Category: zerohedge

Authored by Huw van Steenis via WEForum.org,

Climate change and its financial impact dominated conversations this year. Beneath the noise, I came away with even higher conviction that climate risk analysis of companies and portfolios is moving out of a specialised niche and into the mainstream.

The Trumpification of global trade, the side effects of QE Infinity and the continued rally in tech stocks were also hotly debated.

Europe hardly got a look in as investors and policymakers were focused on more vibrant growth and technology plays in the US and Asia.

And the crypto pop-up cafes from recent years had disappeared.

“Climate change is investment risk” was the theme for a closed-door breakfast of financiers and chief investment officers, hosted by BlackRock CEO Larry Fink, that I joined with Bank of England governor Mark Carney. Long-term investors are beginning to worry about how their portfolios may fare.

Homes in parts of Florida could fall in value by $30bn-$80bn by 2050 (15-35%), according to new McKinsey Global Institute research, presented at another event packed to capacity.

Progress on better data and standards was evident, including a new WEF initiative. Investors, lenders and insurers have lacked a clear view of how companies may fare as the weather changes, regulations evolve, new technologies emerge and customer behaviour shifts. Simply put, if you can’t measure it, you can’t risk manage it.

I also learned that several major countries are on the verge of making climate-related disclosure mandatory for companies — probably beyond just listed ones — in time for COP26, the major climate summit in Glasgow in November.

I’ve long been concerned that current ESG indices are too broad to isolate the potential climate impacts. From Davos, I came away with more conviction that climate-aware indices will be developed, and that investors will flock at scale to exchange traded funds or others benchmarked to such indices.

Investors and financiers can see the stakes are rising. Firms can see there is real money to be made by helping mobilise capital into financing the transition to a lower carbon economy. Some $90tn may need to be invested over the coming decade, according to the Bank of England.

Some executives are concerned that activists are increasingly focusing on the financial sector because governments have been so slow to respond. Greenpeace launched a report called It’s the Financial Sector, Stupid for Davos. Behind the scenes, almost all investors and financiers realise that a carbon tax would accelerate the transition but few governments or policymakers want to stick their neck out. A new report suggested that a $75 carbon tax would cost global business $4tn, according to David Craig of Refinitiv. That would profoundly change incentives and the pace of transition dramatically.

I was also struck by the leaps forward in green technologies. Microsoft’s announcements of going climate negative since inception and a $1bn green tech venture capital fund have set a new bar for firms.

The other major challenge is QE Infinity. While investors are enjoying the rise of bond and equity markets from 48 central banks cutting rates last year, there are growing side effects. Prolonged usage of extraordinary monetary policy is like taking steroids: good in short dosages, but does long-term damage through weakening the skeletal system.

One aspect of this is the thirst for yield, much in evidence at Davos, meaning investors are still offering very cheap finance to companies — including polluting ones. If the cost of capital doesn’t shift, the pace of change shifting resources to finance the transition may be far slower.

Where next?

Last year’s downbeat mood was another good example of Davos being a contrarian indicator – as many large conferences often are, because they expose what’s already embedded in market expectations.

So this year’s lack of worry was worrisome.

Several well known investors paraded views that “cash is trash” or called the “end of the boom and bust”. For investors and financiers at Davos, the Fed has clearly lost the debate over whether its $400bn repo injection was quantitative easing or not.

Climate change has brought a new level of complexity to the scenarios that investors need to weigh up. Let’s hope this year’s base case of “cautious optimism” — within a late cycle playbook — is not too sorely tested.

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Huw van Steenis is chair of the sustainable finance committee at UBS, former senior adviser to Bank of England governor Mark Carney and a member of the World Economic Forum’s Global Future Council on Financial and Monetary Systems.

“Smart money” investors, such as some Hollywood actors and sports icons, are linked up with top VC firms and investment banks, have been stung by the VC bubble of overinflated unicorns that see a valuation collapse right before IPO. 

Think WeWork, and what happened to the office-sharing space company last fall, it’s valuation plunged as it attempted to IPO. The company then ran out of money and was bailed out by its largest shareholder, SoftBank. 

Leonardo DiCaprio and rapper 50 Cent have been the latest “smart money” investors to feel the pain of plunging valuations, after their investments in Casper Sleep Inc., an online mattress retailer, saw valuations fall as it attempts to IPO. 

Reuters notes that the unicorn mattress company will issue 9.6 million shares between the $17 to $19 level, which is at the top part of the range, giving the company $182.4 million in IPO proceeds. Such a level would also give the company a $768 million valuation, or about a -23% drop in book value from its latest funding round. 

In 1Q19, the money-losing company was valued at $1.1 billion, which is a -30% decline in today’s valuation versus what was seen early last year. 

We noted since WeWork imploded last fall, investors’ risk appetite for money-losing companies has collapsed. This has also marked the top of not just the VC bubble, but also the IPO bubble. 

“Valuations in the private market are currently under the microscope, especially with unicorns, as they attempt to tap the public markets,” said Jeff Zell, a senior research analyst at IPO Boutique.

“The biggest hurdle that Casper Sleep is going to have during the roadshow process is proving to investors a viable path to profitability while competing in a highly competitive industry,” Zell said. 

Even “smart money” in Hollywood is feeling the pressure as the bubble of everything deflates. 

It is safe to say that of all the companies reporting this earnings season, only one truly matters: Apple, which is reporting today after the close at 4:30pm ET.

As we showed recently, tech firms have driven over half of market cap appreciation in the S&P 500 in the last 12 months, and not on earnings growth but purely on multiple expansion. Furthermore, as Morgan Stanley recently calculated, currently the top five companies in the S&P 500 make up 18% of the total market cap.

And no company plays a bigger role in this total than the world’s most valuable company, Apple, whose $1.4 trillion market cap is 130% higher since Tim Cook guided down expectations just one year ago.

But what is even more mind-blowing is that AAPL managed to more than double its market cap even as its earnings have been virtually unchanged over the past year, once again showing the power of central banks in expanding P/E multiples, which for AAPL is now the highest in a decade at ~24x.

Apple’s average PE over the past decade was about 14x, lagging other high-growth companies with recurring revenue and reflecting its singular dependence on iPhones sales and reliance on persuading consumers to upgrade their phones year after year.

“The run-up in the stock is a concern, and I wouldn’t be surprised if we see a bit of a pullback in the near future,” said People’s United Advisors chief equity strategist John Conlon, who added that Apple’s services business has become his main reason for owning stock.

Even more remarkable is that as AAPL exploded higher, the company stopped reporting the number of iPhones since “it wasn’t a good metric” although what it really meant is that iPhone sales growth for years had been declining.

And so, instead of pure iPhone sales, services and wearables have taken up the slack, although a big part for the recent surge has been “hopes for 5G iPhone” which will be released later in 2020 (yet which some have warned will be a huge dud). What followed was an unprecedented scramble by sell-side analysts to chase the price, which also benefited from Apple’s record buyback, and raise price targets without raising earnings forecasts.

And so, as Hedge Fund Telemetry writes, “the bar is high headed into this report” – indeed, with the stock priced beyond perfection and at the highest PE in decades, any adverse surprises would have a dire effect not only on the stock prices but the broader S&P which has used ETF-darling AAPL as its core support pillar.

So what that in mind, here is what the market is expecting (although note that Apple will no longer be reporting broken out iPhone numbers):

• Q1 revenue estimate $88.38 billion (range $85.99 billion to $90 billion)
  • Services revenue $12.98 billion, up 18.9% y/y
  • Wearables revenue $9.51 billion, up 29.8% y/y
• Q1 EPS estimate $4.56 (range $4.30 to $4.85)
• Q1 gross margin estimate 38.0% (range 37.5% to 38.8%)

 

• iPhone units 66.67 million
• iPhone ASP $785.07, down 3.7% y/y

While there is probably not much room for surprises in the current quarter numbers, all eyes will be on the company’s forecast for next quarter, which Wall Street expects to look as follows:

• 2Q revenue estimate $62.33 billion (range $57.0 billion to $65.71 billion)
• 2Q gross margin estimate 38.1%

Needless to say, any Apple commentary about the impact of Coronavirus on iphone demand or supply chains will be critical. As a reminder, earlier today the Nikkei leaked what could be seen as both positive and negative guidance.

Positive in that “Apple has asked suppliers to make up to 80 million iPhones over the first half of this year, an increase of over 10% from last year’s production schedule that could boost the company’s near-record share price.”

Apple, which reports fourth-quarter results after Tuesday’s U.S. market close, has booked orders for up to 65 million of its older iPhones, mostly from the iPhone 11 series, and up to 15 million units of a new cut-price model that it plans to unveil in March. Apple ordered 73 million iPhones over the same period last year, according to GF Securities data.

Yet the leaked guidance negative in that “suppliers warned that the blistering pace of production could be complicated by the outbreak of the coronavirus in China’s Hubei Province, given that their main manufacturing centers are in nearby Henan and Guangdong provinces, which had more than 100 confirmed cases as of Monday afternoon, and in Shanghai, with over 50 confirmed cases.”

In addition to the guidance, investors will be looking for fresh evidence the iPhone maker should be treated as a producer of high-margin, subscription services after its stock market value touched $1.4 trillion and its earnings multiple trades at decade highs. For the fiscal first quarter, which ended in December, analysts on average expect services revenue to jump 19.7% to $13.0 billion, according to Refinitiv.

Overall quarterly revenue is expected to rise 5.0% to $88.5 billion, with adjusted net income inching up 1.5% to $20.3 billion and earnings per share of $4.55.

In the September quarter, Apple said its services revenue hit $12.51 billion, topping analysts expectations of $12.15 billion. Services accounted for 20% of total revenue in that quarter, up from 17% in the same quarter the year before. Apple also gave cost of sales data showing gross margins for its services segment rose to 64% from a 61% a year earlier. That is far more generous than Apple’s overall gross margin of around 38% in recent years.

Apple has also increased the emphasis on its AppleCare, its extended warranty program. For example, the iPhone’s “settings” now includes reminders encouraging people to buy or renew their AppleCare plans.

As Reuters notes, Apple’s recent strong stock performance has been perpetuated by fund managers buying its shares in order to avoid underperforming their benchmarks, a trend that could reverse when the recent rally ends, Cowen analyst Krish Sankar wrote in a client note last week.

Finally, here are some additional thoughts on what to expect later today from Hedge Fund Telemetry:

Tim Cook has been smart by being cozy with President Trump to keep Apple away from the tariff risk. They have bought back in the past year nearly $50 billion in stock. Apple has attributed over 20% of the gains in the Nasdaq 100. It’s nearly worth $1.4 billion and the stock is trading at the highest multiple in ages ~26x.

It’s the most owned stock in the US within almost every type of fund or ETF. Short interest is low at 1.5 days to cover. Warren Buffett has Apple as his largest position that is now over 30% of his portfolio more than double his next largest holding. The front page holders of Apple have been net sellers in the last quarterly filings simply because it’s become too large of a position especially with Vanguard, Blackrock, and State Street the largest passive funds which hold nearly 20% of Apple.

Earnings tonight should be inline but the guidance for the next quarter is +7%. This is aggressive and likely will be guided down especially without any new products planned. The average price target for Apple with sell-side analysts is at 300 down 5% from here.

There are 27 buys, 14 holds, and 7 sell ratings. China sales early in the last quarter were burdened by the tariff war (and is an unknown) and should be at risk with the Coronavirus this quarter from a sales and supply chain point of view. (another big unknown).

And while the S&P has so far weathered the impact of the Chinese coronavirus relatively well, trading just 1% below its all time record high, a far bigger test for the broader market will be what happens if AAPL finally disappoints, and its stock tumbles after reporting earnings. For the answer: tune in at 430pm ET.

For those who have been following the trajectory of the US budget deficit in fiscal 2020, which as we showed two weeks ago blew out to a nine year high in the first quarter of 2020…

… it will come as no surprise that according to the latest, just released CBO forecast, in 2020 the US budget deficit will rise above $1 trillion, or $1.05TN to be specific when the fiscal year ends on Sept 30, 2020, the biggest deficit since 2011, which is $31BN more than the deficit reached in 2019. Relative to GDP, this year’s deficit would be about the same as last year’s shortfall—4.6 percent of GDP—which is the difference between revenues equal to 16.4 percent of GDP and outlays equal to 21.0 percent of GDP.

As the CBO writes, the US will spend $1 trillion more than it collects in 2020 and deficits will exceed that amount every year for the foreseeable future, in other words in perpetuity. As a share of GDP, the deficit will be at least 4.3% every year through 2030, and will only grow higher after that. That would be the longest stretch of budget deficits exceeding 4% of GDP over the past century, according to CBO, to wit:

CBO currently projects a federal deficit of $1.0 trillion in 2020; in its baseline budget projections, deficits average $1.3 trillion per year and total $13.1 trillion over the 2021–2030 period. Relative to the size of the economy, deficits would remain above 4.3 percent of gross domestic product (GDP) in every year between 2020 and 2030. Other than a six-year period during and immediately after World War II, the deficit over the past century has not exceeded 4.0 percent for more than five consecutive years.

Over the next decade, the CBO whose forecasts are traditionally overly optimistic, expects cumulative deficits to hit $13.1 trillion. And with spending now officially out of control, debt held by the public will be 81% of GDP this year and is projected to reach 98% by 2030. That stems from the combination of tax cuts and projected increases in spending—particularly on safety-net programs such as Medicare and Social Security.

The CBO’s projections assume that Congress will allow current spending and tax law to occur without any changes. Deficits and debt would be larger than projected if Congress extends individual tax cuts beyond their scheduled expiration at the end of 2025.

The biggest irony, however, is when one recalls that during his 2016 campaign, President Trump talked about paying off the federal debt within eight years. In reality, the CBO now expects that by 2030, total Federal debt will rise from $16.8TN currently (excluding debt paid in to Social Security), to a staggering $31.447 trillion in 2030…

… and to grow literally exponentially after that.

In other words, the MMT that will be launched after the next financial crisis, and which will see the Fed directly monetize US debt issuance from the Treasury until the dollar finally loses its reserve currency status, is now factored in.

Source: CBO

Hunter Biden reached a temporary settlement agreement in his child support case just 48 hours before a deadline for a mandatory court appearance to explain why he shouldn’t be held in contempt for failing to submit overdue financial information.

Biden’s baby-mama, an Arkansas stripper, filed the paternity suit last May. On Monday afternoon, Arkansas Circuit Court Judge Holly Meyer approved the tentative agreement – postponing Biden’s in-court appearance originally scheduled for Wednesday.

Child support payments will begin on Feb 1, according to a copy of the order filed in the Independence County Circuit Court, which redacted the monthly amount. The final figure, however, will be determined after Biden turns over relevant financial records. He also agreed to pay support dating back to November, 2018.

dunno guys, but feels like if Trump had a son driving around in a new Porsche while pretending he didn’t have money for child support for a baby he lied about fathering with a stripper, the media in general might make a bigger deal of it https://t.co/zGBdFo5jdZ

— Buck Sexton (@BuckSexton) January 27, 2020

“He’s doing the right thing by finally stepping up and paying what he should’ve been paying,” said Roberts’ lawyer, Clint Lancaster, in a Monday statement to the Arkansas Democrat-Gazette on Monday, adding “He’s going to begin paying monthly child support. He’s going to pay retroactive child support back to November of 2018. And he’s going to pay attorney’s fees and costs.”

If Biden turns over financial documents by March 1st, the contempt motions will be withdrawn.

The agreement delayed a hearing on motions to hold Biden in contempt that were filed by Roberts’s attorneys last week. Her attorneys claim Biden has failed to provide information ordered by the court, including the names of any of his businesses, tax documents, and all sources of income for the past five years. The contempt motions will be considered during the next scheduled pretrial hearing on Mar. 13 and will be withdrawn if Biden turns over the relevant documents by Mar. 1, according to the deal.

Biden also agreed to pay an undisclosed sum to Roberts for her “attorneys fees and costs.” –Washington Examiner

Biden – who has been living in a $12k/month rental home in the Hollywood Hills, has denied that he’s the child’s father despite a court-ordered DNA test determining he was. His attorney, Brent Langdon, told the Gazette that the agreement would “avoid the necessity of a hearing on Wednesday.”

Families who have lost loved ones to opioid overdoses or other opioid-related deaths cheered last week when a judge sent the founder of drugmaker Insys to prison for more than five years over a scheme to effectively bribe doctors into prescribing more of an opioid painkiller called Subsys, a drug intended for advanced cancer patients with high tolerance for opioids.

The company insisted that the drug was less addictive and dangerous than other painkillers on the market, and encouraged doctors to prescribe it “off label” – that is, for reasons other than its intended purpose. The company’s aggressive sales team included a former stripper who specialized in showing doctors who heavily prescribed the drug a good time.

On Tuesday, the DoJ announced another action related to its campaign to hold those responsible for the opioid crisis to account. In a press release, the agency revealed that it had reached a $145 million settlement with Practice Fusion, a San Francisco-based developer of IT products for the healthcare industry. The company agreed to the payment to resolve criminal and civil investigations into whether it solicited kickbacks from “a major opioid manufacturer” in exchange for using its technology to push doctors toward prescribing more unnecessary opioids. $26 million of that settlement consists of criminal fines, while roughly $118.6 million will go to the federal government and the states.

Doctors relied on Practice Fusion’s system to make decisions about which drugs to prescribe. This relationship wasn’t just immoral, it was blatantly illegal, prosecutors said, having violated anti-kickback statutes.

“Across the country, physicians rely on electronic health records software to provide vital patient data and unbiased medical information during critical encounters with patients,” said Principal Deputy Assistant Attorney General Ethan Davis of the Department of Justice’s Civil Division. “Kickbacks from drug companies to software vendors that are designed to improperly influence the physician-patient relationship are unacceptable.  When a software vendor claims to be providing unbiased medical information – especially information relating to the prescription of opioids – we expect honesty and candor to the physicians making treatment decisions based on that information.”

The company has entered into the deferred prosecution agreement with the US attorney’s office of Vermont.

Specifically, in exchange for a “sponsorship” payment from a pharmaceutical company of nearly $1 million, Practice Fusion allowed the companies to influence the development and implementation of what are called CDS alerts in its EHR software. These “pain” alerts would prompt doctors to prescribe more opioids, the software company said, advising opioid makers that it would help boost their sales.

In exchange for the payment, Practice Fusion allowed opioid makers to include their “input” in the development of the company’s CDS alerts. In an extra-cruel twist, payments were financed by the unnamed opioid maker’s marketing department.

One health-care reporter for BBG described the scheme as “completely insane.”

An electronic records company, used by doctors, admits that it TOOK KICKBACKS to INCREASE OPIOID PRESCRIPTIONS. https://t.co/kvgQ2aS4tM

— Drew Armstrong (@ArmstrongDrew) January 28, 2020

This is completely insane:
“Practice Fusion solicited a payment of nearly $1 million from the opioid company to create a CDS alert that would cause doctors to prescribe more extended release opioids. That payment was financed by the opioid company’s marketing department.”

— Drew Armstrong (@ArmstrongDrew) January 28, 2020

“Practice Fusion touted that it would result in a favorable return on investment for the opioid company based on doctors prescribing more opioids”

— Drew Armstrong (@ArmstrongDrew) January 28, 2020

Worth noting — this deal was agreed to last year by All Scripts. But man!

— Drew Armstrong (@ArmstrongDrew) January 28, 2020

Most states attorneys general and the federal government have been diligently pursuing opioid makers as the public backlash against them has intensified significantly over the last few years. Several of these companies, including the formerly Sackler-controlled Purdue, have declared bankruptcy to get out of paying thousands of civil claims over the company’s dishonest marketing of OxyContin, a pill that was perhaps the biggest factor in sparking the opioid crisis as it became widely sold on the street. President Trump made fighting the epidemic a central plank of his campaign, and he has signed legislation to bolster government efforts to combat what has become a serious public health crisis.

Via Greg Hunter’s USAWatchdog.com,

Renowned geopolitical and financial cycle expert Charles Nenner says his “stock market cycle has topped.”

Look no further than the more than 400 point pounding on Monday for proof. Nenner says,

“If we see a good close on the S&P futures for March below 3230, that’s only a couple of points away from here. Then we get lower price targets, and then this could turn into something much more serious…

These bull markets don’t stop on a dime. So, we can go up and down and up and down…

People always think there is a buying opportunity… but this market will go down in a strong, strong way.”

Nenner is not waiting. He is instructing his clients that “It’s time to sell. We are totally out of stocks…”

“There is a difference between insiders and small investors. Small investors are upset if they miss another two or three percent to the upside, while the big investor is afraid they can lose 40% to the downside. I am afraid they can lose 40% to the downside. I am standing aside unless I see something totally different.”

On interest rates, Nenner predicted months ago that rates would go down, and they did. What does Nenner say now? Nenner says, “The same thing…”

“…this is going to continue for most of the year. Again, we don’t know what the news is. It could be a rush for safety. It could be a recession. It could be deflation…. I think we will have a deflationary crisis, and that’s why interest rates will go much lower.”

On the Fed trying to suppress interest rates by flooding the repo market with cheap money, Nenner says,

“People that thought they were safe and had money put aside are having to go back to work when they are 80 years old. So, the Fed could maybe succeed in what they do, but they are bringing down the whole system.”

On gold, Nenner still stands by his prediction that “gold will go to $2,500 per ounce” in the next few years. Nenner explains,

“Cycles show me that gold and silver will be going up for a couple of years…. I take profits in a short term top, but people say that Mr. Nenner says the long term top is $2,500. So, I am in for the long term. The problem is it can go to $1,890 and then suddenly to $1,470, and they get afraid and sell out and no more long term investment… If you are strong enough, let it go to $2,500, but never get weak even if it goes down. Be a long term investor….$2,500 gold could take three years.”

How much higher could gold go in the longer term? Nenner says,

“I made the calculation that if the system breaks down and we have to go back to the gold standard, then gold would be around $60,000 per ounce. Who knows what’s going to happen.”

Another one of Nenner’s cycles that has turned up is the “War Cycle.” Nenner says,

“Remember a few years ago, I said the internal war cycle was more frightening than the external war cycle, especially for the United States. We are going to have social unrest and uprising that is going to be more dangerous, and that is more dangerous than the United States going to war…

What we are looking for is the big war that still has to come. I still say I don’t think it comes in the Middle East. It will come in the South China Sea… Just because it’s time.”

Join Greg Hunter of USAWatchdog.com as he goes One-on-One with geopolitical and economic cycle expert Charles Nenner.

*  *  *

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Former White House Chief of Staff John Kelly has given a rubber-stamp endorsement to John Bolton’s new book-claim that President Trump tied military aid for Ukraine to his demands to investigate the Bidens.

“If John Bolton says that in the book I believe John Bolton,” said Kelly, adding “John’s an honest guy. He’s a man of integrity and great character, so we’ll see what happens.”

Kelly also endorsed Democratic calls to subpoena witnesses in President Trump’s impeachment trial, which would of course mean a Bolton testimony, adding that “the majority of Americans would like to hear the whole story.”

Of course, in 2008 then-President George W. Bush blasted Bolton, reportedly telling a group of journalists: “Let me just say from the outset that I don’t consider Bolton credible.” (via The Federalist)

Bolton was one of the primary proponents of the claim that Iraq had weapons of mass destruction, requiring a ground invasion and regime change by U.S. troops. “We are confident that Saddam Hussein has hidden weapons of mass destruction and production facilities in Iraq,” Bolton said in 2002.

Even after those claims were debunked and the promised weapons of mass destruction were never found, he remained a steadfast supporter of the Iraq War, claiming it couldn’t be proved that the ensuing chaos was caused by the decision to remove Hussein from power.

According to New York Times reporter Peter Baker, Bush told the assembled writers he did not think his hire of Bolton had been worth it in the end.

“I spent political capital for him,” Bush reportedly said, complaining he got little in return. –The Federalist

So – two Presidents say Bolton was a terrible pick, but John Kelly – who did nothing but talk shit about Trump to his aides, loves the guy.

Will this Harvard Chemistry Department Head be remembered as the Aldrich Ames of the modern-day ‘Cold War’?

In a shocking revelation made Tuesday afternoon – a revelation that will almost certainly rattle the US-China relationship at an already fragile time – a federal court unsealed indictments against Harvard professor and Chemistry Department Head Charles Lieber, along with two Chinese nationals. One is a Boston University researcher who was once a lieutenant in the People’s Liberation Army, according to prosecutors, and the second was a cancer researcher who tried to smuggle 21 vials of biological materials in his sock – allegedly. Lieber has been arrested, though it’s not clear if he’s still in custody.

Though the official charge was lying to investigators, Lieber’s actions look like an unvarnished attempt at espionage, complete with an extremely seductive monetary reward.

Professor Lieber

Lieber was reportedly paid $50,000 a month by Wuhan University of Technology for participating in its “Thousand Talents” program, and was given more than $1.5 million to establish a lab and do research at Wuhan University of Technology, according to federal prosecutors in Boston, according to WSJ.

According to prosecutors, Lieber deliberately lied to defense department officials about his “foreign research collaborations.”

When Defense Department investigators asked Mr. Lieber in 2018 about his foreign research collaborations, he told them he had never been asked to participate in the Thousand Talents Program, the complaint said. But Mr. Lieber had signed such a talent contract with Wuhan University in 2012, the complaint said.

NIH also asked Harvard about Mr. Lieber’s affiliation with Wuhan that same year, the complaint said. After interviewing Mr. Lieber, Harvard told NIH in January 2019 that Mr. Lieber had no formal affiliation with Wuhan after 2012 and that he had never participated in the Thousand Talents Program, even though Mr. Lieber had a formal relationship with the university through 2017, the complaint said.

In conjunction with the program, Mr. Lieber became a “strategic scientist” at Wuhan University of Technology, according to the complaint. For “significant periods” from 2012 to 2017, his contract called for a $50,000 a month salary on top of $150,000 in living expenses paid by WUT, it said. He was also awarded more than $1.5 million by WUT and the Chinese government to set up a research lab, it said.

“The charges brought by the U.S. government against Professor Lieber are extremely serious,” a Harvard spokesman said Tuesday. “Harvard is cooperating with federal authorities, including the National Institutes of Health, and is initiating its own review of the alleged misconduct. Professor Lieber has been placed on indefinite administrative leave.”

The Trump Administration has made cracking down on Chinese academic and corporate espionage a priority, and has made several arrests of Chinese nationals working in critical roles funneling info back to China. But this is probably the most high-profile case to date, since one of the suspects is a pioneering American scientist.

Interestingly enough, not long after news of the arrests hit the press, another report surfaced claiming China had rejected President Trump’s offer of assistance to contain the coronavirus – even as Wuhan is in desperate need of supplies.

Is that just a coincidence?

Following two tailing coupon auctions, which saw both the 2Y and 5Y note sales tail the When Issued as a result of this week’s sharp drop in yields across the curve, today was no exception and moments ago the Treasury concluded the week’s accelerated bond issuance calendar when it sold $31BN in 7 Year notes at the lowest yield in six months.

Stopping at a high yield of 1.570%, the lowest since the 1.489% printed in August and sharply lower from December’s 1.844%,  the 7Y auction tailed the 1.566% When Issued by 0.4bps, the second consecutive tail.

The Bid to Cover of 2.371 suggested a lack of buyside demand, with a notable drop from the 2.466 in December, and was the lowest since the 2.16 in August.

The internals were also disappointing, with Indirects taking down just 58.1%, below the 59.4% in December, under the 61.5% six auction average, and the lowest since August. Directs also dipped, taking down 17.2% in January after 17.1% in December; this left Dealers holding 24.7% of the auction, fractionally higher than the 23.4% in December.

Overall, another average, tailing auction which however was to be expected in light of the sharp pulling back in yields observed this week.