Category: zerohedge

Authored by Bruce Wilds via Advancing Time blog,

Anyone naive enough to think America is about to receive a big gift of newfangled “fixed installations” needed in order to function should look long and hard at what is really being proposed. The “underlying structure” a country and the economy rely upon includes things such as roads, bridges, dams, water and sewer systems, railways and subways, airports, and harbors. None of these things are cheap to construct and when it comes to infrastructure the words, good, fast, and cheap should never be clustered together. While many people see government spending on infrastructure as a job creator and a silver bullet for our ailing economy I would like to raise a word of caution, things are not that simple. The cynical part of me thinks the American people should get ready to get bent over and taken advantage of.

Spending Trillions Likely To Result In An Epic Fail

Now that Biden’s massive Covid-19 relief package has been signed into law, talk is moving towards what is next on the agenda, That’s where, most likely, his infrastructure plan resides, and this is a plan set to explode the budget. If you think that $1.9 trillion is a lot of money, it pales next to what the Democrats are going to propose as they continue on their spending spree. It appears that Biden wants $3 trillion or more which should scare away moderates such as West Virginia’s Joe Manchin but it has not. Not only has Manchin not blinked at $3 trillion in new spending instead, he recently stated Congress should do “everything we possibly can” to pay for it. He said there should be “tax adjustments” to former President Donald Trump’s 2017 tax law to boost revenues, his endorsement of raising the corporate rate from the current 21 percent to at least 25 percent, however, would do little.

The debate over how much we need to spend and on what, could go on for ever but this is not the answer. Please note, this is not “free money” but that message is likely to be ignored in the same way a great deal of the population fails to appreciate that most of the $1.9 trillion has yet to be spent. An example is how screwed up this flow of money can be is apparent in Fort Wayne, Ind. the city announced only days ago it had  hired Homebase, a nationally recognized consulting firm to evaluate “the state of homelessness” in the city and layout a plan to address it. The project should take nine months, the city said. (Funding came through the CARES Act passed in late March of 2020.)

Many people seem to see money flowing from Washington, such as this infrastructure bill, as not costing us anything because the bill is shrouded with the message the project will more than pay for itself over time by creating greater growth. The problem is that when it comes to such spending, politicians often prefer to use such funds on what they view as legacy projects that will shape the future of their area or shiny pet projects that will enrich their cronies. Many of these tend to be rather wasteful and controversial and it is not uncommon to see them plagued by cost overruns.

In truth, when it comes to infrastructure, the Democrats and Republicans are not on the same page. While Republicans may be willing to spend federal money on things like highways, bridges, and airports, many Democrats are interested in using much of this money to build what they call “green infrastructure ” and promoting clean energy or things such as electric vehicles. In short, Democrats wish to use this money in a giant experiment to create what they hope will be a more sustainable world. Instead, we should prepare to see more “bridges to nowhere” and wasted spending exists than most taxpayers can imagine.

Building Bridges Creates Jobs But Is Not Free

With a huge infrastructure package now in the works, we should remember America’s national debt is exploding. This means it might be a good time to revisit the idea a country can create the illusion of economic prosperity by spending while at the same time not accomplishing its goals of long term growth. History shows that while a country can kick its gross domestic product into high gear by building a false economy based on infrastructure or war, this may not translate into sustainable growth. When a country gorges at the trough of deficit spending it can easily manipulate a big temporary boost in its GDP but solid growth is often the result of a slower well planned approach.

To be perfectly clear, the problem we face is that poorly spending even trillions of dollars does not necessarily create a strong economy. As usual, when it comes to government spending more often than not much of the money is simply squandered. This problem is exacerbated when the goal is to get it rapidly into the economy, “shovel ready” or a great deal of discretion is given to state and local officials as to how it should be spent. What is clear is that when Washington begins to talk about infrastructure spending hands go out across America as politicians and businesses  rush to endorse such programs claiming they should be administered on a local level so the money is not squandered by the inefficient minions of  Washington that do not understand the priorities we face.

Infrastructure spending has great potential to slide into the area of waste and corruption driven by political motivations rather than necessity. Much of the money slated for spending generally ends up financing boondoggles. The real test comes when questions are asked about the need for a certain project and the quality of the vision on which it is based. We must also take a deep look into how we set priorities and the payback or savings that will take place over time as a result of our investment. When looked at closely this is where large public or government building projects often fall short of our goals. It is not uncommon to find poor decision making and corruption creates projects that are overbuilt, expensive to maintain or have a lifespan far too short to afford a reasonable payback on the funds spent. Worse yet the cost of poorly planned projects can haunt us for years or decades.

The reason infrastructure spending can sometimes be considered part of a false economy is the number of jobs we claim are created from such spending are often only temporary and can be easy to overstate. While infrastructure spending brings the illusion of solid growth it is generally a long-term investment financed by creating debt, this debt often lasts for decades and long after the project is completed. Often the jobs such projects create quickly fade away. This makes it important the money is well spent or the bill will come back to haunt society and the economy over time.

See. This is Third-World Infrastructure!

Those promoting such massive spending often claim America has a third-world infrastructure which is poppycock. While things may not always be perfect, it is far from what much of the world has to deal with. The picture to the right is reflective of such an infrastructure. When things don’t work as planned in America, a lot of other factors are often involved such as a lack of accountability or the people in charge having no skin in the game. As stated before, solid growth is often the result of a slower well planned approach. This means creating clear smart prudent well defined goals and long term strategies on how to meet them. In the long run, a country’s economic policies and its system of taxation are far more important to the economy than government spending.

It is pure folly to think in our age of crony capitalism that infrastructure spending that tends to be poorly spent during the best of times, will be able to rapidly transform our economy in a positive way. Sadly, many people and politicians who devise such projects are more interested in a quick fix today or spurring growth rather than focused on building a better future. Any illusion all this is simple should be dispelled by those already lining up to steal this money. In the current environment, the one thing we can count on is that when all is said and done, the family members and friends of government officials and business leaders will pocket a good share of this money.

Secretary of State Antony Blinken blasted China’s retaliatory sanctions imposed on select US and Canadian officials on Saturday. China’s tit-for-tat move was fully expected given Beijing’s anger and prior threats over the coordinated sanctions out of Western allies the US, UK, EU and Canada on Monday over the human rights abuses in Xinjiang.

“The United States condemns the People’s Republic of China’s (PRC) baseless sanctions on two US Commission on International Religious Freedom (USCIRF) commissioners apparently in retaliation for US sanctions on PRC officials connected with serious human rights abuse in Xinjiang,” Blinken said.

“Beijing’s attempts to intimidate and silence those speaking out for human rights and fundamental freedoms only contribute to the growing international scrutiny of the ongoing genocide and crimes against humanity in Xinjiang,” he added.

Among the US officials hit with a travel ban for China, Hong Kong or Macau – as well as being prohibited from doing business with Chinese citizens or businesses – included the wife of senior senator from West Virginia Joe Manchin. 

Gayle Manchin chairs the Commission on International Religious Freedom. She was targeted by China’s punitive measures along with USCIRF Vice Chair Tony Perkins for their outspokenness on highlighting the Uighur issue and pushing for action.

Canadian Prime Minister Justin Trudeau also reacted Saturday, slamming the sanctions as “an attack on transparency and freedom of expression.”

“We stand with Parliamentarians against these unacceptable actions, and we will continue to defend human rights around the world with our international partners,” he said on Twitter.

China’s sanctions are an attack on transparency and freedom of expression – values at the heart of our democracy. We stand with Parliamentarians against these unacceptable actions, and we will continue to defend human rights around the world with our international partners. https://t.co/gtMleSAaEd

— Justin Trudeau (@JustinTrudeau) March 27, 2021

The Canadians targeted include Michael Chong, vice chair of the Canadian Parliament’s Standing Committee on Foreign Affairs and International Development (FAAE), and eight members of its Subcommittee on International Human Rights.

In naming the sanctioned individuals on Saturday, China’s Foreign Ministry urged the US and its allies to “stop political manipulation on Xinjiang-related issues, stop interfering in China’s internal affairs in any form.” The statement added threateningly, “Otherwise, they will get their fingers burnt.” 

Authored by Paul Joseph Watson via Summit News,

A ‘race and inclusion’ editor was fired by USA Today after she falsely blamed the Boulder supermarket shooting on white people.

“It’s always an angry white man. Always,” tweeted Hemal Jhaveri on Monday evening immediately after news of the shooting broke.

I’m shocked and appalled that the Race and Inclusion editor at a major newspaper, is, in fact, a racist. (And pronouns in bio, of course.) pic.twitter.com/lhP7mKTRj6

— Dave Rubin (@RubinReport) March 23, 2021

The gunman was named the next day as 21-year-old Ahmad Al Aliwi Alissa, a migrant from Syria.

“Hi friends. Some news,” tweeted Jhaveri earlier today. “I am no longer working at For The Win and USA TODAY. Here’s what happened.”

Hi friends. Some news.

I am no longer working at For The Win and USA TODAY. Here’s what happened. https://t.co/0EWw9PQmzq

— Hemal Jhaveri (@hemjhaveri) March 26, 2021

In a Medium piece about her dismissal, Jhaveri explains that even after seeing a picture of the shooter, she tweeted a “dashed off over-generalization” about the culprit.

“It was a careless error of judgment, sent at a heated time, that doesn’t represent my commitment to racial equality,” Jhaveri said.

“I regret sending it. I apologized and deleted the tweet.”

In Jhaveri’s world, “racial equality” apparently means blaming an entire race of people for the actions of one violent Islamist.

However, Jhaveri thinks that her firing wasn’t specifically in relation to that tweet, but to others in which she was “publicly naming whiteness as a defining problem.”

She also referenced a 2017 tweet in which she called out “a reporter’s white privilege” as another reason for her dismissal.

“My previous tweets were flagged not for inaccuracy or for political bias, but for publicly naming whiteness as a defining problem,” Jhaveri said.

“That is something USA TODAY, and many other newsrooms across the country, can not tolerate.”

The now unemployed journalist also claimed she was the victim of racist “microaggressions” carried out by “majority white” USA Today staff during her 8 year run with the media outlet.

Jhaveri also complained about a standards and ethics meeting in which an editor “argued it was OK to deadname transgender people” (the horror).

“I could go on,” Jhaveri said. “Over almost 8 years, plenty of incidents have piled up.”

“This is not about bias, or keeping personal opinions off of Twitter. It’s about challenging whiteness and being punished for it,” Jhaveri wrote.

“Like many places, USA TODAY values ‘equality and inclusion,’ but only as long as it knows its rightful place, which is subservient to white authority,” she added.

By the sounds of it, I’m sure everyone at USA Today will sorely miss Jhaveri’s “inclusive” presence.

Jhaveri wasn’t the only journalist to let slip anti-white racism in the aftermath of the shooting – literally countless others posted similar tweets.

None of them appear to have been fired.

*  *  *

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The average Wall Street bonus rose by 10% in 2020 to $184,000 as the total bonus pool increased by 7% to $31.7 billion, according to annual estimates released today by New York State Comptroller Thomas P. DiNapoli as soaring market volatility and a surge in underwriting generated a record bonanza for US banks. The jump, which was in line with the city’s most recent 9.9% projection, will allow the city to meet or exceed its income tax revenue projections in FY2021.

The New York Comtroller estimated that the 2020 Wall Street bonus pool increased by 6.8 percent to $31.7 billion during the traditional December-March bonus season, up from $29.7 billion in 2019. The report noted that “the growth of the bonus pool is unique after a recessionary event.” Bonuses fell by 33% in 2001 after 9/11 and by 47% in 2008 after the Great Recession. Bonuses have fallen four times since 2008, with an average decline of 12 percent.

Pretax profits in 2020 for the broker/dealer operations of New York Stock Exchange member firms (the traditional measure of securities industry profits) increased by 81 percent to $50.9 billion. It was the fifth consecutive year of growth in profits, which are up 256 percent since 2015. Profitability in 2020 was the second highest on record, trailing $61.4 billion recorded in 2009.

In 2020, profits rose because of an increase in trading and underwriting activity, along with lower interest rates. Market conditions experienced significant upheaval beginning in late February due to the pandemic and related public health and fiscal responses, resulting in a flurry of trading activity, creating higher commissions and trading income. THe Fed must also be thanked: low rates also encouraged borrowing, generating fees and interest expense savings.

Despite the record year, Wall Street bonuses were the same as 2017’s $184,300 while the total bonus pool was lower compared to that year for traders, when it hit a record $32.1 billion. The record for Wall Street comp remains 2006 when the average bonus hit $191,400 with a record bonus pool of $34.3 billion.

“Wall Street’s near-record year shattered all expectations. The early forecast of a disastrous year for financial markets was sharply reversed by a boom in underwriting activity, historically low interest rates, and surges in trading spurred by volatile markets,” DiNapoli said. “Income tax revenue from New York City’s securities industry will help shore up state and city budgets that are strained by steep declines in other industries, but it comes with a caution. New York benefits when Wall Street succeeds, but our economy won’t fully recover until other sectors can reopen and all New Yorkers have a chance to share in economic success.”

The securities industry accounts for 20% of private sector wages in New York City, even though it is less than 5% of private sector employment. DiNapoli estimates that nearly 1 in 10 jobs in the city are either directly or indirectly associated with the securities industry.

In 2020, employment in New York City’s securities industry was 179,900, 5% smaller than 2007 and 11 percent below its peak in 2000. While New York remains the center of the nation’s securities industry, the total share of jobs has declined from 33 percent in 1990 to 19 percent in 2020. During the pandemic, securities firms swiftly enabled employees to work remotely and some opened trading operations in other parts of the country. It remains to be seen if these relocations are temporary. The industry lost 3,600 jobs, 1.9 percent of employment, in 2020.

As a major source of revenue, DiNapoli estimates that the securities industry accounted for 18 percent ($15.1 billion) of state tax collections in state fiscal year (SFY) 2020 and 6 percent ($3.9 billion) of city tax collections in city fiscal year (CFY) 2020.

“New York benefits when Wall Street succeeds,” DiNapoli said, “but our economy won’t fully recover until other sectors can reopen and all New Yorkers have a chance to share in economic success.”

The Comptroller’s estimate is based on personal income tax withholding trends and includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in. The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld.

Authored by Sara Carter via SaraACarter.com,

An Uber Eats driver was killed by two young teenage girls in Washington D.C. after they carjacked his vehicle last Tuesday on March 23, in one of the most shockingly horrifying videos posted on Twitter.

What was even more shocking was that CNN called it an accident and now people are calling out the cable network on its decision to use the term to describe the incident, which was caught on video.

They murdered an Uber Eats driver in DC. pic.twitter.com/Zz7xOu0Piv

— Ian Miles Cheong (@stillgray) March 27, 2021

It is clear that it was no accident. The teenagers took off at high speed with the while the desperate driver was hanging onto his driver’s side door. He had been begging for them to get out. He was eventually thrust from the vehicle into a wall and the National Guard on the street attempted to clear the area. The girls lost control of the vehicle, which ended with it crashing on its side.

Passersby watched in horror and recorded the incident, saying they were calling the police before the vehicle burst off at high speed.

“A man died and two girls, ages 13 and 15, face felony murder charges after police say the girls carjacked the man near Nationals Park on Tuesday, used a stun gun against him and caused the car to flip,” NBC reported.

Here’s the way CNN described it:

“D.C. Police said the girls, 13 and 15, assaulted an Uber Eats driver with a Taser while carjacking him, which led to an accident in which he was fatally injured.”

Police said the girls, 13 and 15, assaulted an Uber Eats driver with a Taser while carjacking him, which led to an accident in which he was fatally injured. https://t.co/N6RpLoTu8x

— CNN (@CNN) March 27, 2021

Accident began trending on Twitter Saturday.

The retweets to CNN reflected the concern that use of the word accident was because the two girls were black and had they been white the situation would have been described differently.

Those black girls murdered him. They deserve to pay for their actions. Change this tweet and stop covering for them.

— Patrice Lee Onwuka 🇫🇰🇺🇸 (@PatricePinkFile) March 28, 2021

I personally am concerned about the continuous push by the left to divide the nation over race. Over the last year, the leftists Democrats and the Biden administration has consistently pushed a racial divide.

CNN is run by apologists for brutality. https://t.co/TTdRJ5ZRtp

— GregGutfeld (@greggutfeld) March 28, 2021

According to reports there is a fundraiser for the family of the Uber Eats driver Mohammad Anwar. He was 66 years old of Springfield, Virginia according to the reports.

Here is the fundraiser for the family of 66-year-old Mohammad Anwar, the Uber Eats driver who was brutally murdered by two girls who were attempting to steal his car while he was working in DC https://t.co/Po0XjbYVGU

— Jordan Lancaster (@jordylancaster) March 28, 2021

The arrests were reported by the D.C. Metropolitan Police Department.

MPD announces arrests in a Homicide and Armed Carjacking (Taser) offense that occurred on 3/23/21 in the 1200 block of Van Street, SE.

Thank you to all who assisted in making DC safer with these arrests!

Release: https://t.co/h2vCGQJ8y1 pic.twitter.com/Itpfuazpsa

— DC Police Department (@DCPoliceDept) March 24, 2021

At the end of the video one of the girls complains that her cell phone is still in the car.

I like the part at the end where one of them is complaining about how her phone is still in the car of the man she and her pal murdered.

— Ian Miles Cheong (@stillgray) March 27, 2021

SaraACarter.com will be following up on this story Sunday with the Washington D.C. Police for the latest but can you imagine the driver’s family getting the call last night that their loved one had been murdered.

Coming a week before Christians around the world celebrate Easter, a packed Roman Catholic church in Indonesia has been targeted by two suicide bombers during a Palm Sunday service. 

It happened on Indonesia’s Sulawesi island and the blast injured at least 20 people. The explosives were reportedly detonated just outside the church, and so far authorities have said the only fatalities were the pair of suicide bombers themselves. 

The AP reports that “video obtained by The Associated Press showed body parts scattered near a burning motorbike at the gates of the Sacred Heart of Jesus Cathedral in Makassar, the capital of South Sulawesi province.”

One of the attackers is believed to have been a woman. Both bombers had arrived on motorbike, and the carnage could have been much worse but they were confronted by security guards based on suspicions, after which they detonated outside the building.

“Rev. Wilhelmus Tulak, a priest at the church, said he had just finished celebrating Palm Sunday Mass when a loud bang shocked his congregation,” the AP writes. “He said the blast went off at about 10:30 a.m. as a first batch of churchgoers was walking out of the church and another group was coming in.”

Over the past years Indonesia’s minority Christians have been subject of multiple Islamist attacks and bombings of churches. Not only is Indonesia the most populous Muslim country in the world, but it has large pockets especially in rural areas where hardline clerics and militant groups hold sway.

Security footage captured the moment of the terrifying explosion…

video dari cctv sekitar gereja katedral makassar pic.twitter.com/za5ztbo2x5

— txtfromsupirpete2 (@SupirPete2) March 28, 2021

Indonesian Christians especially tend to be targeted during their holidays such as Christmas and Easter. The AP reviews: “Indonesia has a history of battling Islamist extremist groups. In December, police arrested the head of Jemaah Islamiyah, an Al Qaeda-aligned terror group most famously known for a 2002 bombing that killed more than 200 people.”

Indonesia’s President Joko Widodo sought to assure that security services will remain on high alert in order to protect places of worship amid the fundamentalist threat: “I call on people to remain calm while worshipping because the state guarantees you can worship without fear,” Widodo said in televised remarks in the wake of Sunday’s blast.

Authored by Lance Roberts via RealInvestmentAdvice.com,

I could almost repeat last week’s market update.

“Over the past week, the market didn’t make a lot of headway, as price rises were limited while intraday dips got repeatedly bought. Such is what we would expect with the ‘money flow’ indicators we have discussed over the last several weeks back on “sell signals.” (Importantly, note that Friday’s early morning decline held the uptrend line from the October lows.)”

This week was much the same story, with stocks slopping around all week. However, on Friday, a late afternoon buying surge sent the market back to all-time highs. Again, as noted, stocks haven’t made a lot of headway since the February peak despite a lot of volatility. But Powell’s promise of continue “easy money” certainly didn’t hurt.

As discussed last week, the “sell signal” triggering on a short-term basis coincides with our concerns of quarter-end rebalancing for pension funds. We discuss the confluence of the long- and short-term indicators and the market’s potential outcome in Thursday’s “3-minutes” video.

I think we saw a good bit of that rebalancing this past week and are likely close to its conclusion. As noted, the positive weekly money flows keep downside risk somewhat mitigated for now. As seen over the last two weeks, dips continue to be bought despite overall price weakness. We also see relatively rapid rotations between the defensive and offensive market sectors. As stated previously, such suggests rallies may remain limited until the subsequent “buy signals” are triggered. 

I suspect we may have some additional quarter-end rebalancing risk early next week. However, buying on Thursday and Friday next week, as second-quarter positioning gets underway, would not be surprising.

As such, hold positions early next week and look for weaknesses to add to exposures as needed.

The Dollar’s Silent Action

Over the last couple of months, we repeatedly discussed the market’s ongoing rise, particularly the “value” rotation, depended on continuing dollar weakness.

The recent rotation to value has been primarily a function of a “weaker dollar,” which boosts commodities. As noted, if economic growth does strengthen, leading to higher rates will attract foreign inflows into the dollar for a higher yield. Such also undermines corporate profitability, given that roughly 40% of corporate profits are from abroad.

The dollar has been gaining strength this year on expectations of more robust economic growth. A break above the 200-dma could accelerate buying as shorts begin to cover their positions. 

The risk not factored into the current “value” trade is the inflation and interest rate increase due to the massive amounts of stimulus. However, that stimulus will quickly flow through the system, leaving consumers tapped by higher inflation and rates eroding disposable income.

In other words, the “value trade” could be just a fleeting as the “economic recovery” itself.

We are firm believers in “value investing.”  However, after years of artificial interventions, accounting gimmicks, share buybacks, and massive balance sheet leveraging, there is little “real” value in the markets currently.

Given that the markets have not been allowed to reset, speculators are now simply chasing the next “momentum” trade called “value.”

Powell’s “Easy Money” Promise

Last week, we discussed Powell’s latest change to monetary policy, or rather, lack thereof.

“The U.S. economy is heading for its strongest growth in nearly 40 years, the Federal Reserve said on Wednesday, and central bank policymakers are pledging to keep their foot on the gas despite an expected surge of inflation.” – Reuters

In other words, despite the Fed’s mandate of maximum employment and price stability, the Fed is opting to let things run ‘hot’ for some time to ensure that growth is ‘sticky.’” That stance makes some sense, given the economy still requires massive liquidity support more than a decade after the financial crisis. As discussed previously in ‘Forever Stimulus:’ 

‘What this equates to is more than $12 of liquidity for each $1 of economic growth.’”

The question that financial markets wanted answering was just how much of a decline in asset prices the Fed will tolerate before providing reassurance.

It only took a 3% clip off of all-time highs before there was a scramble by Fed members to assuage market concerns. My colleague, Mish Shedlock, put together an excellent summary:

“Easy Money” Quotes

• On Thursday, Fed Chair Jerome Powell said even with the economy rebounding faster than expected, any change in monetary policy would happen “very, very gradually over time and with great transparency. Only when the economy has all but fully recovered.”

• Fed Vice Chair Richard Clarida said the central bank would stay in the game until the recovery is “well and truly complete.”

• Fed Governor Lael Brainard promised “resolute patience.”

• San Francisco Fed President Mary Daly said the central bank would show at least “a healthy dose” of patience. ”We are not going to take this punch bowl away.”

• Richmond Fed President Thomas Barkin said that the United States might well see economic growth remain above trend for several years given the amount of pent-up demand. Nonetheless, “What matters is what outcomes we get. I will see where we go and am not trying to overthink the date (of any policy change). I am trying to think about the outcome.”

Not surprisingly, the Fed is very cautious about the financial markets due to its inherent impact on consumer confidence. However, at this juncture, with rates at zero, stimulus checks in the mail, and QE running $120 billion per month, verbal support is all they can do currently.

As Mish concludes:

“The Fed’s 2% inflation target is monetary insanity. Full speed ahead with the stimulus in search of inflation that would be visible to anyone who was not wearing groupthink blinders. Japan has tried what the Fed is doing now for over a decade, with no results.”

Japanification

He is correct. The Fed’s “inflation policy” will likely backfire on them badly. As discussed previously in “Japanification:”

“The U.S., like Japan, is caught in an ongoing ‘liquidity trap’ where maintaining ultra-low interest rates are the key to sustaining an economic pulse. The unintended consequence of such actions, as we are witnessing in the U.S. currently, is the battle with deflationary pressures. The lower interest rates go – the less economic return that can be generated. An ultra-low interest rate environment, contrary to mainstream thought, has a negative impact on making productive investments, and risk begins to outweigh the potential return.”

As my colleague Doug Kass noted, Japan is a template of the fragility of global economic growth. 

“The bigger picture takeaway the fact that financial engineering does not help an economy, it probably hurts it. If it helped, after mega-doses of the stuff in every imaginable form, the Japanese economy would be humming. But the Japanese economy is doing the opposite. Japan tried to substitute monetary policy for sound fiscal and economic policy. And the result is terrible.”

I agree with Doug, as does the data, that while financial engineering props up asset prices, it does nothing for an economy over the medium to longer-term. It actually has negative consequences.

Stock Buybacks Gone Wild

Two weeks ago, I addressed the “Money On The Sidelines” myth stating:

“No, this is not the ‘cash on the sidelines’ argument which I debunked previously. Following the pandemic, corporations drew down credit lines and hoarded cash due to economic uncertainty. Now, with expectations of recovery, corporations are once again beginning to deploy that cash.”

As I stated then, while the mainstream media hope is all this cash will be flowing back into the economy, the reality is that it will primarily go to stock buybacks. Again, while not necessarily bad, it is the “least best” use of the company’s cash. Instead of expanding production, increasing sales, acquiring competitors, or making capital investments, the money gets used for a one-time boost to earnings on a per-share basis.

This past week, share buybacks hit a new record. 

Not surprisingly, the most prominent players in buybacks are the ones that need to subsidize their earnings the most to beat estimates; technology and financials.

Net Purchases

While share buybacks primarily are for the benefit of corporate insiders “cashing out,” it does have the effect of supporting asset prices as well. As I discussed in 2019, when stocks were hitting records amid record share repurchases:

“What is clear, is that the misuse, and abuse, of share buybacks to manipulate earnings and reward insiders has become problematic. As John Authers recently pointed out:

‘For much of the last decade, companies buying their own shares have accounted for all net purchases. The total amount of stock bought back by companies since the 2008 crisis even exceeds the Federal Reserve’s spending on buying bonds over the same period as part of quantitative easing. Both pushed up asset prices.’

In other words, between the Federal Reserve injecting a massive amount of liquidity into the financial markets, and corporations buying back their own shares, there have been effectively no other real buyers in the market.”

I bring this up for two reasons:

1. The buybacks ARE SUPPORTIVE of asset prices in the short-term; and,

2. We just had to “bailout” these companies because they couldn’t weather an economic downturn as they have spent years piling into debt and buying back shares.

While Janet Yellen is okay with the buybacks, as she thinks the banks are healthier now, why doesn’t anyone ask the question:

“If banks are so healthy, why do they need a constant monetary stimulus to remain in business and a bailout every time the economy declines?”

It doesn’t sound very healthy to me.

As noted above, with the “money flow” indicators now negative on both a daily and weekly basis, we are currently holding much higher levels of cash. Last week, we also added a bit of “duration” to our bond portfolio by stepping into TLT to add a hedge against a potential pickup in volatility short-term. 

With the market now about 1/3rd of the way through the correction cycle, there is limited downside risk currently as we remain in the year’s seasonally strong period. However, such doesn’t mean we can’t have a lot of volatility in the meantime.

We remain wary of the rise in yields, and ultimately the dollar, which remains the key to the current market cycle. As discussed last week, the “value trade,” which had become excessively overbought, corrected in earnest this past week. While we may see some “bottom-fishing” in the short-term, there is still substantially more room for a correction given the extension from long-term means. 

Our more significant concern over the next quarter is the extremely high net positioning of institutions in the markets. Historically, “everyone is in the pool,” outcomes have not been all that pleasant. While we continue to remain allocated toward equity risk currently, we do it with a constant eye on the risk. We suspect that we could see a fairly substantial correction during the summer. 

But that is a story we will discuss when we get there. 

Continue to manage risk until we start to see “buy signals” across our indicators once again.

Suez Canal salvage teams have allowed Ever Given’s stern and rudder to move on Saturday night, but it remains unclear when the massive containership will be refloated. 

Suez Canal Authority (SCA) chairperson Lieutenant General Osman Rabie said that the helm of the EVER GIVEN vessel moved 30 degrees in both directions, on Saturday.#Egypt #Suez #SuezCanal #EVERGIVEN #Evergreen #BreakingNews | #قناة_السويس #السفينة_الجائحة #عاجل pic.twitter.com/SELM26xFmK

— Egypt Today Magazine (@EgyptTodayMag) March 27, 2021

Reuters reports salvage teams were “alternating between dredging and tugging on Sunday to dislodge a massive container ship blocking the busy waterway, while two sources said efforts had been complicated by rock under the ship’s bow.” 

The Suez Canal Authority (SCA) released a statement that said the vessel had shifted 27,000 cubic meters of sand around the vessel’s front hull. The ship remains wedged diagonally across a southern section of the canal, blocking one of the world’s most important shipping lanes. 

A Planet SkySat captured video of the ongoing efforts to dislodge the Ever Given from the Suez Canal after it ran aground late Tuesday, blocking all traffic.

Video captured by SkySat on March 27, 2021. pic.twitter.com/vw9xPT1C6j

— Planet (@planetlabs) March 28, 2021

On Saturday night, tugboats were able to shift the vessel 17 meters to the north. In celebration, tugboats sounded their foghorns. 

THE SHIP MOVED!! Although just 17 metres but this is good indication. The tugboats are all sounding their foghorns in jubilation. 👏👏👏#SuezBLOCKED #suezcanel #Suez #Evergreenship #Evergiven pic.twitter.com/YGuJaQv4mQ

— Guy With The Digger At Suez Canal (@SuezDiggerGuy) March 27, 2021

On Sunday, Suez Canal Chief Lieutenant General Osama Rabei held a press conference in Port Said governorate to announce the latest developments. 

Rabei said since the vessel ran aground on Mar. 23, over 321 ships are waiting to transit the canal. 

Refinitiv marine traffic data shows the massive logjam. 

Aerial photos show the impressive buildup of ships waiting to transit the canal.

Reiterating what Rabei said Saturday, he continued to say, “sand storm and the bad weather could not be the main cause of the incident, adding that a human or technical error could be the reason, but there will be an investigation.” 

Egypt Today Magazine reports Sunday that two massive tugboats arrived at the incident area to support the more than a dozen tugboats working to dislodge the container ship.

Egyptian President Abdel Fattah El Sisi told SAC to be prepared for “plan C” of offloading the containers from the stranded vessel. 

The internet wins again…

And the worst-case scenario might play out if the ongoing dredging to refloat the ship assisted with tugboats and high tide doesn’t work, that is, as explained by the chairman, the possibility of lightening the vessel’s load. He hoped the salvage team wouldn’t have to come to that because, as JPMorgan’s Marko Kolanovic told clients Friday, unloading the ship could result in a “ship breaking.” 

As Kolanovic puts it, “another interesting development of this week was the blocking of the Suez Canal. While we believe and hope the situation will get resolved shortly, there are some risks of the ship breaking.”

While there have been positive signs with the vessel slightly moving this weekend, refloating attempts have yet to work. SCA sources told Reuters that rock structures had been found at the ship’s bow, complicating salvage efforts.

As the blockage nears one week, shippers have rerouted vessels around the Cape of Good Hope, adding more than ten extra days to their journeys and extra fuel and labor costs. 

Submitted by OilPrice.com,

Oil product tanker rates have surged almost double since a giant container ship ran aground the Suez Canal on Tuesday, blocking traffic on the vital shipping lane.

The rates for shipping oil products in the Mediterranean region have almost doubled, while shipping companies have started to divert tankers bound for Asia away from the Suez Canal to the longer route around the Cape of Good Hope in Africa.

While efforts continue to dislodge the huge ship the length of the Empire State Building from the Suez Canal, it could be weeks until traffic returns to normal, while nearly three dozen tankers are waiting on either side of the canal to pass through.  

The lower availability of tankers has sent rates surging.

The rates for smaller tankers for shipping in the Mediterranean region jumped first, Braemar ACM Shipbroking told Reuters.

“Lower availability of tankers would lead to a short-term spike in freight rates for European and Mediterranean loadings if tankers unable to transit the canal fail to meet already agreed laycans and charterers have to opt for a flurry of prompt replacements,” oil analytics firm Vortexa said on Thursday.

“Though unlikely congestion lasts this long, if it does persists long enough to lead to diversions, longer voyage lengths and an overall increase in tonne-miles would provide further support for freight rates to rise in the short-term,” Vortexa analysts said.

Since the Suez Canal was blocked, the rate for renting some tankers for shipping oil from the Middle East to Asia has surged by 47 percent to US$2.2 million, Anoop Singh, a Singapore-based tanker analyst at Braemar ACM, told The Wall Street Journal.

Meanwhile, signs have started to emerge that some tanker operators are already diverting Asia-bound Suezmax tankers – the largest tanker that can pass through the Suez Canal and capable of carrying up to 1 million barrels of oil – away from the blocked shipping lane.

The Suezmax tanker Marlin Santorini, traveling from Houston to Asia, abruptly change its course on Thursday, and instead of to the Suez Canal, it headed to the Cape of Good Hope, according to Bloomberg data.

During an interview with Bloomberg TV, Soros Asset Management CIO Dawn Fitzpatrick, one of the most powerful women in the asset-management industry, said her firm is betting on crypto for the long term.

But rather than focusing on the virtual currency itself, Fitzpatrick said she is focusing on “the whole infrastructure” surrounding crypto.

Bloomberg: “Do you have an especially high level of conviction, high or negative, about strategies or themes?”

Fitzpatrick: “We think the whole infrastructure around crypto is really interesting and we have been making some investments into that infrastructure…we think that is at an inflection point.”

These “crypto infrastructure” plays include exchanges, asset managers, custodians and companies that purport to help with taxes on crypto gains. Just yesterday, it was reported that Soros Asset Management has invested in Lukka in the company’s $53 million Series D funding round. Her comments also come just days after Coinbase, one of the most visible crypto firms, and one of the most popular exchanges.

Also this week: Fidelity announced plans to launch its own bitcoin ETF, the firm’s latest step in trying to establish itself as a leading establishment player in helping retirement savers add bitcoin exposure to their portfolios.

Asked about potential threats to crypto’s rise, Fitzpatrick noted that growing interest in digital currencies from central banks might pose a threat, especially as the PBOC continues with its trials, eager to cement its first-mover status by launching the digital yuan, or “e-RMB”, in the next year or so. Jerome Powell and Christine Lagarde have expressed interest in digital currency projects of their own, and earlier this month, John Rubino explained why central banks projects could be the first big test for bitcoin.

Fitzpatrick also described China’s involvement as “a potential threat” to bitcoin. Though she believes BTC will survive.

“The one thing also when you think about bitcoin, central bank digital currencies are going to be here quicker than people expect. China has been running their trial for a while now, and I think there are some strategic reasons why they’re going to be a first mover, and I do think that, from a geopolitical perspective, they want to use that digital currency…they want it to be used around the world.

[…]

“I think it’s a real threat, but I don’t think they’ll be successful at permanently destabilizing bitcoin.

Readers can watch the clip from the interview below: