Tag: finance

Authored by Michael Kern via SafeHaven.com,

Amid sanctions fears, Iranians have reportedly spent over $2.5 billion on cryptocurrencies to get their cash out of the country in a new form of digital capital flight.

The Iranian version aired on state-run media was buried at the bottom on a long discourse on cryptocurrencies, and downplayed as to its significance, but it comes as the Iranian rial plunges to new lows against the U.S. dollar, the climax of which has been Trump’s formal announcement of a withdrawal from the nuclear deal.

“No virtual national currency has been designed in the country at the present and based on the existing data few people in Iran are cryptocurrencies’ customer and more than 2.5 billion dollars has been sent out of the country for buying digital currencies, added point most of the digital currency activists enter this arena because of the huge benefits and speculation” Chairman of the Economic Commission of the Parliament Mohammad Reza Pourebrahimi said.

Shortly after Trump’s announcement last week, the rial nose-dived to 85,000 to 1 US dollar, down from 57,500 rials to 1 US dollar at the end of April, and 42,890 at the end of last year.

Since April, Iran has been attempting to get in front of a sell-off, first unifying official and free-market exchange rates and freezing the rate at 42,000, while banning all other trading in the currency, under threat of arrest.

The rial is expected to dive further on news Tuesday that the U.S. has sanctioned Iran’s central bank head.

Late last week, the U.S. levied sanctions on a financing network, accusing the Iranian central bank of helping funnel U.S. dollars to its Quds Force elite military unit, which is on a U.S. blacklist.

This was followed by another move on Tuesday that saw terror sanctions slapped on the head of the Iranian central bank, Valiollah Seif, whom Washington has accused of secretly funneling millions of dollars through an Iraqi bank to help Hezbollah. The sanctions also include bank senior official Ali Tarzali. Both have been listed as “specially designated global terrorists”.

At the same time, Iranian government moves to head off a currency crisis could lead to further capital flight via cryptocurrencies.

On Monday, the Central Bank issued a new directive setting stricter limits on the amount of foreign cash travelers can take with them out of the country. Travelers can leave Iran by air now with only $5,980 (5,000 euros, or the equivalent in any foreign currency). The new amount halves the previous amount allowed. Leaving by land, rail or sea has a limit of $2,392 per person.

Also in April, the central bank banned the country’s banks from offering services to cryptocurrency firms or from dealing in cryptocurrencies domestically. This has led to a flourishing business for cross-border crypto deals with Iranian citizens desperate to get their money out.

While the initial justification for the ban was to thwart money-laundering and terrorism financing, the Iranian Financial Tribune quoted an Iranian official as saying that the move was intended to stop capital flight.

“The ban on trade of cryptocurrencies such as Bitcoin by CBI, as the financial and currency regulator of the country, is to prevent the flight of foreign currency under the current circumstances of the country.”

Now that the original ban has backfired and possibly led to increased capital flight, the government seems to be wavering, suggesting that the policy might not be set in stone and a new regulatory framework should be in place by the third quarter of this year.

In the meantime, capital flight will be hard to stop, especially considering that all of the government’s recent actions undo their liberal economic policymaking of the past years.

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Michael Avenatti, Stormy Daniels’ lawyer and the world’s most interviewed person in the past 2 months, has had quite the week.

After leaking the financial records of President Trump’s personal attorney, Michael Cohen (along with two unrelated Michael Cohens he wrongly accused “possibly fraudulent” payments), people began digging into Avenatti’s past – only to discover a train-wreck of shady business dealings, unpaid taxes, a state-bar complaint, and dozens of lawsuits in the wake of a failed venture in the coffee industry. 

And as various media outlets have begun to cover Avenatti – from his dodgy past to criticisms of his legal strategy behind the Stormy Daniels case, the balding bulldog attorney seems to have come a bit unglued.

On Monday, he sent an “insane” email to The Daily Caller’s Peter Hasson after he and Joe Simonson reported on a variety of questionable business dealings – using publicly available information, such as a complaint to the California bar claiming his now-defunct venture into the coffee industry dodged millions in taxes after he mislead a business partner (who sued).

Note: @MichaelAvenatti tried to call this off record, which of course aren’t terms I agreed to since it was an uninvited email pic.twitter.com/Ve6Guftwqq

— Peter J. Hasson (@peterjhasson) May 14, 2018

Avenatti’s threats received an immediate pushback – with CNN’s Ryan Lizza commenting “It seems fair and well-reported to me. If there is something specific that is false Avenatti should point that out rather than threatening the reporters.“

Now, 48 hours later, we learn that Avenatti is at it again – allegedly calling the Hollywood Reporter‘s Eriq Gardner an “asshole” before demanding to speak with Gardner’s editor over an unflattering article questioning the soundness of his legal strategy in the Daniels case. 

[M]any lawyers believe Avenatti’s strategy is risky. His argument — Trump didn’t sign the contract with the nondisclosure agreement, so it isn’t valid — isn’t terrible, but it’s no slam dunk. After all, Daniels did accept $130,000 for her silence and hasn’t returned any of it. But if Avenatti ends up losing, the cost to Daniels could be ruinous. One court document suggested the damages might reach $20 million, and that was based on the first leg of the media tour. It could be higher now.

…

And even as he takes risks for his client, Avenatti seems to be positioning himself for a bright future. Vanity Fair reported that he approached MSNBC president Phil Griffin about getting his own show, although Avenatti later claimed it was the other way around — networks approached him. Regardless, Avenatti’s profile-boosting posturing certainly will be a win for him. “This ceased being about ‘the law’ and ‘her rights’ about three seconds after they filed the lawsuit,” says Robert Schwartz, a litigation partner at Irell & Manella. “There is no meaningful downside. The coverage will drive business to him for years.” –Hollywood Reporter

Gardner said that as he was in the middle of composing the article, Avenatti contacted the Hollywood Reporter “to express concern.”

Well, guess I don’t have to wonder if he’s read it. pic.twitter.com/VFMLP9KURr

— Eriq Gardner (@eriqgardner) May 16, 2018

As I was preparing this column, Avenatti learned that The Hollywood Reporter would be tallying his media appearances (see below) and reached out to an editor to express concern. Avenatti indicated he’d be open to questions so I sent him a half-dozen. Speculating that the result of my assessment of his work wouldn’t exactly be flattering, he called me up and became somewhat menacing. At one point, he called me an “asshole” with an agenda and accused the lawyers I had spoken to of being jealous of his success. This conversation occurred before he threatened to sue a reporter at The Daily Caller [News Foundation] over what he perceived to be “hit pieces.” –Eriq Gardner

On Monay night, CNN‘s Don Lemon interviewed Avenatti about the email exchange with the Daily Caller – to which he said: 

All journalists are not ethical just because you’re a journalist. There’s good journalists and there’s bad journalists. There’s ethical journalists and unethical journalists,” Avenatti responded. “And do you know what, Don? If we encounter journalists that don’t get their facts straight by design, don’t follow basic standards of journalism, purposefully skew stories to fit their own political dialogue dialogue and what they want their message to be, we’re going to continue to call them out on that.

Much like in his email to the Daily Caller’s Peter Hasson, Avenatti fails to offer any examples of journalists not getting their “facts straight by design.” 

Hilariously, the Daily Caller’s Joe Simonson, who co-wrote the article with Hasson, had a Twitter DM conversation with Don Lemon’s boyfriend, Tim Malone – who has been together with the CNN host since at least summer 2017. Malone said Lemon went easy on Avenatti because they’re friends…

Following Lemon’s interview with Avenatti, Tim Malone reached out to me via Twitter direct message to gauge my thoughts on CNN and the controversial lawyer who just threatened a lawsuit against me, my colleague Peter Hasson and my employer.

I asked Malone if he thought his partner, a journalist, should have pushed back on Avenatti more on his assertion that TheDCNF’s report on some of his business history was littered with defamatory statements and was published under orders from President Donald Trump

“I guess, yeah,” Malone, a real estate agent, said before adding that he doesn’t believe Avenatti will follow through on his legal threats.

“Ha, he won’t [sue]. I think it’s all a game. Who knows? Trump threatens lawsuits and never does it, [Avenatti] seems to be using all the same strategies…[he] is doing Trumps [sic] strategy.”

When I told him that I wished “Don would have pushed [Avenatti] more” in their interview, Malone told me to “connect the dots.”

When asked to clarify, he used Fox News host Sean Hannity’s relationship with Trump as an example of other softball interviews.

“Does Hannity push Trump…in interviews or on stories?” Malone asked.

“Haha, well what do you think? They’re close friends,” I responded.

“Bingo!” Malone replied. “You don’t think Avenatti is smart enough to try and befriend the liberal media?”

Basta! 

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President Trump’s latest annual financial disclosure form released on Wednesday revealed something that was not disclosed on Trump’s previous financial disclosure form: the President’s reimbursement of his then-attorney Michael Cohen.  

Trump’s financial disclosure, released by the Office of Government Ethics (OGE), did not list the specific reason for the payment, but Cohen has said he paid porn star Stormy Daniels $130,000 in exchange for her silence about her accusations she had a sexual encounter with Trump.

“In the interest of transparency, while not required to be disclosed as “reportable liabilities” on Part 8, in 2016 expenses were incurred by one of Donald J. Trump’s attorneys, Michael Cohen. Mr Cohen sought reimbursement of those expenses and Mr. Trump fully reimbursed Mr. Cohen in 2017. The category of the value would be $100,001 – $250,000 and the interest rate would be zero.”

As The Hill notes, the OGE suggested the payment should have been included on the disclosure form Trump filed last year, which showed his assets and liabilities from the previous 16 months.

“OGE has concluded that the information related to the payment made by Mr. Cohen is required to be reported and that the information provided meets the disclosure requirement for a reportable liability.”

This means that while the Ethics office deemed that the payment to Cohen, made in 2016, should have been reported last year, Trump’s representatives disagreed, writing on the form they were not required to disclose the payment but were doing so “in the interest of transparency.”

The form was filed late on Tuesday, just ahead of the deadline to submit it. OGE reviewed the document and made it public Wednesday afternoon.

The issue of the reimbursement reemerged after Rudy Giuliani, Trump’s newest personal attorney, revealed the payment in a shock interview with Fox News’ Sean Hannity earlier this  month. Trump seemed to confirm the claim on Twitter the following morning. But then Trump said Giuliani was new to the team and would “get his facts straight.” Weeks earlier, Mr. Trump had said he was unaware Cohen paid adult film star Stormy Daniels $130,000 shortly before the election.

The disclosure form details Mr. Trump’s financial interests, and is 92 pages long, due to Mr. Trump’s vast business empire. The White House said on Tuesday afternoon that the president had submitted his form to OGE.

In addition to the Cohen payment, the disclosed that Trump’s golf clubs also had substantial revenue, with CBS reporting that his golf club in Jupiter, Florida had $14 million in revenue. Bedminster brought in $15 million and Mar-a-Lago, $25 million (down from $37 million the prior year.) Turnberry, $20 million, among others. His Doral club, as was the case last year, dwarfed the rest of his golf properties, with revenues of almost $75 million.

The Trump Hotel in Washington, D.C., which opened during his presidential campaign in 2016, saw $40 million in revenues.

He is also still picking up a Screen Actors Guild pension of nearly $65,000 from his years as a reality TV host.

First Lady Melania Trump made money, too — she earned royalties from Getty Images between $100,000 and $1 million for its use of photos of her.

Trump listed liabilities of at least $250 million, with Deutsche Bank as his biggest creditor. Trump also owes Ladder Capital at least $110 million.

Full filing below (pdf link)

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Authored by Toni Airaksinen via Campus Reform,

A recent Kent State University graduate is blasting her school’s anti-gun policies in a flurry of tweets that have quickly gone viral. 

“Now that I graduated from @KentState, I can finally arm myself on campus,”  Kaitlin Bennett tweetedon May 13.

“I should have been able to do this as a student, especially since 4 unarmed students were shot and killed by the government on this campus.”

Calling for #CampusCarryNow, the 22-year-old tweeted a photo of her strutting through the Kent State campus with an AR-10 slung across her back. 

“I have no apologies for my graduation photos,” Bennett wrote in a follow-up tweet.

“As a woman, I refuse to be a victim & the second amendment ensures that I don’t have to be.” 

Bennett, who just graduated with a BA in biology, told Campus Reform in an interview that her tweets were inspired by her longstanding concern with how Kent State’s policies reduce the ability of students to protect themselves on campus. 

“Kent State University is a school in which the government shot four unarmed students 48 years ago,” Bennett said, citing the 1970 incident during which the National Guard open fired on a crowd of Vietnam War protesters. 

“I believe not only that those four students would still be alive today had they had the right to carry on campus, but that students today would be much safer,” Bennett explained. 

In a statement to Campus Reform, however, school spokesman Eric Mansfield suggested that students have absolutely no reason to be in possession of a firearm, citing that the campus is consistently ranked as one of the safest in Ohio. 

“The university has a full-time, certified police force of more than 30 sworn officers who protect the campus,” Mansfield added.

“These officers are visible, well-trained and on duty 24/7 in support of students, staff, and faculty.”

But campus police can’t always intervene fast enough, Bennett said, arguing that “pulling out a gun is easier than dialing 911.”

School policy currently prohibits all students from both concealed and open-carry. Only non-student guests are permitted to be in possession of a firearm. And though this policy may be well-intentioned, Bennett says that it suggests that students are less deserving of protection.

“Universities that prohibit students from defending themselves but allow guests to do so are in a sense saying that they don’t value the safety of their students,” she argued.

“Why are guests more important than the students who are paying thousands of dollars to attend the university?”

After graduation, Bennett says she plans to stay in the area. During her time at Kent State, she founded a chapter of Liberty Hangout, a small libertarian media outlet dedicated to promoting peace, prosperity, and property rights. 

“If students thought my political activism at Kent will be over now that I have graduated, they are wrong,” she said.

“I will still be in the area and intend on returning to campus to assist with Liberty Hangout at Kent State, and record videos for LibertyHangout.org. Only this time, I won’t have to worry about being expelled for expressing my views.”

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The Department of Defense (DoD) Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Program, in conjunction with the United States Army, has recognized a critical technology gap in the modern battlefield that could temporarily leave soldiers vulnerable to direct enemy fire.

The DOD SBIR/STTR Program’s new objective has been to elicit innovative solutions from academic institutions and small businesses to develop the next generation of combat uniforms for Army personnel that can reduce their signature and decrease detection from ground surveillance radar (GSR) threats in the modern battlefield.

Battlefield and ground surveillance radar (BSR/GSR) has become an essential component of electronic warfare and detection capabilities on the 21st-century battlefield, which makes it extremely challenging for soldiers to run for cover.

It seems as the DoD is falling behind on developing radar-invisible uniforms. In 2016, Russia announced that its scientists had developed a new fabric that would make its troops harder to detect via electronic warfare systems.

Mine-protected Boots, Stealth Fabric in Russian Future Soldier Gear. (Source: World Defense Forum) 

That is why the DoD is now frantically searching for radar absorbent textile for its combat uniforms, as it has recognized that its arch-nemesis, Russia, is leading the way in pioneering stealth fabric.

“Radar absorbing and shielding technology has attracted a growing interest due to the recent advances in enemy electronic warfare and detection capabilities, leaving U.S. forces, especially infantry forces, vulnerable to detection across the electromagnetic spectrum,” according to a new SBIR and STTR solicitation to academia and private industry. “Advanced Battlefield and Ground surveillance radar (BSR/GSR) are readily available in military markets that are highly effective, portable, and automated for large area monitoring.”

Here is a basic example of the battlefield and ground surveillance radar (BSR/GSR) used for detecting tanks, armored fighting vehicles, and personnel. The device can detect troops or combat vehicles from miles away. This is an inexpensive and readily available device for militaries around the world.

While radar absorbing material (RAM) composites exist for a wide variety of air and land-based military vehicles, the DoD points out, “there are currently no effective and lightweight wearable options to mitigate GSR detection of a dismounted Soldier.” The emphasis of this call is to focus on soldier signature management “by altering/functionalizing clothing with radar absorbing materials” to thwart detection from BSR/GSR systems.

The Army’s specifications on the stealth fabric, include absorption of radar waves in the Ku- and X-frequency bands at distance up to 12 kilometers and “the fabric must be flexible, durable and breathable” to operate from -30 degrees to 125 degrees Fahrenheit.

“Prototypes must demonstrate lab and field based capabilities within the X and Ku frequency bands at distances up to 12 km. Prototypes will range from a standardized 1 m2 test sample to representative operational clothing and/or operational equipment (e.g. body armor carrier, rucksack, etc.). The performance of the test samples and prototypes must be evaluated in laboratory and field settings and assessed in terms of radar cross section reduction, flexibility, durability, breathability and air permeability. The prototype materials must be tested and clearly demonstrate consistent functional properties under simulated operational use to include environmental factors such as a wide range of temperatures (-30 – 125ºF) and environmental factors (e.g. high humidity, rain, etc.) The final deliverable must also include a commercialization assessment and the viability of mass producing the developed technology.”  

It is highly unusual for the DoD to publicize such a significant vulnerability gap in America’s military, but it seems as the Army is falling behind the curve on stealth combat uniforms. Meanwhile, as we mentioned above, Russia claimed to have developed stealth fabric some two years ago. While President Trump awarded the Pentagon the largest budget in history, let’s hope stealth combat uniforms come soon, otherwise, America’s military edge could be obsolete on the modern battlefield.

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Via GoldTelegraph.com,

It looks to be another boom year for gold. Investors are anticipating a continued demand for the precious metal for the fifth year in a row, driven by geopolitical uncertainties and less-than-strong predictions for the U.S. economy and the U.S. dollar in 2019.

In times of economic turmoil, gold has always served as a hedge against the decreased value of stocks or currency. Faced with unusual market volatility, people around the globe are turning to the yellow metal as a haven and safe investment diversifier. The price of gold rose by 14 percent in 2017 and is likely to go higher.

While the U.S. dollar is expected to lose some value in 2018, the Euro and other currencies are showing a modest gain.

India has historically turned to gold not only for investment purposes but for jewelry. Its traditional wedding season is approaching, and gifts of gold jewelry are the norm, even among India’s more impoverished population.

During the first quarter of 2018, India saw a 12 percent decrease in demand for gold jewelry from the same period in 2017. Total gold purchased dropped from 99.2 tons to 87.7 tons. However, India’s demand for gold spiraled to a record high in the fourth quarter of 2017, up to 189.6 tons, so the drop was not unexpected. The rest of 2018 looks positive for Indian gold demand. A good monsoon season is predicted, which means healthy revenues for the farmers that make up one-third of India’s gold buyers for the upcoming wedding season. During drought years, such as 2014 and 2015, India’s gold consumption historically experiences a decline in gold demand, so this year’s weather forecast is new news.

China, the world’s major importer of gold, has been actively accumulating gold and is expected to continue doing so in the near future.

During the first quarter of 2018, demand for gold jewelry totaled 187.7 tons, up 7 percent.

Chinese jewelry sellers are working to attract a prosperous, more sophisticated, younger generation of customers by expanding and diversifying its selection. Following a slow retail year for jewelry in 2017, China is looking forward to strong sales in 2018. Withdrawals at the Shanghai Gold Exchange have been above average at 170 tons monthly. April’s demand for gold was up 28 percent from 2017.

With political tensions between the U.S. and China escalating, Chinese investors are turning to gold bullion as an economic hedge. First quarter 2018 saw the demand for gold at 78 tons.

In addition to jewelry, the Chinese government has been actively increasing its gold supplies for the past decade, along with its ally, Russia. This move is believed to precede China’s plan for a gold-backed yuan, which could significantly devalue the U.S. dollar and could replace the dollar as the global reserve currency of choice. If this happens, the price of gold is expected to rise to new, unprecedented heights, along with a political power shift from the West to the East.

Gold has always been in demand for its intrinsic value. If current trends continue and the demand for gold accelerates at its current rate, the price of gold will skyrocket.

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The culmination of months of negotiations between the anti-immigrant Northern League and the anti-establishment Five Star Movement has arrived Wednesday afternoon in the form of a forty page comprehensive policy agreement reached between the two parties, according to Ansa, the Italian newswire.

Northern League Deputy Claudio Borghi confirmed in a tweet that negotiations have produced an agreement that must now be approved by party leaders Matteo Salvini, who represents the Northern League, and Luigi di Maio, who represents the Five Star Movement.

 

Finito il lavoro. Sono PIATTO ma è stata un’esperienza fantastica. Adesso il plico va ai capi per le opportune decisioni.

— Claudio Borghi A. (@borghi_claudio) May 16, 2018

 

While the document hasn’t been publicly released since six or so of its provisions are still awaiting approval, while the rest have been formally closed, Ansa reported. Importantly, the agreement omitted a provision setting out a plan for Italy possibly exiting the euro bloc.

Instead of the euro provision, the document only advocated revising certain provisions in some of the European Union’s founding treaties, like the Maastricht Treaty.

Di Maio and Salvini are planning a meeting tonight to take stock of the last remaining disagreements in the program contract.

Italian bond yields jumped on the news as investors worried about the impact of the euroskeptic government’s leadership – even though party leaders denied earlier reports that Five Star would petition the European Central Bank to forgive 250 billion euros of Italian debt.

The euro also climbed on the news.

 

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Authored by Ana Alexandre  via CoinTelegraph.com,

Trading and clearing platform LedgerX has launched a new Bitcoin (BTC) savings product that is licensed by the US Commodities Future Trading Commission (CFTC), Forbes reported May 15.

image courtesy of CoinTelegraph

The savings product introduced by LedgerX is certified by a CFTC derivatives clearing organization (DCO) license and a swap execution facility (SEF) license. Juthica Chou, Chief Operating Officer at LedgerX said:

“Everything we do requires both the licenses. And a lot of that is intentional, because by making it a package deal we can offer a number of services to our customers in a really clear, vertically integrated way.”

The licenses permit users to earn a yield on their Bitcoin assets. Rather than just “hodling” and hoping that Bitcoin appreciates, investors can earn a fiat-based yield on their BTC by employing what is referred to as a call overwrite technique, wherein an investor deposits BTC into LedgerX, then sells a call option at a slightly longer date, with a higher strike call option.

The project is designed to simplify BTC option trading to a basic point-and-click format, so “less sophisticated” bull traders can potentially get a premium price on their holdings. The product’s interface allows users to choose the implied rate they’re anticipating to earn and the number of BTC they wish to earn the yield on. Chou said:

“This interface will definitely be skewed to the long Bitcoin holders, who will likely only deposit bitcoin and who will want to earn interest off of that Bitcoin.”

According to Forbes, during the past three months, 70 percent of the trade volume of LedgerX has come from options, with an average trade size of $60,000. The options contracts will reportedly be available for a three-month and a six-month duration, while LedgerX charges a transaction fee for each service.

Yesterday, the Chicago Mercantile Exchange launched an Ethereum reference rate and real time index to the US dollar. The rates are offered in partnership with Crypto-Facilities, a UK-based digital asset exchange, that debuted the “first regulated” Ethereum futures last week.

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In its latest Fund Manager Survey, Bank of America asked what may be the most important questions for investors today: “What level of US 10y Treasury yields would cause you to rotate from equities into bonds?“

That level, which Bank of America’s Michael Hartnett has repeatedly dubbed the “magic number“, rose from 3.5% last month to 3.6% in the May survey, and represents that weighted mid-point of the responses by the 223 survey participants, who manage a total of $643BN .

As a reminder, last week Hartnett explained why he agrees with the FMS response, saying “it should not be a surprise if reallocation starts before yields get to 3.5%. Indeed, as we breached 3% the following asset classes all suggested that the 3-3.5% range would become “painful” if not accompanied by much stronger economic data.”  As the BofA CIO further added, banks, homebuilding stocks, US dollar, EM, yield curve all suggested 3% on the 10-year Treasury yield was the “magic number.”

• Lower US bank stocks: rise in rates was shifting from a “good” rise to a “bad” rise (financials underperformed utilities by 1250bps since mid-March)
• Lower US homebuilding stocks: a good lead indicator of interest rates, homebuilding stocks are saying the Fed is making a “policy mistake”

Then, yesterday, as 10Y yields broke out to fresh post-Taper Tantrum highs, rising above 3.05% and as high as 3.09%, a level not seen since 2011, Bill Gross tweeted that “the Economy can’t support yields higher than 3.25% for 30s and 10s, nor 3% for 5s. Continuing hibernating bond bear market is best forecast.”

And, as we also showed yesterday, demonstrating the recent sharp drop in loan demand across the board as a result of higher rates despite far easier lending conditions, and affecting everything from C&I loans…

… to residential mortgages…

… to consumer loans…

… Gross is right, only the Fed hasn’t quite realized yet that US interest rates are now at a level that leads to not only lack of loan growth, but outright deleveraging, loan destruction and thus, deflation.

To underscore his point, Gross also noted the technicals and said that “30yr Tsy long-term downward yield trendline for the past 3 decades now at  3.22%, only ~4bps higher than today’s yield.” Asking rhetorically, “will 3.22% be broken to upside?” his answer was no.

Then, overnight, another bond titan – and Gross’ former employer – Pimco also agreed with the “magic number” consensus, when its co-head of Asia-Pacific, Robert Mead, said that 10Y yields will move in a 3% to 3.5% range for the rest of the year as the Federal Reserve continues raising interest rates.

Addressing the second longest US economic expansion, and second oldest business cycle in US history…

… Mead stated the obvious to the Bloomberg Invest summit in Sydney: “we do think this hiking cycle is quite well advanced.” adding that while “the backdrop of the U.S. economy has been pretty strong and going for a long time. At some point we will find these high yields will become an impediment for growth.”

As the charts showing negative loan demand above suggest, that point is now.

Mead then said that the higher rates rise, the more the record short overhang will, or at least should, be unwound: “Nothing is pound-the-table cheap,” but rising yields mean investors can gradually reduce their underweight bond positions, Mead told the Bloomberg conference.

Confirming this observations, Mark Delaney – the chief investment officer of AustralianSuper Pty, the nation’s largest pension fund – said he was thinking about buying bonds again after selling almost all holdings last year.

“We sold almost all our bonds in 2017, but now they’re a percent higher – a percent plus, a bit higher – we’re starting to think about whether or not we should start closing those short positions,” Delaney told the Australian summit.

It’s not just positioning however, and the inevitable short squeeze: according to Jeffrey Johnson, head of Asia-Pacific fixed income at Vanguard Australia, inflation will remain anchored due to the global secular deflationary tailwinds: 

Powerful forces such as demographics, globalization and technology should keep a cap on yields, Johnson told the summit.

Putting that in numbers, Johnson said that the fair value for U.S. 10-year yields would be 3% to 3.25%. And as evidence, he added that Vanguard has seen evidence of investors getting back into fixed income to take advantage of the higher yields.

Ultimately, it will be up to the pension funds of the world, most of whom are significantly underinvested in fixed income having rushed into equities in recent years, to be the marginal buyer that pushes rates decidedly lower, especially if the Fed indeed plans to hike at least another 3 more times this year, in which case if Wall Street is right, it would be the Fed itself that inverts the yield curve.

But there’s time before that happens. For immediate next steps, just keep an eye on the value of the US Dollar: should the recent torrid rally finally fizzle, that will be the time to go long bonds.

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It’s been a roller-coaster week for US Small Caps.

After tumbling off opening highs on Monday they are roaring back to new record highs today…

just as US economic data are the weakest and most disappointing in 7 months…

So what happens next?

 

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