages and real disposable incomes:

Notably that acceleration toward more debt seems to come near the end of cycles:

In conjunction with declining savings rates it suggests people are using expanding debt to sustain spending habits:

Or should I say investing habits?

What about adjusting for ratios? Well:

It’s still the same message: The trend is up and this is with full employment and rates still low as I outlined earlier.

But the stress is already here:

“Overdue US credit card debt has reached a seven-year high, underlining the difficulties faced by many consumers in spite of the strong performance of the economy. Banking sector data show consumers were at least three months behind repayments or considered otherwise distressed on $11.9bn of credit card debt at the turn of the year, a rise of 11.5 per cent during the fourth quarter. More Americans are also failing behind on their mortgages, for which problematic debt levels rose 5.2 per cent over the same period to $56.7bn”:

Now add 6-8 rate hikes over the next 24 months and what do you get? A vast acceleration in consumer debt obligations which require unemployment to remain at cyclical lows and real wages to grow faster than debt consumption. The message: It has to be different this time, or the math doesn’t work. And if you think unemployment will remain at cyclical lows forever be my guest, but there is precious little evidence that this will remain so.

And if unemployment picks up at some point you’ll have millions of consumers in high debt with limited savings and rising debt obligations. And then suddenly debt matters.

For further details on the implications of rising debt and rising rates please see the Macro Corner.

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A Peaceful, Easy and Just Prescription for Growth: New at Reason

Will the economy grow at 3 percent and sustain this rate over 10 years? That’s the question on everyone’s mind. In the swamp, answers to that question can often be predicted based on one’s political affiliation.

The original claim comes from the Trump budget released a few weeks ago. On the pro side, we have Kevin Hassett, chairman of the White House Council of Economic Advisers (CEA). He makes a serious case that under President Donald Trump’s policies, 3 percent annual real growth could be a floor. On the con side, you have a former chairman of the CEA under President Barack Obama saying that the economic forecast in the budget is the most absurd he’s ever seen, writes Veronique de Rugy.

View this article.

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Stagflation Red Flags Fly As Orders/Output Slow, Prices Spike

Following weak EU and Asian (and Canada) PMIs, US also disappointed with Markit Manufacturing dropping to 55.3 in February flashing signs of stagflation (prices rising at 4 yr highs as output growth slows). While ISM showed the same stagflationary signs, the headline soared to its highest since May 2004.

Markit Manufacturing slipped back below Services PMI but ISM exploded higher to its highest since May 2004??!!

Under the covers, ISM is less rosy… New Orders slowed, production slowed, and prices paid soared to its highest since May 2011…

Stagflation signs abound…

Growth of manufacturing output remained solid in February, despite easing slightly to a three-month low.

Inflationary pressures intensified in February. Input prices increased at the fastest pace since December 2012, reportedly driven by supplier shortages and greater global demand for inputs. Supply chain delays were among the highest seen over the past three years. Where possible, panellists reported that costs were passed onto clients through higher charges. Factory gate price inflation accelerated to the fastest for over four years.

Commenting on the final February PMI data, Chris Williamson, Chief Business Economist at IHS Markit, glossed over the slowdown, remaining hopeful of future rebounds…

“US factories are enjoying one of the best growth spells seen since 2014, boding well for the sector to make a solid contribution to GDP in the first quarter.

“The survey’s output index readings for the first two months of 2018 are indicative of the sector growing at an annualised rate of just under 3%.

“The most encouraging news was another surge in new order inflows, which helped boost optimism about the year ahead and drive further widespread job gains. Manufacturers are clearly in expansion mode, enjoying robust demand from home alongside rising export orders.

“Capacity is still being stretched, however, as indicated by widespread supply chain delays and the build-up of uncompleted orders at factories. Demand, in other words, is running ahead of supply, meaning pricing power is improving. Factory selling prices are consequently rising at the steepest rate for four years.”

Finally we note that the global growth narrative appears to be losing its credibility rather quickly…

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Who’s going to win this Pepsi Challenge?

In our discussion on Monday, we talked about the latest annual letter from Berkshire Hathaway, Warren Buffett’s holding company.

The big takeaway from that piece is that Berkshire Hathaway now holds a record $116 billion in cash.

More importantly, Buffett is NOT a buyer right now.

As he wrote in his letter…

“[P]rices for decent, but far from spectacular, businesses hit an all-time high.”

As we talked about on Monday, when the most successful investor of our era is telling the world that he’s NOT buying (because stocks are too expensive), AND that he’s cashing up to record amounts, it’s worth listening.

Buffett knows that all markets move in cycles. We’ve been in an UP cycle for a long time. And as sure as night follows day, there will be a down cycle.

That’s what he’s preparing for… because those down cycles are where there is extraordinary opportunity to make a lot of money.

But if you want to take advantage of those opportunities, you have to have cash. Lots of it.

That’s how Buffett is positioning himself. And, if you haven’t already, it’s worth considering following in his footsteps.

But if you look at corporate America as a whole, they’re taking the opposite stance.

The debt of nonfinancial companies grew $1 trillion in just two years through the third quarter of 2017, reaching a total of $8.7 trillion – nearly 45% of US GDP.

Record-low interest rates have spurred companies to take on more and more debt.

Sometimes debt can make sense.

But more often than not, excessive debt becomes incredibly dangerous for a business (or government… or individual).

In many cases, these companies aren’t taking this debt on for any good reason. It’s only because they can. And that’s insane.

As Buffett said in his letter:

“Our aversion to [debt] has dampened our returns over the years. But Charlie [Munger] and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.”

Take our perennial whipping boy, Netflix, for example.

For 2017, Nextflix had negative free cash flow of $2 billion. It plans to spend $7.5 billion to $8 billion on content in 2018 (and even more through 2020).

That will all lead to negative free cash flow of $3-$4 billion in 2018.

And the company is going to continue raising high-yield debt to fund its operations.

The company’s CEO, Reed Hastings, reports this all to investors with pride.

So, massive negative free cash flow, increasing debt, and future content liabilities of $17.7 billion.

How do you think the market reacted? With joy!

Shares soared double-digits on the announcement, pushing Netflix to a record high share price.

Does it really make sense to pay record high prices for shares of a business that proudly burns through billions of dollars, and has absolutely no plans to even attempt to stop the bleeding?

Of course not. Because that isn’t a winning formula for success in the long term. That’s not how you create prosperity.

Curiously, though, while the market is rewarding these “debtor” companies, it’s punishing the “savers.”

Right now, there are companies out there generating loads of free cash flow, paying dividends and, most importantly, trading for BELOW their net-cash balances.

Here’s an example: there’s a company we’ve found in Hong Kong whose shares are currently trading at a 52% discount to the amount of its inventory and CASH it has in the bank.

In other words, you could buy this company outright, have cash left over and get the operating business for free.

If the stock price rose simply to the value of its cash and liquid inventory, you’d make a 110% return on investment.

[Editor’s note: These are exactly the types of highly lucrative investments that our Chief Investment Strategist Tim Staermose focuses on in his alert service the 4th Pillar.]

Yet rather than reward a prudent company that has carefully built a great business and pristine balance sheet, the market has knocked the share price down.

Meanwhile the market continues to reward companies who recklessly indebt themselves.

Let’s pause for a minute and take the Pepsi Challenge.

(Confused Millennial readers can click here)

Stock A loses money and goes deeper into debt each year.

Stock B has tons of cash, pays dividends to shareholders and makes money every year.

Which would you rather own?

Seems like an obvious choice.

But as human beings we tend to make irrational decisions.

We allow what’s popular and trendy to impact our investment decisions, like some sort of financial peer pressure.

This has been a big theme in our daily conversations so far this year: avoid big mistakes… by not making emotional decisions.

And that’s particularly true when it comes to investing.

Source

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Watch Live: Will Powell Walk Back The “Hawk Shock” In Senate Testimony?

The Dow Jones Industrial Average has shed about 700 points since Fed Chairman Jerome Powell left the door open to a possible fourth rate hike in 2018 during Tuesday’s testimony before the House Financial Services Committee – his first Congressional testimony as Fed Chair.

Powell

Typically, investors tune out the second day of the Fed chair’s Congressional testimony, but today, investors will be listening closely for any clues about the number of rate hikes, while stock bulls hope Powell will say something to meaningfully walk back his comments from Tuesday.

That’s because on Tuesday, stocks spiraled lower after Powell intimated that he might be open to moving his dot higher as he told lawmakers that he’d become more optimistic about the outlook for growth, employment and inflation.

Stocks opened lower ahead of his remarks, suggesting that investors are bracing for the worst. Powell has said recently that he doesn’t think equity volatility would have much of an impact on the real economy, and thus isn’t really paying attention to it.

Watch Powell live:

Read his prepared remarks below:

 

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China Warns It Is “Seriously Concerned” About US Trade-Policy Agenda

Ahead of Trump’s steel and aluminum tariff announcement, now tentatively expected to take place around 11am, China said it was “seriously concerned” over U.S. criticism of China’s economic growth model and related policies in its annual report on trade-policy agenda, China Ministry of Commerce said in statement on website.

The U.S. trade-policy report is ignorant of China’s “huge” accomplishments in building market-based economy and the fact that China sticks to commitments to WTO.

According to Beijing China and the U.S. should manage and control differences in constructive ways while avoiding politicizing economic, trade issues. The two nations should also improve communications and open markets to each other, and solve key concerns of both sides appropriately.

As a reminder, yesterday President Trump warned that the U.S. will use “all available tools” to prevent China’s state-driven economic model from undermining global competition, in his latest warning to Beijing as America readies a host of trade actions.

According to the president’s annual report to Congress on his trade-policy agenda, China hasn’t lived up to the promises of economic reforms it made when it joined the World Trade Organization in 2001, and actually appears to be moving further away from “market principles” in recent years. The report also accused that China’s “statist” policies are causing a “dramatic misallocation” of global resources that is leaving all countries poorer than they should be.

And the most direct threat was the following line in the report: “China is free to pursue whatever trade policy it prefers. But the United States, as a sovereign nation, is free to respond.”

As reported earlier, and as Bloomberg adds, Trump’s warning comes as his administration considers a range of actions either directly aimed at China, or that could impact the Asian power.

The president is weighing several options for curbing imports of steel and aluminum, and Trump has told confidants he’s considering a global tariff on steel of 24 percent, the most punitive alternative recommended by his officials. The administration is ready to act unilaterally if necessary to fight unfair trading practices, according to trade report.

Meanwhile, Xi has called for countries to avoid protectionism and stick to the current path of globalization. At the same time, Chinese officials are weighing raising tariffs on U.S. soybeans as tensions escalate.

There will likely be discussions over such trade irritants when Liu, who sits on China’s 25-member Politburo, meets with a group of Trump’s most senior economic advisers on Thursday, including Gary Cohn, Treasury Secretary Steven Mnuchin and Lighthizer. He’s also expected to talk with Susan Thornton, the State Department’s acting assistant secretary for East Asia and the Pacific.

For now, however, one thing is without doubt: China is winning the trade battle with the US.

It still remains to be seen if US-Chinese relations turn into an all out trade war as Trump tries to change the direction of the trend shown above. 

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