Category: zerohedge

It was an erratic day, which in so many ways was a mirror image of yesterday, and even though today’s blistering PPI print confirmed yesterday’s near-record CPI number, traders who expected a continuation of yesterday’s action were left nursing big losses.

Perhaps it was the fervent defense of the “transitory inflation” narrative on Wall Street, but whatever the reason, yesterday’s surge in the VIX reversed sharply, with the fear index tumbling from yesterday’s high of 29, sliding to session lows of 23.

This was enough to activate risk on mode in vol-targeting funds and momentum chasers, which saw spoos surge 90 points form a session low of 4030 to 4120 at the close…

… even as tech stocks found it more difficult to overcome gravity with the Nasdaq dipping into the red by mid-day only to rebound as we approached the close, with Bloomberg pointing out that after months of misery, the NYSE FANG index may be poised to blast off having formed a triple bottom around 6,100.

Helping the risk-on mood was not just the plunge in the VIX but also the sharp drop in yields, and despite a rather ugly, tailing 30Y auction,. the 5Y breakeven yield tumbled all day and was set to close below Tuesday’s low, completely fading yesterday’s CPI spike.

Which is not to say that all stocks were roaring higher: Cathie Wood’s ARK Innovation ETF, which from “do no wrong” has turned into the market’s Anti-Midas, tumbled again, dropping below $100 per share..

… as Tesla had another dismal day, sliding as much as 4% and headed for its worst week since March 2020, one day after Elon Musk shocked the market announcing he would no longer accept bitcoin “because it uses lots of electricity.” Elon, do you know what else uses lots of electricity…?

Nowhere is the pain as concentrated as in the index of profitless tech companies, where the slide has continued and after peaking in late February, the index is now down almost 40% from the highs!

There were also important developments in the commodity sector which many have been keeping an eye on recently to gauge upstream price pressures, with oil sliding after the reopening of the Colonial Pipeline (which merrily paid $5MM in crypto to its ransom-seeking hackers)…

… while the closely watched lumber price appears to have finally peaked, dropping limit down for the 3rd consecutive day as the commodity never managed to catch up to gold…

But the biggest highlight of today’s session was neither stocks, nor bonds, nor currencies, but crypto which had a dismal day, first after Musk’s tweet, then hit more after Bloomberg announced that Binance was being probed by the DOJ and IRS, and finally after Gasparino tweeted that regulators may be looking into crypto electricity consumption.

So with this confusing set up, one where commodity inflation appears to be peaking even as CPI and PPI are finally soaring leading to further tech stock revulsion, we look toward tomorrow’s potential data tiebreaker, the April retail sales, which as we noted earlier (using BofA card spending data) will likely be a big miss to consensus expectations. Whether that resets the reflation scare and whether growth stocks will surge as a result, is anyone’s guess.

Authored by Jesse Felder via TheFelderReport.com,

A couple of months ago, I wrote, “They call copper ‘doctor’ because he’s supposedly got a PhD in economics. And when it comes to inflation, it’s certainly true that he is far more accurate with his forecasts than the vast majority of economists. The recent breakout in the copper price suggests core inflation is likely too low at present and will soon begin to trend higher over the next couple of years.”

Yesterday’s CPI reading validates this view. Core inflation in April came in at nearly 3%, surpassing even most the aggressive forecasts. And while the economists at the Fed would encourage us to view this surge as “transitory,” copper prices would appear to suggest otherwise. According to the doctor, inflation should generally trend higher from its recent lows for a prolonged period of time.

A week after that earlier blog post on inflation, I wrote, “Recently, nominal interest rates have been rising faster than inflation creating a headwind for the gold price. However, there is good reason to believe that this trend could soon shift and become a strong tailwind for the gold price again.”

With inflation now rising much faster than interest rates, real rates have now fallen (inverted in the chart below) to a level that should be about as bullish for gold prices as anything we have seen in recent years.

So far, investors don’t seem to read it this way and the gold price is giving back some of its recent gains. However, should these nascent trends in inflation and interest rates prove to be more than “transitory,” as Dr. Copper would seem to suggest, it would appear that the gold price could be significantly undervalued at present.

Bank of America’s economists have been on a roll in the past three months.

Back in February, the bank looked at its credit and debit card spending data and concluded that consensus was far, far too low, predicting that the stimmy-fueled January retail sales print would be above 4.1%.

Not only was BofA’s outlier forecast right, but the headline retail sales number came in even higher: at a whopping 5.3%, nearly 5x higher than the consensus estimate of a 1.1% rise.

One month later, when the Wall Street herd scrambled to make up for its clueless January forecast by being overly optimistic, Bank of America again took the contrarian approach, not because it wanted to but because that’s what the data showed: spending on BofA branded credit and debit cards tumbled in February, prompting BofA to predict a -3.0% retail sales print.

Once again, BofA was spot on to the dot, with the official retail sales print coming at -3.0%.

The bank’s immaculate record continued again last month, when BofA was again a stark outlier to consensus predicting a more than double blowout in March retail sales compared to expectations, looking for a 11.1% print (ex-autos and 11.5% headline)…

… and once again the actual spending-driven forecast was the most accurate, with the actual number coming in just shy of the BofA forecast, at 9.8% M/M, and almost double the consensus forecast of 5.8%.

So with the April retail sales on deck tomorrow, Wall Street can take its perpetually wrong consensus estimate and shove it, all that matters is what BofA’s economists expect, which will likely be market moving as it is once again in direct opposition to the Wall Street consensus.

To be sure, following a burst of red-hot inflation data, first from the booming CPI print and then again today, from the overheating PPI, the market is on edge about any more “good news” as any incremental upside surprises could restore the taper timeline to a June FOMC discussion of the fateful event. Which is why any downside surprise would likely be quite welcome by a stock market starved for some deflationary bad news.

It just may get it.

But first, we note that without making a prediction, Deutsche Bank’s Jim Reid notes that one of the many things that has broken out recently – in addition to inflation – has been US retail sales:

It’s remarkable how quickly this has bounced. We’ve arguably brought forward 5 years of trend retail sales growth since the pandemic started due to stimulus. Is this helping to contribute to the various bottlenecks and inflation? Will this increasingly filter through?

As Reid concludes, “one thing is for certain, the most unusual recession and recovery in history will continue to confound traditional economic models. I certainly don’t envy the Fed over the months ahead as the challenge to their central narrative and policy response will likely build.”

But before we get to the Fed’s narrative shaping, we have to go through tomorrow’s retail sales print which will be among the key economic indicators watched by the Fed in making its decision when the time comes.

And it is here, that BofA’s forecast is once again material because with Wall Street once again expecting a continuation of the recent momentum and expecting a 1.0% increase in retail sales and 0.4% ex-autos, BofA is essentially a mirror image of this cheerful outlook, looking for a -0.9% decline in headline retail sales and a sizable -1.9% drop ex-autos as the latest stimmy-funded spending spree comes to a grinding halt.

Here is how BofA economist Michelle Meyer frames her downbeat forecast:

Based on aggregated card data, retail sales ex-autos declined 1.9% MOM SA in April, which is only a slight reversal of the incredible 8.4% MOM SA gain in March…. plugging in the public data from Wards, we think total retail sales will be down only -0.9% mom SA in April.

What’s the reason for the slowdown? No surprise here: it’s the obvious one.

The outperformance since early March has been decidedly amongst lower income households owing to the stimulus: the 2-year growth rate of total card spending for low income households (<$50K) is running at 23% vs. 8.3% for the high income (>$125K). This is driven by debit card spending where most of the incremental spending for this population seemed to occur: spending on debit cards for the low income population is up 27.8% over the 2-years vs. 12.5% for credit card in this cohort. The outperformance of low income spending is apparent across categories, including leisure such as travel, restaurants and entertainment and durable goods such as furniture and home improvement spending. We expect a convergence ahead where higher income households accelerate spending and low income spending moderates. This gap is not sustainable absent further rounds of stimulus, in our view.

That said, while the official April data may indicate that the (low-income) US consumer is pausing for breath as the latest stimmy checks were largely spent, BofA’s latest aggregated credit and debit card data shows that in May spending has again picked up, with total card spending up 37% on a 1-year basis and 21% on a 2-year basis for the 7-days ending May 8th. Smoothing through the weekly gyrations, total card spending has been running at a roughly 20% pace over a 2-year period since mid-April: “This is considerably above the average pre-pandemic 2-year growth rate of about 8% (from 2012-2019). “

Digging into the data we find that spending on durable goods (furniture, home improvement, and electronics) has remained extraordinarily robust, growing at a nearly 40% 2-year growth rate, as the stimulus provided a jolt in spending to a peak of a 64% 2-year growth rate in mid-March but the rate of growth has since stabilized. On the other end, spending on discretionary services – airlines, lodging, leisure and restaurants – is up only slightly on a 2-year basis. The biggest turnaround in spending on services occurred from mid-February to late-March when the 2-year growth rate increased 20bp. However, since then, services spending has been stable, failing to make further incremental gains. This means that the consumption basket between goods and services spending has been largely stable for the past 4 weeks.

Meanwhile, as we predicted last week when looking at the surge in credit card usage after months of deleveraging…

… when we said that going forward Americans will once again rush to “charge it”, BofA confirms this hypothesis as well, writing that “there was a notable increase in credit card spending this past week with the 2-year growth rate doubling to 12% from the prior week, reaching the strongest level since the recovery began. Households may have increased spending on credit cards as we move further away from the stimulus distribution.” And that’s precisely what the Fed’s monthly consumer credit data indicate too.

One final observation from BofA, confirms that the recent burst in spending has been driven entirely by lower social classes, with the low-income total card spending running at 32% over a 2-year period, about double the rate for the high income consumer. In time, BofA
expects the gap to narrow as spending for lower income consumers slow while the higher income household ramps up spending as the reopening progresses. Or vice versa.

Something strange is going on in the world of Elon Musk, Tesla and China.

As we noted earlier today, Musk’s public about-face on bitcoin due to its “environmental impact” over the last 24 hours has baffled many people, including almost all bitcoin enthusiasts who praised Musk earlier this year for accepting the cryptocurrency as payment for Tesla vehicles. 

Now, as Tesla has sunk to its worst week since the pandemic-induced sell off of early 2020…

…another surprise reversal has caught the eye of investors.

We have been documenting what has appeared to be an ongoing spat between Tesla and the Chinese Communist Party over the last month, apparently (at least publicly) catalyzed by a protestor at the Shanghai Auto Show alleging faulty breaks on Tesla vehicles. This led to intense shaming by Chinese media, who called Tesla’s handling of the situation a “blunder” and suggested it could “inflict serious damage” on Tesla with the Chinese market. 

But on Thursday, all of that seemed to shift yet again, as the Global Times published a piece stating that “work at Tesla’s Shanghai Gigafactory is going smoothly,” just days after it was reported that Tesla was halting its expansion in China, seen as key to its plans to export from its Asia headquarters. 

“A Global Times reporter visited the site across the road from the Tesla factory and found workers there were busy grading the land and laying cement,” the report says, rebutting claims from Reuters that Tesla had decided to halt plans to expand in Shanghai. “According to a worker on the site, the land is expected to be completed in a month, possibly for parking new Tesla cars that come off the production line.”

One construction worker told the Global Times: “Several expansion projects in the park are being carried out simultaneously, and the expansion project for the plant’s phase two construction is at the stage of ceiling planking.”

“The construction is approaching the end, and the workload has been reduced,” another said.

And despite the fact that Tesla sales dropped more than 27% in April from March, it appears the CCP mouthpiece is intent on letting the world know that things are, once again, status quo. “Analysts said that the overall development of Tesla in China is still on a normal track,” the report said. 

“As long as Tesla can really listen to the voice of consumers, effectively resolve product disputes, and fully respect the Chinese market, it is believed that the current month-on-month decline is only temporary,” analyst Feng Shiming said. “The establishment of Tesla as a wholly owned auto factory in China has given Tesla amazing sales and profits under China’s commitment to open up to foreign investment.”

The change in attitudes is baffling in and of itself. But alongside of Elon Musk’s bold new stance on bitcoin, it is sure to raise tons of new speculation as to what could be going on behind the scenes between Musk, Tesla and the Chinese Communist Party. For now, it appears that once again Musk may have somehow skirted disaster in the world’s largest auto market.

We’ll see how long it lasts.

The Pentagon has evacuated 120 military and civilian personnel who had been in Israel for planned upcoming joint exercises, CNN’s Pentagon correspondent Barbara Starr is reporting.

She says the US personnel departed from Tel Aviv under emergency circumstances given the closure of commercial air travel and the worsening security situation as fighting intensifies between Israel and Hamas militants in Gaza. “The group left on a C-17 Thursday returning to Germany. With violence and lack of commercial air, the decision was made leave early via military transport,” the CNN corresponded reported.  

In the past few years especially, limited numbers of US troops have routinely engaged in war drills and missile readiness exercises on Israeli soil. Reuters and The Jerusalem Post have confirmed the rerouting of all inbound flights after rockets fired out of Gaza landed in the area of Ben Gurion international airport.

“Ben-Gurion Airport began rerouting all inbound flights to Ramon International Airport in southern Israel on Thursday morning, as terrorist groups in the Gaza Strip continued to launch rockets into Israeli territory,” they reported. “Departing flights will still take off from Ben-Gurion Airport.”

Most if not all major US carriers have canceled all flights into Israel: “United Airlines, Delta Airlines and American Airlines have canceled flights between the United States and Tel Aviv, according to data by flight tracker FlightAware, amid an escalating conflict in Israel.”

Iron Dome interceptions seen moments ago from view of international flight coming into Israel. pic.twitter.com/KwtMDglV00

— Israel Breaking (@IsraelBreaking) May 12, 2021

Meanwhile, the defense ministry has reportedly called up an additional thousands of IDF reservists as at this point over 1,500 rockets from Hamas have been fired into southern and central Israel.

Israeli commanders have further prepared a “battle plan” for a possible ground invasion of Gaza amid the mustering of extra troops on the border, per US-funded VOA News, which writes, “Israel’s military commanders have drafted a battle plan for an incursion into Gaza and planned to submit it to military chiefs later Thursday, a spokesman for the Israeli Defense Forces has confirmed.”  

IDF Chief of Staff ordered all leave be postponed and called up 7,000 reservists at combat posts and the Home Front Command #Israel #Gaza

— Michael A. Horowitz (@michaelh992) May 13, 2021

“IDF spokesperson Hidai Zilberman told local media in a briefing that preparations for the possibility of a ground incursion are under way. The IDF has deployed additional ground troops — from the Paratroopers Brigade, Golani Infantry Brigade and 7th Armored Brigade — to the Gaza border, along with tanks and armored personnel carriers,” the report said further.

The Israeli army sends armored vehicles to the Gaza border region. pic.twitter.com/2dedsNhI8Z

— Ali Özkök (@Ozkok_A) May 13, 2021

Indeed social media videos over the past two days of fighting have appeared to show tank columns being transported to southern Israel. On Wednesday night Israel’s Security Cabinet approved expanding operations in Gaza, especially the airstrikes which are expected to continue through the week, and possibly longer.

As businesses and states resort to bribing people to take the COVID-19 vaccine, the benevolent Centers for Disease Control (CDC) in their ever-scientific wisdom is dangling yet another ‘freedom‘ carrot above our heads; those who are fully vaccinated will be able to combat pro-mask Karens by officially easing indoor mask-wearing guidance – just two weeks after they said the exact opposite.

According to the Associated Press, “The new guidance will still call for wearing masks in crowded indoor settings like buses, planes, hospitals, prisons and homeless shelters, but could ease restrictions for reopening workplaces and schools. It will also no longer recommend that fully vaccinated people wear masks outdoors in crowds.”

Oh.

So you can lose the mask if you’re going to work or school, but will still need to wear one if you’re around other people indoors, which apparently doesn’t apply to workplaces or schools. Make sense?

The announcement comes as the CDC and the Biden administration have faced pressure to ease restrictions on fully vaccinated people — people who are two weeks past their last required COVID-19 vaccine dose — in part to highlight the benefits of getting the shot.

The eased guidance comes two weeks after the CDC recommended that fully vaccinated people continue to wear masks indoors in all settings and outdoors in large crowds.

Dr. Rochelle Walensky, the director of the CDC, was set to announce the new guidance on Thursday afternoon at a White House briefing.

During a virtual meeting Tuesday on vaccinations with a bipartisan group of governors, President Joe Biden appeared to acknowledge that his administration had to do more to model the benefits of vaccination. -AP

“I would like to say that we have fully vaccinated people; we should start acting like it,” said Utah Gov. Spencer Cox (R) in a statement to Biden. “And that’s a big motivation get the unvaccinated to want to to get vaccinated.”

“Good point,” a fully Biden responded. “we’re going to be moving on that in the next little bit.”

As tech limps away from its worst market pummeling in months, traders are keeping the pressure on Cathie Wood with PLTR and COIN still under pressure, and ARKK declining below 100. Although Wood has very publicly doubled down, there’s been talk that short sellers see blood in the water, and won’t let up until Cathie pukes.

Her flagship ARK Innovation fund has fallen 35% from the highs, and the slide continued Thursday, sliding below the key psychological level of $100 thwarting an early rally as it soon emerged that Wood’s ARKK fund was spoiling the party for the tech recovery.

For investors who are wondering whether Wood might soon be forced to hit the gas on the selling, here’s something to consider: Ark Investment Management just saw the AUM of its ETF lineup drop below $40 billion. Here’s Bloomberg.

The founder of Ark Investment Management LLC now controls $39.7 billion in her U.S. exchange-traded funds, down from more than $60 billion at a peak in February, according to data compiled by Bloomberg. The firm is now the 11th largest issuer in the U.S., compared with seventh place earlier this year.

To be sure, practically all of this is due to the decline in many of Ark’s top picks, and data shows her army of true-believing retail bagholders are either holding on, or doubling down (just like Cathie did).

ARKK continues to drag down everything

— zerohedge (@zerohedge) May 13, 2021

Ark’s funds have drawn a large fan base of retail traders who own the fund in their Robinhood or WeBull accounts, and these traders haven’t abandoned Cathie en masse like some bears had expected. Only $76M was pulled from the fund in April, and only $301M has followed in May, compared with the $7.1 billion added during the first three months of the year. In fact, the firm’s ETFs have still taken in a net $15.3 billion so far in 2021. The eight-product lineup — six actively managed funds and two tracking indexes — has roughly only lost a net $800 million since the end of February.

Of course, if it didn’t still have institutional backers, Ark would be in trouble. BBG data confirms that retail money comprises just $1.1 billion of the $28 billion added to the family of funds since November. The rest of that money – the overwhelming bulk of Wood’s AUM – is institutional money.

“It appears that investors still believe in Cathie Wood’s philosophy and think possibly the pullback is short term,” said Mohit Bajaj, director of ETFs for WallachBeth Capital.

For better or worse, retail traders still believe in Cathie Wood, and many have doubled down. That means if Wood blows up, it won’t only be the evil hedge funds who suffer.

“In periods when Ark ETFs have seen large redemptions, retail investors have actually bought the dip, further highlighting the institutional-retail divide,” wrote analysts Ben Onatibia and Giacomo Pierantoni.

Wood has stood firm throughout the down turn, repeatedly insisting that she invests with a five-year time horizon, while daring to reveal in a TV interview that Bill Hwang, the founder of Archegos, the family office that imploded evaporating a multibillion-dollar fortune and saddled Credit Suisse and other banks with billions of dollars in losses.

Others are wondering whether it’s time to buy the dip. Could ARK really sink lower?

Some are now questioning just how long the funds’ drop will last, especially as dip buyers step in. ARKK rose 1.5% in early trading in New York.

“It has become oversold on a technical basis,” said Matt Maley, chief market strategist at Miller Tabak & Co. “The weak hands have already sold, so we’re now in the ‘wait and see’ mode. If Ark funds can bounce strongly, the all clear flag will be raised.”

Those who are familiar with Wood are likely aware that she has been very public about her Christian faith. Maybe the big man upstairs will soon pay her back in kind?

In stark contrast to yesterday’s stellar 10Y auction, moments ago the Treasury concluded its refunding issuance when it sold $27BN in 30Y paper in an ugly, tailing auction that was disappointing in every category.

The High Yield of 2.395% was the highest since November 2019, and tailed the When Issued 2.377% by 1.8bps, the biggest tail since August 2020. The bid to cover of 2.219 was a big drop from 2.466 last month, and also well below the 6-auction average 2.36%.

The internals were sloppy as well, with Indirects – a proxy for foreign buyers – taking down just 59.9%, the lowest since August 2020, below the recent average of 63.1%, with Directs just below April’s 21.9% at 20.1% and above the recent average of 18.3%. This left Dealers taking down 20.1% of the auction, higher than both last month’s 17.1% and the six-auction average of 18.6%.

Overall, a sloppy, disappointing auction as nerves about reflation are finally starting to become all too apparent.

It’s not a good day for cryptos which after being hammered earlier on the Elon Musk reversal, just legged lower after a Bloomberg report that the world’s biggest cryptoexchange Binance is under investigation by the Justice Department and Internal Revenue Service.

The report notes that “officials who probe money laundering and tax offenses have sought information from individuals with insight into Binance’s business.”

Binance – which is led by Changpeng Zhao, “a charismatic tech executive who relishes promoting tokens on Twitter and in media interviews” – is incorporated in the Cayman Islands and has an office in Singapore but says it lacks a single corporate headquarters. Chainalysis Inc., a blockchain forensics firm whose clients include U.S. federal agencies, concluded last year that among transactions that it examined, more funds tied to criminal activity flowed through Binance than any other crypto exchange.

To be sure, in the aftermath of the Colonial Pipeline ransomware hack – where we learned that the hackers were immediately paid $5 million in crypto – it was virtually inevitable that there would be some blowback.

“We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion,” Binance spokeswoman Jessica Jung said in an emailed statement, while adding that the company doesn’t comment on specific matters or inquiries. “We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”

Meanwhile, Zhao has said Binance closely follows U.S. rules, blocks Americans from its website, and uses advanced technology to analyze transactions for signs of money laundering and other illicit activity. Last year, the firm warned that U.S. residents would have their accounts frozen if they were found to be trading, crypto trade publications have reported.

Bloomberg notes that along with the CFTC, the Justice Department is likely to examine steps that Binance has taken to keep U.S. residents off its exchange. One person familiar with Binance’s operations said that prior to the establishment of Binance.US, Americans were advised to use a virtual proxy network, or VPN, to disguise their locations when seeking to access the exchange.

Jung, the Binance spokeswoman, said the exchange has never encouraged U.S. residents to use VPNs to get around its rules, as doing so would be something “that has always been contrary to our company’s principles.” In January, Zhao tweeted that Binance’s security systems block Americans even if they try to connect through one of the networks.

“We have implemented strong access controls that have been tested via external audit and are under continuous review and evaluation by Binance to ensure that the appropriate restrictions are in place and are effective,” Jung said.

By Nate Tabak of FreightWaves

Utility Trailer Manufacturing, one of the largest U.S. producers of trailers for the trucking industry, was targeted in an apparent ransomware attack that exposed personal information of numerous employees. 

The California-based company told FreightWaves that it had “suffered a cyber event” that disrupted some systems temporarily. The company disclosed the incident after the Clop ransomware gang leaked over 5 gigabytes of data to the dark web this week. 

“Upon discovery, Utility immediately responded to secure its systems and commenced an investigation into the nature and scope of the event,” Utility said in a statement. “Utility is working around the clock with assistance from third-party forensic computer specialists to investigate the full nature and scope of the attack and to bring the offline systems back online safely and securely.” 

Utility did not not address the scope of the cyberattack, including when it occurred and and whether it has impacted operations. The company also did not disclose the extent of the data compromised.

The data reviewed by FreightWaves, which isn’t accessible via standard web browsers, includes an extensive amount of sensitive personal data about employees, including payrolls and human resources information. 

“Utility treats its responsibility to safeguard client, customer and employee information and data as an utmost priority,” the company said. 

Ransomware gang’s victims include rail operator CSX

Ransomware gangs like Clop typically begin leaking data after victims refuse to pay them. The group blamed for the Colonial Pipeline attack, DarkSide, uses the same tactic.

Clop has hit multiple major companies, including rail operator CSX and the Canadian fuel distributor Parkland.

Utility is the third-largest trailer producer in the United States, according to Trailer Body Builder. The company says it is the single largest manufacturer of refrigerated trailers. 

Headquartered in the City of Industry, Utility operates five factories in the U.S.