iftttwall

So there’s success and there’s ‘success’ and while Argentine officials are proclaiming victory in managing to roll its best, saying it “couldn’t have got a bigger vote of confidence,” the fact that it could only sell the new bonds at 20% yields is perhaps the more important fact…

The BCRA desperately supported the peso today ahead of the auctions…

And still they could only fill their order book by paying an economy-crushing 19% (8Y) and 20% (5Y) BOTEs…

Finance Minister Luis Caputo tells reporters in Buenos Aires:

• Govt sold about 36.9b pesos of 2023 BOTEs at 20%
• Govt sold about 36.4b pesos of 2026 BOTEs at 19%

Caputo added that the Lebac auction was held without any issues, confidently noting that “Argentina sold this debt on the most difficult day for EM in 2018,” adding that “Argentina couldn’t have gotten a bigger shot of confidence in its economy today.”

Additionally, Bloomberg reports that the BCRA press office confirms that it covered more than 100% of the expiring Lebacs – with bods for 621 billion pesos at a 1-month yield of 40%!

For now, the peso market is shut but MSCI Argentina ETF is up around 3% after hours…

Caputo then reiterated that Argentina may not need to sell debt abroad in 2019 because of the financing that the nation is seeking with the IMF, and reiterated it won’t sell international debt this year. Caputo concluded optimistically saying that “volatility is to ease now in Argentina.”

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It’s amazing that President Donald Trump still allows Rudy Giuliani to step within 20 feet of a microphone – let alone give revealing, off-the-cuff interviews to national media outlets that have alternatively contradicted the White House official narrative and revealed key elements of the Trump legal team’s strategy. Today it was the latter, as Giuliani reportedly said in an interview that the administration is going to use the one-year anniversary of the appointment of Special Counsel Robert Mueller’s appointment by Deputy AG Rod Rosenstein to pressure him into ending the probe once and for all, Bloomberg reports.

While Giuliani didn’t reveal any specific actions – he did say the White House hasn’t ruled out any options should Mueller ignore their warnings and continue carrying on his investigation.

Former White House lawyer Ty Cobb, who had urged Trump to cooperate with the probe, had at one point promised the president that Mueller’s investigation would be over by the end of 2017.

“We are going to try as best we can to put the message out there that it has been a year, there has been no evidence presented of collusion or obstruction, and it is about time for them to end the investigation,” Giuliani said. “We don’t want to signal our action if this doesn’t work – we are going to hope they listen to us – but obviously we have a Plan B and C.”

When it comes to keeping the legal team’s plans under wraps…it sounds to us like Giuliani just revealed them.

Regarding the official interview with investigators that Mueller has desperately been seeking for months now, Giuliani said special counsel would need to show exactly why he needs to speak with Trump in person after his staff has reportedly gone over 1.2 million pages of documents. A list of 49 questions that Mueller had purportedly turned over to the Trump team leaked last month.

“It is hard to recommend an interview when the questions presented indicate they have no evidence, and it is hard not to get at least the appearance they are attempting to trap him into perjury,” Giuliani said.

Giuliani reiterated the White House’s claim that it would demand assurances from Mueller that the investigation would need to wrap up shortly if Trump decides to go ahead with an interview. While President Trump had at one point said he was looking forward to speaking with Mueller, he has reportedly since soured on the idea following the FBI raids on his former personal attorney, Michael Cohen. Mueller was appointed on May 17, 2017, eight days after Trump fired former FBI director (and Mueller BFF) James Comey.

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Authored by Simon Black via SovereignMan.com,

As if things weren’t bad enough for beleaguered Tesla…

The company lost $1.1 billion in cash in the last quarter, executives are leaving the company in droves, it’s facing production issues with its Model 3 and, as I recently discussed, Elon Musk insulted analysts on the latest earnings call by dismissing their questions – regarding the company’s survival – as “boring” and “boneheaded,” (just after shareholders approved his obscenely large pay package).

Now, in addition to all that, the company has to compete with BMW leasing its $50,000 i3 electric vehicle for only $54 a month. That’s not a typo. Bloomberg recently confirmed you could lease an i3 for less than your monthly cable bill.

Lest you think BMW is making money on that lease, I assure you it’s not. The entire EV sector is losing money.

It’s a race to the bottom… Everyone in the space (including Tesla) is competing against each other, resulting in laughably low monthly leases.

But it’s not just the i3. You can lease a 2018 Honda Clarity for $199 a month. A Chevy Volt costs about $100 more each month.

The electric vehicle space is difficult. Vehicle prices are high and there isn’t enough demand for manufacturers to make money (even with generous government subsidies).

EV sales made up just 0.6% of total sales last year. And 80% of battery-electric car customers in the US lease instead of buying (not including Tesla, which doesn’t divulge that info)… partly because the resale value is horrid – an i3 is worth only 27% of its original price after three years.

But the old guard auto manufacturers, like GM and BMW, can sell other, profitable vehicles to plug the gap.

General Motors loses about $9,000 every time it sells a Chevy Volt (a $36,000 car). Fiat loses an absurd $20,000 on each electric Fiat 500 it sells.

And Tesla, the highest-selling EV company, is the granddaddy loss maker of them all. Which is why the company lost a staggering $2 billion on $8.5 billion in sales last year.

Still, Musk maintains his cult leader status amongst shareholders, who believe he will walk across water and change the world.

But the reality is quite grim…

Tesla had $2.7 billion in cash at the end of the first quarter (down from $3.4 billion at year-end 2017). And the street doesn’t think Tesla has enough cash to last another six months.

In addition to its general, cash-hemorrhaging operations, the company will need to pay down a $230 million convertible bond in November if its stock doesn’t hit a conversion price of $560.64 (meaning the stock would have to nearly double from today’s price) and a $920 million convertible bond next March if the stock doesn’t hit $359.87.

While the company’s recently-falling stock price is troubling, the bond market is forecasting real pain for Tesla…

Last August, Tesla issued $1.8 billion of unsecured bonds with a 5.3% coupon due in 2025. Credit rating agency Moody’s downgraded those bonds to B3 (deep junk territory) in March with a negative outlook (they traded at 90 cents then). Today those bonds trade at 88 cents on the dollar for a yield of around 7.5%.

So if Tesla needed to tap the debt markets again today, it would likely be paying around 8% interest on unsecured debt.

And there are likely suckers out there who will make that loan, despite the horrible economics of the EV business…

It doesn’t make sense to have electric vehicles until you have really cheap electricity. If you can get solar down to 1 cent per kilowatt hour, then you have something.

But, for now, you have to charge electric vehicles with energy produced from coal-fired power plants.

I believe Tesla is doing some really cool things. But, under normal economic circumstances, its business simply would not be viable.

The only way this company is able to exist and shower praise and money on an executive that is consistently non-transparent (and is also taking an enormous chunk of the company) is because there is too much cash in the world.

Companies that consistently post losses are able to fool people into loaning them massive quantities of money.

And big investors, like pension funds and mutual funds, are looking for scale. They’ve got trillions of dollars to invest. So, the bigger the investment opportunity, the more attractive it is.

And in a crazy paradox of our time, a company that issues loads of debt is actually a more attractive company than a financially sound one… because these big investors need to put money to work by any means necessary.

Capitalism is upside down today. Central banks have printed money for 10 years.

Now they’re reversing course. And that will have serious consequences.

Companies will get wiped out. It will probably be worse than the “dotcom” bubble. At least with the dotcom bubble, there wasn’t much debt – these companies raised equity.

Today, valuations are higher than the dotcom bubble and there’s loads of debt on top of it.

Warren Buffett famously avoided tech stocks back then. And people said he was stupid as they continued to pump money into a high-flying sector.

It’s the same as today.

People are loaning money to companies that are hemorrhaging cash and facing massive business headwinds.

Tesla is borrowing money and has to compete with BMW that is leasing its cars for $54/month.

As the Federal Reserve, European Central Bank and Bank of Japan all reverse their easy-money policies, they’ll suck liquidity out of the system. That will push interest rates up, which will force people to be more selective with their investments.

And a lot of crappy companies will get wiped out. I’m not just talking about Tesla. Even “blue chips” like GE and other companies that are heavily indebted and aren’t generating solid free cash flow are in trouble.

At a certain point, individuals need to be rational in how they invest their savings.

And if you’re investing in these fantasy, irrational investments, that has consequences.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

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After clinging to the green all day, despite a strong dollar, WTI/RBOB slipped into the red after API reported a much bigger than expected (and surprise) crude build (+4.854mm vs -1.75mm exp).

 

API

• Crude +4.845mm (-1.75mm exp)

• Cushing +62k (+550k exp)

• Gasoline -3.369mm

• Distillates -768k

After drawing down last week, expectations were for crude draw this week but API reported a large surprise crude build…

Crude inventories are 2.4% below the five-year norm, while Cushing stockpiles are about 30.5% below the average.

WTI/RBOB managed gains today (RBOB highest since Oct 2014)  – despite the dollar strength – heading into API…but kneejerked notably lower on the print…

As Bloomberg reports, a large number of drilled-but-uncompleted wells in shale plays and the potential for rising output have weighed on American prices, said Walter Zimmermann, chief technical analyst at ICAP-TA.

“You are probably seeing some serious producer hedging into these lofty levels here, whereas I don’t see anybody keen to hedge against Brent given these geopolitical fears.”

Notably, the Brent-WTI spread blew out to $8 today…

 

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Recent fears, warranted or not about the potential for retaliatory liquidation by China of its US Treasury holdings appear to have been once again vastly exaggerated because according to the latest TIC data released, America’s trade-war nemesis added $11 billion in TSYs in March, following the addition of $8.5 billion in March, and nearly $100 billion higher over the past year.

But while China is still buying – for now, given the lagged data – one other notable nation is selling… significantly.

The second largest foreign US creditor, Japan, has been liquidating aggressively in recent months and in March, Japan sold $16 billion in TSYs (the most of any nation in February), bringing its total to just $1,043.5BN, the lowest total in 7 years, since late 2016.

And while last month we already knew that Japan was dumping US paper, a new seller emerged this month: hedge funds, i.e. the so-called “Cayman Island” entity, which in March sold just shy of $10 billion in Treasurys.

Meanwhile, and perhaps most unexpected, at a time when US-Russia relations are the worst they have been in decades, Russia actually added $2.3BN in US paper.

All this Treasury buying (and selling) was during the chaotic swings of the March among concerns that China would stop buying or even buy US paper: recall TIC data is 2 months delayed. But April will likely be the big tell as that was during the peak of the escalating trade war tensions, when Trump and Xi were going at it head to head.

Furthermore, as we showed over the weekend, the far more recent Fed Custody holdings data released by the Fed last week showed that the selling by foreign central banks started in earnest in March and continued well into May, so expect next month’s data to be especially turbulent.

Meanwhile, the good news for all these buyers of US debt is that thanks to Trump’s budget, there’s plenty more where that came from.

Looking at the broader universe of all US International capital transactions, in March, foreign public and private entities sold a total of $4.9BN in Treasurys while buying $25.2N in Agencies; they also added a modest $22.4 BN in corporate bonds.

But the biggest surprise – or perhaps not considering what happened to stocks in March – is that after buying a near-record $62.5BN in January and another $57.9BN in US equities in February, in March, foreigners hit the brakes on further US stock purchases, and actually sold a whopping $24.2BN in stocks, the biggest monthly sale going back to September 2015.

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Someone ask Bob Pisani if the bears are back in charge of the narrative?

Stocks were ‘triggered’ by retail sales data this morning…

And despite some roller-coastering, stocks largely trod water from the gap down open…

Dow (and Transports) tumbled into the red for 2018…

 

The Dow broke its 8-day win-streak and closed back below its 100DMA…

 

VIX mini-flash-crashed to a 12-handle on the retail-sales print then blasted higher to test a 15-handle…

 

Growth stocks bore the brunt today…

 

Treasuries were a bloodbath as yields at the long-end broke out of recent ranges…

10Y spiked…

To its highest close since July 2011…

 

30Y surged all the way to 3.22% – its long-term trendline resistance – and turned back lower…

We do note however that there is a huge amount of IG issuance this week – yesterday saw over $10 billion priced, putting primary market issuance well on its way to meeting survey estimates calling for $30 billion to $35 billion in weekly sales – and that would suggest rate-locks were actively being placed.

This was the worst day for an aggregate bond and stock portfolio in over 6 weeks…and 2nd worst since the Feb chaos…

 

Bear in mind that bond yields are spiking as economic data is disappointing notably…

 

Notable decoupling between bonds and the dollar today

One final thing of note before we leave bondland, the intraday loss on today’s 10bp move (with a 10bn DV01, as detailed here) is roughly $100 billion!!!

The Dollar spiked to new cycle highs…highest since Dec 27th 2017…

 

Argentine Peso managed gains off the 25/USD floor that BCRA enforced ahead of the massive bond rollover today…

 

Cryptocurrencies lost ground against the dollar today with Bitcoin and Bitcoin Cash back flat on the week…

 

The dollar strength left a wake of damage in commodity land (though WTI held on to gains)…

 

Meanwhile, the Brent-WTI spread is at its widest since 2015…

As Bloomberg reports, U.S. oil reached $8.06 below the international benchmark Brent, the cheapest it’s been been since April 2015, when a ban on most American crude exports was still in effect. Geopolitical tensions in the wake of U.S. sanctions on Iran are boosting Brent crude near $80 a barrel, while surging U.S. shale production is keeping West Texas Intermediate in check. The spread between the two may widen to $10 a barrel, according to Walter Zimmermann, chief technical analyst at ICAP-TA. “This having the character of a panic blow-off, it’s probably going to happen pretty quickly.”

Today was an ugly one for precious metals as the dollar spiked. Gold suffered it worst day since Dec 2016, breaking back below its 200DMA and the key $1300 level…

It seems 80x for the gold/silver ratio was resistance once again…

Finally, we note that the odds of 3 or more Fed rate-hikes for the rest of the year just overtook the odds of 2 more hikes…

 

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Authored by Tsvetana Paraskova via OilPrice.com,

The world is currently watching the growing tensions in the Middle East, and oil market analysts are guesstimating just how much Iranian oil supply the renewed U.S. sanctions could stifle.

Yet, the biggest story in oil markets this year may well take place far from the much-publicized tensions in the Middle East – namely China’s ever-growing oil demand.

The key oil demand growth center – China – has just beaten its own imports and refinery runs records, as refined oil product exports jump and domestic crude oil production hits seven-year-lows.

While all eyes are riveted on Iran and the Middle East, the pace of Chinese oil demand growth could be the most underappreciated story in oil markets right now, Bloomberg Opinion columnist David Fickling writes.

China’s oil demand growth has so far this year exceeded expectations, and Goldman Sachs, for example, says that growth could be even “higher than currently estimated”. According to Goldman, global oil demand growth in the first quarter of 2018 is likely to have seen the strongest yearly growth since the fourth quarter of 2010.

Current estimates by investment banks that see lowered Iranian and Venezuelan supply pushing up oil prices also assume that the global—and Chinese in particular—demand growth will continue to be strong.

So far this year, China has lived up to these expectations.

In 2017, China surpassed the United States to become the world’s top crude oil importer as its domestic production declined while it kept the title of world’s largest oil consumer for the ninth consecutive year, and while it expanded refining capacity, and reduced restrictions on oil imports and refined oil product exports.

The strong crude import pace continued this year, and in March Chinese crude oil imports hit their second-highest level on record at that time, while refined fuel exports also jumped to an all-time high, up by 43 percent compared to March 2017. China’s crude oil imports in the first quarter increased by 7 percent on the year to around 9.09 million bpd—a rise of almost 595,000 bpd on average compared to Q1 2017, according to Reuters calculations.

Refinery runs in March also jumped to a record as import quotas for the small independent refiners—the so-called ‘teapots’—were increased and refinery margins stayed healthy.

Chinese refineries processed 12.13 million bpd in March, beating the previous record of 12.03 million bpd from November 2017. Refinery runs in April and May are expected to be lower than the March record due to the peak maintenance season.

At the same time, China’s domestic crude oil production has been languishing near June 2011 lows in the first quarter this year, prompting higher imports to meet growing demand. Crude oil production in March was around 3.76 million bpd, flat compared with the average levels in January and February.

In April, Chinese crude oil imports set a new record—at 9.6 million bpd they beat the previous daily record of 9.57 million bpd from January this year. Steady refining margins and backlog cargoes to some independent refiners contributed to the record import volumes. Refined oil product exports soared 46 percent on the year in April, but eased from the all-time high in March.

China is crucial to global oil demand growth, and if it keeps its current growth pace, it would support the strong demand growth that analysts expect.

On the supply side, Iran’s impact on the global oil market has yet to be quantified or seen. The coming U.S. sanctions pushed up oil prices last week after President Donald Trump withdrew the United States from the nuclear deal.

Iran’s oil buyers continue to buy its crude, assessing the implications of the sanctions during the 180-day wind-down period. While European buyers flag concerns over the financing issues of trade with Iran as a potential stop to buying Iranian crude, China is reassuring Tehran that it will continue to import its oil.

As a supply loss in collapsing Venezuela and a potential decline in Iranian oil exports push oil prices up, the pace of demand growth in China could drive global demand growth higher. If demand growth continues to be strong—as currently expected—an already tight oil market could become even tighter amid geopolitical concerns, driving oil prices further up.

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How do you know an economy is growing? To answer that question fully would require for more time than most readers can dedicate to an article here, as there are simply too many indicators to mention, some objective, others less so, but there is one clear cut sign confirming an economy is not growing: if the consumers in said economy have no demand for loans – an indicator of stagnation and/or disinflation – or worse, are actively deleveraging their existing debt exposure, a precursor to outright deflation and money destruction, the bane of every central bank.

Well, if one uses the “exclusion” indicator, the US may have a big problem.

Following the passage of tax reform in late 2017, the previous Fed Senior Loan Officer Survey released three months ago noted a meaningful pick-up in loan demand. Then, according to the Fed’s weekly H.8 data on bank balance sheets, this rising oan demand spurred acceleration in actual bank C&I lending for the first time since the general elections in the last part of 2016 (recall that on several occasions in 2017, loan demand was on the verge of going negative Y/Y, traditionally a leading recession indicator).

And then… something snapped, because even though C&I lending has continued through April at a brisk clip, the latest, just released Senior Loan Officer Survey now shows the worst possible case (as per above): loan demand just turned collapsed, and not just for C&I loans but across the board.

What is even more bizarre is that this sudden revulsion toward new loans took places even as lending standards are becoming increasingly easy! As BofA notes, in the latest April survey a net 11.3% and 3.0% of banks reported easing lending standards over the previous three months for loans to large/medium C&I firms and small C&I firms, respectively, up from 10.0% and net unchanged in the prior.

And yet, despite easier access to credit, in terms of demand a net 7.0% and 1.5% of banks reported weaker demand for loans to large/medium C&I firms and small C&I firms, respectively, compared to net 2.9% and 6.0% reporting stronger demand in January. For CRE loans the net share reporting weaker demand decreased to 7.7% in April from 3.9% in January. Oops.

It wasn’t just C&I loans.

The same pattern was observed within the mortgage pipeline, where banks continued to ease lending standards for residential mortgage loans: a net 3.4% and 9.7% of banks reported loosening lending standards for GSE-Eligible and QM-Jumbo mortgages, respectively, compared to a net 8.3% and 1.6% in January, respectively.

Yet just like with C&I loans, this easing of standards merely underscored the decline in demand, as the net share of loan officers reporting weaker demand for GSE-Eligible and QM-Jumbo mortgages increased to 18.6% and 16.1% in April, respectively, further deteriorating from a net 15.5% and 11.5% reporting weaker demand for GSE-Eligible and QM-Jumbo mortgages in January.

At this point it will probably not come as a surprise that at the same time as C&I and resi loan demand slumped, US consumers expressed no interest for consumer loans either, as a net 9.6% and 6.6% of banks reported weaker demand for credit card and auto loans, compared to unchanged and a net 8.5% of banks reporting weaker demand for auto loans in January, respectively. Ominously, the demand for credit card loans tumbled to match the lowest print in the past 6 years, an indication that US consumers may have finally hit their peak for credit cards demand; if so, and with the US savings rate near all time lows, the US household’s purchasing power – that driver behind 70% of US GDP – is about to collapse..

Banks tightened lending standards for both credit cards and auto loans, according to the fresh April survey (net 9.4% and 6.5% of banks, respectively). This compares to net 1.9% and 4.9% tightening lending standards for credit cards and auto loans in the prior (January) survey (Figure 13).

Interestingly the Fed reported that: “Most domestic banks that reported experiencing reduced C&I loan demand indicated that customers shifting their borrowing to other sources of credit and increases in customers’ internally generated funds were important reasons for weaker demand”. Translated, this means that customers are not only not looking to grow their debt balances, but are effectively deleveraging.

Why? Very simple: thanks to the recent surge in Libor, the interest expense on loans has more than doubled this year, and what happens when households no longer find it economic to pay the interest on their debt? They dig deep, i.e. “shift their borrowing to other sources of credit” and repay existing loans.

If this is accurate, expect to see a plunge in the annual growth in C&I loans in the next few months as the collapse in demand translates into a mothballing of the loan pipeline as US consumers rebel against higher rates.

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