Category: zerohedge

One week ago, when we reported that Montana was the first state to cancel unemployment benefits in response to the unprecedented worker shortage which was laid bare by the dismal Friday jobs report, we said that “one can only hope that more states follow [Montana Gov] Gianforte’s extremely unpopular, if extremely prudent decision, before the US is mired in 1970s style hyperinflation” but that “we won’t be holding our breath.”

In retrospect, we were badly underestimated the willingness of at least some people to do the right thing, because just hours later South Carolina announced it too was joining Montana in ending all supplemental unemployment benefits programs, which in turn sparked a wave of Republican states following through with what would be a career-ending move for any Democratic politician.

As the WSJ reports overnight, at least nine Republican-led states have rejected enhanced federal Covid-19 pandemic unemployment payments, saying the extra $300-a-week supplement is providing an incentive for some people to avoid work at a time when employers are struggling to find labor.

On Tuesday, Iowa and Tennessee joined the list of states that are moving toward the elimination of the extra benefits ahead of the program’s scheduled expiration in September, which even the U.S. Chamber of Commerce blamed for the sudden collapse in labor supply as millions of Americans opt to stay home and collect benefit checks instead of working.

“Federal pandemic-related unemployment benefit programs initially provided displaced Iowans with crucial assistance when the pandemic began,” Iowa Republican Gov. Kim Reynolds said in a statement that called for the pandemic-related benefit to end June 12. “But now that our businesses and schools have reopened, these payments are discouraging people from returning to work.”

As a result, there are now 9 states that are ending the generous handouts are: Iowa, Mississippi, Missouri, Montana, North Dakota and South Carolina, which have sent letters to the Labor Department asking to end their participation in federal programs including the $300 supplemental benefit and extended payments and benefits for gig-economy and other workers not typically eligible for unemployment benefits. Alabama, Arkansas and Tennessee have announced publicly they plan to opt out of the programs early, but the states hadn’t sent letters to the Labor Department as of Tuesday.

Iowa’s unemployment rate was 3.7% in March, the most recent month available, well below the national average of 6% that month. The rate also isn’t much higher than the 2.9% recorded in the state early last year before the pandemic arrived.

Meanwhile, President Biden on Monday defended the enhanced benefits – which as the latest NFIB survey showed have resulted in the most difficult environment for small businesses to fill job openings…

… led to and said his administration would make clear that people can’t turn down suitable jobs and keep collecting benefits, except in specific circumstances. His Democratic administration has said that other factors are keeping workers on the sidelines, such as fear of getting sick during the pandemic and a lack of full-time child care.

“We’re not seeing this as the root cause, driver of people not seeking work,” White House press secretary Jen Psaki told reporters Tuesday. “Of course, we’re going to see anecdotal examples—we certainly recognize that.”

Surely Psaki knows better than the Chamber of Commerce which urged an end to Biden’s pandemic handouts as “paying people not to work is dampening what should be a stronger jobs market and is hurting the overall recovery”…

… or the NFIB whose chief economist Bill Dunkelberg said that “small business owners are competing with the pandemic and increased unemployment benefits that are keeping some workers out of the labor force”…

… or restaurant legend Wolfgang Puck who said, “I don’t think we should pay people to stay home and not work if there are jobs available.”

Meanwhile, as private employees compete with the US government’s generous wages (to do nothing), inflation is soaring as today’s CPI – the highest since 1981 – showed.

Furthermore, BIden’s Trillions is now self-defeating: spurred in part by a flood of federal pandemic aid, the U.S. economy is poised for blistering overheating as vaccination rates climb and consumer and business activity picks up. A much weaker-than-expected employment report released Friday, however, has fueled concerns among some economists and policy makers that a shortage of workers is slowing the pace of recovery.

Republicans on Capitol Hill say enhanced benefits for unemployed workers are holding back the recovery by making it harder for businesses to fill openings, especially in lower-wage sectors where the enhanced benefits may be bigger than a paycheck.

Unemployed workers are eligible for an additional $300 a week on top of regular state jobless benefits, which average $318 a week, according to the Labor Department. That means the average benefit recipient earns slightly more than the equivalent of working full time at $15 an hour. How much? Former Obama Admin Treasury counselor Steve Rattner recently tweeted that “with enhanced benefits, workers (take Pennsylvania, for example) can now make more on unemployment than they did at their jobs.”

He also showed a chart according to which as of this moment, tens of millions of US workers, in jobs ranging from dishwasher, to hotel clerk, to preschool teacher, to anyone on minimum wage, can now earn more from unemployment than from their regular job.

So instead of rewarding sitting on one’s ass, the mostly republican states are pursuing back to work policies: Montana’s Republican Gov. Greg Gianforte said residents would instead be eligible for a $1,200 “return to work bonus” if they were receiving unemployment benefits as of May 4 and subsequently took a job and completed at least four paid weeks of work. Idaho implemented a similar one-time bonus of as much as $1,500 last year.

In what is being described as a “rare victory” for a Chinese technology giant entangled in a spat with the US government, it appears the Biden Administration has decided to end the persecution of Chinese smartphone maker Xiaomi, which had been targeted by the Trump Administration, along with a host of other Chinese firms, most notably telecoms titan Huawei.

A Joint Status Report released late Tuesday showed the DoD and Xiaomi had agreed to resolve ongoing litigation “without further contest”. Xiaomi had sued the US government after the Pentagon placed it on a government blacklist, accusing it of having close ties to the Chinese military, though the Biden administration now believes that vacating that designation “would be appropriate.”

“The parties have agreed upon a path forward that would resolve this litigation without the need for contested briefing,” according to the filing. A comprehensive “joint proposal” is expected to be filed before May 20.

A Xiaomi spokeswoman said the company is watching the latest developments closely, without elaborating.

Xiaomi sued the government earlier this year after the Pentagon issued an order designating the firm as having ties to the PLA, Chinese military, which would have led eventually to the firm’s forceful de-listing from US exchanges and its expulsion from global equity benchmark indexes. The settlement isn’t exactly a surprise: An American judge granted Xiaomi an injunction back in March to prevent “irreparable” harm to the company’s business on the expectation that the Trump Administration’s move would likely be over turned (the ruling also cited the US government’s “deeply flawed” process for including it in the ban, according to US District Judge Rudolph Contreras, who oversaw the case ).

Unsurprisingly, Xiaomi shares surged more than 6% on the news in Hong Kong markets on Wednesday.

But the deal is just another example of how the Biden Administration is trying to walk a tightrope between the Biden family’s longstanding business ties to China (which we learned some new details about just the other day) and the antagonistic approach to waging economic war against China pioneered by President Trump, which has proven to be enduringly popular among the American people.

Founded by billionaire entrepreneur Lei Jun more than 10 years ago, Xiaomi was seen as a unlikely target for Trump’s scrutiny (the firm enjoyed the financial backing of American chip giant Qualcomm in its early years).

Along with TikTok and its owner ByteDance, Xiaomi was among the more high-profile Chinese companies targeted by President Trump. One academic quoted by Reuters said the settlement was an obvious move for the Biden Administration in its effort to correct the “excesses” of Trump’s anti-China push.

Prof. Doug Fuller, who tracks China’s semiconductor sector at the City University of Hong Kong, says that Xiaomi’s win was “low-hanging fruit” for the Biden administration in its efforts to correct the excesses of Trump’s China policy as his term ended.

“I think it is a sign that Biden will be a bit softer,” he said.

“Calling Xiaomi a Chinese military company was always ridiculous. For firms tied to more legitimate defence concerns, or Xinjiang, however, it will be more difficult.”

If the measures from the blacklist had ever taken effect, it would have crippled Xiaomi’s business. Fortunately, the company has now dodged a major bullet.

Trump’s crackdown on Chinese firms had the biggest impact on Huawei, and so far, at least, it doesn’t look like the Biden Administration has any plans to lighten up on the Chinese telecoms equipment maker, even as many American allies in Europe ignored Washington’s demands to completely exclude Huawei equipment from their 5G wireless networks.

Authored by Steve Watson via Summit News,

The Governor of Wyoming has banned vaccine passports, issuing a directive that states no person should be denied access to any places or services based on their vaccination status.

Republican Mark Gordon’s directive outlines that “Vaccine passport programs have the potential to politicize a decision that should not be politicized.”

“They would divide our citizens at a time when unity in fighting the virus is essential, and harm those who are medically unable to receive the vaccine,” Gordon noted.

Gordon also urged that getting a vaccine “is a personal choice based upon personal circumstances.”

“Vaccine passport programs have the potential to politicize a decision that should not be politicized,” Gordon said.#Wyoming‘s @GovernorGordon issued a directive to ban #VaccinePassports. https://t.co/v8yaTFeUqr

— The Epoch Times (@EpochTimes) May 10, 2021

Gordon was also an early proponent of scrapping the mask mandate back in March, and allowing businesses to reopen.

Wyoming joins other states including Alabama, Minnesota, South Carolina, Arkansas, Arizona, Florida, Idaho, Montana, Texas and South Dakota that have all either passed legislation or issued orders to prevent mandatory vaccinations or COVID passport schemes.

New York, However is still heading down the vaccine passports route.

After trialling such schemes, there are now expectations that proof of vaccination will be needed to attend events, and even to enter bars and restaurants.

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With the 10Y yield trading right on top of last week’s high…

… many traders were expecting a relatively smooth sailing for today’s 10Y refunding auction in light of the sharp jump in yields which built in a generous concession ahead of today’s $41 billion auction.

And they were right: printing at a high yield of 1.6840%, today’s auction was virtually unchanged from April’s 1.680% and stopped through the When Issued 1.697% by an impressive 1.3bps, the biggest stop through since February.

The bid to cover of 2.45 was also a solid improvement to recent auctions (April was 2.36), the highest since January and the six-auction average 2.37.

The internals were stellar too, with Indirects taking down 63.4%, a big jump from 59.6% last month and the highest since August 2020. And with Directs also rising from 16.2% to 17.1%, Dealers were left with just 19.5% of the takedown, the lowest going back to March 2017.

Overall, a superb auction and one helped push 10Y yields down by 2bps from session highs where it was trading just before the 1pm auction.

 

Just days after Morgan Stanley said that it “rather than getting excited about the reopening, we are getting more concerned” pointing to the infamously volatile mid-cycle transition, when the the peak rate of change reverses and execution risk jumps as visualized by the following chart showing headline Manufacturing Purchasing Managers Index and Prices Paid component…

… BofA has jumped on board the mid-cycle bandwagon, and in a note from the bank’s chief quant, Savita Subramanian, she writes that the bank’s regime Indicator rose to highs seen only once before in the last 30+ years: in Feb. 2004, after which Mid-Cycle continued for four more months.

Does this mean that the end-cycle – which is quickly followed by recession – is imminent?

According to the BofA quant, “historically Mid-Cycle has lasted for 12 months, but today we are just four months in. Thus, the current phase could extend at least through summer and potentially beyond.”

What does this mean for investing? Mid-Cycle is usually accompanied by rising interest rates and capex: thus valuation metrics which account for the firm value to incorporate more expensive debt, and profitability that reflects capex are important. P/E and Price to Book are less effective, but EV/EBITDA has outperformed the index 75% of the time in this phase (and today EV/EBITDA positioning is close to a record underweight.) Additionally, “quality value” tends to outperform “deep value” in this phase. And if we have reached peak stimulus, quality should outperform from here to the detriment of other factors.

Picking up on this, Leuthold Group’s Jim Paulsen, who has analyzed bull cycles of the past 40 years, notes that while every bull market is different, “the pattern they follow is usually the same: a strong run at the start of the cycle, a period of hesitancy that lasts a year or more, then the resumption of the advance”, or a crash, of course, assuming no Fed bailouts. While we don’t know what the endgame is, we agree with Bloomberg that are now “at the pause stage of the current cycle right now.”

In any case, describing the Mid-Cycle, or as he calls it the Revaluation phase, Paulson notes that’s when corporate performance continues to improve but valuations get stretched and the pressure of rising yields intensifies. That’s when stocks go nowhere for a year at best or decline by low-double digits at worst. And sure enough, as Bloomberg notes, the checklist of signals that led to prior swoon periods is here: rising valuations that have almost doubled from a trough, improving corporate performance and yields.

Some examples:

• In 1982, the stock market posted a sharp rally as profits and bond yields continued to decline. A 15% correction into mid-1984 followed, leaving the S&P 500 essentially flat for that year. The next year, earnings started to recover and bond yields went up.
• In 1992, earnings and yields declined heading into the 1994 mid-cycle, when the S&P fell by nearly 10% in early 1994 and stayed flat until 1995.
• A similar pattern occurred in 2004, when the S&P 500’s multiple declined from 22 times earnings in late 2003, to less than 17 times by late 2004.
• After an initial recovery in the spring of 2009, the S&P 500 stumbled as stocks underwent a 15% correction in the second quarter of 2010.

Finally, how did economically-sensitive sectors fare during the revaluation period? As Bloomberg notes, small-cap stocks gained in three out of four pause stages, adding on average 5.6%, after falling more than 7% during a pause period between the spring of 1983 and summer of 1984. Cyclicals gained in two out of four instances — in 2004 and 2010, when they posted a modest advance that exceeded the broader peers.

Israel’s Channel 12 has tallied some 1,200 rockets launched from Gaza since Monday, while claiming the Iron Dome defense system has intercepted some 85-90% of all rockets headed toward populated areas.

During the mid-evening hours (local time) a senior Hamas official has announced that it is “ready to halt actions against Israel on a mutual basis,” according to Russia’s RIA.

High-ranking Hamas official says his group willing to halt operations against Israel on basis of mutual ceasefire https://t.co/G1adEQGIij

— David A. Daoud (@DavidADaoud) May 12, 2021

This after the death toll from Israeli airstrikes inside the Gaza Strip continues to soar, with The Wall Street Journal reporting in the latest update:

Israeli strikes and Hamas rocket fire have so far killed 56 Palestinians, including 14 children, and six Israelis, according to Palestinian and Israeli officials. Prime Minister Benjamin Netanyahu said Israel has killed dozens of Hamas and Palestinian Islamic Jihad operatives.

And at least five Israelis have been killed by Hamas rocket fire since the start of fighting.

مشهد تدمير قوات الاحتلال الصهيوني لبرج الشروق وسط مدينة #غزة.. “إسرائيل” تهدم الأبراج السكنية. #فلسطين_تقاوم pic.twitter.com/36BAFRPGrJ

— Yasser (@yasserashour95) May 12, 2021

But a ceasefire at this point is unlikely given PM Netanyahu’s earlier vow that the Palestinian militants would pay a “heavy price” – in a rapidly escalating scenario that many pundits say is closely resembling the devastating 2014 Gaza war.

Israel keeps destroying residential towers in Gaza. pic.twitter.com/y0xQFAre43

— TIMES OF GAZA (@Timesofgaza) May 12, 2021

Israeli jets have also reportedly leveled a third apartment building in Gaza City. “Israeli fighter jets have demolished al-Shourouk tower in Gaza City, after repeatedly warning those inside to leave,” Times of Israel reports. “This is the third high-rise building, containing more than 10 stories, to be destroyed by the Israel Defense Forces in this current round of fighting.”

Submitted by Joseph Carson, former chief economist of Alliance Bernstein

Inflation has arrived, evident by the 4.2% gain in the consumer price index over the past twelve months. But the most significant increase since 2008 still is not fully capturing “experienced” inflation since it is missing the rise in housing inflation.

The Bureau of Labor Statistics reported that April consumer prices rose 0.8% from the prior month. Also, the widely followed core prices (which exclude food and energy) rose 0.9%, pushing that sub-index to a 3% gain in the past twelve months, the biggest increase since 1995.

However, the acceleration of core consumer prices in the past twelve months is unlike that of 1995. Owners rent, which accounts for roughly one-third of the core index, is up only 2%, or 100 basis points below the core reading. In 1995, the 3% core reading included an even bigger 3.5% rise in owners’ rent. So the rise in core inflation in 2021 is much broader than what happened more than two and half decades ago.

More importantly, as big and broad as today’s report on consumer prices is on the surface is still does not fully capture the actual rise in consumer inflation. Housing prices are up 18% in the past twelve months, a record increase; nine times the increase in owners’ rent. The old CPI included house prices. Inserting house prices in place of the non-market owner rents, reported inflation would have been twice the 4.2% gain.

Policymakers often measure the scale of monetary accommodation by comparing nominal rates to reported inflation (the so-called real interest rate). By maintaining the zero rate policy in the face of sharply rising inflation, monetary policy has been even more accommodative. Inflation cycles feed on easy money: so the odds increase with each passing day that the new inflation cycle will not prove to be “transitory”.

Authored by Wolf Richter via WolfStreet.com,

Once upon a time last year, there was the EV startup hype-boom that found its way to the SPAC hype-boom, and the two combined and generated miraculously swift and spectacular results; and their collapse has been equally swift and spectacular.

And they’re joined by the IPO hype-boom stocks, including the spectacularly hyped highflyers that got shot down, such as Zoom (-49% from peak), Coinbase (-29%), or Airbnb (-35%), and they’re in turn joined by the ARK Innovation ETF (-34%). This whole thing has come unglued.

The EV SPAC boom-and-bust is reflected in the WOLF STREET EV SPAC Index, which has collapsed by 57% since its peak on February 17. The index tracks seven EV-related companies that have gone public via a merger with a SPAC: Nikola, QuantumScape (batteries for EVs), Canoo, Lordstown Motors, Romeo Power (batteries for EVs), XL Fleet (EV drive systems for fleets), and Lucid Motors. Since February 17, these seven stocks combined have shed $35 billion in value, which they should have never had in the first place. Easy come, easy go, except when it’s your money (data via YCharts):

The individual stocks in the EV SPAC index have collapsed even more spectacularly as the individual peaks came with different timing:

The SPAC boom has been unwinding more broadly, as depicted by the Defiance Next Gen SPAC ETF [SPAK], which tracks SPACs before and after they merge with a target company. The SPAK has plunged 33% since February 16, to $23.35 Tuesday at the close, below where it had been when it was launched in October last year (stock data via YCharts):

The Renaissance IPO ETF [IPO] has dropped 26% from the intraday high on February 12, after a maniacal rally that started in March 2020 and ended 11 months later, during which the index soared by 252%. And by the looks of it, those stock still have a lot of air under them (stock data via YCharts):

Here are some of the notable top stocks in this IPO ETF:

The ARK Innovation ETF [ARKK] stretches into a different direction. It attempts to track “disruptive innovation,” which it defines as a “technologically enabled new product or service that potentially changes the way the world works.” A rather modest goal. This baby is down 33% from its peak on February 12.

The ETF includes some very large stocks that have had a huge run, such as its largest holding, Tesla, which weighs over 10% in the ETF. Here are the largest five holdings and the drop from their highs:

These stocks and ETFs here were in the most hyped crowd, and many of them had experienced gravity-defying and logic-defying ascents. And those stocks have now come unglued, one after the other, on their on terms, with different timing. And there wasn’t a single trigger.

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Nasdaq is now down 2.5%, rapidly approaching red for the year and it is dragging the rest of the equity market lower…

And the selling pressure continues with NYSE downticks have dominated for 15 minutes…

Growth relative to value is at a critical support level…

And while stocks are being dumped, bonds are also seeing liquidations to a key level…

Somebody do something? Where’s Janet?

Dip-buyers have charged in after Monday’s flash-crash in cryptos, sending Ethereum to a new record high near $4400…

Source: Bloomberg

That has pushed Ethereum’s market cap above $500 billion, now larger than JPMorgan…

Source: 8marketcap.com,

As CoinTelegraph reports, Ether is the second cryptocurrency to hit a $500-billion market cap after Bitcoin. Ether took significantly less time to become a half-a-trillion-dollar asset. 

Launched in January 2009, Bitcoin took nearly 12 years to reach a $500-billion market capitalization in December 2020 at a price above $27,000. As the first version of an Ethereum cryptocurrency protocol was launched in July 2015, Ether is now five years and 10 months old.

As previously reported by Cointelegraph, Ethereum co-founder Vitalik Buterin became a billionaire after Ether’s price rose above $3,000 on May 3. Megan Kaspar, a crypto analyst and co-founder of digital asset investment firm Magnetic, believes that Ether is now on track to hit a price target between $8,000 and $10,000 by late 2021. The analyst previously reportedly predicted that ETH would hit $3,400 when the cryptocurrency was trading about $1,200.

Bitcoin is lower on the day, driving the ETH/BTC ratio to its highest since June 2018…

Source: Bloomberg

It is also worth noting the sudden appearance of “Internet Computer” which was released Monday and is now in the Top 10 cryptocurrencies by market cap…

Source: CoinMarketCap.com

A quick look into the token’s issuing authority, Internet Computer, described it as a “blockchain-based cloud computing project” that proposes to build an open, public network. But the biggest takeaway for traders was the involvement of high-profile institutional players in the project. As CoinTelegraph reports, in retrospect, Dfinity aims to develop a blockchain-based infrastructure, one in which the internet itself supports software applications instead of cloud hosting providers.

Its Internet Computer protocol proposes to host online services, such as social media, messaging, search, storage and peer-to-peer digital interactions, atop its public Web 3.0 cloud-like computing protocol.

The aim involves relying more on large data centers and high-end node machines — aka validators — with a capacity much larger than that provided by the leading blockchain Ethereum.

In short, Dfinity hopes that it will offer the first truly global blockchain network that runs at the top web speed with unlimited scaling features to support any volume smart contracts computation.

“If the IC succeeds at replacing legacy IT, there would be no need for centralized DNS services, anti-virus, firewalls, database systems, cloud services, and VPNs either,” noted Mira Christanto, researcher at crypto analytics platform Messari.

Dfinity proposes decentralization by introducing a unique consensus model dubbed as Threshold Relay, coupled with its Blockchain Nervous System to ensure algorithmic governance. 

Meanwhile, ICP serves as a native asset to the Internet Computer. Its role within the platform involves staking that allows users to participate in the Blockchain Nervous System and security deposits that allow private entities, including client software and cloud networks, to connect to the Internet Computer’s public network.

And all of these moves come a day after billionaire fund manager Stan Druckenmiller warned that Fed/Government policies are putting the dollar’s reserve currency status at risk and cryptos could be the solution…

“5-6 years ago I said #crypto was a solution in search of a problem,” says Stan Druckenmiller. “The problem has been clearly identified. It is Jerome Powell and the rest of the world’s central bankers. There is a lack of trust.” pic.twitter.com/goCVQ1jp67

— Squawk Box (@SquawkCNBC) May 11, 2021