Tag: finance

One day after Goldman cautioned that “global risk appetite is becoming increasingly fragile”, the bank is out with another warning, this time predicting that volatility is about to spike, and listing over 300 stock specific catalysts why this will be.

In the latest report from derivatives strategist John Marshall, Goldman says that it expects volatility to increase over the next month both due to seasonal factors as well as midterm elections. As shown in the chart below, on average over the past 90 years, SPX volatility has increased 25% from August to October.

Goldman also reminds us that most major market corrections take place in October, and while some assume this is merely a coincidence, Goldman believes that “performance pressures for company managements (to meet full year expectations) and investors (final earnings season for the year) exacerbate shifts in investor sentiment at this time of year.”

Adding to the upward vol pressure, 2018 has the added feature of holding a mid-term election – one where the Democrats are expected to win at least the House, unleashing even more political chaos – which has the potential to add uncertainty this year.

In addition to index level vol, seasonality is also strong in single stock volatility according to Goldman’s analysis, which notes that since it is tough to make money buying volatility at the index level (due to the high volatility risk premium and the correlation risk premium), even with the wind at your back from seasonal factors, the bank prefers to focus at the sector and stock level to identify strong catalysts that could drive volatility over and above macro factors and with even more specific timing.

There is another reason why Goldman is urging clients to bet on single stock vol over index: According to Marshall – and as we first noted one month ago – stock event moves are getting bigger, which the bank attributes to the global trend of increased surprises and uncertainty of earnings. As confirmation, the charts below show the average 1-day moves on earnings releases relative to their average daily move in the month before/after earnings: “this data suggests volatility is percolating under the surface across stocks globally.”

As a result of these observations, Goldman expects “the increase in volatility to be broad-based” and as a result the bank will be “focused on buying single stock volatility where events can provide a timing advantage.“

So where will Goldman be buying vol?

To answer that question, Marhshall identified the top events across Goldman’s entire coverage universe through year-end. The result is a list of 329 major events over the next four months that could drive large moves in stocks across US, Europe and Asia. This list focuses on the largest events that investors will focus on, without a specific bet on absolute direction, merely buying vol ahead of the actual event, with the intention of selling once vol rises as other traders seek to hedge their exposure.

Our list is skewed toward events in names under our analysts’ coverage and those with liquid options markets. We look for option buying opportunities ahead of these events.

The following tables lays out all the 329 single-stock events the bank’s analysts believe have the potential to move stocks; together with local region date/time.

Consumer catalysts through year-end

Consumer Staples, Energy, Financials catalysts through year-end

Financials, Health Care catalysts through year-end

Health Care catalysts through year-end

Health Care, Industrial catalysts through year-end

Technology catalysts through year-end

Materials, Real Estate, Telecom, Utilities catalysts through year-end

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Authored by Chris Hamilton via Econimica blog,

There is an imminent hard stop to jobs growth in the US and therefore a concomitant problem to growth in consumption and economic activity.  The hard stop is simply the outcome of fast growth in employment versus fast decelerating population growth among the potential labor force… resulting in a labor participation rate that will peak as soon as 2019 or as late as early 2020.  And like night follows day, recession will ensue as soon as employment growth abates.

The US labor force participation rate amid 25 to 64 year olds, at midyear 2018, was 75.2%.  In the post 1980 period (since women have entered the workforce en masse), peak labor force participation rates have been somewhere between 76% to 78% (highlighted in the chart below).  At that point, essentially all those capable and/or willing to work are employed.  The remaining quarter of the 25 to 64 year old population are busy with parenting, caregiving, extended schooling, early retirement, incarcerated, on disability, face skills mismatches, or suffer physical or mental challenges that make work unlikely or impossible.  Simply said, if jobs continue growing anywhere near the current pace, by the end of 2019, the labor force will simply not be capable of providing further growth.

If the US population is still growing, why isn’t the potential labor force able to provide the labor for a growing economy?  The chart below shows the annual growth of the 15+ year old US population, from 1951 to 2028, through the next decade.  The black boxes with yellow numerals show the total 15+ year old population growth double peaking at +2.9 million persons annually in 1975 and 1998, decelerating to +2.7 million in 2008, and now down to +2.1 million in 2018.  But the bigger story is the demographic that makes up all the growth, shifting from the blue columns representing growth among the 15 to 64 year old population to the 65+ year old population.

As the head of household ages, their average annual income / expenditures and labor force participation rates rise, peak in mid-life, and fall away as they age (chart below).  So if the vast majority of population growth is among the elderly population with income / spending at just half of peak years…and collapsing labor force participation rates, then the growth in the potential labor force is severely impacted.

The chart below shows the annual growth in the potential labor force multiplied by participation rates among the different age segments.  The impact of the population growth shifting from the prime working age population to the elderly has impaired the potential labor force severely and this will only become more acute moving forward.  Peak annual potential labor force growth took place in 1998, adding 1.9 million persons…almost entirely among the prime working age population.  By 2008, total potential labor force growth was down about 15% (from peak) but the shift was well underway with the prime working age population growth down 25% to 1.4 million annually.  By 2018, the potential labor force growth is just 35% of peak.  By 2028, annual labor force growth will be just 15% of that seen at peak growth.

So how does this translate to jobs growth?  The chart below shows annual changes in non-farm payrolls versus the annual change in potential labor force.  Each period of jobs growth, well in excess of the labor force growth, is circled.  The years of peak 25 to 64 year old labor participation rates are highlighted in yellow as these were the years the labor market ran out of potential available laborers…and recession was imminent.

By year end 2018 or latest mid 2019, if employment continues trend growth, the labor force will essentially run out of employable persons.  Said otherwise, the economy will run out of new consumers and this situation of minimal labor force growth will only become more severe over the next decade (and yes, this is factoring in present rates of immigration…if those rates continue slowing, the situation only becomes more acute).

Of course, regardless the steep trouble facing the US…the US is still better demographically and population growth wise than many or even most of the developed and developing nations of the world (detailed HERE).  The US has ample resources to feed and fuel ourselves, care for one another, maintain and promote peace (for a change).  Unfortunately, the nation (and much of the world at large) have decided to believe in financial fairytales and false indicators that require no difficult choices or changes.  However, we still have options  about how we will approach what is likely to be the hardest epoch in this nations history…but the longer we wait, the more difficult and painful the remaining options become.

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A group of over 40 Congress members have sent President Trump a bipartisan letter reminding him that the US Constitution requires that the president seek Congressional approval before taking military action in Syria or elsewhere. Congressman Justin Amash (R-Mich.) announced via Twitter on Monday that the letter had been sent to the White House.

Ironically Rep. Amash made the announcement just as Monday’s evening’s massive Israeli strike on Syria was underway, which resulted in a downed Russian surveillance plane carrying 14 troops amidst the confusion of missiles flying over the Mediterranean as it was hit by Syrian defense attempting to stave off the attack by Israel. 

While the Pentagon formally denied any US role in the strikes, it was an extremely dangerous situation with yet again the potential for serious escalation between Russia and the US and its allies. 

The letter was signed by a handful of Republicans including Thomas Massie, Mark Sanford, and Walter Jones, as well as 42 Democrats. It begins as follows: 

We write to strongly urge you to consult with and obtain authorization from Congress before ordering any additional U.S. military action in Syria. We are deeply concerned by recent reports indicating that your administration is preparing again to strike Syria in the event of another chemical weapons attack. 

.@RepBarbaraLee @RepWalterJones @RepMcGovern and I, joined by @RepThomasMassie @RepSanfordSC and 42 Democrats, sent @POTUS this letter, reminding him that the Constitution requires that he obtain Congress’s approval before taking offensive military action in #Syria or elsewhere. pic.twitter.com/yfKDm34INy

— Justin Amash (@justinamash) September 17, 2018

And the letter continues by outlining Constitutional limits on the President’s power to wage war without seeking Congressional approval first:

The Constitution gives the power to declare war to the U.S. Congress and only permits the President to act in delf-defense, not simply to further perceived U.S. interests. The War Powers Resolution of 1973 also requires the President to consult with and obtain authorization from Congress prior to the use of offensive military force. 

The letter follows a similar one that was signed by 88 total Congressional members last April, thus it appears pushback in the House against a potential future US attack on Syria has waned in the wake of unfounded prior accusations that Assad is “planning” to use chemical weapons. 

In recent years in Syria, as the Pentagon’s “boots on the ground” presence grows (now at over 2,000 publicly acknowledged troops in eastern Syria), and as calls for direct military intervention against Damascus are also heightened, the White House has routinely invoked the 9/11 era Authorization For Use of Military Force (AUMF) — mainly framing its mission as “anti-ISIL” and increasingly in terms of preventing Iranian expansion, in a policy that goes back through the Obama administration. 

Watch McCain-impersonator @AdamKinzinger call for US military force to protect Idlib’s al-Qaeda rulers. He and @secupp then attack @TulsiGabbard for meeting with the President of *Syria* Bashar al-Assad – who Kinzinger calls the “Butcher of Baghdad” 😐 pic.twitter.com/VEowCjIMJO

— Dan Cohen (@dancohen3000) September 16, 2018

Meanwhile other Congressional leaders have called for a full US attack on the Syrian government, with Republican Congressman Adam Kinzinger (Illinois) appearing on CNN this week to argue that American forces should impose a no-fly-zone over Syria. 

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Having shrugged off Audi’s e-tron launch, TSLA stock is tumbling after reports that the company is to face a US criminal probe over CEO Elon Musk’s statements.

Bloomberg reports that Tesla is under investigation by the Justice Department over public statements made by the company and Chief Executive Officer Elon Musk, according to two people familiar with the matter. The criminal probe is running alongside a previously reported civil inquiry by securities regulators.

Federal prosecutors opened a fraud investigation after Musk tweeted last month that he was contemplating taking Tesla private and had “funding secured” for the deal, said the people, who were granted anonymity to discuss a confidential criminal probe. The tweet initially sent the company’s shares higher.

The investigation by the U.S. attorney’s office in the Northern District of California follows a subpoena issued by the Securities and Exchange Commission seeking information from the maker of electric cars about Musk’s plans to go private, which he has since abandoned.

The reaction in the stock price was swift…plunging 6%.

The stock price is catching back down to the bond price once again.

SEC enforcement attorneys in the San Francisco office were already investigating Tesla before Musk sent his tweet on taking the company private, Bloomberg reported Aug. 9. The existing probe focuses on whether Tesla had issued misleading pronouncements on manufacturing goals and sales targets, according to two people familiar with the matter.

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Authored by Roger Farmer via VoxEU.org,

Originally published in February 2009, this column proposes a new paradigm to reconcile Keynesian economics with general equilibrium theory. It suggests that, just as it sets the fed funds rate to control inflation, the Fed should set a stock market index to control unemployment. This would not let every manufacturing firm and every bank fail at the same time “as a result of speculative movements in markets that serve no social purpose.”

What Keynes should have said

Editor’s note: New thinking on macroeconomics is shifting into to the mainstream, as evidenced by a recent exchange on Project Syndicate between Larry Summers and Joseph Stiglitz. This column, originally posted on 4 Feb 2009, is an example of this mainstreaming. The post looks at the role of stock markets in stabilisation policy.

For more than seventy years, policy makers have used Keynesian monetary and fiscal policies to control recessions (Keynes 1936). Although these policies are widely perceived to have been successful in stabilising the business cycle, academics gave up on Keynesian theory in the 1970s. The appearance of stagflation led to the adoption of the Phelps-Friedman hypothesis of a natural rate of unemployment, and it caused academics to abandon the Keynesian idea of many steady-state unemployment equilibria (Cross 1995). Mainstream economists adopted an approach in which temporary deviations from the natural rate of unemployment are caused by “sticky prices”.

In a forthcoming book (Farmer 2009), I propose a new paradigm that reconciles Keynesian economics with general equilibrium theory. Unlike existing interpretations of Keynes’ General Theory, my approach does not rely on sticky prices and does not carry the implication that the economy, if left to itself, will return to full employment. The theory implies instead that any level of unemployment can coincide with any rate of inflation.

I will make three related points.

First, due to missing markets, labour market clearing may occur at many different unemployment rates, all of which are consistent with steady state equilibrium.

Second, aggregate demand determines which of these equilibria will occur.

Third, aggregate demand depends not on income, as asserted by simple Keynesian theories, but on wealth.

My argument leads me to advocate a different policy from the trillion dollar bailout currently on the table. I argue instead for direct control of the stock market through Fed intervention in a market for indexed securities.

The labour market

Finding a job is not costless; it requires resources to match a worker with a vacancy. Search theorists (Pissarides 2000) define a search technology to be a process that takes the search time of a worker and the search time of a corporate recruiter as inputs. By embedding this technology into an otherwise standard general equilibrium model, one can arrive at a workable definition of the natural rate of unemployment – the unemployment rate that would be chosen by a social planner in this expanded general equilibrium environment.

To produce a commodity, competitive equilibrium directs firms to use the right mix of labour and capital through adjustments in the wage-rental ratio. But to produce a match between a worker and a vacancy, the corresponding price signals are missing. We do not observe markets for the search effort of unemployed workers or corporate recruiters, and there are no market prices to direct participants to use the correct mix of vacancies and unemployed workers to fill a given number of jobs.

Standard search theorists have proposed many different mechanisms that might substitute for the lack of prices and restore the uniqueness and optimality of equilibrium in a search economy. I believe that these mechanisms are not present in practice and that the multiplicity of equilibria that follows as a consequence is a real world phenomenon with the following important implication.

In high-employment equilibria, firms devote a high percentage of resources to searching for a small number of unemployed workers. In low-employment equilibria, firms devote a small percentage of resources to searching for a large number of unemployed workers. The absence of input markets allows there to be a continuum of equilibria, each one associated with a different ratio of vacancies to unemployment and all of them consistent with zero profits through adjustment of the wage.

The stock market

US households own roughly two times US GDP ($28 trillion) in the form of houses and three times GDP ($42 trillion) in the form of factories and machines. In classical theory, the value of tangible assets is equal to the present value of future rents and dividend payments, and these payments are pinned down by fundamentals – preferences, endowments, and technology.

There is an alternative theory of asset prices put forward in Keynes’ General Theory – asset values are based on confidence. According to the confidence hypothesis, stock market participants value assets based on their perceptions of how others will value them in the future. House prices and stock prices have fallen dramatically in the last fifteen months, and some observers are puzzled that private banks are not lending to each other or to corporations and firms. There is no need for puzzlement. Liquidity is frozen because market participants are concerned that the economy is moving to a low-employment equilibrium and that asset prices will fall further. If this belief is fulfilled, the US banking system will prove not just to be illiquid – it will prove to be insolvent.

According to the confidence hypothesis, there is a connection between the stock market and dividends but the direction of causation is not the one stressed by classical economics. Confidence is an independent causal factor. If confidence is low – the private sector places a low value on existing buildings and machines. Low confidence induces low wealth. Low wealth causes low aggregate demand, and low aggregate demand induces a high-unemployment equilibrium in which the lack of confidence becomes self-fulfilling.

A policy proposal

Since WWII, the US Federal Reserve has stimulated the economy by lowering the interest rate during recessions and allowing it to rise again during expansions. At the end of each recession, the economy begins a new expansion, but there is no tendency for unemployment to return to a time-invariant natural rate. Defenders of the natural rate hypothesis argue that the natural rate itself is time varying but there is, to my knowledge, no theory that can explain this variation as a function of a small number of observable variables.

In Farmer (2008a, 2009) I develop a new paradigm. I argue that the unemployment rate returns to a level that depends on wealth and, just as there are many equilibrium unemployment rates, so there are many equilibrium values for the prices of assets. This theory underlies my recent articles (2008, 2009) in the Financial Times in which I suggest that the Fed intervene directly in an index of stocks to maintain confidence in the markets. In recent years the Fed has used one instrument – the fed funds rate – to control two targets: inflation and unemployment. I argue that the Fed should add a second instrument – the rate of growth of the price of a stock market index. Here is how this would work.

First, establish a market in an index of all publicly traded common stocks. The weights of the individual securities would be set in proportion to market capitalisation and could be adjusted regularly as new firms enter and old firms exit.

Second, create a privately owned holding company that holds a basket of securities and that issues liabilities in the index. The creation of a privately owned company of this kind would allow the Fed directly to trade the index without owning shares in the underlying corporations.

Third, direct the Fed to purchase a block of shares in the index, financed by a mix of money and three month debt liabilities, guaranteed by the Treasury.

Fourth, announce a price path for the index to be reset at each meeting of the open market committee and stand ready to buy and sell the index at the announced price. One policy might be to set the fed funds rate according to an announced inflation target and to set the price path for the index to achieve an announced unemployment target. The fed funds rate and the index would be chosen independently and their values set by manipulating both the level and the composition of the Fed’s balance sheet.

Possible objections

Some will argue that the government cannot predict bubbles and crashes any better than private markets. But in practice we do have some information about bubbles and impending crashes, and this information is shared by the government and the private sector. Private individuals cannot make money by betting against the market because any one individual is too small to buck the trend. When the herd stampedes, it is best to get out of the way. The government is the only agent large enough to stop the stampede and restore optimality.

Some will argue that my plan represents a step on the slippery slope to socialism. Not so – I am arguing for no more than an extension of an already accepted role for the central bank. Just as the Fed already sets one price (the fed funds rate) to control inflation so it should set a second price (a stock market index) to control unemployment. Unlike the fiscal bailout currently under consideration, my plan involves no extension of the size of government. It puts spending power back where it belongs – in the hands of households.

Capitalism is the single greatest engine of growth ever devised and the free market allocation of capital is superior to any other system known to humanity. If the big three auto makers cannot produce cars that people want to buy – let them fail. If Lehman Brothers made bad investments – let it sink. But do not let every manufacturing firm and every bank fail at the same time as a result of speculative movements in markets that serve no social purpose.

*  *  *

So – do you think this “mainstream’d” idea was accepted at The Fed?

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Thanks to an unprovable allegation of sexual assault, Supreme Court nominee Brett Kavanaugh will “never get a fair hearing,” According to The Federalist‘s David Harsanyi, who writes: “If you’re a man, a single uncorroborated account that dates back to 1982 is all your political critics need to accuse you of attempted rape,” adding “There is also no possible outcome in which Democrats will concede Kavanaugh’s innocence, or even concede that we can’t really know what transpired on that night 36 years ago.”

No matter how many hearings held, and no matter how many of Kavanaugh’s classmates and ex-girlfriends go on record to attest to his good character, and despite the fact that most sexual predators have a pattern of bad behavior – it does not matter. Kavanaugh is now forever tainted with nebulous allegations from a woman with a shaky story.

Kavanaugh’s accuser, Christine Blasey Ford, has a hazy recollection of the incident, admitting she doesn’t specifically remember the year it happened, where the incident occurred, whose house it was, how she got there, and whether Kavanaugh and a witness (who denies the account) were already upstairs when she went up, and how she got home that night. 

And as The Federalist writes: “Whether Ford’s accusation is true or not, Democratic Sen. Dianne Feinstein orchestrated the leak and subsequent release of Ford’s letter, not merely to sink Kavanaugh and level accusations in a way that would make it difficult for the judge to defend himself, but also to try and delay Republican efforts to confirm any nominee until after the midterms.” 

In short, a judge who by all accounts has been a model citizen – whose family was left in tears during vitriolic confirmation hearings, is nothing more than a disposable pawn to Democratic legislators.

McConnell: “This alleged incident is completely at variance with his entire life history.”

— Erica Werner (@ericawerner) September 18, 2018

Also highly suspect and somehow glossed over by a politicized media, the timing of this allegation: 

There’s no other explanation for the timing of leaked letter. The senator claims the allegations are “extremely serious and bear heavily on Judge Kavanaugh’s character.” Yet, according to reports, Democrats were in possession of Ford’s letter for months and sat on it. Feinstein personally met with Kavanaugh and didn’t bring up this “extremely serious” charge of sexual assault. Why not? She could have asked him about the allegations while keeping the accuser’s name confidential. Democrats submitted over a thousand questions to Kavanaugh on the record, and not one of them were about whether he had ever engaged in any “extremely serious” behavior. Feinstein also had Kavanaugh sitting in front of her, under oath, during public Senate hearings, and never asked him about his alleged behavior. –The Federalist

Meanwhile, if Democrats are successful in sinking Kavanaugh’s nomination – forcing him to withdraw, or successfully delaying his confirmation until after midterms – when Democrats are expected to wrestle Congressional control from GOP hands, it will damage the credibility of any Trump-nominated Supreme Court justice going forward. 

Catch-22

As Harsanyi notes, the Republicans are now in a catch-22 situation; if they refuse to entertain the 11th hour accusations – they will be accused of ignoring sexual assault. If they do hold hearings – which are scheduled for Monday, they will be accused of attacking a survivor of sexual assault. 

Republicans will never be able to ask Ford anything useful, because they’re mostly white men, and white men are, I’m told, perfunctorily racist and misogynist. If Republicans bring up the fact that Ford’s allegation wasn’t reported or relayed to anyone for more than 30 years — until Kavanaugh’s name emerged as a possible Supreme Court justice — they will be accused of attacking a woman. If they point out that her therapist’s notes, the ones that Ford claims prove her charge, in some ways contradict what she is now saying, they will be portrayed as a bunch of men attacking a sexual assault survivor. When they point out that polygraph tests are unreliable and inadmissible in courts, they will be accused of berating a victim. –The Federalist

In other words, this is a no-win situation for Republicans, orchestrated by the Democrats.  

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Even as the 244 respondents to the latest BofA Fund Manager Survey (who manage $724BN in AUM) plowed into US equities, as their September allocation to US stocks rose again, up 2% to 21%, the highest since Jan ’15, making the US the most favored equity region globally for the second month running, amid bets the record divergence between the US and the rest of the world will continue for the indefinite future (or simply hoping upward momentum persists)…

… while allocations to EM equities dropped 9% to 10% underweight, the lowest since Mar’16 and a massive reversal from 43% overweight in Apr’18 when EM was the most favored region among FMS investors…

… they have also grown increasingly bearish on the outlook for the world economy, with 24% of investors surveyed expect global growth to slow in the next year, up from net 7% in August. This is the highest number of pessimists expecting a worse outlook on the global economy since December 2011.

How to reconcile these seemingly divergent series? According to BofA, as a result of tax cuts, fund managers now have the most favorable profit outlook on US corporate profits on record, offset by a tumbling outlook on EM profits.

In addition, when asked about their regional expectations for corporate profits, a net 69% of those surveyed found the US to be the most favorable region, a record 17-year high.

And with everyone rushing to the US, investors also cut their allocation to Eurozone equities by 6% to net 11% overweight, an 18-month low.

Yet despite trading on it, not even the survey respondents believe the decoupling between the US and ROW will last, with most, or 48%, expecting the US to catch down to the rest of the world and the current decoupling will end because US growth decelerates; 24% note they expect decoupling is likely to continue and 28% think growth in Asia and Europe will accelerate.

Elsewhere, for the eighth straight month “Long FAANG+BAT” (36%) remains the most crowded trade identified by investors followed by “Short EM equity” (16%) and “Long USD” (14%).

Meanwhile, a trade war remains the tail risk most commonly cited by respondents (43%) for the fourth straight month; the top three are rounded out by a China slowdown (18%) and quantitative tightening (15%). What is curious is the big drop in fears about trade war, just as Trump launched the $200BN “phase two).

Meanwhile, as gold continues to tumble, investors are increasingly warming to its value, if have yet to actually put their mouth where their survey is: the net percentage of survey participants saying gold is undervalued hits a record 17-year low of net 19%, down 8ppt from August.

Commenting ont he latest survey BofA chief investment strategist Michael Hartnett said that “Investors are holding on to more cash, telling us they are bearish growth and bullish US decoupling. Fund managers are signalling that they are starting to price in a hawkish Fed.”

He then summarizes the September survey as follows:

• Big 3 FMS takeaways: FMS investors are bearish growth (global optimism at 6-year low), bullish US decoupling (US equity long at 4-year high, US EPS outlook at 17-year high), and begin to price in a hawkish Fed (cash at 18-month high of 5.1%, gold valuation at 17-year low, IG bond weighting at 10-year low).
• Big 3 “tail risks”: trade war (receding), China slowdown (rising), Quantitative Tightening (rising).
• Big 3 “crowded trades”: long FAANG+BAT (receding), short EM (rising), long US$ (rising).
• Big 3 longs: US stocks, cash, growth (Chart 1).
• Big 3 shorts: Emerging Markets, UK, resources/commodities.
• Big 3 Sept’18 rotations: EM to Japan, banks to healthcare, materials to industrials.
• Big 3 contrarian FMS trades: our view remains cyclically defensive as Fed tightening in late-cycle; but Sept FMS inputs send BofAML Bull & Bear Indicator lower to 3.5 = 3-6 week risk asset pain trade up; most contrarian trade is long EM vs. short US; long materials vs. short healthcare also works if China stimulus becomes more visible in Q4.

 

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For the last decade, Tesla hasn’t had to worry about any type of high-performing luxury competitor.

That changed last night with the unveiling of the Audi e-tron, Audi’s EV crossover vehicle that was announced just days after Mercedes and BMW both revealed their own EV crossovers. As Tesla works to try and sort out “delivery logistics hell“, it now has to also start facing the reality that competition from high-end and well-established automakers is becoming a reality.

The e-tron is reportedly going to be manufactured in Brussels and is expected to make its arrival in the United States during the second quarter of 2019. It starts at $74,800 and will also qualify for the $7,500 federal tax credit. Audi chose to reveal the vehicle at a plant formerly used by Ford that was only about 35 miles north of Tesla’s Fremont factory.

Scott Keogh, president of Audi of America, told Bloomberg: “Audi is going electric and this is our our first major step. We feel we have an extremely compelling product.”

And choosing California for the reveal wasn’t a coincidence. The company decided to host the debut there because California is not only the biggest luxury auto market, but is also notorious for being environmentally conscious. The event was attended by about 1,600 people, including car enthusiasts, employees and journalists. The reveal event included a boat ride, strobe lights “pounding music” and people excitedly taking “hundreds of photographs” of the new vehicle.

Audi sees the e-tron as an opportunity to help parent company Volkswagen put its diesel scandal behind it. With its suspended Chief Executive Officer Rupert Stadler arrested recently, the e-tron event was hosted by its interim CEO, Bram Schot. Since the scandal, Audi has lost ground to rivals like Mercedes and BMW, but hopes that the shift to electric can also help change perception of its brand.

Schot stated: “We are merging the new world of electric mobility with 100 years of experience in manufacturing.”

The e-tron has an anticipated range of about 225 miles per charge and Audi has plans to add two more battery powered vehicles to its lineup by 2020. Going forward, VW has also been pushing for “cooperation” with Porsche for its electric car development, in order to help mitigate costs.

The e-tron is all part of the manufacturer’s larger plans to introduce 12 electric vehicles by 2025. They anticipate that these models, combined with hybrids, will account for about a third of global deliveries by that time.

Chelsea Sexton, an electric vehicle marketing consultant stated at the show: “Dealers were the target audience of this event. The idea is to get Audi dealers enthusiastic about the product.”

A variation of the e-tron, with a different back body style, will follow next year. Before that, a new design concept will be revealed at the Los Angeles auto show in November.

Still, Wall Street wasn’t exactly convinced that the competitive push on Tesla was imminent.

Tony Sacconaghi at Bernstein wrote on Monday that Tesla will face little direct competition before 2020. He stated: “Let’s make this clear: There is no actual flood of competition coming.”

Additionally, UBS analyst Patrick Hummel released a note on Tuesday morning stating that he believed catching up with Tesla is going to be “more difficult than expected”. He stated the e-tron’s range is 30 to 50 miles less than the Model X and that the acceleration pace was “significantly slower”.

He also made the point that Audi is going to have to scale up more to be profitable and that because of this, Tesla “might be able to sustain its lead for longer”. However, Tesla isn’t exactly setting an example as to how scaling up can lead to consistent profitability. At least the conventional automakers have their conventional cash generating businesses to fall back on as they take their first steps into the electric vehicle market. Tesla has no such luxury.

UBS ultimately kept their sell rating on Tesla based on Model 3’s sales and pricing issues.

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Having failed to sustain above 3.00% yesterday, the lack of immediate and aggressive response from China has hyped risk appetite this morning and sent Treasury yields notably higher – breaking to the highest since May 23rd.

Furthermore, expectations of additional China stimulus (talk of RRR cuts among other things) have also pushed yields higher…

This is the highest 10Y Yield since May 23rd…

As Goldman notes, there are a number of levels to be aware of now between 3.007% and 3.056%

The two prior highs from June/August are up at 3.007-3.014%. The bigger level however is likely going to be 3.0556%; an equality target from May. Everything up to 3.0556% can still be considered corrective/counter-trend.

In other words, the market would have to break further than there to really consider the possibility of a more meaningful sell-off. Until that happens, it’s going to be very important to watch for signs of a top/turn forming there.

View: Next resistance level at 3.007-3.014%. Could reach up to 3.056% and still be counter-trend. Need above 3.056% to be considered a more meaningful sell-off.

Breakevens are spiking also on the heels of WTI’s spike after Saudi comments…

And perhaps of further note, the real 2yield curve has inverted…

As Bloomberg’s Ye Xie notes, the 10-year real yield has approached 90 bps, not far from the seven-year high of 94 bps set in May. More interestingly, the five-year real yield is now higher than 10s. In other words,the yield curve for inflation linked bonds (blue line) has inverted!

If we think of the real yield as investors’ expectations for the real neutral rate, then the market is saying the short-term neutral rate is now above the long-term. That is consistent with what Fed Governor Brainard highlighted in a recent speech. That suggests the FOMC will continue to tighten the Fed fund rate to a more restrictive level, perhaps until the nominal curve inverts as well.

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Three months after urging the leftist ‘resistance’ to form a mob and physically confront any Republican leaders seen in public, California congresswoman Maxine Waters is at it again.

With her now ubiquitous incendiary rhetoric, she gave a speech at an event in Washington DC on Friday night where Waters received a “diversity” award, where she called for her supporters to “knock off” President Trump…

“There are those who say, ‘What if we get rid of him? Then we’ve got that Vice President and he’ll be worse.’ I say knock off the first one and then go after the second one,’” said Waters.

Maxine Waters: “There are those who say, ‘What if we get rid of him? Then we’ve got that Vice President and he’ll be worse.’ I say knock off the first one and then go after the second one.”

But it’s Trump who is inciting violence & division. Yeah, OK. pic.twitter.com/eBlhQ7BE5u

— Paul Joseph Watson (@PrisonPlanet) September 17, 2018

Of course, just as Waters resorted to tears of apology and obfuscation last time she used such violence-implying language, she will undoubtedly brush off her words as meaning to take down Trump politically, one of the meanings of the phrase “knock off” is widely understood to mean to kill someone.

Given the innumerable examples of Trump supporters being violently attacked for supporting the president, Waters’ remarks are only likely to exacerbate the problem.

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