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A Washington judge on Tuesday refused to dismiss the charges pending against former Trump campaign executive Paul Manafort, dashing his hopes of walking away just as the investigation is entering what many expect will be its home stretch.

US District Judge Amy Berman Jackson rejected the dismissal motion filed by Manafort’s legal team on Tuesday.

Earlier this month, Eastern District of Virginia Judge T.S. Ellis, a Reagan appointee, said Mueller shouldn’t have “unfettered power” to prosecute Manafort on charges that have nothing to do with Russia.

Ellis added that he’s concerned Mueller is only pursuing charges against Manafort to pressure him into turning on Trump. The Judge added that the charges brought against Manafort didn’t appear to stem from Mueller’s collusion probe. Instead, they resulted from an older investigation carried out by the Obama Justice Department that was eventually abandoned, Bloomberg reported.

Ellis also required Mueller’s prosecutors to turn over an unredacted version of the August 2, 2017 memo that Deputy AG  Rod Rosenstein used to describe the criminal allegations Mueller’s team could investigate.

Yet Judge Berman Jackson said it was within Mueller’s mandate to investigate “any links” between Trump campaign people and Russia.

“It was logical and appropriate for investigators tasked with the investigation of ‘any links’ between the Russian government and individuals associated with the campaign to direct their attention to him,” Jackson wrote in her ruling.

Her decision will clear the way for Manafort to stand trial in September.

Manafort is charged in Virginia with financial violations related to his lobbying work in Ukraine – work that occurred long before he joined the Trump campaign. Other charges are being heard in federal court.

As one Bloomberg editorial writer pointed out on Twitter, not one of the charges filed against Manafort has anything to do with collusion.

Mueller took a year to obtain 19 indictments, 13 of them against Russians who will never face a court, one against Manafort based on an earlier FBI investigation, one against a guy who opened bank accounts for Russian trolls and four more for lying to the FBI. Wow! Great job!

— Leonid Bershidsky (@Bershidsky) May 15, 2018

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Authored by Michael Pento via Pentonomics,

The Keynesian Illuminati that run the world are now scrambling to find solutions to the rampant condition of income inequality that they themselves have created. After a decade of global fiscal and monetary policy madness, which were in effect Robin Hood in reverse, they are now seeking to repair the damage caused to the middle classes by making them become permanent wards of the states, just as they strip away ever more of their freedoms.

A genuine solution to reduce the wealth gap would be to eliminate central banks and replace them with a gold standard of money. This would automatically fetter the monetary base to the increased mine supply of gold, which historically has closely matched the productive capacity of the economy. This leads to stable growth without asset bubbles, which serves to eliminate trenchant differences between the classes. But that type of solution wouldn’t achieve their real objective, which is to increase power. Therefore their answer to the imminent manifestation of the next global financial crisis, of their own making, is to invent another government wealth redistribution scheme of even greater proportions.

Despite historical proof that economic systems premised on government redistribution, such as communism and socialism, not only lead to stagnation but in fact exacerbate income inequality, they still cling to the hope that if marketed under a different name their idyllic welfare state will eventually yield prosperity. Enter their latest indulgence:  Universal Basic Income (UBI). UBI–comes in a variety of flavors but all are predicated on the government making payments to people for doing absolutely nothing.

This re-packaged “solution” takes money from the productive part of the economy and re-purposes it into non-productive efforts. At least communism operated under the pretense of work:  a communal utopia “from each according to ability…to each according to need.”

UBI is predicated on a handout with no incentive for people to live up to their potential.  As bizarre as this may sound, it is rapidly gaining worldwide traction. 

Before the Great Recession, nobody would have envisioned a Zero Interest Rate Policy, or even Negative Interest Rate Policy (NIRP). Let alone central banks buying stocks–in Japan, they own over half the ETF market–but these things have unfortunately now become commonplace. Likewise, a few years ago few would have envisioned the war on physical currencies – recently India took 86% of its physical currency out of circulation.

Under the guise of saving the global economy from the fast approaching greater depression, governments’ inexorable move towards the abrogation of free markets will soon take a quantum leap forward. In the wake of the last Financial Crisis circa 2008, public and private balance sheets were stretched to the limit. The usual approach from central banks to save the economy is to simply lower interest rates. But borrowing costs are already in the basement of history. Hence, even more egregious and extraordinary steps will be needed to push asset prices higher in the next crisis.

These desperate measures may include more NIRP, making physical currency illegal and UBI. Paying people to lay fallow is the perfect recipe for a massive plunge in worker productivity and economic contraction. It also paves the way for a rapidly expanding rise in the broad money supply.

The economist Joseph Schumpeter described innovation in a free-market economy as the “gales of creative destruction.” There is nothing inherently wrong when new innovations destroy old ones. The car replaces the horse and buggy; the cell phone renders the beeper obsolete. The labor force is then forced to re-invent itself, pushing productivity and humanity on an upwards trajectory. Hanging your hat on being the Lotus 123 expert in the office is a dead-end career path–thriving economies move fast, and a motivated labor force always keep pace.

Doling out free money stifles the incentive for latent workers to adapt. We see these effects when there are long extensions in benefits for unemployment, just like we had during the Great Recession. While unemployment insurance is useful as a short-term stopgap between jobs, continuous extensions of unemployment leads to complacency. During the Great Recession, we witnessed a deterioration of skills by those who opted for the continual extension of unemployment benefits. Many transitioned off unemployment onto long-term disability, depriving themselves of the integrity of work and putting a drain on the current social safety net. 

Comprehensive welfare programs such as UBI, soon lead to a perpetual condition of economic stagnation, higher interest rates, currency depreciation, rising debt to GDP ratios, onerous tax rates and rapid inflation. 

Finland underwent a two-year experiment in basic income where a select group was given the equivalent of $670 a month with no strings attached. The Finish government just ended this program citing very high costs that didn’t yield the intended results. Finance minister Orpo confessed to the Financial Times that the UBI system made people “passive” noting that when they paid people to do nothing, job openings were left unfilled. He concluded, “We have to look at the incentives to work.” Finland has decided against renewing the program at the end of this year. Instead, they have introduced legislation to make some benefits for unemployed people contingent on the completion of worker training. Finland’s failed experiment with UBI hasn’t deterred Italy from delving in the same experiment. The newly empowered Five Star Movement (M5S) had an incredible campaign promise: a guaranteed income of €780 ($960) a month for everyone.

But facts don’t seem to matter to liberal elites who view UBI as a great tool to deploy once artificial intelligence turns people into gelatinous masses of useless goo. The ultra-liberal co-founder of Facebook, Chris Hughes, blames the growing difference between the wealthy and working-poor on the same market forces that made Facebook’s rise possible. He believes people don’t want a handout, but he intends to petition for one on their behalf anyway. He is pushing for a guaranteed income of $500 a month for every working adult who makes less than $50,000, paid for by raising taxes on people who make over $250k or more. And by working he doesn’t necessarily mean having a paying job – working can be defined as just having a dependent child or parent.

One of the primary dangers here is that UBI will undoubtedly end up being inflation adjusted. In other words, the argument will be that it will have to be pegged to the CPI in order to maintain the purchasing power of its monthly stipend.  Of course, since UBI is at its intrinsic core a deficit-busting, productivity-killing inflation machine, the result could lead to a death spiral of rising deficits and inflation that in turn serves to drive up the amount of UBI transfer payments…and around again we go. Of course, UBI also provides an ever-growing voting class that will become dependent on the government for everything. Perhaps this is more the elites’ real goal.

The primary driver of the wealth gap between the one percenters and the poor is the result of central banks’ falsification of money, interest rates, and asset prices. This is because the vast preponderance of their money printing efforts ends up in stocks, bonds and real estate, which overwhelmingly boosts the living standards of plutocrats, as it eviscerates the middle class and pushes the lower class further into penury.  Until governments acknowledge the real culprit behind income inequality, they will never arrive at a viable solution.

*  *  *

Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check”, is Host of The Pentonomics Program and Author of the book “The Coming Bond Market Collapse.”

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It will hardly come as a surprise to anyone that in the quarter in which the Harvard endowment added just 3 tech stocks – Apple, Microsoft and Alphabet – which ended up amounting to 72% of the fund’s entire portfolio, and on the same day when the latest BofA Fund Manager Survey revealed that for 4 consecutive months, Wall Street saw “Long FAANG+BAT” as the most crowded trade…

… that today’s barrage of 13-Fs (a full breakdown of today’s key filings shortly) would show another hedge fund pile up in tech stocks.

Certainly the just published 13-F of Stanley Druckenmiller’s Duquesne Family Office, confirmed as much: what it showed is that not even the traditionally contrarian Druckenmiller could resist the siren song of the “growth” stocks, and in the first quarter, Druckenmiller, whose total long AUM was just over $1.8 billion, dumped some $720MM in mostly energy, financial and pharma stocks to buy even more tech exposure.

As a result, Druckenmiller’s top holdings as of March 31 were Alphabet, Amazon, Microsoft, and Salesforce, while the fund added the following new positions: Intel, Alibaba, Micron, Netflix, Adobe, Qualcomm and several others.

One notable liquidation was Facebook, of which Duquesne owned $191MM at the end of 2017, and which it liquidated in its entirety. Some other names which Druckenmiller sold were the following:

• Andeavor
• Apache
• Bank of America
• Biogen
• Cabot Oil & Gas
• Concho Resources
• Devon Energy
• Encana
• Eog Resources
• Facebook
• HDFC Bank
• Loma Negra
• Marathon Oil
• Marathon Petroleum
• Paypal Hldgs
• Time Warner
• United States Steel
• Vale
• Wells Fargo

And as Druckenmiller rotated out of energy, he went bigly into infotech and semis, as broken down in the table below which breaks down Duquesne’s holdings and the change from last quarter. New names are in green.

Source: SEC

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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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