iftttwall

Following in the footsteps of CostCo, Best Buy and Starbucks, moments ago Walmart – the world’s largest retailer – became the latest national chain to require all customers to wear masks.

“As the number of confirmed cases has spiked in communities across the country recently, so too have the number and types of face covering mandates being implemented,” Walmart said in a news release Wednesday. About 65% of its more than 5,000 stores, including its Sam’s Club locations, are located in areas where there is government mandate on face coverings.

“To help bring consistency across stores and clubs, we will require all shoppers to wear a face covering starting Monday, July 20. This will give us time to inform customers and members of the changes, post signage and train associates on the new protocols.”

The change will be enforced on July 20, and comes even as there is federal mandate to wear a mask exists, however the Centers for Disease Control and Prevention says everyone “should wear a cloth face cover when they have to go out in public” adding that “face coverings are meant to protect other people.”

Most major retailers and grocers initially hesitated to enact their own mask mandates for customers during the pandemic, partly over fears of antagonizing shoppers who refuse to wear them, they have also been reluctant to put their employees in the position of enforcing mask requirements.

But sentiment has changed in recent weeks as more than 3.3 million people have now tested positive for the coronavirus nationwide. Cases are climbing in much of the country and many cities and states are reimposing restrictions to contain new outbreaks, including mask requirements in public settings.

Industry groups and unions have also stepped up their calls around mask requirements for customers. Last week, the Retail Leaders Industry Association, an industry trade group, called on the nation’s governors to pass statewide mandates requiring citizens to wear masks in public. The United Food and Commercial Workers’ Union also urged government officials and business leaders to require masks for customers in an advertisement over the weekend.

Starbucks said last week that it will require customers to wear facial coverings or masks in all 9,000 of its company-owned US stores beginning Wednesday. Best Buy also announced Tuesday that it will also require all shoppers coming into its approximately 1,000 stores to wear face masks. Costco began requiring its members to wear masks in stores beginning in May.

Walmart’s requirement will likely result in more scenes such as this one.

Another day, another massive buying spree of deep-out-of-the-money-call “lottery tickets” in TSLA and another opening gap higher.

“Someone” is buying 100s of 1000s of share equivalents of $2500 and $3500 Calls that expire on Friday…

However, for the 3rd day in a row… it failed to ignite a sustainable momentum…

We detailed one reason why TSLA has been seeing this incessant opening panic-bid previously…

One topic that is occasionally brought up by Tesla skeptics, but rarely examined in depth, has been a litany of out of the money call buying in the name that appears to be occurring, relatively aggressively, on a weekly basis.

While the buying could be attributed to normal market forces, a new article by Dan Stringer looks into the specifics of one such trade that took place last week, where it appeared that over $2.5 million was deployed in a very short term, very out of the money options buy.

…

The author then lays out that OCC rules dictate that the clearing house must have a certain percentage of this stock on hand to deal with the calls should they move into the money. He estimates a 20% ratio:

The broker-dealers need to have some margin level (per Rule 601 of the OCC rules); this can vary by broker-dealer and is subject to calculations with these rules. I have heard a typical ratio is roughly 20% on hand, so for the purpose of this exercise, I will use that.

From there, he determines that the options buy would trigger a purchase of 716,000 Tesla shares to cover the trade. He also notes the timing of the transaction, pointing out that “broker-dealer margin requirements are sent out by 10:00 am EST, or within the first ½ hour of trading” and arguing that this could cause a spike at the cash open.

This would create a potential spike in buying at the open, causing shares to spike. The following 12,800 options would then require a further 256,000 shares to be purchased using the same margin requirement methodology.

…

The author concludes by stating that the options buy could be a “relatively inexpensive” way to generate some forced buying in Tesla.

For a large-cap company like Tesla with the volume of shares that have been trading over the last several months, this option position would be a relatively in expensive cost to generate some forced buying, at a cost of just 5% of the open position.

Recall, the topic of strange call buying was also brought up in a podcast with well known Tesla skeptic, @TeslaCharts,  in May. Though the buys were discussed, neither the host nor the guest could speculate as to why these buys might be taking place. Thanks to Dan Stringer’s article, they may be on their way to an answer. 

We reiterated this strategy seeming to occur on Friday.

The question remains – who is buying these lottery tickets in size and who in the world gets to benefit most from the TSLA share price being at these incredibly elevated levels?

The Bank of Canada did not surprise markets moments ago when it kept its target for the overnight rate at the effective lower bound of 0.25% as expected.

The Bank also said it would continue its quantitative easing program, with asset purchases of at least $5 billion per week of Canadian Government  bonds, and added that the Bank’s short-term liquidity programs announced since March to improve market functioning are having their intended effect and, with reduced market strains, their use has declined. Additionally, the provincial and corporate bond purchase programs will continue as announced, and the BOC said that it stands ready to adjust its programs if market conditions warrant.

Noting that while economies are re-opening, “the global and Canadian outlook is extremely uncertain, given the unpredictability of the course of the COVID-19 pandemic” and reflecting this, the Bank’s July Monetary Policy Report (MPR) presented a central scenario for global and Canadian growth rather than the usual economic projections. The central scenario is based on assumptions outlined in the MPR, including that there is no widespread second wave of the virus.

Some more details from the BOC’s July Monetary Policy Report:

• The Bank of Canada indicated that markets “generally interpret” the presence of quantitative easing as a sign rates will be a the lower bound for an “extended period”.
• “Markets generally interpret QE as a signal that rates will likely be at the lower bound for an extended period (signalling channel)”
• GDP growth -8.2% q/q SAAR in 1Q, -43% q/q in 2Q and +31.3% q/q in 3Q
• “The Bank has committed to continue buying at least C$5 billion of Canadian government bonds each week until the recovery is well underway”
• Bank of Canada introduces “central scenario” estimate on economy, notes considerable risk to forecast
• “The Bank of Canada expects a sharp rebound in economic activity in the reopening phase of the recovery, followed by a more prolonged recuperation phase, which will be uneven across regions and sectors”
• “The economy has thus far avoided the most severe scenarios presented in the April Report, but considerable economic slack remains”
• “Household spending picks up gradually as containment measures are eventually lifted and confidence in the economy improves”
• “Uncertainty about the composition and strength of future demand, elevated debt levels and lingering financial stress significantly dampen business investment”
• “Exports in the central scenario recover gradually as borders reopen further, international supply chains are re-established and foreign demand picks up”

In the BOC’s central scenario, it sees the level of real GDP returning to 2019, pre-Covid levels by 2022:

• “The central scenario assumes the neutral rate is 2.5 percent”
• “Large-scale secondary market purchases of Government of Canada bonds provide monetary stimulus through several channels and can be described as quantitative easing (QE)”
• “Effects of the downturn and lower immigration hold down housing activity over the next few years”
• “Gap between demand and supply of roughly 6 to 7 percent in the second quarter”
• “The level of potential output by 2022 in the central scenario is almost 4 percent lower than in the January Report”

Despite the lack of official projections, the central bank sounded optimistic, saying that there are early signs that the reopening of businesses and pent-up demand are leading to an initial bounce-back in employment and output. In the central scenario, roughly 40% of the collapse in the first half of the year is made up in the third quarter. Subsequently, the Bank expects the economy’s recuperation to slow as the pandemic continues to affect confidence and consumer behaviour and as the economy works through structural challenges. As a result, in the central scenario, real GDP declines by 7.8 percent in 2020 and resumes with growth of 5.1 percent in 2021 and 3.7 percent in 2022. The Bank expects economic slack to persist as the recovery in demand lags that of supply, creating significant disinflationary pressures.

That said, looking ahead, the BOC said that as the economy moves from reopening to recuperation, it will continue to require extraordinary monetary policy support, and “the Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.” In addition, to reinforce this commitment and keep interest rates low across the yield curve, the Bank is continuing its large-scale asset purchase program at a pace of at least $5 billion per week of Government of Canada bonds. This QE program is making borrowing more affordable for households and businesses and will continue until the recovery is well underway. To support the recovery and achieve the inflation objective, the Bank is prepared to provide further monetary stimulus as needed.

After a modest kneejerk move in either direction, the USDCAD was largely unchanged after the widely expected announcement, trading in the same tight range it has been in for the past month.

Coincidentally, right around the same time as Alameda County has once again been inundated with coronavirus cases, and just hours after we reported that 15% of Tesla employees have been affected by coronavirus at Fremont, the company has conveniently decided to shut its Fremont factory down for “major upgrades”.

At least, that’s the PR line-du jour that was handed to the pro-Tesla lot over at electrek, who broke the news on Wednesday morning. And what better way to improve things in Fremont – especially now that your company is bordering on a $275 billion market cap – than adding another tent?

Electrek writes that the “plans included a new tent-like structure for a new assembly line”:

“Now we are told that Tesla plans to do something similar for Model Y and deploy some production capacity under a sprung structure to go in operation when they can reopen the plant.”

“The strategy follows Tesla’s famous GA4 assembly line built under a tent-like structure in 2018,” they reported. Famous? Not quite the word we would use. Infamous, perhaps. 

The piece then goes on to defend the idea of building another tent: “At the time, Tesla received a lot of criticism for the unusual approach, but the new general assembly capacity helped Tesla increase Model 3 production to 5,000 units per week and accelerate Tesla’s growth.”

Apparently electrek hasn’t checked in on the quality of these vehicles anytime recently and has apparently missed bumpers flying off in traffic and cars swerving into oncoming traffic without warning. 

“Since March, Tesla’s GA4 line has been focused on building Model Y vehicles instead of Model 3,” the blog says. Yeah, and the Model Y has received some of the most horrifying quality reviews of any vehicle we’ve seen in recent memory, as we noted days ago. 

The shutdown is expected by end of the month and the company will dub its new line GA4.5. Recall, last month, CEO Elon Musk told employees that GA4 “facility improvements” were a “top priority”:

“Model Y, especially GA (stands for General Assembly), is the top priority for both production and manufacturing engineering. GA4 (stands for General Assembly Line 4) is also top priority for facility improvements. For those working in GA4, thank you for bearing with tough conditions. Will get better fast. I will be walking the line personally every week.”

As for the timing and length of the shutdown, electrek doesn’t seem to have a clue – which leads us to believe the company may not either:

It’s not clear exactly when the factory shutdown will happen, but apparently it’s going to be around the end of the month.

My understanding is that some of the upgrades are disruptive enough that it will require shutting down production at large parts of the plant.

It might just take a few days or a week, it’s not clear at this time.

Some have suggested the shutdown could be for other reasons than regular maintenance. The timing does seem a bit curious, doesn’t it? Said one astute observer:

Definitely couldn’t have done these upgrades 2 months ago while keeping maintenance staff at factory during shutdown.

Definitely this is the reason $tsla is shutting downs https://t.co/XuTdl8Acs2

— luis carruthers (@orthereaboot) July 15, 2020

It seems like Trump’s enemies over at Project Lincoln have some more explaining to do.

After co-founder Rick Wilson’s ham-handed attempt to smear Trump supporters with a Confederate flag insult – only to have his family’s own ‘confederate cooler‘ exposed, filmmaker Mike Cernovich notes that Wilson’s Project Lincoln co-founder, John Weaver, was paid by the Russian government as a consultant to JSC Techsnabexport (TENEX), which owned by Putin-founded, government owned Rosatom – of ‘Uranium One’ fame.

Weaver, the mastermind behind John McCain’s failed 2000 and 2008 presidential campaigns, John Kasich’s failed 2016 presidential campaign, and the founder and principal of ‘The Network Companies, LLC’, acknowledged the work in a Foreign Agents Registration Act (FARA) filing on May 10, 2019.

Lincoln Project co-founder was a literal foreign agent for

… wait for it

… are you ready

… can you guess

— Russia!

Yes, really. pic.twitter.com/OWYsZvBlED

— Cernovich (@Cernovich) July 15, 2020

We should note – well, John Solomon noted on Monday, that Joe Biden’s energy adviser, Amos Hochstein, also advised TENEX. In fact, Hochstein “assisted personally” in “Russia’s attempts to corner the global uranium market.”

So two guys who want to see Biden elected have taken money from the Russian government. This, mind you, after Weaver has spent years spewing unfounded accusations about Trump being a Russian agent, while the other guy helped Russia buy uranium leading up to the infamous Uranium One deal.

So John ‘All roads lead to Putin’ Weaver was consulting for a company founded by… Putin, owned by the government run by… Putin.

In fact, Weaver’s Twitter history is littered with Trump-Putin references, when he himself took money from Putin’s apparatus.

Below is a small sample of pages upon pages of Russia fear mongering. Give it a look before he deletes them.

Submitted by Michael Every of Rabobank

Yesterday US President Trump officially removed Hong Kong’s US special status, with few extra details that we didn’t already know other than that HK passports are no longer any more welcome than Chinese ones in the US, and that Fulbright scholarships are ended. Markets have kept shrugging that news off, as have HK bankers: “Mo wentai” has been the mantra (“No Problem”). They weren’t rattled by the imposition of the new national security law; they weren’t rattled yesterday by Beijing stating pro-democratic/localist forces in Hong Kong could be breaking that law in trying to win a majority in September’s election; yet, according to Bloomberg, now that Beijing has just imposed its own taxation on its overseas citizens, “Bankers Shocked by 45% China Tax Rate Mull Leaving Hong Kong”. This rather makes the point about how it’s hits to people’s pockets that really moves the Cold War dial nowadays, not grandiloquent statements like “Ich bin ein Berliner”.

On that front, Trump also signed the Hong Kong Autonomy Act. Simply, this law gives Treasury up to 90 days to compile a list of those who are responsible for undermining HK autonomy; then up to 60 days to verify; and then sanctions must be imposed on them – something the US is already doing over Xinjiang. Then, a year after that date, any non-US banks with “significant transactions” with those individuals or institutions must see five of 10 possible sanctions imposed, which includes banning executives from entering the US, for example; and a further year later this *must* be expanded to all 10 – including inability to access the USD. In short, as has been pointed out here several times of late, we now have a US Dollar Weapon countdown underway, just as we do with Hard Brexit. It might be some way off at best, but it’s clear where it ends up.

Talking of where things end up, if pro-democracy Hong Kongers leave for the UK and the US, and mainland talent goes back to cheaper China, who is going to be left to “run the shop? Meanwhile, the New York Times has decided it is going to move part of its operations from Hong Kong to Seoul.

That’s the second New York Times story today of interest – and I mean stories about the New York Times, not stories in it. The other is that Bari Weiss, their ‘opinion’ editor, has resigned with a devastating letter that includes allegations of feeble management and specific broadsides such as:

“…a new consensus has emerged in the press, but perhaps especially at this paper: that truth isn’t a process of collective discovery, but an orthodoxy already known to an enlightened few whose job is to inform everyone else,” which sounds like many conversations I have had with neoclassical economists about free trade over the years;

“My own forays into Wrongthink have made me the subject of constant bullying by colleagues who disagree with my views”;

“I was always taught that journalists were charged with writing the first rough draft of history. Now, history itself is one more ephemeral thing molded to fit the needs of a predetermined narrative.”; and

“The paper of record is, more and more, the record of those living in a distant galaxy, one whose concerns are profoundly removed from the lives of most people.”

Which sounds a bit like central bankers too, and indeed markets in general. Although to be fair, at least the former are now a bit more humble about what they do and don’t know. As Brainard of the Fed noted overnight “A thick fog of uncertainty still surrounds us, and downside risks predominate.” No dialectical materialism there: just a recognition of Marx’s “All that is solid melts into air.”

Yet back to Bari: is this just a NYT issue, or more widespread? Weiss says the latter. If it is the latter, consider the implications for markets and information gathering. Where are we to get our news if not from the press – Twitter?! And consider the impact on US electoral polarisation as we head into this potentially earth-moving November election (as noted in our US strategist Philip Marey’s report yesterday).

Talking of news one can and can’t trust, we are already warming up for the release of China’s Q2 GDP data tomorrow, which are expected to show a return to growth of 2.4% y/y. As usual, there won’t be any real breakdown allowing detailed analysis, but if one takes the presumed number at face value then it is almost certainly only due to extra supply and not due to any extra demand: and supply going where, exactly? Exactly. Indeed, just as we will soon hear ‘growth is back!’ we also see Bloomberg report “Rumor-Stoked Bank Runs Break Out in China Like Never Before”

Indeed, not far away the BOJ kept rates on hold as expected, but revised down its outlook for GDP over fiscal 2020 to -4.7% – and stressed it will do more if needed. Won’t we all?

Meanwhile, as Europe lumbers towards a decision on what fiscal recovery package it will agree on this month, we hear that German Chancellor Merkel might be prepared to compromise – in other words to make the proposed spending totals even lower than the figure critics (from one side) already allege is not enough. Dutch PM apparently continues to remain doubtful that the whole thing will happen at all.

For once we can end on a happy note, however, as Moderna states that its Covid-19 vaccine seems to be working well. Good news – although other reports are that natural immunity may only be a few months long anyway.

Following May’s impressive MoM rebound from the March/April collapse, analysts expected June to see more follow-through for US industrial production as the economy re-opened.

Industrial Production rose 5.4% MoM (smashing the 4.3% MoM expectation). This is the biggest monthly gain since Dec 1959… but YoY is still down 10.8% YoY…

Source: Bloomberg

Manufacturing output increased 7.2 percent in June, but it was still 11.1 percent below its pre-pandemic February level; factory output fell 47.0 percent at an annual rate in the second quarter. The index for durable manufacturing rose 11.6 percent in June. Despite substantial gains in the past two months, the output of motor vehicles and parts remained nearly 25 percent below its February level. The index for nondurables rose 3.4 percent, with sizable gains for apparel and leather and for plastics and rubber products. The output of other manufacturing (publishing and logging) increased 2.2 percent.

This was the biggest monthly rise for manufacturing since 1946…

Source: Bloomberg

However, putting that “rebound” in context changes things a little…

Source: Bloomberg

The crude market was slow to react to OPEC+ headlines this morning, but is sliding now (ahead of this morning’s inventory/production data) after Saudi Arabia’s Energy Minister reportedly said OPEC and its allies will restore some oil supplies as planned next month, but the impact will be “barely felt” as demand recovers from the coronavirus crisis.

Bloomberg reports that the 23-nation coalition led by Riyadh and Moscow will taper the curbs to 7.7 million barrels a day in August from 9.6 million currently, Saudi Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak said on Wednesday.

And that has sent prices notably lower, erasing the API-driven spike last night…

That supply increase will be offset somewhat as coalition members that didn’t fulfill their commitments to cut output in May and June – such as Iraq and Nigeria – make up for it with extra reductions in August and September, the Prince said at the start of an OPEC+ video conference.

This is terrible news for US shale.