Pentagon ‘Accidentally’ Tells The Truth About Idlib
The Pentagon has in a rare moment gone off the mainstream narrative script concerning Idlib.
The UK’s Sky News interviewed US coalition spokesman Col. Myles Caggins as part of its coverage focusing on Syrian and Russian forces “indiscriminately” attacking civilians and “bombing hospitals” — however, the Army colonel gave a counter angle, instead focusing on the jihadist groups ruling Idlib as the fundamental cause to civilian suffering there.
The US-led coalition spokesman called Idlib“a magnet for terrorist groups” that are a “nuisance, a menace and a threat”to hundreds of thousands of civilians just “trying to make it through the winter.”
.@OIRSpox Colonel Myles Caggins says the #Idlib province is a “magnet” for terrorist groups who are a “nuisance, a menace and a threat” to the hundreds of thousands of civilians in Syria, who are just “trying to make it through the winter.”
He essentially identified “all” of groups operating on the ground as “terrorists” and a “threat” to the local population in the rare frank commentary:
“There are variety of groups there — all of them are a nuisance, a menace and a threat to… hundreds of thousands of civilians who are just trying to make it through the winter.”
His truthful words are all the more interesting given they come at a moment that CNN and other mainstream networks have “rediscovered” Idlib and “evil Assad and Russia” who they say are attempting to “butcher” children and innocent civilians.
The very network that interviewed the Operation Inherent Resolve spokesman elsewhere on the same day questioned“whether the international community is doing enough to restrain the Assad regime.”
The main anti-Assad group on the ground fighting the Syrian Army has long been al-Qaeda faction Hayat Tahrir al-Sham (formerly Nusra Front), which is a US Treasury designated terrorist organization.
If you watch this piece of naked interventionist propaganda, which begins with Damon’s bonkers claim that a million kids will be murdered, you won’t know why anyone’s fighting in Idlib.
Typically US and UK media reports leave out this crucial fact and nuance altogether, acting as if the whole conflict is as simple as Assad and Putin wishing to kill as many civilians as possible.
Such ultra-simplistic coverage has just been debunked by the Pentagon’s Caggins, who essentially admits that the Russians and Syrian Army are fighting terrorist groups occupying Idlib province.
One of the most common debates that has occurred in the United States for the past six decades is the discussion of the poverty rate. As the narrative goes, the US has an unusually high poverty rate compared to equivalent nations in the OECD (Organisation for Economic Co-operation and Development). Although it’s true that the measure of poverty is flawed, especially when compared cross-nationally, this piece addresses the reasons why the poverty rate in the US in particular has not improved.
If we look at the graph below, we see that official poverty rates fell 44 percent between 1960 and 1969 then spent the next fifty years fluctuating between an 11 and 15 percent poverty rate. It’s this lack of improvement over a five-decade period that is interesting, especially considering that poverty rates had consistently been dropping for over a century.
Incentive Problems
One of the key problems is that during the 1960s the Great Society programs were implemented, particularly the War on Poverty. Over this period, spending on anti-poverty programs exploded five times in inflation adjusted dollars, going from 3 percent of public spending to 20 percent between 1973 and today.
Yet the poverty rate stubbornly ignored all this lucrative expenditure. A key problem is that none of these programs built in an incentive system to graduate people off the assistance. Push systems, systems where a person is ejected from assistance if they prove unwilling to improve themselves, are nonexistent, while pull systems, like job training programs, are ineffective at best. Without these systems, people neither have the tools nor the drive to exit these programs.
These programs, in effect, have generated a culture of dependency. Out of sixty-nine welfare programs that the government operates, just two, EITC (earned income tax credit) and the child refund credit, require any kind of employment and even then are tax discounts. Further, the expansion of various handout programs has successfully eradicated the stigma of public assistance, removing the social pressure to improve and exit. When nearly half the population receives public assistance, not including individuals receiving a paycheck for public sector work, people view it as normal and acceptable.
Public Sector Interference
For those who do legitimately want to break the cycle of dependency, the public sector isn’t making things any easier. One of the major problems with the welfare structure is that it requires funding in the form of taxes, debt, and inflation. The tax structure necessary to fund redistribution schemes naturally creates a Tax Dead Zone. What this dead zone does is create an income range where, after all taxes and benefits are accounted for, earning an extra dollar in gross income results in either no change or a reduction in net income.
Essentially, the extra dollar in earnings is taxed at 100 percent or more, penalizing the current recipient for attempting to exit public assistance. This dead space is nearly $20,000 in range, meaning that if the person estimates they’re unable to consistently earn above roughly $60,000 a year, it’s better to not try and to stick around $18,000 a year since the net benefit structure at $18,000 results in more resources to live on than at $45,000. It is mathematically impossible to design a welfare and tax structure that doesn’t, at some point, penalize a welfare recipient for earning more money.
Another insidious trap is the regulatory structure. People who are current welfare recipients tend to have few or no job skills. This is particularly true for younger individuals who haven’t had a first job yet. What the regulatory state does is drive up the cost of employment. When employment costs are raised, be it through a minimum wage or workplace rules, a higher skill level is demanded from the worker to generate sufficient revenues to justify the cost. If the applicant isn’t sufficiently skilled, they won’t get hired.
Unemployment can create a cycle of further unemployment in this environment. Since skills degrade over time, a person who elects to take twenty-six weeks of paid unemployment instead of a temporary lower-skilled role will be at a major disadvantage. Long-term unemployment becomes a trap, since the individual will no longer possess sufficient skills to cover the cost in wage mandates, taxes, and regulatory impositions of hiring them. If public unemployment benefits didn’t exist and the state didn’t artificially inflate the cost of employment, this individual wouldn’t have been lured into taking a six-month vacation and wouldn’t have struggled to justify the costs of their employment.
What would happen should poverty and homelessness be eradicated? No more $200,000 salary. No more job for tens of thousands of people. No more $8 million temporary tents.
Poverty and homeless assistance has turned into a big business. We now have a Homeless Industrial Complex, and poverty assistance has become big business. The public sector appears to be fully invested in ensuring that poverty and homelessness persist. Without the homeless, what do we need with a Low-Income Housing Institute? Without the poor, how could the Department of Agriculture justify $100 billion a year in the farm bill? There is little evidence that the state cares to solve the issue, only caring to make homelessness and poverty a viable lifestyle choice.
The Future
The state has, by accident or by design, created a permanent underclass. Radical elimination of regulatory impositions and the elimination of the minimum wage are merely the first steps toward solving the problem of poverty. The underlying issue is that the transition into a nation that can truly eradicate poverty will be painful. People trapped in public dependency won’t develop skills overnight, and odds are that they may never develop the skills needed for well-paid employment. Breaking habits is difficult and the sad reality is that catching up is a myth. People behind now will always be behind; if there were a magical means to accelerate skill development, everyone would be using it and the same person would still be behind.
But we can lay the groundwork for future generations not to have to battle through these public sector barriers, and we can return to the poverty improvement rate seen before the Great Society disrupted the process.
Trump Hints At 3rd Ag Bailout, Promises Farmers “Additional Aid” Until Trade Deals “Fully Kick In”
President Trump tweeted a message of support to America’s farmers, pledging to deliver another round of federal bailout money if China, Canada and Mexico fail to immediately satisfy their commitments under their respective trade agreements with the US.
The message arrived in all-caps:
IF OUR FORMALLY TARGETED FARMERS NEED ADDITIONAL AID UNTIL SUCH TIME AS THE TRADE DEALS WITH CHINA, MEXICO, CANADA AND OTHERS FULLY KICK IN, THAT AID WILL BE PROVIDED BY THE FEDERAL GOVERNMENT, PAID FOR OUT OF THE MASSIVE TARIFF MONEY COMING INTO THE USA!
Of course, as many (including us) have noted, American firms are the ones on the hook for the tariffs, and the revenue, while strong, would be nowhere near enough to offset another 11-figure bailout package.
Considering the tweet’s forgiving tone, it looks like this is another classic Trump trade triangulation (where Trump sets the China hawks and pro-trade doves against each other, then stakes out a more moderate path, often via twitter). As we noted earlier, a senior Treasury Department official reportedly told Reuters that the administration is unsympathetic to China’s coronavirus-related troubles, and that it expects Beijing to keep its promise to buy $200 billion in US goods (with a large slug of that slated for ag products) over the next two years.
In essence, this ‘senior official’ was telling Beijing: ‘fuck you, pay me’.
Now, it appears President Trump has decided to soften the message a bit, telling farmers that the federal government will be there to backstop them if China does eventually need a little more time to make good on its commitments, or if the economic blowback is so severe that Mexico and Canada are heavily impacted (which is possible, but then again if that happens Trump might have other problems).
So far, the Trump administration has promised farmers a total of $28 billion in two farm bailouts, with the rest of that money set to be paid by April. Now he’s saying he might do a third if the coronavirus fallout for the global economy is bad enough.
Here’s another thought: As we theorized in our last post, President Trump needs to keep the threat of a trade-deal collapse alive to maintain leverage over China and feed expectations that the Fed could deliver another rate hike if things go poorly, which is why a revival of the reflation trade is in reality the biggest threat to the market right now.
So the message was addressed to American farmers, but the subtext was intended for Beijing.
Interestingly enough, the market dropped after the tweet, a sign of just how sensitive investors are becoming to hints of virus-related economic blowback.
Yield Curve Collapse Accelerates After Fed’s Brainard Hints At Japanification
A month ago, The Wall Street Journal hinted at what’s to come when they reported that, as part of their contingency planning for the next recession, Federal Reserve officials are looking at a stimulus scheme the U.S. last used during and after World War II.
From 1942 until 1951, the Fed capped yields on Treasury securities – first on short-term bills and later on longer-term bonds – to help finance war spending and the recovery.
In fact, most recently, the Bank of Japan employed something known as yield-curve control, holding rates on 10-year government bonds at zero by committing to buy those securities at whatever price is needed. Bond yields and prices move inversely.
At issue is how the central bank should manage a faltering economy when short-term interest rates are already low.
Brainard’s speech specifically champions the so-called Yield Curve Control (YCC) as a new policy tool, in an effort to strengthen the credibility of the forward guidance by implementing interest-rate caps in tandem as a commitment mechanism in the event that the policy rate is pushed to the lower bound.
“Based on its assessment of how long it is likely to take to achieve full employment and target inflation, the committee would commit to capping rates out the yield curve for a period consistent with its expectation for the duration of the outcome-based forward guidance”
“This approach would smoothly move to capping interest rates on the short-to-medium segment of the yield curve once the policy rate moves to the lower bound and avoid the risk of delays or uncertainty that could be associated with asset purchases regarding the scale and time frame”
“I prefer flexible inflation averaging that would aim to achieve inflation outcomes that average 2% over time”
As Viraj Patel noted,
“This is no longer a drill but a fast-becoming reality. Fed can/will employ some form of YCC in the next big easing package it does (sooner than we think). No doubt US bond yields positioning for this…”
And sure enough, yields and the curve are accelerating lower and flatter on the speech…
However, while Brainard admits there are possible financial stability concerns:
Financial stability is central to the achievement of our dual-mandate goals. The new normal of low interest rates and inflation also has implications for the interplay between financial stability and monetary policy.
To the extent that the combination of a low neutral rate, a flat Phillips curve, and low underlying inflation may lead financial imbalances to become more tightly linked to the business cycle, it is important to use tools other than monetary policy to temper the financial cycle.
She seems to suggest that other mechanisms would be used to tamp down excess, such as a counter0cyclical capital buffer.
But, as WSJ notes,there are serious risks (especially if they ever normalized).
If investors grew less willing to buy securities because they thought the Fed might abandon its peg, for example because inflation accelerated unexpectedly, then the Fed would have to increase its purchases to maintain the peg.
This happened in 1947 when the Fed raised its cap on short-term yields while maintaining one for long-term rates. Yields on long-term bonds suddenly looked less attractive to investors, who also may have doubted the credibility of that cap. As a result, the Fed had to purchase more bonds to defend the cap. By the end of 1948, its bondholdings rose to $11 billion from less than $1 billion, accounting for half of its portfolio.
But all of those worries are pointless to a Federal Reserve whose real mandate remains Dow 30k or bust!
Students nationwide raised concerns about universities using biometric surveillance, or facial recognition, on students.
Campus Reform reported last month that at least three California campuses had implemented the software. At the time, the University of San Francisco, the University of Southern California, and Stanford University were confirmed to have systems in place.
Now, after concerns both nationwide and directly from its own campus, the University of California-Los Angeles has publicly stated that it will not move forward with plans to use such technology and has promised to ban the use of any such technology on campus.
“UCLA will not pursue the use of this technology. We have determined that the potential benefits are limited and vastly outweighed by the concerns of our campus community,” said UCLA administrative vice-chancellor Michael Beck, according to CNET.
“This type of invasive technology poses a profound threat to our basic liberties, civil rights, and academic freedom. Schools that are already using this technology are conducting unethical experiments on their students. Students and staff have a right to know if their administrations are planning to implement biometric surveillance on campus,” said Deputy Director of Fight for the Future Evan Greer.
Fight for the future is a nonprofit group that advocates for digital rights and is part of the nationwide Ban Facial Recognition campaign against the use of this technology by universities.
UCLA’s decision comes as other colleges around the country have implemented technologies used to track students’ physical location for the purpose of recording class attendance. The University of Missouri, Syracuse University, Auburn, Central Florida, Indiana have all begun using a smartphone app called SpotterEDU, which the company says is currently being used at 40 schools across the country.
New York Campus Correspondent Justine Murray asked students at Syracuse University what they think about their locations being tracked.
White House Warns Beijing: ‘We Still Expect You To Honor Your Trade Deal Commitments’
A Chinese official recently suggested that Beijing might need some ‘wiggle room’ to fulfill its commitments under the ‘Phase 1’ trade deal. Now, the Treasury Department is hinting that this might not be an option, and that the US expects the Chinese to honor their commitments.
Citing comments from an anonymous ‘senior Treasury official’ (possibly Mnuchin himself), Reuters reports that the US government expects China to honor its commitments, to which it agreed late last year, around the same time that the virus first emerged in Wuhan.
The report arrives just days after the IMF confirmed that the epidemic had already disrupted economic growth in China, and that it could derail already-fragile global growth if it continues to worsen and spread. However, the official narrative in Beijing is that the government is winning the war, and that the brief pullback in Q1 growth will be offset by a recovery later in the year.
If you’re wondering why the administration would allow such a potentially damaging story to surface on a day when stocks are already in the red, well…we wouldn’t blame you…but more on that later.
Yesterday, the market got the first hint at the outbreak’s impact on China’s high-tech manufacturing sector (think Foxxconn, iPhones) with an unprecedented drop in China’s emerging industries PMI.
But so far the fallout has been beyond brutal.
To be sure, the US didn’t rule out all flexibility. While the official said the US still expects China to meet its commitments with the $200 billion figure in total imports, he pointed out that these increases are supposed to be doled out over a “period of time.”
As the Washington Post reminds us, China’s agricultural commitments alone in the Phase 1 deal were pretty specific: Beijing agreed to buy an additional $32 billion over the first two years, $12.5 billion over the $24 billion baseline in 2020, and $19.5 billion over that same baseline in 2021. The ‘baseline’ is $24 billion, the level of Chinese ag purchases in 2017, before Trump decided to instigate his big trade war. The commitments were part of a deal that’s supposed to guarantee an additional $200 billion in ag purchases over the baseline in the years ahead, with Beijing ordering state-controlled firms to carry them out in good ol’ fashioned centrally planned purchases that brings to mind the control economies of the Communist era.
And those ag purchases are only part of the broader $200 billion commitment over two years: Technically, China is expected to purchase an additional $77 billion US goods in 2020 and $123 billion by 2021, compared with a baseline of U.S. imports from 2017
However, almost as soon as the deal was signed, economists and analysts complained loudly that the deal was little more than a PR stunt, and that there was no way Beijing would be able to guarantee such hefty purchases (others argued that Beijing could make it happen). On Thursday, the chief economist at the US Department of Agriculture seemed to suggest that these critics might have been on to something when he released a projection claiming that China would only import roughly $14 billion in ag products during the business year that ends Sept. 30. That’s only a $4 billion increase from a year ago. Purchases were supposed to be between $40 and $50 billion this year and next year.
Perdue made the comments during the USDA’s Agricultural Outlook Forum this week, and during a news conference later on, he added that enforcing the deal “remained a concern” and that the coronavirus outbreak made projections difficult. So far, China has lifted some restrictions, including a live poultry ban (mostly for breeding), affecting the US. But that ban wasn’t related to the trade war; ironically, it was a precaution put in place during an avian flu outbreak.
While some of the discrepancy is related to a mismatch with the calendar year, the chief economist said there are other reasons why the numbers aren’t matching up. Perdue also said that the department wouldn’t just assume that China will meet its commitments and stick those numbers into the projections.
Still, Beijing has offered some hints that it’s following through: This week, the Global Times, a government mouthpiece, reported that China was likely to buy 10 million tons of US liquefied natural gas despite a major glut.
It’s possible we’ll learn more following the G-20 meeting in Riyadh on Saturday and Sunday, where Mnuchin will discuss the economic fallout of the global pandemic with other senior finance ministers of the world’s largest economies. Though representatives from China will be notably absent. Instead, the Treasury official told Reuters that ‘lower level’ officials would represent the finance minister and head of the PBOC. The meeting was supposed to focus on the OECD’s efforts to draft new international tax rules that have become a point of contention between the US and Europe, since they would impact American tech giants like Facebook, Google, Amazon etc.
One would think, with the election coming up in November and Beijing desperate to guarantee higher economic growth, that it’s now more important than ever that the deal holds. But while that may be true, by keeping the threat of collapse and disaster close at hand, Trump and his administration can convince markets that the Fed is ready to step in with another rate cut if things get out of control, virtually guaranteeing (at least, in their estimation) that markets will remain buoyant until November.
However, if markets catch the slightest whiff of reflation between now and then (unlikely given the strength of the dollar and drop in oil prices), they might panic, believing that the Fed has been robbed of its great excuse to keep rates low, and suspecting (possibly correctly) that Chairman Powell won’t stick his neck out for Trump’s sake.
The Collapse Of This Historic Correlation Suggests A Major Crisis Is Imminent
A lot of digital ink has been spilled in recent days over the perplexing reversal of the Yen, which for years was seen by the market as a “flight to safety” trade (as unexpected crisis events would prompt capital repatriation into Japan or so the traditional explanation went), only to suffer a major selloff in the past week as it suddenly started trading not as a funding currency for risk-on FX pairs, but as a risk asset itself.
To us, the reversal is far less perplexing than some smart people make it out to be: with Japan now effectively in a recession following the catastrophic Q4 GDP print which crashed 6.3% annualized, validated by today’s just as terrible PMI report…
… and with Japan now set to suffer a major hit due to the coronavirus epidemic spreading like wildfire across the region, it is only a matter of time before the BOJ follows the ECB and Fed in reversing what has been years of QE tapering, and either cuts rates further into negative territory or expands its QQE (with yield control), and starts buying equities (although with the central bank already owning more than 80% of all ETFs, one wonders just what risk assets are left for the central bank to buy). Needless to say, both of these would have an adverse impact on the yen, and potentially lead to destabilization in the Japanese bond market which for years has defied doom-sayers, but it will only take one crack in the BOJ’s confidence for Japan’s entire house of cards to fall apart. That said, we are not there quite yet.
Furthermore, after the bizarre move in the prior two days, overnight the JPY appears to regain some normalcy, when it traded as it should (i.e., it was once again a risk-off proxy), with the USDJPY sliding during the two major “risk-off” events overnight.
So perhaps the freak move earlier this week was just that: a one off?
But what if it wasn’t, and what if we have indeed entered a new risk/correlation phase for the Japanese yen?
If that is indeed the case, we may be on the verge of a major market crisis as Bloomberg FX strategist, Vassilis Karamanis writes this morning, noting that “the yen’s haven status is taking a hit and it could be the prelude to heightened market turmoil.”
As Karamanis writes, echoing what we said above, “historically, the currency performs well in times of risk-off sentiment as global investors seek refuge and those from Japan repatriate funds.” But as discussed over the past 48 hours, that rule broke down amid the latest wave of market turbulence fueled by the coronavirus outbreak – given that the health scare could have an immediate impact on Japan’s economy, “fueling the risk of a recession”, something we first pointed out on Sunday.
But while all that is obvious, the biggest implication is what this means for markets which tend to trade on well-established correlations, with potentially dire consequences any time a historic correlation breaks.
That’s exactly what appears to be happening now, because whereas the yen is usually inversely correlated to the Australian dollar as the latter is a risk-sensitive currency, as of now, the 200-day correlation between the two currencies is near zero according to Karamanis.
This is notable, because as the Greek FX strategist explains, referring to the chart below, “whenever this correlation breaks down, it is down to tail risks materializing such as the global financial crisis and the euro-area debt turmoil.“
It also tends to spark an immediate central bank “crisis” response: “The last time the correlation turned positive, the Bank of Japan surprised markets by adopting negative interest rates.“
Will this time be different, or will the breakdown of this historic correlation be the harbinger to another global crisis (arguably the result of the coronavirus pandemic) and another major emergency response by central banks? One look at the relentless explosion in the price of gold and the answer is a resounding yes…
Existing Home Sales Slide In January, Prices Jump As Inventories Slump
Following December’s surprisingly large surge, existing home sales were expected to slow in January and it did but less than expected due to an upward revision to December.
Dec existing home sales was revised from +3.6% to +3.9% MoM which cause the January move to modestly beat expectations but still fell (-1.3% MoM vs -1.8% MoM expected) to a 5.46 million annual rate…
Source: Bloomberg
The median existing-home price for all housing types in January was $266,300, up 6.8% from January 2019 ($249,400), as prices increased in every region. December’s price increase marks 95 straight months of year-over-year gains.
“Mortgage rates have helped with affordability, but it is supply conditions that are driving price growth,” Lawrence Yun, NAR’s chief economistsaid.
Total housing inventory at the end of January totaled 1.42 million units, up 2.2% from December, but down 10.7% from one year ago (1.59 million).
The housing inventory level for January is the lowest level since 1999. Unsold inventory sits at a 3.1-month supply at the current sales pace, up from the 3.0-month figure recorded in December and down from the 3.8-month figure recorded in January 2019.
Yun finds the outlook for 2020 home sales promising despite the drop in January.
“Existing-home sales are off to a strong start at 5.46 million.” Yun said.
“The trend line for housing starts is increasing and showing steady improvement, which should ultimately lead to more home sales.”
Single-family home sales sat at a seasonally-adjusted annual rate of 4.85 million in January, down from 4.91 million in December, but up 9.7% from a year ago. The median existing single-family home price was $268,600 in January 2020, up 6.9% from January 2019.
Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 610,000 units in January, down 1.6% from December but 8.9% higher than a year ago. The median existing condo price was $248,100 in January, an increase of 5.7% from a year ago.
Regional breakdown
Sequentially, January sales only increased in the Midwest, while year-over-year sales are up in each of the four regions. Median home prices in all regions increased from one year ago, with the Northeast region showing the strongest price gain.
January 2020 existing-home sales in the Northeast saw no movement, recording an annual rate of 730,000, which is up 7.4% from a year ago. The median price in the Northeast was $312,100, up 11.5% from January 2019.
Existing-home sales increased 2.4% in the Midwest to an annual rate of 1.29 million, which is up 8.4% from a year ago. The median price in the Midwest was $200,000, a 5.4% increase from last January.
Existing-home sales in the South grew 0.4% to an annual rate of 2.38 million in January, up 11.7% from a year ago. The median price in the South was $229,900, a 6.3% increase from this time last year.
Existing-home sales in the West fell 9.4% to an annual rate of 1.06 million in January, an 8.2% increase from a year ago. The median price in the West was $393,800, up 5.2% from January 2019.
And of course, with interest rates crashing to record lows, one would imagine mortgage rate collapses will spark renewed interest in at worst refis, and at best more buying.
“The Intelligence Doesn’t Say That”: National Security Official Pushes Back On 2020 Russian Meddling Report
On Thursday, the New York Times published an account of a briefing between an aide to outgoing National Intelligence director Joseph Maguire and the House Intelligence Committee claiming that Russia was meddling in the 2020 election, and was “trying to get Trump re-elected.”
Not so, according to a national security official – who told CNN‘s Jake Tapper that the aide, Shelby Pierson, may have mischaracterized the intelligence community’s findings during the heated meeting.
“A national security official I know and trust pushes back on the way the briefing/ODNI story is being told, and others with firsthand knowledge agree with his assessment,” tweeted Tapper on Friday, adding that a more reasonable interpretation is that Russia viwes Trump as a dealmaker they can work with – “not that they prefer him over Sanders or Buttigieg or anyone else.”
2/ “What’s been articulated in the news is that the intelligence community has concluded that the Russians are trying to help Trump again. But the intelligence doesn’t say that,” the official says…
4/ “It’s more that they understand the president is someone they can work with, he’s a dealmaker. But not that they prefer him over Sanders or Buttigieg or anyone else. So it may have been mischaracterized by Shelby” at the House Intel briefing last week…
6/ “The President was upset that he had to hear about an intelligence conclusion from a Member of the House Republicans rather than from the intelligence community. So he was out of joint with Maguire on that process.”
Treasury Yields Plunge To Record Lows As US PMI Collapses Into Contraction
Markit’s US Manufacturing bucked the surprising surge in ISM Manufacturing in January and preliminary February data was expected to confirm this slowing trend (with Services steadily expanding).
U.S. Feb. Services Flash PMI 49.4; Est. 53.4
U.S. Feb. Flash Manufacturing PMI 50.8; Est 51.5
U.S. Feb. Flash Composite PMI 49.6 vs 53.3
And as the chart shows, while ‘soft’ survey data had been rising, ‘hard’ data – actual economic flows – has been weakening for 4 months, and February appears to have been catch-down time!
Source: Bloomberg
New orders received by private sector firms fell for the first time since data collection began in October 2009. The fractional decline in new business stemmed from weak client demand across the service sector and the slowest rise in manufacturing new order volumes for nine months. Private sector companies continued to struggle to attract foreign client demand as new export orders fell for the second month running.
Finally, we note that the composite output at factories and service providers fell by 3.7 points to 49.6, the lowest level since October 2013, when the U.S. government shut down.
“The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions,” IHS Markit economist Chris Williamson said in a statement.
“With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders.
“Total new orders fell for the first time in over a decade. The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty
The last time PMI crashed here, GDP went negative in Q1 2014 (-1.1%)…
The composite PMI in Germany fell trivially to 51.1 in February. from 51.2 in January, above the consensus, 50.7.
The coronavirus effect is nowhere to be seen in these data…
There is a catch, though. Markit notes that half of the increase in the manufacturing PMI was attributed slower delivery times.
Normally, such evidence of supply-side tightening is bullish—signalling accelerated activity — but respondents specifically noted that this was related to disruptions in China due to the coronavirus. Specifically:
“The ‘flash’ seasonally adjusted Suppliers’ Delivery Times Index was at 47.0 in February. down from 55.1 in January. A reading below 50 signals deterioration in supplier delivery times. In the calculation of the headline Manufacturing PM!. the supplier delivery times index is inverted.”
In other words, the PMIs appear to be designed so as to import a supply-chain disruption from the coronavirus as a bullish signal. Needless to say: it isn’t! With that in mind, it’s difficult to interpret the evidence of further easing in the rate of contraction and new orders as a good sign. The main risk is that production lines simply grind to a halt, even as new orders keep coming due to disruptions of the supply side.
…It’s ridiculous. Not exactly economists’ finest hours here, building up to the PMIs as if they were the litmus test for all this, and now we can just put them in the bin because of the supply-tightening/headline up effect.
Basically, we need to watch supply-side factors/input price inflation now. The problem is that we have even worse real-time data here than on the demand side.
And just like that – we now know all PMIs for the next few months are utterly useless (and in fact misleading – not necessarily by intent) due to this is inversion of supply chain crises into a bullish signal.
All of which has sent the 30-year US Treasury yield to an all-time record low of 1.89%…
