Category: zerohedge

A vessel off the coast of San Diego broke apart Sunday, killing four and injuring dozens. Authorities suspect the ship was involved in a human smuggling operation, according to NPR. 

“Twenty-nine people have reportedly been accounted for, consisting of twenty-four people alive, four people declared deceased by local emergency medical services personnel and one person who was last reported to be in critical condition,” according to the U.S. Coast Guard statement issued late Sunday night. 

The incident occurred around 1030 PST Sunday. Dozens of rescue crews responded to the 200 block of Catalina Boulevard, near the Cabrillo National Monument. When first responders arrived at the scene, the forty-foot cabin cruiser was broken apart from heavy seas. 

James Gartland, the lifeguard chief for San Diego, said the vessel hit a reef and broke apart. He said this is one of the worst tragedies he’s seen in his 26-year career. 

Gartland called it a “tragic event.” 

Photos taken at the scene of the boat incident today. 40’ cabin cruiser broke up along the rocks inside the surf line. The @SDLifeguards cliff rescue veh was used to extricate one patient up to street level. pic.twitter.com/lQ54UdBWBG

— SDFD (@SDFD) May 2, 2021

According to Rick Romero of the San Diego Lifeguard Services, dozens of people were “sucked in by currents as the boat split apart.” Weather conditions were not ideal, and there were seven-foot swells, low clouds, and rain. 

The incident comes as the Biden administration finally admitted a crisis on the southern U.S. border that began after the 2020 election. 

Now it appears smugglers are using vessels to haul in illegals. 

Jeff Stephenson, supervisory Border Patrol agent, said the “smuggling vessel” was “severely overcrowded.” He believes the person operating the vessel was part of a Mexican smuggling operation. 

Border Patrol has reported an jump in maritime apprehensions this year. Between October 2019 and September 2020, the number of those arrests soared by 92% — about 1,200 more than the previous fiscal year.

The Biden border crisis now extends from land to sea. Perhaps Biden shouldn’t have promised illegal migrants the world during the 2020 U.S. election. Virtue signaling has consequences.  

Authored by Matthew Piepenburg via GoldSwitzerland.com,

Recently, my colleague, Egon von Greyerz, and I had some unabashed yet blunt fun calling out the staggering levels of open hypocrisy and policy desperation unleashed by former Fed Chairman, Alan Greenspan.

Poor Alan was an easy target of what I described as the “patient zero” of the reckless interest rate suppression and unbridled monetary expansion policies of the Fed which have always led to equally reckless boom and bust cycles in markets and economies.

But let us be fair to comical Fed Chairmen like Greenspan, as he is not alone in making a mockery of his post at the Eccles Building.

With the exception of Paul Volker and William Martin, the sad truth is that nearly every person who has sat in that lead Chair of a private bank masquerading as a “Federal” reserve has made the bank, and themselves, a public embarrassment.

As the legendary private investor Jim Rogers recently observed on Kitco news, almost all central bankers effectively lie and obfuscate facts as part of their job description (and job preservation) at the Fed.

A Central Banker’s Job Description

For the most part, over-hyped Fed Chairs know how to run up debt levels and create lots of money to appear “accommodative” to markets in the short term and then blame “animal spirits” on the disasters which always follow longer term.

In fact, if I had to come up with the most honest and historically-confirmed job description for a Fed Chairman, I would post the following job-post on LinkedIn:

“Seeking D.C.-based expert fluent in double-speak, comfortable with unsustainable debt expansion and handy with a money printer. Ivy League credentials a plus.”

The Latest Nonsense from Powell

As for double-speak, Mr. Powell is now seeking to outshine ol’ Mr. Greenspan’s art of spin with stunning elan.

At a recent economics club in Washington, Powell was both shameless and brilliant in his ability to spew fantasy with the skill of a circus promotor yet maintain the straight face of a circuit judge.

Specifically, Powell tried to downplay the U.S. debt elephant in the room by admitting to its horrific size yet promising a miracle policy shift sometime down the road…

That is, he was unable to deny what he described as the “unsustainable path” of current U.S. debt levels growing “meaningfully faster than economic growth,” but was quick to comfort anyone gullible enough to believe him that for now “there is no question of our ability to service our debt for the foreseeable future.”

Ahhhh. Such calming words, such confidence, such market-placating guidance.

A Brief Translation of Fed-Speak

But now, let’s translate Powell’s Fed-speak into real-speak and get a deeper look into the mind of a first-rate spin-seller.

When Powell says “there is no question of our ability to service our debt for the foreseeable future,” he is actually telling a kind of partial truth. 

Congratulations Jerome.

Yes, so long as the Fed decides to print trillions more fiat dollars and artificially cap yields and interest rates, the Fed can indeed “service” it’s nearly $30T in public debt for the “foreseeable future,” as the cost of that debt is forced to the basement of history.

But what Powell forgets to say, quite cleverly, is that the “foreseeable future” of which he is telegraphing is nothing more than a future of equally foreseeable and grotesquely expanded, and hence, debased U.S. dollars, which is needed to monetize that truly unsustainable debt.

Needless to say, such money printing is great news for gold…

But Powell’s ability to spin fantasy gets even more pronounced with his next great lie masquerading as policy comfort.

Specifically, and to wit, Powell then says, in the same breath, that “at some point in the distant future, when the economy is in better shape,” the Fed will then be in a better position “to deal with the debt issue then.”

Ahhhh. That’s just wonderful, no? At some point in the “distant future” the Fed will magically “deal” with our debt issue.

Hmmm.

Did Powell Take a Math Course? Read a History Book?

But here’s the problem with Powell’s kindergarten logic and truth-challenged phraseology: That “distant future” of “economic growth” is mathematically and historically impossible.

Impossible.

Why?

Because once a nation crosses the Rubicon of 100% debt to GDP, and once a nation’s currency has lost greater than 98% of its inherent value due to fiat money expansion (as is the case today), economic growth has never, not once in the entire history of the financial world, ever occurred.

Stated more simply, that “distant future” of “economic growth” in which the Fed “deals” with our debt problem is an open lie, no different than Bernanke’s 2009 promise that QE1 was “temporary” and would end by 2010. 

If Powell would like, I am happy to send him (or Monsieurs Greenspan and Bernanke) a few high-school text books on basic math, or maybe one or two essays on market history to help him (them) regain both a conscience and facts.

Jerome, my weblink is found below.

Don’t Forget the Endless Larry Summers

Ah, but let us not just poke fun at central bankers’ struggles with history and math. Our increasingly sordid world of so-called “financial Leadership” hardly ends at Constitution Ave.

My former Harvard President and one-time Treasury Secretary, Larry Summers, for example, is no less of a master at promoting his image while ignoring his mistakes.

Mr. Summers, the god-father of deregulating the otherwise toxic, uber-levered and price-fixing OTC derivatives market, deserves an honorable mention.

Under his watch in 1998, that derivatives market went from $95T to $670T despite open warnings from Brooksley Borne at the CFTC. Meanwhile, Summers was openly insulting her while slapping backs with bankers and promising the world not to worry about their master plan to expand this once-safe futures exchange.

But less than a decade after telling Congress that he and his banker friends were more than capable of managing OTC derivatives risk, that same market, as well as the S&P (and the Harvard endowment) tanked by greater than 50% in a matter of weeks in 2008.

Today, the same Mr. Summers who helped crash the markets in 2008 is suddenly working on re-branding himself, warning the world, correctly, about the inflation to come.

In fact, he specifically observed that the U.S. has “embarked on one of the least responsible macro-economic policies that the US has had in the last 40 years.”

Well Larry, maybe the current inflationary direction of the U.S. is the worst thing seen in the last 40 years, but rest assured of this: Your de-regulation of the openly toxic derivatives marketcomes in at a close second for some of the worst policies I’ve seen in the last 40 years…

Turning to Gold

Well, one thing which folks like Powell and even Summers can agree is that there will be lots more money printing and debt expansion to come.

For those of us who can see through Fed-speak and track facts rather than fictions, there are two factors favorable to gold (rather than just golden tongues) which we can smile upon for the next “foreseeable” 5 years, namely: More growth in the broad money supply and more negative real interest rates.

As for the money supply, we’ve written about its promiscuous expansion at length elsewhere, but in case you’re curious what it looks like, just see for yourselves:

And as for negative real (i.e., inflation-adjusted) rates, we’ve also written at length about how well gold shines when inflation rates outpace yields on US Treasury bonds.

As Powell has already told us, repressed bond yields and repressed rates are inevitable in the coming years for no other reason that the Fed can’t afford for those rates to go much higher. Period. Full stop.

And as for inflation outpacing those repressed rates, that too is no longer theoretical or debatable, as inflation is measured by the expansion of the money supply rather than the fictional math of the CPI scale, which despite even its openly bogus reporting, cannot hide the inflationary signals coming from commodity prices, rising M1 and M2 data and increased governmental control of the banking system.

In short, the “foreseeable future” is clearly one that favors inflation outpacing yields and thus smiling upon gold.

Getting Technical

Aside from such historically and fundamentally-confirmed tailwinds for this misunderstood precious metal, even the technical indicators are making gold smile.

Looking at last week’s daily price action in gold, we can see that after last August’s $2070 gold high, the subsequent (and expected) gold correction has both found and bounced off its technical support/bottom.

As the chart below confirms, gold reversed off a double-bottom line (far right) of historical support twice in March:

In addition to a critical double bounce off support, the daily gold price broke through, and then closed consecutively above, a technical resistance band in April.

Having broken resistance, gold pricing then created a new trendline up and to the right:

Such a bounce off a double bottom pattern plus consecutive price close confirmations above resistance is a classic chart confirmation of an upward technical direction in gold which may be of interest to those who trade this oh-so precious metal.

For us, a triple bottom support would have been better, and price swings, near-term, for gold are not outlawed.

Of course, we remain largely agnostic to the short-term price action of gold, as we see it as an investment rather than a speculation.

Far more importantly, we see gold as the ultimate answer to the emotional fact that fiat currencies are losing their punch by the second. Gold will rise much higher simply because the dollar’s purchasing power will sink far lower.

Thus, despite the fictional “distant future” and “economic growth” of which Powell spoke above, we see an all too real distant future of increasing debt, increasing money supply and hence increasingly open and obvious currency debasement.

Given the facts above, we hope our words make more sense than Powell’s.

Intel’s CEO has been the latest in a chorus of voices stating that the ongoing semiconductor shortage is going to last for a “couple of years”.

Speaking on 60 Minutes Sunday night, chief executive officer Pat Gelsinger said: “We have a couple of years until we catch up to this surging demand across every aspect of the business.”

He also noted that U.S. dominance in the industry has fallen so much that only 12% of the world’s semiconductor manufacturing is done in the U.S., down from 37% about 25 years ago, according to Bloomberg. 

“And anybody who looks at supply chain says, ‘That’s a problem’. This is a big, critical industry and we want more of it on American soil: the jobs that we want in America, the control of our long-term technology future,” he said.

He seems to be directing his focus more toward operations and less toward the company’s stock price, stating Intel won’t be “anywhere near as focused” on buying back stock as the company once was. 

Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co., also told 60 Minutes that the company was trying to “squeeze” out as many chips as possible: “Today, we think we are two months ahead, that we can catch up (to) the minimum requirement of our customers — by the end of June. There’s a time lag. In car chips particularly, the supply chain is long and complex.”

Recall, just days ago, we wrote that Morgan Stanley had also suggested the shortage could continue “well into 2022”. 

Adam Jonas and Joseph Moore at Morgan Stanley contend that the constraints could last into next year. Of course, both analysts see it as an opportunity to “buy the dip” (when is it not?) and bet on the longer term EV opportunity, the analysts said in a note out late last week. 

“Ford’s changed outlook was the first major profit warnings in auto since the worst of COVID,” the analysts wrote, calling the automaker’s report a “bit of a reality check” for investors who have been chasing momentum from OEMs.

Morgan Stanley’s report also took note of lack of manufacturing on U.S. soil, concluding with the realization that “on-shoring and diversification of geographic supply sourcing” should be thrust into focus. 

Last week, Ford was the latest auto manufacturer to slash its expectations for full year production as a result of the shortage.

Two weeks prior to Ford’s report, we wrote about how the chip shortage was becoming a self-fulfilling prophecy, due to a shortage of chipmaking equipment. In the days leading up to that report, we wrote that Taiwan Semiconductor was also warning that the global chip shortage may extend into next year.

In early April, we wrote that U.S. exporters of semiconductor chipmaking tools were struggling to get licenses to sell to China. The U.S. government had been dragging its feet in approving licenses for companies to sell chipmaking equipment to Chinese semi company SMIC, we noted at the time.

You can watch the full 60 Minutes interview from this week here. 

Authored by Tom Ozimek via The Epoch Times,

The United States and Iran have both denied reports that a prisoner swap deal has reached in exchange for the release of $7 billion frozen Iranian oil funds under U.S. sanctions.

A Sunday report by Iranian state television cited anonymous “informed” sources claiming that Tehran would free four Americans accused of spying in exchange for four Iranians held in the United States and the release of the frozen funds.

State Department spokesman Ned Price told The Epoch Times on Monday that no such deal had been struck.

“Reports that a prisoner swap deal has been reached are not true,” Price said in a statement. 

“As we have said, we always raise the cases of Americans detained or missing in Iran. We will not stop until we are able to reunite them with their families,” he added.

U.S. State Department Spokesperson Ned Price holds a news briefing at the State Department in Washington on Feb. 17, 2021. (Kevin Lamarque/Pool/AFP via Getty Images)

Ron Klain, White House chief of staff, also denied the report in remarks to CBS “Face the Nation” on Sunday, saying, “unfortunately, that report is untrue. There is no agreement to release these four Americans.”

Klain was asked whether he believes the Iranian state television report was a deliberate pressure ploy in negotiations.

“Sometimes in these kind of things, the other country will rush to the microphones to force your hand. Do you feel that?” asked CBS journalist John Dickerson.

“No,” Klain replied, adding, “again, we’re working hard to bring these Americans home when we get that done we will obviously be delighted to announce that news.”

Iranian state media on Monday cited Iran’s Foreign Ministry spokesman Saeed Khatibzadeh as denying the prisoner swap.

The report further cited Khatibzadeh as insisting that Iran and the UK were not engaged in legal talks to free Iranian-British national Nazanin Zaghari-Ratcliffe. Sunday’s report by Iranian state television—the same one that cited anonymous sources about the claimed U.S.-Iran prisoner deal—said Zaghari-Ratcliffe would be released once Britain had paid off a debt on military equipment owed to Tehran.

Zaghari-Ratcliffe, a project manager with the Thomson Reuters Foundation charity, was arrested at Tehran airport in April 2016 and later convicted of plotting to overthrow its regime, charges she denies.

Iran and world powers are holding talks to revive the 2015 nuclear accord that President Donald Trump pulled the United States out of three years ago. Trump believed that the 2015 Joint Comprehensive Plan of Action (JCPOA)—known commonly as the Iran nuclear deal—was not decisive enough in preventing Iran from developing nuclear weapons. Besides pulling out of the deal in 2018, Trump restored and augmented sanctions to try to force Iran into renegotiating the pact with more concessions.

This satellite photo by Maxar Technologies shows construction at Iran’s Fordo nuclear facility on Dec. 11, 2020. (Maxar Technologies via AP)

Trump argued that the Obama-era deal failed to address Iran’s destabilizing influence in the Middle East and the development of its ballistic missile program.

“We cannot prevent an Iranian bomb under the decaying and rotten structure of the current agreement,” Trump said in 2018.

After Trump pulled out of the deal, Iran violated some of the pact’s nuclear restrictions.

President Joe Biden came into office saying that getting back into the accord was a priority. But Iran and the United States have disagreed over Iran’s demands that sanctions be lifted first, and the stalemate threatened to become an early foreign policy setback for the Biden administration.

Tehran and the powers have been meeting in Vienna since early April to work on steps that must be taken to bring Washington and Tehran back into deal, touching on U.S. sanctions and Iran’s breaches of the 2015 pact.

Iran says that, under the U.S. sanctions imposed in 2018, some $20 billion of its oil revenue has been frozen in a number of countries.

Iran’s top negotiator in Vienna, Abbas Araghchi, pressed Teheran’s position that all sanctions be removed, according to Iran’s official news agency.

“Our red line is that all sanctions reimposed and those imposed under different labels must be lifted,” Araghchi said.

Jake Sullivan, U.S. national security adviser, said on Sunday that no deal had been reached with Iran in Vienna.

“There is still a fair distance to travel to close the remaining gaps,” he said on ABC’s “This Week” program.

“And those gaps are over what sanctions the United States and other countries will roll back. They are over what nuclear restrictions Iran will accept on its program to ensure that they can never get a nuclear weapon.”

Sullivan added that U.S. diplomats would continue negotiating over the coming weeks “to try to arrive at a mutual return to the JCPOA, which is the Iran nuclear deal on a compliance-for-compliance basis.”

After March’s explosive surge higher in ‘soft’ survey data on the manufacturing (and services) sector, analysts expected a very modest increase in April (despite China’s disappointing survey data.. and the ongoing slide in ‘hard’ economic data in the US).

Markit’s Manufacturing PMI for April (final) was a slight disappointment at 60.5 (60.7 exp, 60.6 flash) but well above the 59.1 in March. This is the highest level ever for Manufacturing PMI.

ISM Manufacturing was at its highest since 1983 in March and a small improvement was expected… but it plunged from 64.7 to 60.7 (even as prices paid increased further)

Source: Bloomberg

The headline index was also pushed higher by unprecedented supplier delivery delays (ordinarily a sign of improvement in operating conditions).

The PMI data for April signalled another marked monthly deterioration in vendor performance across the goods-producing sector, with lead times lengthening to the greatest extent on record. Alongside raw material shortages and pressure on supplier capacity, firms linked delays to ongoing disruption to transportation, including port congestion.

Source: Bloomberg

Everything except Propylene is higher in price…

Chris Williamson, Chief Business Economist at IHS Markit said: “US manufacturers reported the biggest boom in at least 14 years during April. Demand surged at a pace not seen for 11 years amid growing recovery hopes and fresh stimulus measures.

However, Williamson notes that “supply chain delays worsened, however, running at the highest yet recorded by the survey, choking production at many companies. Worst affected were consumer-facing firms, where a lack of inputs has caused production to fall below order book growth to a record extent in over the past two months as household spending leapt higher.”

Which is pushing prices dramatically higher…

“Suppliers have been able to command higher prices due to the strength of demand for inputs, pushing material costs higher at a rate not seen since 2008.

“Attempts to expand capacity via hiring extra staff gained further momentum, though in some cases staff shortages were an additional constraint on production. However, with confidence in the outlook continuing to run at one of the highest levels seen over the past seven years, buoyed by vaccine roll-outs and stimulus, further investment in production capacity should be seen in coming months, helping alleviate some of the price pressures.”

Late last month, European Commission chief Ursula von der Leyen revealed in an interview with the NYT that the EU would soon allow Americans and others who can prove that they have been fully vaccinated travel to popular tourist destinations across the continent. The decision was made to help preserve the European tourism industry, which is hanging by a thread after missing out on last year’s summer season thanks to COVID-19.

Now, Bloomberg reports that the Commission has published its proposal to “revive the EU tourism industry and for cross-border friendships to rekindle – safely,” von der Leyen said.

Although the Continent is still battling a third wave, improving vaccination rates have coincided with falling daily tallies for both cases and deaths (which have fallen substantially since last year’s peak across Europe). Lockdowns in several countries are finally being loosened as infection rates ebb.

The proposal released by the EU’s executive arm recommends that vaccinated visitors from countries with relatively low infection rates should be welcomed to the EU by the end of May.

Source: Bloomberg

Individual EU member states will now need to ratify the plan.

These new parameters would replace a blanket ban on all non-essential travel to the EU for residents of all but a handful of countries. The rules have been in place for more than a year now, and have choked off travel and tourism to a trickle.

Under the new proposal, member states would be obliged to accept proof of vaccination for all shots approved in EU — including those produced by Pfizer-BioNTech, AstraZeneca, Moderna, as well as the J&J jab.

National governments will have the discretion to accept shots that have cleared the WHO’s emergency-use listing process, but they can’t recognize just any vaccine (which means people inoculated with Russian and some Chinese jabs may still be excluded). Though the commission will draw up a list of “approved” vaccine certificates, it looks like Russian and Chinese jabs will be intentionally excluded.

As for who will be allowed to travel, Bloomberg offers a breakdown:

• Residents of EU countries holding a Digital Green Certificate — a planned document that will show the bearer has been fully vaccinated, has immunity through recovery from the disease or recently tested negative.
• Residents of non-EU countries who can prove full vaccination with shots approved by the EU’s drugs regulator and, potentially, shots cleared by the WHO. The European Commission will come up with a list of vaccination certificates issued in non-EU countries that will be recognized.
• Residents of a “white list” of non-EU countries deemed to present a low risk of spreading the disease. The list will be updated based on the epidemiological situation and requires a 14-day case notification rate of new confirmed Covid-19 cases of less than 100 per 100,000 inhabitants. The previous threshold was 25.

Should the spike in international tourism lead to another surge in cases, the EU’s new plan incorporates an “emergency brake”, which would allow member states to restore travel bans on countries where risky new variants emerge or where infection rates spike. In such an event, only essential workers, such as diplomats and health-care staff, would be allowed entry from those countries, and even then, they would be subject to strict testing and quarantine requirements.

Authored by Lance Roberts via RealInvestmentAdvice.com,

What’s the big “hubbub” over raising the minimum wage to $15/hour? After all, the last time the U.S. lifted the minimum wage was in 2009. The argument for increasing the minimum is to create a “livable wage” for those working at that level. However, is that the best way to help “the poor?”

The Biden Administration wants to include an increase of the minimum wage in the proposed “Infrastructure” plan. Many may forget the attempt to hike the minimum wage during his tenure as Vice-President with the Obama Administration. At that time, there was such an immense level of table-pounding you would assume a majority of Americans got trapped at minimum wage. However, let’s take a look at some numbers.

How Many Work For Minimum Wage?

According to the latest available annual data from the Bureau Of Labor Statistics:

“In 2019, 82.3 million workers age 16 and older in the United States were paid at hourly rates, representing 58.1 percent of all wage and salary workers. Among those paid by the hour, 392,000 workers earned exactly the prevailing federal minimum wage of $7.25 per hour. About 1.2 million had wages below the federal minimum.

Together, these 1.6 million workers with wages at or below the federal minimum made up 1.9 percent of all hourly paid workers.”

Notably, that 1.9% of minimum wage, or less, workers declined 50% from the same report in April 2015:

“In 2014, 77.2 million workers age 16 and older in the United States were paid at hourly rates, representing 58.7 percent of all wage and salary workers. Among those paid by the hour, 1.3 million earned exactly the prevailing federal minimum wage of $7.25 per hour. About 1.7 million had wages below the federal minimum.

Together, these 3.0 million workers with wages at or below the federal minimum made up 3.9 percent of all hourly-paid workers.”

Notably, this number has been reduced drastically from the 13.4% of workers earning minimum wage in 1979.

Of those 1.6 million workers, 49% were aged 19-25, according to the KFF Organization.

Not surprisingly, we primarily find these individuals in the fast food, retail, and service industries.

So What?

“So what? People working at restaurants need to make more money.”

Okay, let’s hike the minimum wage to $15/hr. That doesn’t sound like that big of a deal. Let’s do that math:

My son turned 16 last November and got his first job. He works as a “packer/runner” for a local restaurant to pack orders for pickup due to Covid-19 seating restrictions. Importantly, he has no experience. He also has no idea what “working” actually means and is about to experience the cruel joke of taxes.

However, let’s do the math of $15/hr assuming he works full-time this summer.

• $15/hr X 40 hours per week = $600/week

• $600/week x 4.3 weeks in a month = $2,580/month

• $2580/month x 12 months = $30,960/year.

Let that soak in for a minute. We are talking about paying $30,000 per year to a 16-year old to run food out to customers. (That salary would put him in the top 1% of  wages earners globally.)

Now, let’s expand the math to the current situation.

• 1.9 Million Workers

• $30,960 / year (assuming all workers work full time)

• Assuming everyone worked previously at $7.50/hour

• Wages increase by $29.4 billion over the year.

An increase in wages of $29.4 billion will either get passed onto consumers at higher costs, or the number of jobs decline.

The Trickle Up Effect:

According to Payscale, the median hourly wage for a restaurant manager is $13.00 an hour.

What do you think happens when my son, with no experience, is making more than the restaurant manager?

The owner will have to increase the manager’s salary. But wait. Now the manager is making more than the district manager, which requires another pay hike. So forth, and so on.

Of course, none of this is a problem as long as you can pass on higher payroll, benefits, and rising healthcare costs to the consumer.

Small Business Already Noticing

But that is a problem already. As the National Federation Of Independent Business (NFIB) noted in a recent survey. To wit:

“Yes, injecting stimulus into the economy will provide a short-term increase in demand for goods and services. When the funds are exhausted, the demand fades. However, small business owners understand the limited impact of artificial inputs. As such, they will not make long-term hiring decisions, an ongoing cost, against a short-term artificial increase in demand. 

Also, given President Biden is focused on more government regulation and higher taxes (which falls squarely on the creators of employment), increased costs will further deter long-term hiring plans.”

Such was explicitly a point made by the Congressional Budget Office as well.

“Higher wages would increase the cost to employers of producing goods and services. Employers would pass some of those increased costs on to consumers in the form of higher prices. Those higher prices, in turn, would lead consumers to purchase fewer goods and services.

Employers would consequently produce fewer goods and services. As a result, they would tend to reduce their employment of workers at all wage levels. When the cost of employing low-wage workers goes up, the relative cost of employing higher-wage workers or investing in machines and technology goes down. Some employers would therefore respond to a higher minimum wage by shifting toward those substitutes and reducing their employment of low-wage workers.”

Been Here Before

That analysis dovetailed with previous research from the Manhattan Institute when the Obama Administration tried lifting the minimum wage previously.

“By eliminating jobs and/or reducing employment growth, economists have long understood that adoption of a higher minimum wage can harm the very poor who are intended to be helped. 

But this groundbreaking paper by Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, and Ben Gitis, director of labormarket policy at the American Action Forum, comes to a strikingly different conclusion:

Overall employment growth will be lower as a result of a higher minimum wage. Furthermore, much of the increase in income that results for those fortunate enough to have jobs, would go to relatively higher-income households. It would not help those households in poverty in whose name the campaign for a higher minimum wage gets waged.”

Problems With Hiking The Minimum Wage

• Raising the minimum wage has a variety of effects on both employment and family income. By increasing the cost of employing low-wage workers, a higher minimum wage generally leads employers to reduce the size of their workforce.

• The effects on employment would cause changes in prices and different labor and capital types.

• By boosting the income of low-wage workers who keep their jobs, a higher minimum wage raises their families’ real income, lifting some families out of poverty. However, real income falls for some families because other workers lose their jobs, business owners lose income, and prices increase for consumers.

Net Impact

• The net effect of a minimum-wage increase is to reduce average real family income.

Minimum Wage Impact On Employment

• Higher wages increase the cost to employers of producing goods and services. The employers pass some of those increased costs on to consumers in the form of higher prices. Those higher prices, in turn, lead consumers to purchase fewer goods and services.

• The employers consequently produce fewer goods and services, reducing their employment of low-wage and higher-wage workers.

• When the cost of employing low-wage workers goes up, the relative cost of hiring higher-wage workers or investing in machines and technology goes down.

Net Impact:

• An increase in the minimum wage affects those components in offsetting ways.

  • It increases the cost of employing new hires for firms

  • Reduces the costs of higher-wage workers and productivity-increasing technology

  • Makes firms raise wages for all current employees whose salaries are below the new minimum, regardless of whether new workers get hired.

Minimum Wage Increase Effects Across Employers

Employers vary in how they respond to a minimum-wage increase.

• Employment tends to fall more at firms whose sales decline when they raise prices. Also, at firms that can readily substitute machines or technology for low-wage workers.

• They might reduce workers’ fringe benefits (such as health insurance or pensions) and job perks (such as employee discounts). Such lessens the effect of the higher minimum wage on total compensation. 

• Employers could also partly offset their higher costs by cutting back on training. They could also opt to assign work to independent contractors who the FLSA does not cover.

Net Impact

• Employers respond to higher minimum wages by cutting costs or benefits elsewhere.

Conclusion

Should we raise the minimum wage from $7.25 an hour to say $9.00 an hour? Probably. The cost of living has risen since the 2009 wage hike, and an increase would likely be more palatable than a doubling.

However, while a drastic hike to $15 sounds innocent enough, it has the most significant negative impact on the poor, as reported by the Foundation For Economic Freedom:

“Minimum wage laws create a barrier to getting a job that the privileged are better able to overcome than the underprivileged. When jobs are scarce, then immigrants, workers with few skills or little education, and those with limited English proficiency are going to have a harder time convincing employers that their labor is worth $15 an hour than their better-skilled, native, English-speaking competitors. As Thomas Leonard has recently shown, unemploying such marginalized groups are regarded as part of the point of minimum wage laws by early 20th-century ‘progressives’ who saw the minimum wage as a useful tool for keeping immigrants, blacks, and women out of the labor market.”

Notably, the unintended consequences of a minimum wage hike in a weak economic environment are not inconsequential. Given that businesses are already fighting for profitability, hiking the minimum wage, given the subsequent “trickle up” effect, will lead to further increases in productivity and a reduction in employment.

The key event in the first week of May will be another outstanding jobs report with April nonfarm growth expected around 950k (some whispers have it as rising as high as 1.5 million, a number that will unleash another reflation tantrum) and the unemployment rate dropping to 5.7% from 6.0% in March. ISM surveys are likely to push even higher in April, with the manufacturing index rising to 66 and services reaching a new record of 65. As BofA summarizes, with the US economy reopening amid vaccinations, real activity should be robust.

While more than half of S&P companies have now reported, and we are due for a slowdown in earning season, there is still a bevy of heavyweights reporting including iRobot and Chegg on Monday, Pfizer, TMobile on Tuesday, GM, PayPal and Rocket on Wednesday, Moderna, Square and Roku on Thursday and retail darling DraftKing on Friday.

Focusing on the US economy, the key economic data releases this week are the ISM manufacturing and non-manufacturing reports on Monday and Wednesday, jobless claims on Thursday, and the April employment report on Friday. There are several speaking engagements from Fed officials this week.

Here is a daily breakdown courtesy of Goldman:

Monday, May 3

• 09:45 AM Markit manufacturing PMI, April final (consensus 60.7, last 60.6)
• 10:00 AM Construction spending, March (GS +1.8%, consensus +1.8%, last -0.8%): We estimate a 1.8% increase in construction spending in March, reflecting a rebound following winter storm effects in February.
• 10:00 AM ISM manufacturing index, April (GS 65.2, consensus 65.0, last 64.7): We estimate that the ISM manufacturing index increased 0.5pt to 65.2 in April, reflecting a 1.8pt increase in our manufacturing tracker (to 63.3) and a boost to the supplier deliveries time component from chip shortages.
• 02:20 PM Fed Chair Powell (FOMC voter) speaks: Fed Chair Jerome Powell will speak at a virtual event hosted by the National Community Reinvestment Coalition. Prepared text and moderated Q&A are expected.
• 05:00 PM Lightweight motor vehicle sales, April (GS 17.4m, consensus 17.5m, last 17.75m)

Tuesday, May 4

• 08:30 AM Trade balance, March (GS -$74.6bn, consensus -$73.5bn, last -$71.1bn); We estimate that the trade deficit increased by $3.5bn in March, reflecting an increase in the goods trade deficit. Goods imports are now well above their pre-pandemic level, and goods exports are slightly above their pre-pandemic level. Both imports and exports of services have recovered only slightly from their 2020Q2 troughs.
• 10:00 AM Factory orders, March (GS +1.3%, consensus +1.6%, last -0.8%); Durable goods orders, March final (last +0.5%); Durable goods orders ex-transportation, March final (last +1.6%); Core capital goods orders, March final (last +0.9%); Core capital goods shipments, March final (last +1.3%): We estimate that factory orders increased by 1.3% in March following a 0.8% decrease in February. Durable goods orders increased by 0.5% in the March advance report, and core capital goods orders increased by 0.9%.
• 01:00 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will take part in a virtual Q&A moderated by Minneapolis Fed President Kashkari and hosted by the Economic Club of Minnesota.
• 01:00 PM Dallas Fed President Kaplan (FOMC non-voter) speaks: Dallas Fed President Robert Kaplan will take part in a moderated virtual discussion hosted by the North Texas Commercial Association of Realtors and Real Estate Professionals.

Wednesday, May 5

• 08:15 AM ADP employment report, April (GS +800k, consensus +888k, last +517k); We expect an 800k rise in ADP payroll employment, reflecting strong underlying job growth and a boost from lower initial jobless claims. We expect ADP to underperform the BLS payroll measure this month, in part because workers returning to their previous employers may not be fully captured by the ADP panel methodology.
• 09:30 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will give a virtual speech on the U.S. economy and monetary policy at an event hosted by Bard College. Prepared text and Q&A with audience and media are expected.
• 09:45 AM Markit services PMI, April final (consensus 63.1, last 63.1): 10:00 AM ISM services index, April (GS 64.0, consensus 64.1, last 63.7): We estimate that the ISM services index increased 0.3pt to 64.0 in April, reflecting a 2.5pt increase in our services tracker to 60.4 and possible seasonal drag.
• 12:00 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will give a virtual speech on the economic outlook to the Boston Economic Club. Audience Q&A is expected.

Thursday, May 6

• 08:30 AM Nonfarm productivity, Q1 preliminary (GS +4.2%, consensus +3.7%, last -4.2%); Unit labor costs, Q1 preliminary (GS flat, consensus -0.8%, last +6.0%): We estimate nonfarm productivity growth of 4.2% in Q1 (qoq saar), reflecting a larger increase in business output than in hours worked. We expect that Q1 unit labor costs—compensation per hour divided by output per hour—remained unchanged.
• 08:30 AM Initial jobless claims, week ended May 1 (GS 530k, consensus 540k, last 553k); Continuing jobless claims, week ended April 24 (consensus 3,620k, last 3,660k): We estimate initial jobless claims decreased to 530k in the week ended May 1.
• 10:00 AM Dallas Fed President Kaplan (FOMC non-voter) speaks; Dallas Fed President Robert Kaplan will take part in a moderated discussion hosted by Bard College.
• 01:00 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will take part in a virtual conversation hosted by the University of California, Santa Barbara. Audience Q&A is expected.

Friday, May 7

• 08:30 AM Nonfarm payroll employment, April (GS +1,300k, consensus +978k, last +916k); Private payroll employment, April (GS +1,200k, consensus +900k, last +780k); Average hourly earnings (mom), April (GS flat, consensus flat, last -0.1%); Average hourly earnings (yoy), April (GS -0.4%, consensus -0.4%, last 4.2%) ;Unemployment rate, April (GS 5.5%, consensus 5.7%, last 6.0%): We estimate nonfarm payrolls rose 1,300k in April (mom sa). Mass vaccinations and the easing of business restrictions likely supported rapid job growth in virus-sensitive industries, including leisure and hospitality, retail, and education (public and private). Additionally, Big Data signals generally indicate monthly job gains of 1mn or more in the month. We note the possibility that the establishment survey undercounts job gains from reopening establishments, which other things equal would result in a relatively stronger household survey. Reflecting this and an expected rise in the participation rate, we estimate a five-tenths drop in the unemployment rate to 5.5%. We estimate a flat monthly reading for average hourly earnings (mom sa) due to negative composition and calendar effects; coupled with the anniversary of the spring 2020 lockdowns, this would result in a sharp drop in the year-on-year rate (from +4.2% to -0.4%).
• 10:00 AM Wholesale inventories, March final (consensus +1.4%, last +1.4%)

Source: Goldman, BofA

If you’ve been following the Tesla saga for the last several months, there’s no doubt your attention has likely turned to the relationship between the company, its “founder” Elon Musk and the Chinese Government.

Over the last couple of months, we have observed how the honeymoon between the world’s largest auto market and Tesla have slowly but surely soured. The change in the relationship is notable because Tesla has been heavily reliant on sales to China and production from its Shanghai factory to make analyst estimates.

Now, it appears that Tesla is getting the message and trying to play “damage control”, ostensibly before the the soured relationship becomes obvious enough for even the most unsophisticated Tesla investors (all of them?), which would likely cause a run on the proverbial bank. 

In response, the company is “boosting its engagement” with Chinese regulators, according to a Reuters report Monday morning. A follow up by Bloomberg reported that “Tesla executives attended at least four policy discussions in China, on topics including auto data storage, vehicle-to-infrastructure communication technologies, car recycling and carbon emissions”.

Interesting that quality control and braking weren’t on the list.

Tesla also is expanding its “government relationship team” in China (one can’t even imagine what they are tasked with). Recall, recently, Tesla paid back $614 million in loans that it owed on its Shanghai Gigafactory. The company also said in its most recent 10-Q that it no longer had access to $758 million from a fixed asset facility as a result. 

The loans were part of a whirlwind of variables that all mysteriously went Tesla’s way when the automaker sought to get up and running, extremely quickly, in China. Tesla was able to ascertain financing, land and staff to build the Gigafactory with blistering turnaround time when the company made the decision to build in China.

The quick turnarounds and China’s willingness to help finance the project raised numerous eyebrows at the time, including ours. Recall, back in April 2020, we were one of the first to ask if Musk risked becoming a Chinese asset. We raised pointed questions about Musk’s cozy relationship with the Chinese government – before their relationship started to fall apart – more than a year ago. 

Recently we’ve covered the China risk to Tesla’s business in our piece suggesting that Elon Musk’s Chinese fairy tale could eventually come to an end. We noted how in late April 2021, Chinese state media is now suggesting that the automaker’s sales could be “doomed” in the country.

By Michael Every of Rabobank

It’s not often that I will recommend a segment of contemporary TV as having direct pertinence to financial markets, but did anyone watch Bill Maher’s not-safe-for-work monologue raging against cryptocurrencies last week?

In particular, his opening remark that things starting with “crypto-” generally aren’t good spoke to me. Pre-2008, the only “crypto” word I had in my memory-bank was “crypto-fascist”; but that compound noun has since been bisected, with both halves going viral in the eyes of different parts of society. Maher really did not pull his punches as he continued: “Nothing is ever actually being accomplished and no actual product made or service rendered….It’s like Tinker Bell’s light. Its power source is based solely on enough children believing in it…Our problem is not economic but psychological. People who have been raised in a virtual world are starting to believe they can really live in it.”

“OK, Boomer,” no doubt respond the cryptonites, swiping right under lock-down and waiting for their pizzas to arrive. There is not much one can say to that oft-heard, dazzling rhetoric. Yet by the power of pure serendipity, the same day Maher was speaking our own Wim Boonstra published his rebuttal of crypto too, which can be found here. To summarise, Wim goes in just as hard as Bill, but without the allusions to Peter Pan’s fairy friends. And this Daily only differs in striking a communication tone somewhere between the two – caveat Tinker Bell!

Of course this view is hugely unpopular in some circles – those who own crypto. “You just don’t get it,” will no doubt be the politer of the iterations of the message I will receive.

No, I don’t.

Or rather, I do. Trust me, I know my monetary history; and heterodox economic theory, and economic history (not the comic-book version ‘taught’ to economists); and geopolitics; and realpolitik. And it is precisely because of that wider view that I can’t bring myself to believe we are going to see both a collapse of the global international monetary order and the power of the nation state, allowing crypto to thrive, and yet we also poodle around in self-driving Teslas on smooth roads (in underground tunnels) while checking our crypto balances, as gig-economy workers or drones deliver us delicious food we didn’t grow and certainly can’t cook.

In short, if you are in full survivalist mode, or at least long commodities, then I can see the skin in the game; or, if you are entirely lacking in ideology but just buy things that go up – until they go down again. But “OK, Crypto-Boomer,” is the message to those who think they can say “Roads? Where we are going, we don’t need roads,” to avoid any future potholes.

Yes, I fully grasp our flailing, failing, always-be-bailing financial system justifies nausea rather than back-patting; I fully recognize the logic that what cannot continue will not; and I am always flagging the risks of geopolitical potholes about to be dug,…or caused by munitions: e.g.,

• The EU aiming to cut its dependency on Chinese and other foreign suppliers in six strategic areas including raw materials, pharmaceutical ingredients and semiconductors, under an industrial action plan to be announced as soon as this week;

• A (non-binding) EU parliament resolution that any further Russian aggression should prompt its removal from the global SWIFT payments system just before US Secretary of State Blinken is due to visit the UK and Ukraine;

• The Economist magazine openly flagging Taiwan as a geostrategic flashpoint, which it is;

• Reports in the Washington Post that allege China’s Belt and Road Initiative used forced labor;

• China warning Australia to avoid getting ‘burned’ by colluding with ‘terrorists’;

• Australia reviewing China’s 99-year lease on the Port of Darwin signed in 2015;

• North Korea sabre-rattling again against the US;

• Rumors –subsequently denied– that the US and UK will offer Iran USD7bn in unfrozen oil assets in exchange for four American prisoners (or USD1.75bn per person, which at least shows no inflation since the 2015 Iran deal, when the US sent Tehran7bn in non-USD cash);

• The US also withdrawing from Afghanistan this year (and not for no reason?); and

• The appalling virus situation in India (while Europe and the UK worry about summer holidays);

Yet all of this, along with that flailing, failing, always-be-bailing financial system also argues for higher gold prices,…and they have gone nowhere compared to the constant promises from gold bugs that the only way is up in this kind of environment.

Crucially, imagine what gold and crypto might do if we were to see major economies taper their current pedal-to-the-metal stimulus. China is leaning towards deleveraging rather than further credit expansion. Moreover, the BOC have just started to edge down their QE; there is enormous pressure on the RBA to do the same – which it is resisting as much as it is seeing rampant house-price inflation (CoreLogic today says they were up 1.8% m/m in April); the RBNZ now *have* to look at house prices, which means doing *something*; and there are suggestions the BOE might soon move in the same direction (tapering, not deliberate blindness or being forced to look at house prices). Of course, the Fed is still unmoved – for now. Yet watch the Anglo central banks closely. If they all start to move further towards tapering by the summer, what might August’s Jackson Hole then offer as platform for the Fed?   

Of course, then we would still get back to the issue of whether tapering means higher or lower long yields, which is intimately tied up in political-economy and power, which it itself at the root of the whole crypto (and crypto-fascist) debate. So Bitcoin’s time to shine then?

When a TV comedian can poke fun at you, and get a mainstream audience roaring with laughter, it suggests one is not as powerful or fashionable as one thinks: which is why the dictators that cryptonites ironically profess to hate so much are allergic to comedy even as they are the best material for it.