Category: zerohedge

Update (1020ET): The Wall Street Journal’s ‘speculation’ that the euphoria will continue in stocks is falling short this morning as equity markets give up anticipatory gains overnight…

Meanwhile, Bitcoin is roaring back, up over $4,000 from early morning crash lows, back above $32,000…

As we mocked overnight…

YTD return:

S&P500: 0.0%
Bitcoin 13.0%

Time for an emergency @federalreserve meeting

— zerohedge (@zerohedge) January 3, 2021

*  *  *

Framing the bubble in almost every asset class an “everything rally” is perhaps the most obvious (and most ignored by bubble-buyers) headline of the year – second maybe only to The Federal Reserve Presents… the “everything rally”.

Regardless that is the name the Wall Street Journal has bestowed on a 9 month rally that it thinks could wind up continuing, with steam, into 2021. A new article out over the weekend speculates that the euphoria heading into the end of 2020 is going to bode well for investors heading into 2021. 

The S&P finished the year up 68% from its 52 week lows. Oil dropped below $0 for the first time in April but now stands at about $50 per barrel. In fact, after the March collapse in the market as a result of the coronavirus news, everything from equities, to global stocks, to bonds, to bitcoin and raw materials have all rallied. 

Well, everything except the U.S. dollar…

But that’s apparently OK, because heading out of a rally fueled by Central Banks, investors are expecting the quashing of coronavirus to give markets yet another shot in the arm. WSJ notes that bearishness, as measured by organizations including the American Association of Individual Investors, is at “multiyear lows”.

Emily Roland, co-chief investment strategist at John Hancock Investment Management said: “Investors can’t get enough risk – whatever it is. Momentum is a powerful force, and we don’t want to fight it.”

Her firm is increasing holdings in stocks and staying neutral in bonds. Roland, like many others, expects “ultralow” interest rates to continue supporting bonds and encouraging risk. 

Meanwhile, the unknowns related to Covid-19 are slowly passing, as are political unknowns. The result of the runoff races in Georgia this week remains the one political unknown the market may not have accounted for yet. With those out of the way, potentially as early as Spring, the euphoria in the market could easily persist . PMs are adjusting their strategies accordingly, and there appears to be a bull for every part of the market still. 

Meghan Shue, head of investment strategy at Wilmington Trust, increased her holdings in U.S. stocks and said: “We’re really encouraging our clients to look beyond.”

Lee Baker, president of Apex Financial Services in Atlanta, is pushing banks and travel stocks. “The expectations about certain [other] segments are overcooked,” he said. 

Michael Kelly, global head of multiasset at PineBridge Investments has favored emerging markets. “Those markets have a lot more recovery potential,” he told the WSJ.

Finally, Victoria Fernandez, chief market strategist at Crossmark Global Investments, says she likes “faster-growing” companies tied to technology. But ultimately, even her bull case includes some obvious caveats. She concluded: “You have to be careful on some of these reopening trades that the sentiment is not already priced in.”

Maybe she didn’t get the memo that price discovery no longer exists. 

…except in Crypto?

Update (1100ET): The Wall Street Journal’s ‘speculation’ that the euphoria will continue in stocks is falling short this morning as equity markets give up anticipatory gains overnight…

Meanwhile, Bitcoin is roaring back, up over $4,000 from early morning crash lows, back above $32,000…

As we mocked overnight…

YTD return:

S&P500: 0.0%
Bitcoin 13.0%

Time for an emergency @federalreserve meeting

— zerohedge (@zerohedge) January 3, 2021

*  *  *

Framing the bubble in almost every asset class an “everything rally” is perhaps the most obvious (and most ignored by bubble-buyers) headline of the year – second maybe only to The Federal Reserve Presents… the “everything rally”.

Regardless that is the name the Wall Street Journal has bestowed on a 9 month rally that it thinks could wind up continuing, with steam, into 2021. A new article out over the weekend speculates that the euphoria heading into the end of 2020 is going to bode well for investors heading into 2021. 

The S&P finished the year up 68% from its 52 week lows. Oil dropped below $0 for the first time in April but now stands at about $50 per barrel. In fact, after the March collapse in the market as a result of the coronavirus news, everything from equities, to global stocks, to bonds, to bitcoin and raw materials have all rallied. 

Well, everything except the U.S. dollar…

But that’s apparently OK, because heading out of a rally fueled by Central Banks, investors are expecting the quashing of coronavirus to give markets yet another shot in the arm. WSJ notes that bearishness, as measured by organizations including the American Association of Individual Investors, is at “multiyear lows”.

Emily Roland, co-chief investment strategist at John Hancock Investment Management said: “Investors can’t get enough risk – whatever it is. Momentum is a powerful force, and we don’t want to fight it.”

Her firm is increasing holdings in stocks and staying neutral in bonds. Roland, like many others, expects “ultralow” interest rates to continue supporting bonds and encouraging risk. 

Meanwhile, the unknowns related to Covid-19 are slowly passing, as are political unknowns. The result of the runoff races in Georgia this week remains the one political unknown the market may not have accounted for yet. With those out of the way, potentially as early as Spring, the euphoria in the market could easily persist . PMs are adjusting their strategies accordingly, and there appears to be a bull for every part of the market still. 

Meghan Shue, head of investment strategy at Wilmington Trust, increased her holdings in U.S. stocks and said: “We’re really encouraging our clients to look beyond.”

Lee Baker, president of Apex Financial Services in Atlanta, is pushing banks and travel stocks. “The expectations about certain [other] segments are overcooked,” he said. 

Michael Kelly, global head of multiasset at PineBridge Investments has favored emerging markets. “Those markets have a lot more recovery potential,” he told the WSJ.

Finally, Victoria Fernandez, chief market strategist at Crossmark Global Investments, says she likes “faster-growing” companies tied to technology. But ultimately, even her bull case includes some obvious caveats. She concluded: “You have to be careful on some of these reopening trades that the sentiment is not already priced in.”

Maybe she didn’t get the memo that price discovery no longer exists. 

…except in Crypto?

Summary:

• US begins 2nd doses
• US cases top 200K
• Global cases top 85MM
• Officials play catch-up with vaccine rollout
• UK to delay second vaccine doses
• Scotland reimposes lockdown
• Germany to extend lockdown
• Fauci says possible vaccines become mandatory
• Greece announced 1-week lockdown
• Norway’s PM announces fresh restrictions
• South Korea widens ban on private gatherings
• Norway imposes new restrictions
• Thailand sees 745 new cases Monday

* * *

Three weeks have passed since the US approved the Pfizer-BioNTech COVID-19 vaccine for emergency use, and on Monday, the health-care workers who received the vaccine during the first day of the rollout are scheduled to receive their second dose – even as OWS head Moncef Slaoui floats the possibility to stretch the supply of the Moderna vaccine by dividing each dose in half (trial data suggests a small group of patients who accidentally received a half-dose of the vaccine during the first jab actually saw higher efficacy rates).

Three weeks ago, the first #covid19 vaccines were administered in the US. A number of health-care workers are expected to get their 2nd shot today. The initial rollout is behind schedule, but experts suggest we’ll see the pace pick up this month: https://t.co/624M7IPaMz

— Meg Tirrell (@megtirrell) January 4, 2021

Then again, the slower-than-expected rollout of the coronavirus vaccine in the US isn’t due to a dearth of supplies: For whatever reason, many US states have struggled in dispensing the vaccines – in some cases, because health-care workers and others who are first in line for the vaccine are refusing to take it. Meanwhile, in Israel, the country with the highest vaccination rate relative to its population, hundreds of patients were sickened after receiving their first dose. A California nurse in San Diego

As the vaccine rollout lags targets set around the world, governments in the UK and US are exploring decidedly incompatible strategies for alleviating the issue. In the UK, authorities have decided to delay the second round of shots in favor of trying to vaccinate as many people as possible during the first round of shots. Even as their colleagues in the US dismiss this strategy as wrong-headed. Dr. Anthony Fauci told CNN late last week that he “would not be in favor of doing that…we’re going to keep doing what we’re doing.

Having approved the first jabs for emergency use more than a week before the US, the UK is already ahead of its rivals when it comes to the number of people being vaccinated. And now that the UK has become the first country to approve the Astrazeneca-Oxford jab, millions of doses of that vaccine have already been shipped.

On Monday morning, former FDA Director Dr. Scott Gottlieb appeared on CNBC to reassure the public that there’s no need to stockpile doses of the vaccines, just before Moderna held a press briefing on Monday morning to publicly raise its year-end target for the number of vaccines that will be rolled out this year.

It’s just the latest reminder that sometimes, the “science” isn’t always clear.

In the US, the number of new cases reported Monday topped 200K again as delays in reporting figures started to alleviate. The official number for the last 24 hours was closer to 300K, but nearly 1/3rd of those cases were delayed reports from over the holiday. Deaths, however, dipped back below 2K.

As the number of confirmed COVID-19 cases tops 85MM, here’s some more COVID-19 news from overnight and Monday morning.

* * *

NIH’s Dr. Fauci said it is possible that COVID-19 vaccines will become mandatory in order to travel to other countries or attend school (Source: the New York Post).

England’s chief medical officer warned that COVID-19 vaccine shortages will be a problem for months as the government faced a revolt by GPs over cancelled second jabs for elderly patients, although other reports later noted that drug manufacturers hit back at claims by ministers regarding vaccine shortages (Source: Bloomberg).

Irish PM Martin said that Ireland will revert to Level 5 restrictions for a minimum of a month in an effort curb the spread.

Greece announced a one-week strict COVID-19 lockdown beginning on Sunday, in an effort to ease the pressure on the health system (Source: Newswires).

Norway’s PM announced last night that the country will impose fresh restrictions including a nationwide ban on serving alcohol in bars and restaurants for 2 weeks, while also calling for people to not invite guests at home (Source: Newswires).

Shenyang in northeast China suspended schools and closed businesses in areas where 100,000 people were told to stay home, after the city reported three new COVID-19 cases. Meanwhile, Beijing is to extend its quarantine period from 14 to 21 days for new arrivals to prevent imported cases (Source: Chinese press).

South Korea will widen the ban on private gatherings larger than four people nationwide and will extend social distancing rules in Seoul and neighbouring areas until January 17th (Source: Bloomberg).

NYC’s rolling seven-day average of positive tests topped 9% for the third straight day (that’s compared with just 2% in November). New hospitalizations increased to 213 and new cases rose to 3,885, based on a seven-day average, Mayor Bill de Blasio tweeted (Source: NYC/Bloomberg).

Thailand reported 745 new coronavirus cases on Monday as a surge in infections prompted authorities to impose fresh curbs in some of the most-populous regions including capital Bangkok (Source: Bloomberg).

Residents of Tokyo and 3 surrounding prefectures that will likely be subject to the government’s state of emergency order will be asked to remain at home after 8pm from Friday. Governors of Tokyo and Saitama, Chiba and Kanagawa prefectures will make final decision tonight. Like other previous Japanese restrictions, the request will not be enforced, though it will run though at least the end of January (Source: Nikkei).

* * *

Following reports over the weekend about looming lockdowns in Europe, Scotland’s leaders have just announced new lockdown measures that will take effect at midnight Tuesday morning. They said the restrictions will be similar to the March lockdown, with everything from retailers to gyms to spas to cinemas set to be closed. Meanwhile, UK PM Boris Johnson is expected to announce an expansion of Tier 4 restrictions during an address to the nation at 2000 local time.

Meanwhile, Bild reports that the German government and the 16 federal states have already agreed to extend the the current lockdown until Jan. 31 to curb the spread of the coronavirus pandemic. The anonymously sourced report landed more than 24 hours before Merkel is slated to speak with the leaders of the 16 states. Germany imposed a second hard lockdown on Dec. 16, closing schools, shops and restaurants after earlier attempts at a partial lockdown launched in early November did little to stifle new infections. It imposed a second hard lockdown on Dec. 16, closing schools, shops and restaurants after a partial lockdown introduced early November did not bring the hoped-for reduction in new infections.

By Michael Every of Rabobank

Failure Upwards

So, first day back to work in 2021. First things first: how can one summarize 2020? The first instinct is perhaps the special swearing symbols used in the Asterix comics. After careful consideration, however, the best article I have found to explain what happened last year was this, from Unherd Magazine: 2020: the year the elites failed upwards. A few choice highlights include:

Elite institutional authority is everywhere collapsing in a bonfire of self-immolation even as elite institutions become ever more powerful….The iron law of the American elite is that as long as everyone fails together, everyone fails upwards. Regime loyalty is the herd immunity of the ruling class, a protection against the consequences of their own failures. This is why the loss in authority that manifests in the “crisis of experts”, while real, doesn’t diminish their power. But it’s also why the regime has to become more ideological and nakedly coercive — for a kingdom of experts without reliable expertise falls back on propaganda and state power.

There are so many examples of this to draw from that one does not know where to begin. Yet how could we not look at markets too? How *they* continue to fail upwards! Risk could not be much more on, and the USD remains as unloved to start 2021 as it was to end 2020.

Of course, everything else is still just failing. The new UK variant of the virus is spreading at an exponential rate to the extent that lockdowns are likely to be necessary until Easter. There is even a warning that the South African variant may be immune to the vaccine. Certainly, a slow vaccine roll-out underlines the risks that nature will stay one step ahead, and consequently the global economy several steps behind.  On which, it’s curious to see how national approaches to vaccination vary.

In the UK, a 21-item list of certification, including human resource rather than medial expertise, is required before a retired medical professional can volunteer; in the US, Forbes reports over half of sampled healthcare workers are refusing the vaccine, and the New York distribution is deeply politicized; and in France a panel of 35 citizens will be chosen at random today to make up a “citizen collective” responsible for vaccine strategy(!) In short, none of these countries seem likely to be vaccinated to the required level for many months and the mutation clock is all the time ticking away. By contrast, Israel has already vaccinated 10% of its population, to the extent that it is now running out of vaccine: one anecdote is of a nurse with a spare dose left at the end of the day seeing a pizza-delivery guy walking past and giving him the shot rather than wasting it.  

Meanwhile, China is seeing more pockets of Covid outbreaks again, as is South Korea and Thailand. Regardless, markets continue to fail upwards as exponentially as the virus cases. Please don’t focus on a likely Thai lockdown; or The Australian newspaper explosively repeating a US accusation about Covid’s suspected origins; or that the hoopla around the Ant Financial IPO has gone from ‘it’s coming!’ to ‘it’s on hold’ to ‘it’s cancelled’ to ‘it’s being broken up’ to ‘Jack Ma is missing’. Just keep taking that risk!

Which is of course what the EU did at the end of 2020 when it (or rather Angela Merkel) decided to show “strategic autonomy” means snubbing the incoming Biden administration that provides its defence to agree a huge bilateral investment deal with China (the CAI). The criticism of this economic, financial, political, geostrategic, and even moral logic has been withering: as one expert bewailed to me, “We failed to prevent German big business co-opting German foreign policy, and German foreign policy co-opting EU foreign policy.” Indeed, unless the European Parliament pushes back, EU Merkelcantilism it is, and all the more so now the fly-in-the-ointment UK has finally left. At least that backs a stronger EUR short term –as in Japan, which is not a compliment– but critics suggest a far weaker EUR –and EU– are both likely over the longer term:

International trade and investment — for all the conceits that many economists and lawyers seem to have about these issues — are inherently political. And they have become even more political in the context of China’s rise: Not only because of the use and abuse of multilateral rules by non-market economies (which is what defenders of CAI tend to focus on), but also because of the fundamental difference in values that should define the goals of multilateral cooperation. Contra the inclination of technocrats to reduce values to labour and environmental standards, values include first-order principles of democracy, liberalism, pluralism, and more. And international trade and investment, especially in a world where interdependence can be weaponised, have become just too important to be left in disciplinary silos or technocratic bubbles. CAI is not “just” a matter of investment, or even standards; it is a matter that has potentially serious security implications. It begins to dramatically alter who we are as a society, community and people. China has, perhaps, more than ever in 2020, given Europe ample evidence of these differences.

Anyway, that was 2020, the year of upwards failure: what does this year hold? 2021 starts with the same fears about military action vs. Iran as 2020 did – which will likely be ignored as they were a year ago unless Iran does something very dangerous. This week will then see quite the US political show with huge consequences for 2021 and 2022. Tomorrow has Georgia’s two run-off senatorial elections that will determine who controls the senate: and then Wednesday has what is likely to be a circus in D.C., which deserves more than the space left here to cover, ahead of the end of US President Trump’s term in office on 20 January..

The future is then unwritten. However, calendar 2021 spookily corresponds exactly to….1937. A year where in the US, The Memorial Day Massacre saw ten union demonstrators shot by the police, and where President FDR tried (and failed) to pack the Supreme Court to get New Deal legislation through Congress; where in the USSR, Stalin carried out his Great Terror, which killed over a million loyal Soviet citizens; where in Germany, Hitler started to talk about building “lebensraum”, not just the new roads VW was formed to build a “people’s car” to drive on; where Japan invaded China to no major Western resistance and carried out the Massacre of Nanking; and where in the UK Neville Chamberlain became Prime Minister – the guy who a year later promised “peace in our time”. Oh, and where the Fed raised rates, wrongly, pushing the US economy back into recession again, and dragging the S&P down around 40%.

Luckily, the latter two are risks we don’t face in 2021 given our dedicated policy of elite failure upwards – so why worry about anything else, eh? Happy New Year!     

Despite plunging ‘hard’ economic data and viral lockdowns across the nation, December’s preliminary tumble in Manufacturing PMI has been (rather stunningly) revised to a further improvement.

From a decline to 56.5, and against expectations of a further drop to 56.3, the final Dec print for Manuacturing PMI rose to 57.1 – its highest since September 2014!

Source: Bloomberg

As Markit notes below, the shipping delays could be the reason for the surprise rise as this is embedded in their model as a positive (so much demand, they can’t keep up), when in this case it is nothing of the sort as pandemic disruptions are to blame!

Chris Williamson, Chief Business Economist at IHS Markit said:

“Manufacturers reported a strong end to 2020, with production and order books continuing to grow, albeit with the rates of expansion slowing as a result of rising virus case numbers and related restrictions. Producers of consumer goods reported a marked downturn in orders and production, reflecting weakened consumer expenditure amid the resurgence of COVID-19.

“More encouragingly, producers of machinery and equipment reported sustained strong demand, suggesting companies are increasing their investment spending. Producers of inputs to other factories also fared well, as manufacturers sought to restock their warehouses.

“However, the survey also highlights how manufacturers are now not only facing weaker demand conditions due to the pandemic, but are also seeing COVID-19 disrupt supply chains further, causing shipping delays. These delays are limiting production capabilities as well as driving producers’ input prices sharply higher, adding to the sector’s woes.

“Firms nevertheless remain highly positive about the outlook for the year ahead, anticipating that vaccine roll-outs will help drive a further recovery in 2021, although some of November’s post-election exuberance has been tamed by the recent rise in virus case numbers, suggesting the near-term outlook will remain challenging.

Finally, we note that the hope-filled surge in ‘soft’ survey data is rapidly falling back to the ugly reality of ‘hard’ data’s slump… and we suspect if Markit’s model interpreted the rise in shipping delays as the negative that it is… this survey data would be even worse!

Source: Bloomberg

We’re gonna need more “stimulus”….

It’s straight off to the races in the first full week of 2021, as the market euphoria from 2020 continues amid a fresh newsflow avalanche which starts with the OPEC+ alliance energy ministers holding their monthly virtual gathering Monday to decide whether to add as much as 500,000 barrels a day to production. Traders will also focus on the FOMC minutes due out Wednesday and the US payrolls report for December due on Friday. It will be very busy on the political front in the US, where Tuesday sees the state of Georgia hold a run-off election for two U.S. Senate seats which will decide control of the chamber, while on Wednesday, Congress will meet to count electoral votes and declare the winner of the 2020 Presidential election Wednesday.

Looking at the week’s key events, DB’s Henry Allen agrees that US politics will dominate the calendar, with tomorrow’s runoff elections in the state of Georgia determining which party will control the Senate over the coming 2 years. This is an important one for markets, since the results will affect how much of President-elect Joe Biden’s agenda will be able to pass through Congress, as well as the size of any fiscal stimulus package. As a reminder, in November’s election the Republicans won 50 seats in the Senate to the Democrats’ 48, but 2 seats in Georgia were left unfilled because candidates in that state have to get an outright majority of the votes to get elected, meaning a runoff election is being held. If the Democrats manage to take both seats, the chamber will be split 50-50, and since the Vice President casts the deciding vote, the Democrats will have control following the inauguration of Joe Biden and Kamala Harris on January 20. However, if the Republicans take just one seat or both, that means Biden will have to deal with a Republican-controlled Senate for at least the first two years of his term.

The polls have been on a knife-edge throughout, but the latest polling average from FiveThirtyEight indicates that the Democrats have pulled ahead in recent days with a narrow lead of +1.8pts and +2.2pts in the two races. If they did manage to win both and hence control of the Senate, our US economists think that another large fiscal stimulus package would be likely, possibly including some of the more structural priorities of the new administration such as infrastructure, and thus would represent a material upside to their GDP forecast for this year. However, if they fail to win both, then a Republican-controlled Senate would mean that they can be expected to block the vast majority of Democratic priorities. Either way, the results are unlikely to be known tomorrow, since the state can’t start counting the mail-in ballots until Election Day.

Staying on US politics, on Wednesday the joint session of Congress will take place where the electoral votes from the presidential election are formally counted. Normally this is just procedural, but this year a number of Republican senators have said that they’ll vote to challenge the certification of the results, with a group of Republican senators saying that if an election commission weren’t created to investigate claims of fraud, then they “intend to vote on January 6 to reject the electors from disputed states”. However, given the Democrats control the House and multiple Republican senators have condemned these attempts, this challenge isn’t expected to go anywhere.

Rabobank’s Eric Peters is even more laconic:

This week will then see quite the US political show with huge consequences for 2021 and 2022. Tomorrow has Georgia’s two run-off senatorial elections that will determine who controls the senate: and then Wednesday has what is likely to be a circus in D.C., which deserves more than the space left here to cover, ahead of the end of US President Trump’s term in office on 20 January..

On the data front, the two highlights this week are likely to be the December PMIs today and on Wednesday, as well as the US jobs report on Friday. Starting with the PMIs, as mentioned we’ve already had some of the manufacturing numbers from Asia overnight, with the full picture from Europe and the US expected later, before we get the services and composite numbers mid-week. Any surprises should be limited though, given we’ve already had the flash PMIs for a number of the major economies before Christmas, with the flash Euro Area composite reading still at a contractionary 49.8 reading.

Elsewhere, the final US jobs report of 2020 is expected by our economists to show just a +50k increase in nonfarm payrolls, which would be the weakest monthly job growth since the pandemic began, and coincides with renewed lockdown measures in numerous states in response to the recent surge in cases. They expect that the unemployment rate will tick up to 6.8%, in its first increase since the first wave of the pandemic back in April.

Finally, there isn’t a great deal on the central bank front, with no major monetary policy decisions this week. However, we will get the minutes of the December Fed meeting on Wednesday, and hear from a number of speakers including Fed Vice Chair Clarida and Bank of England Governor Bailey over the coming week, along with two new voting members on the FOMC in 2021, in Chicago Fed President Evans and Atlanta Fed President Bostic.

A day-by-day calendar of events, courtesy of Deutsche Bank

Monday January 4

• Data: December manufacturing PMIs from Italy, France, Germany, Euro Area, UK, Brazil, Canada, US and Mexico, UK November mortgage approvals, US November construction spending
• Central Banks: Fed’s Evans, Bostic and Mester and ECB’s Lane speak

Tuesday January 5

• Data: France preliminary December CPI, Germany December unemployment change, Euro Area November M3 money supply, US December ISM manufacturing
• Central Banks: Fed’s Evans and Williams speak
• Politics: Georgia runoff elections to the US Senate

Wednesday January 6

• Data: December services and composite PMIs from Japan, China, India, Italy, France, Germany, Euro Area, UK, Brazil and US, France December consumer confidence, Germany preliminary December CPI, US December ADP employment change, November factory orders, final November durable goods orders, nondefence capital goods orders ex air
• Central Banks: FOMC December meeting minutes released, Bank of England Governor Bailey speaks
• Politics: Joint Session of US Congress meets to count electoral votes and declare results

Thursday January 7

• Data: Germany November factory orders, December construction PMI, UK December construction PMI, Italy preliminary December CPI, Euro Area November retail sales, December CPI estimate, final December consumer confidence, US weekly initial jobless claims, November trade balance, December ISM services index
• Central Banks: Fed’s Harker, Bullard and Evans speak

Friday January 8

• Data: Japan preliminary November leading index, Germany November industrial production, France November industrial production, Euro Area November unemployment rate, Italy preliminary November unemployment rate, Canada December net change in employment, US December change in nonfarm payrolls, unemployment rate, average hourly earnings, final November wholesale inventories
• Central Banks: Fed Vice Chair Clarida speaks

Finally, looking at just the US, here is a breakdown of key events this week via Goldman, which writes that the key economic data releases this week are the ISM manufacturing report on Tuesday, the jobless claims and ISM non-manufacturing reports on Thursday, and the employment report on Friday. In addition, minutes from the December FOMC meeting will be released on Wednesday. There are several scheduled speaking engagements by Fed officials this week, including Vice Chair Clarida on Friday.

Monday, January 4

• 09:45 AM Markit manufacturing PMI, December final (consensus 56.3, last 56.5)
• 10:00 AM Construction spending, November (GS +1.2%, consensus +1.0%, last +1.3%): We estimate a 1.2% increase in construction spending in November, with scope for a significant increase in private residential construction.
• 10:00 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss the economy and monetary policy on a panel at the annual AEA/ASSA meeting. Prepared text and audience and media Q&A are expected.
• 10:00 AM Atlanta Fed President Raphael Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss innovations in measuring the economic impacts of Covid-19 on a virtual panel during the AEA/ASSA meeting. Audience Q&A are expected.
• 12:15 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Mester will discuss a paper on increasing diversity in economics at the annual AEA/ASSA meeting.
• 06:00 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Mester will discuss the economic outlook at the annual AEA/ASSA meeting.

Tuesday, January 5

• 10:00 AM ISM manufacturing index, December (GS 57.0, consensus 56.6, last 57.5): We expect the ISM manufacturing index to edge down by 0.5pt to 57.0 in the December report, reflecting mixed regional manufacturing surveys for the month.
• 03:45 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss the Fed’s actions during the pandemic at the annual AEA/ASSA meeting. Prepared text and audience Q&A are expected.
• 03:45 PM New York Fed President John Williams (FOMC voter) speaks: New York Fed President John Williams will chair a virtual paper session on the monetary-fiscal nexus with ultra-low interest rates during the annual AEA/ASSA meeting.
• 05:00 PM Lightweight motor vehicle sales, December (GS 16.0m, consensus 15.6m, last 15.6m)
• 07:00 PM Polls close in Georgia for Senate runoff elections

Wednesday, January 6

• 08:15 AM ADP employment report, December (GS -75k, consensus +50k, last 307k): We expect a 75k decline in ADP payroll employment, reflecting an increase in jobless claims and expected weakness in private payrolls in December.
• 09:45 AM Markit services PMI, December final (consensus 55.3, last 55.3)
• 10:00 AM Factory orders, November (GS +0.7%, consensus +0.8%, last +1.0%); Durable goods orders, November final (last +0.9%); Durable goods orders ex-transportation, November final (last +0.4%); Core capital goods orders, November final (last +0.4%); Core capital goods shipments, November final (last +0.4%): We estimate factory orders increased by 0.7% in November following a 1.0% increase in October. Durable goods orders rose by 0.9% in the November advance report, and core capital goods orders rose by 0.4%.
• 02:00 PM Minutes from the December 15-16 FOMC meeting: At its December meeting, the FOMC left the funds rate target range unchanged at 0–0.25%, as widely expected, and provided new guidance on the timeline for tapering asset purchases, but did not announce changes to the maturity composition of its asset purchases. In the minutes, we will look for insights into the Committee’s asset purchase decisions.

Thursday, January 7

• 08:30 AM Initial jobless claims, week ended January 2 (GS 840k, last 787k); Continuing jobless claims, week ended December 26 (last 5,219k): We estimate initial jobless claims increased to 840k in the week ended January 2.
• 08:30 AM Trade balance, November (GS -$67.5bn, consensus -$64.5bn, last -$63.1bn): We estimate the trade deficit increased by $4.4bn in November, reflecting an increase in the goods trade deficit. Goods imports have returned to their pre-pandemic level, but monthly goods exports are still about $10bn below their pre-pandemic level. Both imports and exports of services have recovered only slightly from their Q2 troughs.
• 09:00 AM Philadelphia Fed President Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will discuss his economic outlook during a virtual event hosted by the Philadelphia Business Journal. Prepared text and audience Q&A are expected.
• 10:00 AM ISM non-manufacturing index, December (GS 54.0, consensus 54.5, last 55.9): We estimate the ISM non-manufacturing index declined by 1.9pt to 54.0 in December, reflecting likely weakness in leisure, food services, and other services. Our GS Non-Manufacturing Survey Tracker declined by 1.8pt to 52.0 in December and our GSAI fell.
• 12:00 PM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will discuss the U.S. economy and monetary policy during a virtual event hosted by the Little Rock Regional Chamber of Commerce. Prepared text and audience and media Q&A are expected.
• 01:00 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will speak to the Wisconsin Bankers Association Midwest Economic Forecast Forum. Audience Q&A are expected.

Friday, January 8

• 08:30 AM Nonfarm payroll employment, December (GS -50k, consensus +50k, last +245k); Private payroll employment, December (GS -100k, consensus +50k, last +344k); Average hourly earnings (mom), December (GS +0.2%, consensus +0.2%, last +0.3%); Average hourly earnings (yoy), December (GS +4.5%, consensus +4.5%, last +4.4%); Unemployment rate, December (GS 6.8%, consensus 6.8%, last 6.7%): We estimate nonfarm payrolls declined 50k and private payrolls declined 100k in December. While job growth slowed in the November report, we believe the survey period was too early to reflect the full impact of the coronavirus resurgence, because employment in highly sensitive categories declined significantly only in Illinois (one of the earliest states implementing major restrictions). Most of the Big Data employment signals we track also indicate a decline in December payrolls. And while continuing claims continued to fall on net, most of the drop reflected the expiration of program eligibility (as opposed to reemployment). Additionally, initial claims during the payroll month rose for the first time since April. On the positive side, we expect a rise in education employment (public and private), as virtual schooling reduces the scope for seasonal downtime for support staff.
• 11:00 AM Fed Vice Chair Clarida (FOMC voter) speaks: Fed Vice Chair Clarida will discuss the economy and monetary policy during a virtual event hosted by the Council on Foreign Relations. Prepared text and audience and moderated Q&A are expected.

Source: Deutsche Bank, Goldman

 

Authored by Tyler O’Neil via PJMedia.com,

On Sunday, a Democratic representative — who also happens to have been a pastor for 37 years — gave an official prayer to open the 117th Congress. With great pomp and circumstance, he closed his prayer by invoking “the monotheistic god,” Brahma, and the god who supposedly goes by many names. He then concluded with the most asinine thing I have ever heard. He ended with “amen … and a-woman.”

Yes, in a moment worthy of The Babylon Bee, Rep. Emanuel Cleaver (D-Mo.), added the nonsense neologism “a-woman” to the classic prayer ending, “amen.”

“We ask it in the name of the monotheistic god, Brahma, and god known by many names by many different faiths,” Cleaver concluded.

“Amen. … and A-woman.”

“Amen” means “so be it,” “it is so,” or “verily.” Jews and Christians have used the term to conclude prayers for thousands of years. The word appears 30 times in the Hebrew Bible and 52 times in the New Testament. There is no connection — absolutely none — between “amen” and “men,” the far later English word for plural male individuals.

This truth is so basic that it honestly strains credulity that any educated Jew, Christian, or Muslim — much less a Methodist who served as a pastor for 37 years — would feel the need to make the term of assent “amen” inclusive by adding “a-woman.” Yet Emanuel Cleaver, who served as the pastor at St. James United Methodist Church in Kansas City, Mo., from March 1972 to June 2009, did exactly that — and it seems he is proud of it.

Naturally, many conservatives rightly mocked Cleaver for this absurd virtue signaling. Rep. Guy Reschenthaler (R-Pa.) mentioned “a-woman” and added, “Amen is Latin for ‘so be it.’ It’s not a gendered word. Unfortunately, facts are irrelevant to progressives. Unbelievable.”

“Amen is a Latin word that means ‘truly’ or ‘so be it.’ Awoman is a nonsense word that means nothing. Dems find a way to make everything stupid and nonsensical. Utter clowns, all of them,” Matt Walsh tweeted.

Yet this “a-woman” fiasco should show Americans just how stupid and shallow much of Democrats’ pandering in the name of “inclusivity” really is.

Democrats have championed Marxist critical race theory, which teaches that hidden racism permeates American society so that if America’s institutions are colorblind, they must be racist in some hidden, mysterious way. That’s what “institutional racism” really means.

Democrats have trained themselves to see racism even in situations where the law clearly states that individuals are to be judged on the content of their character, rather than on the color of their skin — and this extends to other kinds of prejudice, as well. Feminists must root out any trace of “patriarchy.” Islamists must fight “Islamophobia,” which they redefine to mean any suggestion that radical Islamist terrorism has any connection to Islam.

This Marxist quest to root out hidden prejudice culminates in the transgender movement’s quest to rid the word of “white cis-hetero-patriarchy,” the supposed dominance of white males who identify as male and who wish that heterosexual relationships were the norm.

These ideologies converge to create a massive conspiratorial mindset. Behind every government building is a racist, sexist, religionist, anti-you-name-it bigot pulling the strings. How disappointed these social justice warriors will be when they discover that civilization does not exist in order to oppress them. Yet conspiracy theories have an ugly tendency to persist and even grow in the face of the truth.

It seems this poisonous thinking has convinced a former pastor who should have known better that the very term “amen” is an instrument of patriarchal oppression.

Ironically, Cleaver’s speech — which he ended with a virtue-signaling attempt to appear inclusive — addressed a very Christian God. He described God as “eternal,” a being with “sacred supremacy,” a deity “who created the world and everything in it,” and one with a “priestly presence.”

This concept of God may appear compatible with many faiths, but it is not. Neither Judaism nor Islam involves a God who is also a priest. Only in Christianity does one Person of the Trinity — Jesus Christ — make supplication to another Person of God — the Father — on behalf of humanity. While God may listen to the prayers of non-Christians, it is false to suggest that different religions all pray to the same God (Christianity and Islam provide an important example of this).

For all Cleaver’s mentioning of Brahma, his suggestion that the Christian God is “known by many names by many faiths,” and his asinine ending with “Amen. … and A-woman,” Cleaver delivered a very Christian prayer. He acknowledged humans’ “fallible nature” in contrast to God’s perfection, asking God to enable Congress to defend democracy and to overcome the divisions of tribalism and ideology.

Jews and Muslims who were listening closely in order to find something offensive will not be disappointed. Atheists will have a field day.

Cleaver was right to pray for unity amid tribalism and ideology, and he was right to acknowledge humanity’s fallible nature. Yet his attempts to be more inclusive will not satisfy those who are paying attention. Rather, his shallow inclusivity makes him a laughingstock.

Perhaps Cleaver will realize his mistake and admit that “amen” is not some deep symbol of the oppressive white cis-hetero-patriarchy. Perhaps many on the Left will even mock him for this absurdity. Yet it seems plausible that some SJWs will probably cheer the nonsensical neologism “a-woman,” and start using it to end their prayers.

Watch the “a-woman” incident below.

About 8 years after Carl Icahn famously entered the Herbalife fray, spurring a short squeeze that helped decimate Bill Ackman’s now-infamous $1 billion short against the company, Icahn appears to be making his exit.

Icahn reportedly will be selling $600 million worth of his stake back to Herbalife and, as a result, will be relinquishing his 5 board seats. The company will be buying back the massive chunk of stock using cash on hand and its credit facility. The transaction is set to close by January 7, 2021. 

An Herbalife PR put out Sunday night said:

Herbalife…today announced that on January 3, 2021, it entered into an agreement to repurchase approximately $600 million of the Company’s common shares beneficially owned by Carl C. Icahn and certain of his affiliates, at a purchase price of $48.05 per share, the closing price of Herbalife Nutrition’s common shares on December 31, 2020, the last trading day prior to the execution of the purchase agreement.

The purchase of the shares will be funded from Herbalife Nutrition’s cash on hand and existing credit facility. The repurchase announced today is a part of the Company’s 2018 share repurchase program that, including the shares to be repurchased in this transaction, will have resulted in the Company repurchasing a total of approximately $1.5 billion in shares.

Icahn’s Directors resigned effective January 3, 2020, the release says: “Pursuant to a support agreement entered into in 2013, at a time when the Company was under pressure from short sellers, the Company agreed to give Icahn Enterprises five board seats for as long as it held at least 14 million Company common shares. In light of the fact that this transaction will take Icahn Enterprises’s holdings under this threshold, all five director designees previously nominated by Icahn Enterprises resigned from the Company’s board of directors on January 3, 2021 and the support agreement was terminated at the same time.”

Herbalife spun the transaction as showing confidence in its stock by buying back the shares. “Our decision to repurchase these shares is a testament to the strength of our business and our long-term growth prospects…” the company’s CEO said. 

Icahn said that the time for activism in Herbalife “has passed”: 

“I made the initial investment in Herbalife Nutrition more than eight years ago, because I believed strongly in the Company’s strategy, products and business model. When I began purchasing the shares, I believed it was undervalued for extraneous reasons that I thought made little sense. At the time, I believed the Company was in need of an activist and that certainly turned out to be correct. Yet, the time for activism has passed as the Company has grown, and I don’t typically invest billions of dollars in companies where our role as activist is not needed. That being said, Herbalife Nutrition’s products and business opportunity are needed now more than ever, and I look forward to remaining a shareholder of the Company.”

In other words, Icahn has squeezed all of the juice out of Herbalife he possible could. Since the beginning of 2013, Herbalife shares are up about 147%.

Over the same 8 year period, the company reduced its share count by about 41%. 

The company’s total liabilities have ballooned from under $1.8 billion to now nearly $4 billion. 

Over the same course of time, its TTM net income has slipped from a record of near $500 million to now about $355 million.

As a result of the battle between Icahn and Ackman, the FTC ultimately fined Herbalife $200 million in 2016 and forced it to fundamentally re-structure its business. The regulator failed to deem the company a pyramid scheme, despite FTC Chairwoman Edith Ramirez famously stating during an FTC presser that the office had “not determined” Herbalife to “not be a pyramid”. This failure to label the company a pyramid scheme directly was seen as a success. Since then, there has been little news regarding whether or not Herbalife has been abiding by its settlement.

So, we guess the only question left now is whether or not Ackman will take a second swing…

For a trip down memory lane, here’s the on-air CNBC spat that started it all. 

 

Authored by Bill Blain via MorningPorridge.com,

A New Hope… Misses The Obvious

“It’s not fair to take it away from us like this..”

Welcome to the New Year – may it be a brave and hopeful one for us all. 

I’m starting the New Year wondering if the Malicious Market Gods have launched the planet on to a new more vomit-inducing loop of the rollercoaster? 

It feels like we’ve become anaesthetised and insensitive to shock.. The bizarre has become normal and we simply shrug it things that would have seem impossibly improbable just a few years ago. We forget the lessons of the past – thus are doomed to repeat them. I can’t fathom some of the headlines: Bitcoin soared to $34500 on the third day of the new year, and proponents snake-oil salesmen sagely proclaiming it’s headed for $100k by year end. Donald Trump is still plotting to hold the White House, yet Republicans still support him. Brexit got done but didn’t. The ECB is going to focus on climate change. And markets look set to rise and rise and rise and rise…. 

Whoa.  Hand me a bottle of common sense….

The end of the old year and the beginning of the new is the traditional time to address fundamental questions about future returns, risk, value and the economic outlook.  Jan 1st is just another date, and these are concepts investors should be constantly questioning. Everyone is determined that 2021 will be a better year! Which the market takes to mean – going higher… 

Boy Scout Time: Be Prepared…

As the narrative develops, the outlook changes. A new time frame leads to an increased danger of confirmation bias, misreading the lessons, and reinforcing false-positive highlights. Which is why I’m concerned the overly rosy market “past performance in 2020” is setting us up for a nasty rash of reality in the coming 12 months. 

There you go.. in my very first paragraphs of the New Year I’m sounding bearish! I’m not. I’m merely reminding readers of the possibility that all that glitters is not necessarily gold. 

I fully expect 2021 will see a sharp recovery and uptick in global economic activity. Successful vaccination programmes and repressed consumer demand will drive massive discretionary spending, but drive up retail debt to pay for it. Governments will keep their fingers on the fiscal boost button, and the money presses busy, to sustain economies through to the end of the pandemic and beyond. As money seeps into the real economy – which hasn’t happened despite years of QE – inflation is a distinct possibility.

There will be good news, and bad news to balance it. Consequences are inevitable. Reflating the global economy creates new risks that will need to be addressed; the years of too low interest rates, inflation, and mismatched risk returns. 

Whatever we’d like to believe about markets hitting record highs in 2020, the reality is the whole global economy remains rattled to the core and will remain excessively juddery and vulnerable till vaccinations beat the pandemic: a) Vaccines will only be effective if people are vaccinated, and b) they are already proving logistically more difficult than blithe politicians expected. It might take longer than the market is currently pricing in.

If there was a lesson in 2020, it was resilience – just how effectively companies and governments were able to address the crisis in terms of managing/muddling through it. Whatever you think of poor government responses and bureaucratic delay, it could have been much, much worse. (It’s been a trade-off between swamped health services versus economic activity – a classic compromise.)

Despite the ongoing brush with financial mortality, markets begin 2021 at never so high levels – which means they’ve never had so far to fall. 

The upside is they are still massively supported by zero rates, the money flooding markets from QE and stimulus, and the Pavlovian “buy any dip” because of the fiscal and monetary support. The world’s 2,000 or so billionaires got $1.9 trillion richer in 2020 as financial asset prices soared on the back of government largesse supporting markets. 50% of the US stock market is owned by the richest 1%. 

What’s the downside? Whatever nonsense you’d been reading over your Christmas calorie fest about potentially limitless future investment gains, I reckon this is likely to prove a very difficult year for markets as the global picture morphs from corona-panic to expectation of recovery. A cosmetically more positive environment may well trigger some surprising outcomes – including a return of common sense. 

Last year was about reacting to a shock and the response to it. The key market reaction was to arbitrage the massive government and central bank support. That became sell-fullfilling after the speed of the Spring Rally. This year will be about normalisation – and the markets have repeatedly shown themselves highly allergic to normalisation. Reduced stimulus in the face of real growth could we shock us all! 

The amount of money chasing markets through 2020 drove some pretty wild speculation. I won’t bother mentioning that Tesla failed to hit its 500k car delivery target, yet is worth a multiple of the rest of the auto sector which profitably sells 26 million cars. I won’t waste time arguing against the $400k target one analyst ascribes to BC.  

Instead… I will simply ask: if this year is about economic recovery and growth are investors more likely to focus back on the real issues: the fundamentals of risk and return, growth and profits. I suspect so. 

Meanwhile, there also some key long-term plays and themes underway: 

UK

Does the UK’s successful Brexit deal mean it’s time to buy the UK? The investment banks and analysts all think so, and expect surging confidence to drive up the value of underperforming UK Inc. But what about the chances UK Inc breaks up? The Scottish Election in May 2021 is going to be the next critical moment: the likelihood the SNP takes an absolute majority with a sizable majority of the Scottish electorate in favour of independence will be an unparalleled challenge to perceptions of the UK. 

Debt and Equity Levels

Does the corporate debt splurge, zero returns and massive stock over-valuations mean it’s time to diversify out of traditional financial assets and into alternative and private assets with better risk/return profiles? 

As sovereigns spend their way out of crisis, either rip up your Reinhart and Rogoff debt-to-GDP orthodoxy, or figure out the reality that ultra-low interest rates are crushing real growth. Concerns on just how damaging the low-rate/rising debt levels are, and the absolute low levels of returns and overpriced stocks, means investors have to look wider for returns. 

Alternatives

I’m expecting “Alternatives” (my real-job as opposed to my ramblings in the Porridge) in terms of private debt and hybrid private equity transactions to be the major growth market this year. There are a number of fascinating “Distressed Covid” opportunites in real assets out there, plus a large number of potentially high return private deals to be funded. 

China

Do the travails of Jack Ma and Alibaba over December stand as a stark warning against an investment pivot to Asia? (Alibaba has been my worst performing position this year..) How should investors weigh the China risks: Hot/conflict with the West? ESG fails on surveillance, freedom, Uighurs and Hong Kong? When a nation is willing to chuck a reporter into jail for 4 years for simply reporting facts on Coronavirus – you have to wonder. The crash in Asian Tech stocks during the Christmas/New Year markets was impressive – breaking all kinds of key support lines and the 50 day moving averages.

What Next – No-See-Ums

The themes above are all largely visible threats. Many market analysts say Covid has accelerated a Technological shift, while others believe the ease with which Sovereigns have raised borrowing and spending means it’s time to reassess the role of the State. The shift from monetarist Shareholder Capitalism towards more socialised Stakeholder Capitalism and the importance/role of ESG will continue to develop…. 

BUT BUT BUT… It’s the “no-see-ums” that inflict the crushing market shifts. Last year it was a long-expected virus that exposed how unprepared we are. Maybe nothing happens in 2021, or maybe it’s a supervolcano, a climate event, a meteor, or something we create ourselves like a war or political meltdown. 

Or maybe its just waking up to reality? Later this week I’ll be writing up some of the reading I’ve been doing over the break about de-carbonisation and the real-cost of renewables (especially on and off-shore Wind) and just how much we’ve been fooling ourselves about their financial viability. The big investment themes in markets and governments are rightly about climate change, green investment and decarbonisation. What if we are going down completely the wrong track?

The biggest market crashes always come because we jump on board bandwagons, assuming someone else has done the work… when it become clear stocks are overvalued, or homes aren’t worth that much, that lithium batteries are a dead-end, or that windfarms make zero economic sense… these are the No-See-Um moments when markets stumble…. 

After a monumental run over the new year holiday, the opening of Bitcoin futures trading sparked a major downdraft in cryptocurrencies overnight.

Futures crashed to fill the gap from Thursday’s close, before bouncing back hard…

Source: Bloomberg

Spot Bitcoin collapsed alongside futs, dropping below $28k, but has ripped back above $31k since…

Source: Bloomberg

And overnight saw Ethereum scream higher to $1170 before plunging to below $900 and now ripping back higher, above $1000…

Source: Bloomberg

As Reuters reports, traders said bitcoin’s drop on Monday was not unusual for the volatile asset, whose wild price swings have in part prevented it from becoming widely used as a currency.

“It’s still an unavoidably volatile asset by its nature,” said Joseph Edwards of crypto brokerage Enigma Securities.

“For the most part, this looks like a purely technical move, signalled and caused by short-term euphoria,” he added.

Fuelling bitcoin’s rally has been the perception it can act as a hedge against the risk of inflation as governments and central banks turn on the stimulus taps to counter the economic impact of the COVID-19 pandemic.

In recent days, altcoins have dominated bitcoin and the BTC/ETH ration collapsed to its lowest (ETH relatively strongest) since Thanksgiving…

Source: Bloomberg

Additionally, @SkewDotCom notes that there is a very large position on the Jan21 36k calls, open nearly 18k bitcoin options or approximately $600mln notional. Most likely the largest pin in the young history of the bitcoin options market.

With futures open interest at record highs…

Meanwhile, as CoinTelegraph notes, it’s all change for the better among Bitcoin’s core fundamentals. After a month of small decreases, network difficulty is once again set to push upwards to hit new record highs.

Bitcoin 7-day average hash rate 6-month chart. Source: Blockchain

At the next automated readjustment later this week, difficulty is currently expected to increase by just over 5%.

The past two readjustments saw drops of 2.5% and 0.4% respectively, an interesting contrast to the rapid increases in spot price seen at the same time.

Difficulty is arguably Bitcoin’s most important technical aspect when it comes to its status as “hard” money, allowing the network essentially to govern itself and stay secure regardless of miner participation or price action.

In tandem with difficulty, hash rate is likewise challenging all-time highs. As of Monday, seven-day average values for the metric stand at 145 exahashes per second (EH/s), just 1 EH/s off record highs seen last October.

Hash rate refers to the computing power dedicated to participating in the Bitcoin network, and current data suggests that participation and desire to keep the network secure is stronger than ever.