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Well, this is not what the asset-gatherers and commission-rakers said would happen…

The Dow hit its 200DMA…

 

The S&P is testing its 200DMA…

 

And Small Caps broke their 50- and 100-DMAs…

 

And Goldman Sachs is not helping..

 

 

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We know we shouldn’t ask – because it’s “not cool” – but is this chart yet another reason why Tesla’s bonds are tumbling (and stock is back below $300)…

Did Elon Musk stop paying his bills?

That would certainly make the already ugly cash burn look a little better in the short term?

As Bloomberg notes, Tesla is going through money so fast that, without additional financing, there is now a genuine risk that the 15-year-old company could run out of cash in 2018. The company burns through more than $6,500 every minute.

And for now Tesla stocks and bonds are tumbling…

Stocks started their descent when Musk dismissed an analyst question…

And bonds are reeling…

As it’s becoming clear Musk is running out of cash… and has a lot of debt already…

As Bloomberg notes, there’s a good reason to worry: No one has raised or spent money the way Elon Musk has. Nor has any other chief executive officer of a public company made a bankruptcy joke on Twitter at a time when so much seemed to be unraveling.

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Authored by Lance Roberts via RealInvestmentAdvice.com,

In early 2018, I penned a post which illustrated the legendary Bob Farrell’s 10-investment rules. Bob, one of the great investors of our time, had a very pragmatic approach to managing money. Investing rules, and a subsequent discipline, should be a staple for any investor who has put their hard earned “savings” at risk in the market. Unfortunately, far too many invest without either which leads to less than desirable outcomes.

As of late, there has been a lot of excitement over two areas of the market in particular: interest rates and oil prices. In fact, at this moment the speculation in these two areas is at record levels.

Why is that important?

First, the speculation that oil and interest rates will go higher are the two areas which have the greatest negative impact on economic growth and earnings. Rising interest rates increase borrowing costs and higher oil prices increase input costs for manufacturers. As I noted previously, with a heavily indebted consumer, there is little ability to pass on higher costs which, if absorbed, reduces profits.

Secondly, the speculation brings forward two of Mr. Farrell’s most important rules:

• Rule #2: Excess in one direction will lead to an opposite excess in the other direction, and;

• Rule #9: When all the experts and forecasts agree – something else is going to happen.

Currently, when it comes to oil prices, there is little room left for more bullishness. As oil prices have risen due to concerns over the potential supply concerns from geopolitical tensions, the price of oil is now as overbought and extended as at every other prior peak.

Of course, the cycle of rising oil prices leading to increased optimism which begets bullish bets on oil continues to press prices higher. However, it is also the exuberance which has repeatedly set up the next fall. As shown below, bets on crude oil prices are sitting near the highest levels on record and substantially higher than what was seen at the peak of oil prices prior to 2008 and 2014.

Importantly, while bullish bets on oil are at extremes, there is also a high correlation between the direction of oil and the S&P 500. (Importantly, rising oil prices have been a major contributing factor to the rise in earnings for the S&P 500. A reversal in prices will be problematic as well.)

As JPM recently noted, via Zerohedge,

“The sharp increase in oil prices over the past month has been accompanied by a further rise in spec positions, which as JPMorgan notes, has now risen to new record highs. This suggests that hedge funds and other speculative investors have been at least partly behind the recent sharp spike in oil prices.

As JPM further notes, both Systematic and Discretionary hedge funds have been building up long positions in oil, with the former induced entirely by momentum and positive carry, while the latter have rushed in due to geopolitical issues, continued inventory declines in the US and expectations of Saudi Arabia engineering a higher oil price ahead of privatizations next year.

Bloomberg confirms the recent surge in commodity fund inflows, noting that hedge funds investing in oil are luring capital at the fastest pace in more than a year. After years of pain, commodity funds have recovered the client outflows they suffered last year. According to eVestment data, investors allocated $3 billion to commodity-focused hedge funds from January through March, the most since the third quarter of 2016. 

But it is not only speculative investors such as hedge funds, systematic or discretionary, responsible for the rise in oil prices, it is also real money investors such as retail investors and asset allocators that have been buying oil indirectly via purchases of commodity tracking funds as they seek to increase their overall allocation to commodities.”

The last paragraph is problematic as retail investors are always “late to the party.” From a contrarian standpoint, this alone should be worrisome. However, with speculators pushing prices higher, the economics of the cycle are very mature. Higher prices has led to a surge in production to an all-time record. However, demand, which has started to deteriorate over the last 12-months, remains stagnant and more representative of the economic demand-driven side of the equation.

With oil, a direct cost to consumers, the surge in prices acts as an additional tax on consumers which detracts from other economically sensitive discretionary purchases. With production at records, along with net speculative long-positioning by investors, the risk of a reversion caused by an economic slowdown or recession is problematic.

This is where the second “overly crowded trade” comes into play. 

The rise in commodity prices, combined with the Fed’s instance on hiking interest rates, has led to a belief that demand-driven inflation is finally set to return to the U.S. This has led speculators to build the largest net-short positioning in U.S. Treasuries on record.

Once again, we see Bob Farrell’s rule in action. Previously, such record net-short positioning has been more indicative of peaks in the interest rate cycle as opposed to the beginning of higher rates. You can see this more clearly if we strip out all of the positionings except those periods where net-short contracts exceeded 100,000.

With the net-short positioning on the U.S. Treasury at records, the net-short positioning on the Eurodollar has also reached a record. Once again, what we find is when the net-short positioning starts to get overcrowded, that too has been a good indication of a bottom in bond prices (or a peak in rates.)

The problem is the tentative rise in inflation is driven by higher costs being pushed onto consumers. This is the wrong type of inflationary rise which negatively impacts economic growth. As opposed to rising prices driven by rising demand, cost-push inflation simply eats away at discretionary incomes reducing consumptive spending which is 70% of economic growth.

With positioning on the U.S. Dollar net-short, along with interest rates and the Eurodollar, there is plenty to suggest that traders, and investors, have all rushed to the same side of the boat.

As our analyst Jesse Colombo explained last week:

“If another wave of dollar strength occurs, it would be very bad news for crude oil and the overall energy sector (crude oil and the dollar trade inversely). The U.S. dollar’s surge in 2014 and 2015 was the trigger for the violent crude oil bust. Even more concerning is the fact that the ‘smart money’ are more bearish on crude oil now than they were immediately before the 2014 oil bust, as I discussed in greater detail last week. While oil’s short-term trend is still up for now, and I believe in respecting the trend, there is a very real risk that another violent liquidation sell-off may occur when the trend changes.”

Like all rules on Wall Street, Bob Farrell’s rules are not meant has hard and fast rules. There are always exceptions to every rule and while history never repeats exactly it does often “rhyme” very closely.

Nevertheless, one thing is true, in the short-term it may well seem that everyone is correct in their thesis of higher rates, inflation and oil prices. However, history has a pretty clear record to suggest that when “everyone in on the same side of the boat” it has generally often paid to put on a “life vest.”

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What a difference a month makes: just 30 days after the US posted the biggest trade deficit since the financial crisis, when the US trade balance was some $57.6BN against the US, moments ago the BEA reported that the US trade deficit plunged by a whopping $8.7 billion, dropping to $49BN, better than then $50BN expected, and the biggest monthly drop (in dollar terms) since the financial crisis.

According to the census bureau, the deficit decreased from a revised $57.7 billion in February to $49.0 billion in March, amid a perfect trade environment as exports rose and imports declined, or as Trump would say, “his policies to boost US trade worked.”

Broken down by category, the goods deficit decreased $7.5 billion in March to $69.5 billion. The services surplus increased $1.3 billion in March to $20.5 billion.

The good news: exports of goods and services increased $4.2 billion, or 2.0%, in March to $208.5 billion. Exports of goods increased $3.7 billion and exports of services increased $0.4 billion.

• The increase in exports of goods mostly reflected increases in capital goods($1.9 billion), in foods, feeds, and beverages ($1.0 billion), and in industrial supplies and materials ($0.9 billion).
• The increase in exports of services mostly reflected increases in maintenance and repair services ($0.1 billion), in travel (for all purposes including education) ($0.1 billion), and in transport ($0.1 billion).

Also good news, if only for GDP bean-counters: imports declined, decreasing by  $4.6 billion, or 1.8%, in March to $257.5 billion. Imports of goods decreased $3.7 billion and imports of services decreased $0.9 billion.

• The decrease in imports of goods mostly reflected decreases in capital goods ($1.5 billion), in consumer goods ($0.9 billion), and in industrial supplies and materials ($0.7 billion).
• The decrease in imports of services mostly reflected decreasesin charges for the use of intellectual property ($0.9 billion) and in transport ($0.1 billion). Charges for the use of intellectual property for February included payments for the rights to broadcast the 2018 Winter Olympic Games.

Broken down by trading partner, the March figures showed surpluses with Hong Kong ($3.3BN), South and Central America ($3.1), United Kingdom ($1.2), Brazil ($0.8), and Singapore ($0.3).

Meanwhile, the countries that should be worried that they may fall in Trump’s trade war sights, and recorded deficit with the US in March, included China, of course, with a $35.4 billion deficit, but also the European Union ($12.4), Mexico ($7.0), Japan ($5.9), Germany ($5.0), Italy ($2.3), France ($1.5), OPEC ($1.4), India ($1.4), Taiwan ($1.3), South Korea ($1.2), Saudi Arabia ($0.3), and Canada ($0.2).

* * *

Finally, in case Trump needs some cheering today now that Stormy Daniels is back on the front pages, show him this chart of the US deficit excluding petroleum products: after hitting a record last month, it has rebounded dramatically in March, suggesting that whatever Trump is doing to boost overall trade (we already know US petroleum exports are soaring), may be working. Expect even more upward revisions to Q1 GDP, which however may lead to cuts for Q2 GDP as net exports were likely front-loaded.

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While both US Productivity and Unit Labor Costs picked up from Q4’s data, both key economic data points disappointed expectations with productivity up 0.7% (+0.9% exp) and labor costs up 2.7% (+3.0% exp).

Notably the +2.5% Q4 unit labor cost rise was revised notably lower to +2.1% QoQ.

Non-Durable Manufacturing Worker Productivity declined YoY for the 3rd quarter in a row…

Headline real compensation dropped 0.1% QoQ – the second QoQ decline in a row.

Under the hood we note that real compensation for the manufacturing sector dropped 0.1% YoY and real compensation for non-durables dropped 1.5% YoY.

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Late last night, Rudy Giuliani shocked viewerswhen he revealed during an interview with Sean Hannity that President Trump had, in fact, reimbursed his personal attorney Michael Cohen for a $130,000 “hush money” payment to porn star Stormy Daniels, saying the president “didn’t know about the specifics” but that he was aware “of the general arrangement.”

For a moment, the entire Washington political establishment held its breath. After all, it sounded as if Giuliani had just contradicted a statement that Cohen had made both during an interview with the New York Times and during court testimony – and could leave him exposed to a perjury charge. After flying into damage control mode, Giuliani later suggested that while Trump had repaid the $130,000, Cohen had made the payment to Daniels without Trump’s knowledge at the time.

The statement could also rebound on the president: Trump himself had also repeatedly denied having any knowledge of it, meaning that, in addition to possibly putting Cohen in legal jeopardy, Giuliani – Trump’s brand new lawyer – had seemingly risked ensnaring his boss in the controversy as well.

So this morning, President Trump himself weighed in to clarify Giuliani’s statement, providing some of his most detailed comments yet about the lawsuit brought against him and Cohen by Daniels.

Trump/Giuliani.
On April 5:
Q Mr. President, did you know about the $130,000 payment to Stormy Daniels? THE PRESIDENT: No. No. What else?
May 2:
Giuliani: “He didn’t know about the specifics of it, as far as I know. But he did know about the general arrangement,..”

— Mark Knoller (@markknoller) May 3, 2018

As Trump explained in a series of tweets, Cohen was paid through a private retainer agreement, and the money to pay Daniels was presumably taken from these payments, not from payments made by Trump’s campaign.

“Mr. Cohen, an attorney, received a monthly retainer, not from the campaign and having nothing to do with the campaign, from which he entered into, through reimbursement, a private contract between two parties, known as a non-disclosure agreement, or NDA. These agreements are very common among celebrities and people of wealth,” Trump tweeted.

Mr. Cohen, an attorney, received a monthly retainer, not from the campaign and having nothing to do with the campaign, from which he entered into, through reimbursement, a private contract between two parties, known as a non-disclosure agreement, or NDA. These agreements are…..

— Donald J. Trump (@realDonaldTrump) May 3, 2018

Trump added that these types of agreements are “very common” among rich people and that Daniels’ violation of the NDA was clear-cut and that she would eventually be forced to pay up in arbitration.

“In this case it is in full force and effect and will be used in Arbitration for damages against Ms. Clifford (Daniels). The agreement was used to stop the false and extortionist accusations made by her about an affair, despite already having signed a detailed letter admitting that there was no affair. Prior to its violation by Ms. Clifford and her attorney, this was a private agreement. Money from the campaign, or campaign contributions, played no roll in this transaction.”

…very common among celebrities and people of wealth. In this case it is in full force and effect and will be used in Arbitration for damages against Ms. Clifford (Daniels). The agreement was used to stop the false and extortionist accusations made by her about an affair,……

— Donald J. Trump (@realDonaldTrump) May 3, 2018

Finally, Trump again insists that money from the campaign “had nothing to do” with Daniels or the payment made to her – and he also reminded the world that Daniels had previously signed a detailed letter denying the affair.

…despite already having signed a detailed letter admitting that there was no affair. Prior to its violation by Ms. Clifford and her attorney, this was a private agreement. Money from the campaign, or campaign contributions, played no roll in this transaction.

— Donald J. Trump (@realDonaldTrump) May 3, 2018

As Bloomberg White House reporter Jennifer Jacobs pointed out, Trump is making the argument that Giuliani had been trying to make last night.

So this “celebrities and people of wealth” argument is what Rudy Giuliani was *trying* to do on Fox News in that wild interview last night: Shield Michael Cohen from campaign finance violation, and shield Trump from affair with Stormy Daniels. pic.twitter.com/Mtf0MMjqUy

— Jennifer Jacobs (@JenniferJJacobs) May 3, 2018

That said, Jacobs also made the point that Trump’s story now also appears to have changed, even if he still denies having had an affair: “President Donald Trump changed his story regarding $130,000 in hush money paid to adult film actress Stormy Daniels during the 2016 campaign, saying Thursday he reimbursed lawyer Michael Cohen and denying the arrangement was improper.”

Giuliani’s statement indicates that Trump was aware of the payment and reimbursed Cohen for it. It is unclear when or how the reimbursement took place. The White House did not immediately respond to a request for comment.

“When I heard Cohen’s retainer of $35,000, when he was doing no work for the president, I said ‘That’s how he’s repaying, with a little profit and a little margin for paying taxes for Michael,’’’ Giuliani said.

Asked last month whether he knew about the payment to Daniels, Trump said “No.’’

Asked if he knew where Cohen got the money for the payment, the president said he didn’t.

“No, I don’t know,’’ Trump told reporters.

Daniels is suing Trump and Cohen to void her NDA and has also offered to return the money that Cohen paid her. And just days ago, she slapped Trump with a lawsuit – this time filed in a New York court – claiming that he had defamed her in a series of tweets mocking a sketch of the man she said had threatened her about the purported affair. One wonders if this morning’s tweetstorm will elicit another lawsuit from Daniels?

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Dow futures suddenly dropped at around 0745ET – led by a drop in the dollar and Treasury yields – breaking below its 200-day moving average…

There was no clear catalyst though some suggested an ‘old news’ headline that hit Bloomberg at 0740ET – GIULIANI SAYS COHEN `DEFINITELY’ WAS REIMBURSED – may not have helped. But as Dow futures broke the 200DMA, gold jumped…

 

And Treasury yields have been dropping all night…

As has the dollar…

 

Post-FOMC, Gold is winning…

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Submitted by Aaron Wood of CoinTelegraph

Alexis Ohanian, a co-founder of Reddit, said that he predicts the price of Ethereum (ETH) will reach $15,000 in 2018, Fortune reports May 2.

Ohanian, who now works full-time at a venture capital (VC) firm Initialized Capital, said in an interview, “At the end of the year, Bitcoin will be at $20,000. And Ethereum will be at $15,000. Great, now people can call me out if I’m wrong.” He said that he’s bullish on ETH because “people are actually building on it.”

Should Ohanian’s prediction prove true, the ETH market cap would soar from $67 bln to nearly $2.5 trln, while Bitcoin would recover to last year’s record high price and market cap of $340 bln.

Ohanian’s firm Initialized Capital has more than $250 mln assets under management and has invested in major cryptocurrency exchange Coinbase. Ohanian said in the interview that investing in emerging and innovative technology is a priority for the company. He added that blockchain, while promising, will require one to two years to reach its true potential:

“This year, it’s all about blockchain. Most of it is just hype and BS, just like how it was with [artificial intelligence] and [machine learning]. Most of the really vital, protocol-level, basic infrastructure around software and blockchain will need to get built in the next year or two for us to really see the Web 3.0 we’re really hoping for… These are the types of things I think will build the foundation for a very different, much better Internet.”

Ohanian sold Reddit to publishing house Conde Nast in 2006 for an undisclosed figure between $10 and $20 mln.

In April, CEO of independent financial consulting firm deVere Group Nigel Green predicted that the ETH price would reach $2,500 by the end of 2018. Green says the fourfold increase would come as a result of growing adoption of ETH as well as the use of smart contracts.

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