Category: zerohedge

Authored by Mac Slavo via SHTFplan.com,

It sure doesn’t seem like Arizona approves of California’s sanctuary cities and one GOP Lawmaker hammered that point home. Marth McSally, in what was likely a tongue in cheek moment, proposed building a wall around California to protect the state of Arizona from their neighbor’s disastrous policies.

McSally announced her bid for Senate to replace Senator Jeff Flake (R) earlier this year. Flake is retiring at the end of this Congress. Other candidates in the primary include former Maricopa County, Arizona, Sheriff Joe Arpaio and former state Senator Kelli Ward (R).

When first hearing her quote, one could assume she wanted Arizona protected from those feeling the housing crisis and high taxation in California.  But  McSally, a congresswoman representing Arizona was referring to the “dangers of the southern border” and the sanctuary cities that California has allowed to infect the Golden State. Sanctuary cities are municipalities that do not cooperate with federal immigration enforcement.

“As we look in Arizona, we often look into the dangers of the southern border,” McSally said during a round-table discussion about “sanctuary cities” Tuesday at the White House. “But if these dangerous policies continue out of California, we might need to build a wall between California and Arizona as well to keep these dangerous criminals out of our state,” she said, smiling, and perhaps a little sarcastically.

She added that California can’t just “provide sanctuary for these criminals and think that it’s only impacting California dangerously.” McSally’s comments come on the heels of the announcement that the federal government is suing the state of California (state government) for failing to enforce their laws.

The Trump administration’s “America First” policy is a thorn in the side of many states that use illegal immigrants as votes to elect far-left Communists.

California’s governor, Jerry Brown (D), was upset that he has to follow others’ rules while making California almost unbearable with the number of rules, laws, and regulations he demands the residents of the Golden State adhere to, Brown became the offended hypocrite everyone knew he was in the wake of the federal lawsuit over sanctuary cities.  Try not to choke on California’s hypocrisy.  Never forget that the state (and Democrats in general) loves laws, just not the laws of others.

“You called this an act of war from the federal government,” a reporter began asking Brown. Brown immediately looked confused. “An act of war? That’s pretty strong. But I reciprocate that comment,” Brown responded.

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President Donald Trump will address the public at 1 pm Friday from the White House, in a hastily organized press conference to announce his decision on whether he will veto or sign the $1.3 trillion omnibus spending bill that cleared the Senate early this morning.

Trump had said earlier that he is considering a veto…

I am considering a VETO of the Omnibus Spending Bill based on the fact that the 800,000 plus DACA recipients have been totally abandoned by the Democrats (not even mentioned in Bill) and the BORDER WALL, which is desperately needed for our National Defense, is not fully funded.

— Donald J. Trump (@realDonaldTrump) March 23, 2018

Trump had vacillated earlier in the week on whether to support the bill, but promised he would sign it after a meeting with House Speaker Paul Ryan on Wednesday.

News conference at the White House concerning the Omnibus Spending Bill. 1:00 P.M.

— Donald J. Trump (@realDonaldTrump) March 23, 2018

Trump’s budget director, Mick Mulvaney, said he had been asked to prepare a contingency plan for a shutdown, an ominous sign ahead of the announcement…

Watch the press conference live below:

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Update: The Spacex Facebook page is gone…

*  *  *

Seemingly escalating the war of words between Silicon Valley’s boy-billionaires, Elon Musk has tweet-stormed that he will delete the Facebook pages for Spacex and Tesla…

Facebook shares are legging lower again…

As a reminder, Musk and Zuckerberg have been at war since 2016 when Elon Musk’s failed Spacex launch killed Zuckerberg’s satellite…

“As I’m here in Africa, I’m deeply disappointed to hear that SpaceX’s launch failure destroyed our satellite that would have provided connectivity to so many entrepreneurs and everyone else across the continent,” Zuckerberg wrote on Facebook hours after the incident.

“Fortunately, we have developed other technologies like Aquila that will connect people as well. We remain committed to our mission of connecting everyone, and we will keep working until everyone has the opportunities this satellite would have provided,” he added, referencing Facebook’s massive Internet-beaming drone.

Then it re-escalated last year when they disagreed vehemently over the future potential of AI…

Elon Musk’s comments about AI’s “existential threat to human civilization” prompted a response from Mark Zuckerberg calling the Tesla CEO’s comments “pretty irresponsible.” Well Musk has struck back this morning, slamming the Facebook chief’s understanding of AI as “limited.”

And now Musk is counterpunching…

In a response to remarks from the co-founder of WhatsApp who told his millions of followers to #deletefacebook, Musk responded…

Musk additionally confirmed both Tesla and Spacex pages would be deleted and that his firm’s Instagram presence was “borderline.”

We suspect Zuckerberg will be slow to respond to this shot… he’s too busy preparing for his congressional testimony.

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This morning the market has been on edge and traders are obssessed with just one question: how will China retaliate to Trump’s trade war and tariffs… further. After all, the initial response of a modest 15-25% tariff on $3 billion in 128, mostly agricultural, products, seemed laughably small and appeared to be more of a warning shot than a real response to Trump’s $50BN in Section 301 tariffs.

One answer was revealed moments ago when as we reported that China’s ambassador to the US Cui Tiankai did not rule out the possibility of scaling back purchases of Treasuries in response to Trump’s tariffs.

“We are looking at all options,” he said, when asked whether China would consider reduced purchases of Treasuries. “That’s why we believe any unilateral and protectionist move would hurt everybody, including the United States itself. It would certainly hurt the daily life of American middle-class people, and the American companies, and the financial markets.”

But the more likely reaction is that China will simply escalate with a “brute force” tit-for-tat retaliation, and as Citi notes, the editor-in-chief of the state-controlled Chinese newspaper Global Times, Hu Xijin, just tweeted: “I learned that Chinese govt is determined to strike back.”

More importantly, he explained the confusion over the “disproportionate” $3 billion response, noting that “Friday’s plan to impose $3b tariffs is simply to retaliate to tariffs on steel and aluminum products“, i.e. a response to the previous, Section 232 round of tariffs, and has nothing to do with the latest round of $50 billion in Section 301 tariffs.

Instead, Hu warns that “China’s retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making.“

I learned that Chinese govt is determined to strike back. Friday’s plan to impose $3b tariffs is to retaliate tariffs on steel and aluminum products. China’s retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making.

— Hu Xijin 胡锡进 (@HuXijin_GT) March 23, 2018

Or, in other words, China’s real retaliation – one which is guaranteed to infuriate Trump with its proportionality and lead to further tit-for-tat responses – is about to hit.

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Just hours after JPM’s Marko Kolanovic doubled down, and after “explaining” this week’s rout with Wednesday’s “severe snowstorm” told CNBC to “buy the dip“, JPM’s chief technical analyst Jason Hunter had an entirely different message.

Contrary to JPMorgan’s head quant, who sees the S&P hitting fresh all time highs soon, Hunter warned that the recent S&P decline, which failed to breach 2,800 resistance and broke through key support at 2,730 is “challenging our base-case outlook for an eventual recovery to new highs into the second quarter.”

And while the chartist notes that a slump is not (yet) “the most probable outcome”, and that he does not envision a material break below support in the mid-2500s, he urges clients to reduce exposure should the S&P slide below 2,610. In other words, in true “guaranteed to lose money” fashion, buy if others are buying, and sell when others sell.

Sarcasm aside, and before we show the chart that lays out all of JPM’s support and resistance lines, the JPM technician makes an interesting detour into how he approaches late-cycle market corrections – such as this one – that have unfolded before the 2s/10s UST curve inverted during past cycles since 1980.

What JPM finds is that in virtually all cases, the peak to trough price damage was limited to 10% on a close to close basis, and by day 40 after the peak, the market had found solid ground.  JPM shows the average trajectory of all the S&P 500 Index drawdowns that exceeded 5% during the late-cycle periods before curve inversion in the chart below.

And while until a week ago, the post-correction recovery thesis was solid with the market since the January 26 highs tracking closely to the average reaction, last week’s events have clearly violated this relationship and suddenly the BTFDers are getting cold feet.

What happens next? Well, it could get messy, because according to Hunter, JPM continues to view 1987 as an important analog for 2018, “as we anticipated a similar cross-market dynamic heading into the year whereby interest rate and curve volatility could be a primary driver for volatility in the equity market.”

To underscore this, the technician notes a surprising similarity namely that to date, the 2018 pullback has traced out a similar trajectory as both the Apr-May and Aug-Oct 1987 corrections:

“In 1987, both correction periods traced out a remarkably similar path up until about day 35 from the peak. In the Apr-May period, the S&P 500 had established a well-defined range support zone with the initial pullback. The market had gone on to retest and hold that support in late May ahead of a powerful 20%+ rally to the Aug peak. The initial drop from that peak into Sep 1987 established range support in Sep, just as the market did in spring. Except the mid-Oct retest of that support failed to hold.”

In other words, in 1987 it was roughly 40 days past the prior peak that the S&P decided whether to keep going higher, or crash. If indeed the current market is an analog, the S&P faces a similar choice now.

Some further observations from JPM:

We suspect that a confluence of stop orders through that support and the 10% peak to trough correction threshold triggered or at least contributed to the market dynamic that defined the three-day crash event. It is also worth  noting that the aggressive trend to higher Treasury yields and curve steepening reinforced the equity weakness until  the May and Oct 1987 bottoms. Even during the brief crash episode, the trend to higher rates reinforced equity weakness up until the last day of the meltdown. As far as that cross-market driver goes, the aggressive trend to higher yields and early-2018 curve steepening moves have in part reversed, so we see a low probability that the  equity weakness resumes with the same momentum it had in early Feb.

Unless, of course, it does… which is why JPM urges to keep a very close eye on which way the S&P will break next. And while another ramp higher obviously removes the risk of another “1987” event, a move below the 2,610-2,637 support confluence would leave the market susceptible to a retest of the key support in the 2,500s that held in Feb, according to JPM. Hunter’s recommendation: “we suggest at least partially reducing the new long exposure accumulated during the Feb turn and on the early-Mar pullback if the market breaks below 2,610.”

The 200- day MA has risen to 2,585, which sits just above the 2,541-2,557 Oct-Nov 2017 range lows and 2,533 Feb 15 trough. That area also roughly lines up with the 10% peak to trough threshold, an area that marked a floor for the majority of late-cycle drawdowns. Even if further weakness materializes, we think the market will hold that area, but would wait for a reversal pattern to set up before suggesting re-entering any long exposure reduced on the break below 2,610. Longer-term support rests at the 2,463 Jan-Mar equal swings objective, 2,417 Aug 2017 low, and 2,400, which marked a key inflection in 2017 – first as resistance and then support.

All this is summarized in the chart below:

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After concerns about devaluation were allayed modestly by PBOC’s fix overnight, China’s ambassador to the U.S. wouldn’t rule out the possibility of the Asian nation scaling back purchases of Treasuries in response to tariffs imposed by President Donald Trump.

US equities reacted immediately (though Treasury yields are modestly lower after the comments)

 

As Bloomberg reports, ambassador Cui Tiankai told Bloomberg Television, when asked whether China would consider reduced purchases of U.S. Treasuries…

“We are looking at all options…

That’s why we believe any unilateral and protectionist move would hurt everybody, including the United States itself. It would certainly hurt the daily life of American middle-class people, and the American companies, and the financial markets.”

As a reminder, China is America’s biggest foreign creditor. It held $1.17 trillion in Treasuries as of January, or about 19 percent of all foreign holdings of U.S. government securities.

In the interview, Cui reiterated the Chinese position that the nation doesn’t want a trade war but is prepared to respond if the situation escalates.

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Don’t even pretend to be surprised…

Making sure a giant unicorn IPO goes off healthily is critical to maintaining the illusion that all is well in the world… and so it appears that the major US equity indices were ‘managed’ and stabilized ahead of the Dropbox IPO open…

After IPOing at $21, the stock opened at $29 – yay! The dream remains alive (or did they leave billions on the table?)

And then this happened…

Seriously!

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The former FBI informant at the heart of the Russian Uranium scandal, William D. Campbell, has given an exclusive, on camera interview to The Hill – in which he reveals that he was interviewed in December by FBI agents from the Little Rock, Arkansas for five hours about the Clintons.

Of note – Campbell’s attorney is Victoria Toensing, a former Deputy Assistant Attorney General under Reagan who is now handling the Mueller investigation for President Trump along with her husband, former federal prosecutor Joe diGenova (also of note, newly minted National Security Advisor John Bolton was Reagan’s Assistant AG, presumably while Toensing was a Deputy Assistant AG in the criminal division). 

After Campbell spent decades working for the CIA, he was “turned over” to the FBI for counterintelligence work due to relationships he had forged deep within the Russian uranium industry. While deep undercover, Campbell uncovered two related bribery schemes involving Russian nuclear officials, an American trucking company, and efforts to route money to the Clinton Global Initiative (CGI) through an American lobbying firm in order to overcome regulatory hurdles, according to reports by The Hill and Circa.

Campbell collected over 5,000 documents and briefs over a six-year period beginning in 2009, some of which are said to detail efforts by Moscow to route money to (CGI) through lobbying firm APCO Worldwide – including video evidence of bribe money related to the Uranium One deal being stuffed into suitcases. 

Officials with APCO – the lobbying firm accused of funneling the money to the Clinton Global Initiative, told The Hill that its support for CGI and its work for Russia were not connected in any way, and involved different divisions of the firm.

In January, the Little Rock FBI field office opened a new investigation into the Clintons and their various charitable foundations – focusing on pay-for-play schemes and tax code violations, according to law enforcement officials and a witness who wishes to remain anonymous. 

The officials, who spoke only on condition of anonymity, said the probe is examining whether the Clintons promised or performed any policy favors in return for largesse to their charitable efforts or whether donors made commitments of donations in hopes of securing government outcomes.

The probe may also examine whether any tax-exempt assets were converted for personal or political use and whether the Foundation complied with applicable tax laws, the officials said. –The Hill (1/4/2018)

Campbell told The Hill that the Arkansas agents specifically asked about donations to the Clinton charitable trusts: 

Campbell said he was asked specifically about whether donations to the Clintons charitable efforts were used to influence U.S. nuclear policy during the Obama year, and that agents questioned him extensively about claims the Russians made to him that they had routed millions of dollars to an American lobbying firm in 2010 and 2011 with the expectation it would be used to help President Clinton’s charitable global initiative while major uranium decisions were pending before Hillary Clinton’s State Department. –The Hill

“They were looking into the Clintons, and the information that I provided to them about the Clintons and about what was said and confirmed by Russian leadership seemed to be very important to them,” Campbell said, his appearance obscured to hide his identity. 

Campbell gave closed-door testimony to three Congressional panels in February – which Congressional Democrats Adam Schiff and Elijah Cummings wrote, smearing Campbell as he suffered from cognitive issues due to chemotherapy.

The former CIA and FBI asset dismissed the Democrats’ attacks as partisan.

“I am not a Republican. I am not a Democrat. I’m not an independent. I am a damn American,” he said. “I’d like to remind those Democratic staff members who wrote that interview summary that none of ’em have ever worked undercover as a confidential informant … and put themselves in clear and present danger with Russian criminals who are breaking U.S. law.”

Moreover, after details of Campbell’s undercover work for the FBI first emerged in an October 2017 report by The Hill – which did not divulge his name, Michael Isikoff of Yahoo News and Joel Schectman of Reuters published articles smearing Campbell, saying he was “so unreliable that prosecutors dropped him as a witness” in a case unrelated to his undercover work – while two “senior officials” within the Justice Department fed Congressional investigators the same thing during a December 15 briefing. 

Both statements were lies, as the case was related to Campbell’s undercover work, and he was dropped as a witness after the Baltimore U.S. Attorney’s office botched their case – which Campbell’s testimony would have weakened.

In response to the smears, Victoria Toensing fired off a letter to Attorney General Jeff Sessions on Tuesday demanding an investigation into Campbell’s character assassination – CC’ing DOJ Inspector General Michael Horowitz, along with several Congressional Investigators and others involved in the matter. 

The letter reads: 

“We write on behalf of our client, William Douglas Campbell, to request an investigation of disclosures by anonymous “federal officials” to the media and of Congressional briefings by “senior officials” of the Justice Department. The former provided false information about Mr. Campbell to the media. The latter provided false information about Mr. Campbell to Senate and House committees.”

 

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Via Global Macro Monitor,

Last week we were thinking about pulling together a post using game theory to predict the outcome of the Trump administration’s tariff announcement.   JP Morgan beat us to it, however.

More interesting is the JPM quant’s assertion that Trump will – or should – avoid launching a trade war at all costs, not least of all because he wants to avoid impeachment, which would be far more likely if Trump “destabilizes global markets” impairing the administration’s ‘market scorecard’ and likely leading to an election loss. And, as Marko adds, “lost elections open a path to impeachment, and other complications.”  – JP Morgan, via Zero Hedge

China’s Strategy

There is no doubt, in our opinion,  the Chinese government understands this.  That they have Mr. Market on their side, which will punish President Trump with a bear market if the U.S. takes a hard line and chooses a trade war.   President Trump has tied his success to a soaring stock market.

Today’s 700 plus decline in the Dow is a case in point.  Market volatility dilutes U.S. bargaining power and may make the path to an outcome much more unstable.  Thus more volatility.  A classic feedback loop.     

President Xi may calculate another 3,000 points shaved off the Dow, and the U.S. will capitulate.

We are not so sure this White House,  Mr. Navarro, in particular,  is as rational as JP Morgan believes.  Nor is it so easy to control the genie once she is out of the bottle.

S&P500 Tips Over

As we suspected, and as our analog instructed,  the S&P500 tipped over the “Navarro Falls” on Monday, and the sell-off got some real legs today.    The JFK-Trump S&P analog continues to track on a directional basis like clockwork with the Trump S&P now almost 3 percent below the JFK S&P 344 trading days after election day.

The Trade War Nobody Wants

The conventional wisdom of the market pundits is the tariffs are just an opening position, it is all noise, and will be over quickly.  Upon hearing all this we immediately thought it was the same thinking at the beginning of World War I,  the war nobody wanted.

We prepared to write something up, but our good friend, Greg McKenna, down in Australia beat us to the punch.  Here is his profound thinking in the Friday morning commentary.

Source:  Greg McKenna @gregorymckenna 

That is big thinking, folks.  Greg is one smart dude.

Deep State

We suspect it will not be long before we hear an official pronouncement the “deep state” is behind this sell-off.  In fact, there are already whispers of such in the market.   Just sayin’.

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It’s time for JPMorgan to start worrying again that retail investors are no longer buying the fucking dip (as it did three weeks ago).

Just one week after Bank of America was “stunned” by record inflows into equities, this week everything went in reverse, following the latest Facebook-inspired sharp drop in stocks which brought the market back to the verge of a correction. The result was a “huge” $19.9 billion equity outflows, with the $18.6 billion in ETF outflows the second highest ever according to BofA.

The redemption follows record inflows of $43.3BN last week, and huge $151.7BN in YTD.

Predictably, the US was the focus of outflows, with $24.9BN in redemptions from US-based funds, the 2nd largest ever. And while more modest outflows continued from Europe ($1.5bn), investors continued to allocated capital to Japan, which has had inflows for 16 straight weeks, as well as EM, which saw another $2.0bn in inflows.

Broken down by style, the target of outflows was US large cap, which suffered $18.3bn in outflows, and US value ($7.2bn outflows), as well as US growth ($3.4bn), US small cap ($2.2bn), as hit with near record outflows just one week after record inflows.

Meanwhile, on a sector basis, tech once again saw inflows despite the crash in Facebook, although at only $0.5bn this may be on the verge of a historic inversion.

Inflows were also observed in utilities ($0.4bn), consumer ($0.3bn), real estate  ($0.2bn), and materials ($0.001bn), while healthcare ($0.2bn), energy ($0.3bn), and financials ($0.9bn) were hit by outflows.

And while investors fled equities, they rushed into “risk off” safe havens, with $1.5bn inflows to gold, $1.8bn into bonds. Of note, with equity investors suddenly getting cold feet, gold is reemerging as one of the favorite asset classes.

It wasn’t all flight to safe havens, though, because according to the fund flow data, it’s time to worry about credit and especially high yield, because as BofA’s Michael Hartnett writes, “credit is cracking” after the 10th straight week of HY bond fund outflows – the longest streak since 2007 – as another $1.6BN was pulled; alongside slowing $1.4bn inflows to IG bonds (worst start for US IG returns since 1994), all amid investor concerns of excess leverage highest since 2010. Even junk ETFs – the preferred investment instrument by retail – have barely seen any positive weeks this year,

Commenting on the rising tide of junk bond outflows, Bloomberg warns that the positive momentum in Europe’s high-yield primary market this month may be short lived, as two weeks after the window for issuance opened, and 7.1 billion euros ($8.7 billion) of new issues later, persistent fund outflows seem set to slow sales as a looming trade war weighs on the market.

Investor outflows are “probably the biggest concern” in the European high-yield market, Armin Peter, global head of  DCM syndicate at UBS Ltd, said at a briefing event on Wednesday.

To this, BofA adds that European junk bond funds have suffered 19 straight weeks of investor redemptions, while February was the biggest month of outflows for high-yield funds since June 2013, the note said. A JPMorgan note on March 16 said cumulative outflows for junk is now at €3.4 billion so far this year.

This is starting to hit the primary market: this week TUI AG will not be pricing a planned bond issue, saying timing was subject to market conditions, while an entity within the Virgin Media Group sold receivables notes at the wide end of price talk. The weak appetite for the Virgin Media notes was likely indicative of the effect of outflows, because most investors who like the bonds are “pretty full,” said Azhar Hussain, head of global high yield at Royal London Asset Management.

Yields in the market are “too low for the risk” involved, according to Ville Talasmaki, head of credit investments at Sampo Oyj. “To me, a high yield bond is a low yield bond with high risk.” Talasmaki said he has been reducing his exposure by not re-investing when bonds mature and by selling some notes, he said – though in some cases he has bought “very selectively” in primary.

And just to demonstrate his thesis that “credit is cracking”, BofA’s Michael Hartnett shows the following chart which shows the sharp slowdown in relative flows for HY vs IG.

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