Tag: finance

Weeks of courtroom drama involving PIMCO founder and ‘bond king’ Bill Gross has unearthed some wild details of a feud between two Laguna Beach neighbors – Gross, and his neighbor Mark Towfiq – that has gotten way out of hand. So much so that Gross is once again in the tabloids due to his erratic behavior and aggressive tactics. In response to Towfiq filing a complaint with the city about a lawn statue on Gross’s property, the billionaire reportedly blasted music that could drown out the ocean and the highway, terrorizing the entire neighborhood, in an effort to pressure Towfiq into withdrawing his complaint with the city.

As the days of testimony wore on, Gross accused Towfiq of violating his privacy by trying to take “Peeping Tom-style” video of himself and his girlfriend, retired tennis pro Amy Schwartz. Towfiq , in turn, told the court that he had been warned about Gross even before the billionaire bought the house next door. One former PIMCO employee (Towfiq is coincidentally a former PIMCO client) even allegedly offered Towfiq his “condolences” when he heard the news, describing Gross as an “angry billionaire with a short fuse”.

Other witnesses, including officers who were called to the scene by Towfiq, described hearing music that was so unbelievably loud, it downed out the nearby Pacific Coast Highway.

Towfiq launched the legal battle by suing Gross for harassment, claiming the billionaire was trying to strong-arm him into dropping a complaint with the down about a lawn sculpture owned by Gross. But now, Gross is apparently trying to end the feud, opting for a method that is so lacking in self-awareness, it verges on billionaire caricature.

Gross has published an “open letter” calling on Towfiq to join him in dropping their respective legal grievances, then join together for a charitable settlement that will help the community weather the vicissitudes of the ongoing coronavirus pandemic.

In the letter, Gross accuses the financial press of taking an inappropriate interest in his case and dedicated time and resources to covering it, distracting from the ravages of what Gross described as “a silent killer” possessed with “single-minded lethality”.

Furthermore, Gross claims, these squabbles are apparently now “beneath him”, since he would like his work as a philanthropist to be remembered as “my life’s priority.”

Gross closed by reminding readers that he’s not usually one to back down. But with all the suffering happening in the world right now, he simply can’t bring himself to continue with such a petty dispute.

“Those who know me and my history also know I do not willingly back down from a fight. But this situation has escalated far out of proportion to the actual issues at stake, which are petty in comparison to a world in which thousands are dying and suffering every day…” Gross said.

We certainly look forward to hearing Towfiq’s response.

Gross’s offer comes as different regions of the state are entering new lockdowns, though Orange County is expected to be less restrictive than the full-fledged lockdown now in place in LA.

The full text of the letter follows:

These are extraordinary times of great extremes. We are losing loved ones, friends and family members to a silent killer that is relentless in its single-minded lethality. At the same time, we are witnessing extraordinary sacrifices and heroism by doctors, nurses and the medical community to compassionately care for those stricken by the virus, and find a cure to end its terrible ravages. I am humbled by the thousands of daily acts of courage in the face of overwhelming odds.

In the midst of this terrible global tragedy, a portion of the media is transfixed by…a man who plays the theme song to a 1960s sitcom, and another who records him doing so. While greater legal minds than mine can – and are – arguing about the merits of the highly publicized case against my neighbor (and my neighbor against me), I don’t think many people would contend this litigation deserves the attention it has received during the deadliest pandemic in a century. Never mind the public resources the case has commanded from the courts, law enforcement, and the city of Laguna Beach as it escalated far beyond an ordinary dispute among neighbors.

Worse yet, we are in the middle of a surge in the pandemic with the state and counties ordering new lockdowns. But we are showing up in person in court, sitting just a few inches from one another for hours, and forcing ourselves, our lawyers, and the court staff to be exposed to unnecessary risk over something that never should have reached a courtroom in the first place. I strongly believe in my case and my concerns about invasion of privacy, but at the end of the day the lawsuits are about videotaping and music. The absurdity would be laughable even to me if I wasn’t a direct participant.

While my life partner Amy Schwartz and I have not yet been able to present our case to the court and the interested public, I publicly appeal to my neighbor and propose a settlement that both ends the conflict and benefits those in our community who are suffering the most from the economic fallout of the pandemic. I recommend we calculate all our respective legal fees and court expenses that we have already spent and will spend on this multifront battle, agree to end all hostilities, and instead donate the proceeds to Orange County foodbanks and other charities providing critical assistance in this time of need. Or, if he would prefer, just the proceeds of estimated future legal and court costs. I also propose that we can individually select charities, or in a spirit of resolution and future goodwill toward each other, come up with a jointly agreed upon list of recipients to receive contributions in the name of his choosing. I want nothing more than to be a good neighbor, even if it means revising my choice in music. Those who know me and my history also know I do not willingly back down from a fight. But this situation has escalated far out of proportion to the actual issues at stake, which are petty in comparison to a world in which thousands are dying and suffering every day, while many more are out of work and desperate to pay the rent and feed their families.

I call on my neighbor to lay down arms and agree to a settlement that benefits neither side financially, but provides something of value to our community. To those who would claim this is a publicity stunt, I would point to my history of philanthropy. That is my life’s priority, not legal feuds. Over the past several decades, I have donated more than $700 million to healthcare, education, humanitarian relief, and other charitable causes. The William, Jeff and Jennifer Gross Family Foundation annually donates over $20 million to charities, many of them in the local community. I ask that you join me in directing our resources against the common enemy of disease and poverty, instead of each other, and that we return to being neighbors instead of combatants.

* * *

Too bad for Gross’s ex-wife she didn’t wait until 2020 to divorce him. Then at least she wouldn’t have had to put up with all that fart spray and rotting fish.

On Friday we discussed the surge in Uranium stocks, asking if “this is the beginning of the next ESG craze.” As a reminder, Friday’s sharp move higher took place after House and Senate lawmakers revealed a compromise version of the annual National Defense Authorization Act. According to S&P Global, the bill effectively provides for the military to continue a policy under President-elect Joe Biden that classifies the domestic supplies of certain minerals such as uranium, graphite and lithium as vital to national security. This sent most uranium companies sharply higher, with names such as Cameco rising 9.7%, Uranium Energy +10%, Energy Fuels +17%, North Short GLobal Uranium Mining +6%.

On Monday, this dramatic move higher has accelerated further, with most names rising double digits if fading modestly in afternoon trading as shown below:

While there was no material catalyst behind today’s move besides traders digesting our note from Friday, Cameco, which controls the world’s largest high-grade uranium reserves and low-cost operations and is one of the largest global providers of the uranium fuel, reported yesterday that an individual at its Cigar Lake uranium mine in Saskatchewan has tested positive for COVID-19. This individual has been in isolation since December 4, according to Kitco.

This was the second confirmed COVID-19 case at Cigar Lake.

Cameco, which soared as much as 15% today, is working with the Northern Population Health Unit and will follow their guidance with contact tracing already started.

Cigar Lake is the world’s highest-grade uranium mine and is located in northern Saskatchewan, Canada. Since commissioning in 2014, the site has produced a total of 82.9 million pounds (100% basis).  Commercial operation began in May 2015.

The reaction appears to be a kneejerk response to a similar development this spring: on April 14 Uranium stocks surged after Cameco suspended operations at Cigar Lake due to Covid-19, resulting in supply concerns.

Cameco restarted the Cigar Lake mine in September 2020 after the temporary suspension as a precaution due to the COVID-19 pandemic.

Meanwhile, as we discussed on Friday, and as judging by the recent surge in uranium stocks, it is a growing a possibility that the rabid ESG crowd will start rotating into the Uranium sector which as one look at the Global X Uranium ETF shows, has lots of potential upside. As Bear Traps report author Larry McDonald wrote, “if the mad-mob trading FCEL and other ESG names gets ahold of uranium… Watch out” adding that “we find it more than bizarre that every commodity is ripping and uranium miners are dead in the water. Seasonally and politically, upside CCJ vol looks extremely cheap.”

Below we repost McDonald’s Uranium bull case:

 

* * *

When are people going to figure out how GREEN Cameco CCJ equity is?!

CCJ Seasonal Returns

Notice how when energy commodities were still rising (2011-2014) CCJ’s December and January returns were very strong. Meanwhile, every commodity stock is the metal space is up 40% in the past month, futures are ripping too yet CCJ and UXA1 are at April levels. CCJ calls are cheap, seasonality looks good, and with all these hot stocks jumping around (FCEL traded 1/2 of its market cap today) I think its only a matter of time before the mad mob finds Uranium equities… Buy the March $11 calls, put them in the drawer.

PM on CCJ Cameco Corp

Agree with your thesis. The space is so small and it makes so much sense. However, it would really be nice to see the spot U price catch a sustainable bid here. I am looking for a turn of the year trade in U, if not sooner. We need to see some utility to ink a relatively good sized contract to get things moving. That would be big. I am also looking for financial players to get more serious about throwing weight around in this sector. A group with decent capital at a multi-strat HF or a medium sized fund could allocate a few hundred mill and create their own reality in this sector, IMO. The order of operations would be to buy up positions in call option like U miners, then buy the U trusts trading at discounts and then hit the spot market hard. I think you would make money on all legs of that if you committed a few hundred mill to it.

Looking at moves in some U stocks recently I wonder if this operation could be starting…

It seemed like the whole U mining sector in Australia was up 13% on Tuesday (several names up that much). We are seeing stuff like UUUU today. And even LEU (+9.6%) which is a name I need to understand better and could have a very interesting role to play in a resurgent US nuclear sector.

I am very excited about the potential here. With NXE and PDN.au my bit positions I am definitely liking the action, but I know we have to see U move eventually. And CCJ probably has to move too as the only “investable” name in the space if you exclude KAP.li

It seems to me CCJ could be $12 in a hurry if it just catches a bid like many in the sector have.

But it’s hard to argue that the better trade isn’t Uranium Participation Corp for people that can make do with the liquidity. The 17% discount to NAV is just a big deal, especially if you believe, as I do that it will be at a premium during this cycle. Risk reward is just excellent there. You are buying a discount to NAV based on a spot discount to forward, at a commodity price which is unsustainably low, at a time when the whole commodity deck has been priced higher, when even Elon Musk is flagging the need for nuclear power.

A commodity that hasn’t moved right as the world wakes up to inflation with an actual clean energy angle to it. This could well be THE trade for 2021, IMO. I know it’s been slow to develop, but it just looks better than ever.

Industry Expert on the Uranium Fundamentals – BULLISH CCJ Equity

The consensus seems to be that Biden will be far more bullish for uranium than Trump has ever been in his 4 years. Biden’s $2T Infrastructure plan embraces the current nuclear reactor industry and creates a new ARPA Agency for Climate that has put the development and deployment of advanced nuclear reactors as a priority, seeking to build them cheaper and faster through technical innovation. Biden’s push for clean energy will also serve to reduce competition from coal powered plants that will be phased out sooner, and carbon-emitting gas plants as well given power grids will become more carbon sensitive, rewarding carbon-free nuclear and hydro for their climate change mitigation. Today the bipartisan US Senate Committee on Environment and Public Works approved the American Nuclear Infrastructure Act designed to boost the US nuclear industry, establish a strategic Uranium Reserve, support enhancing the US nuclear fuel cycle and encourage US reactor exports worldwide. All signs are pointing towards a US nuclear renaissance if Biden Administration is to achieve its Net Zero emissions goals, as all evidence shows that intermittent renewables, solar and wind, are not able to provide the continuous 24/7 baseload carbon-free electricity needed by industry and the transition to electric transportation from cars to buses to truck transport. California has been the poster child for the failure of renewables to deliver on their early promise.  The outlook for US nuclear has never been better in the past few decades as Democrats now flip to be nuclear advocates, and with pro-nuclear Kerry nominated as Biden’s Climate Envoy, that renaissance could spread throughout the west as US rejoins Paris Climate Accord.

Both US and Russia are also now looking to leverage their nuclear power generation capacity to produce clean hydrogen fuel, adding more value to reactors in the clean energy transition while creating a new revenue stream that will support maintaining the US fleet where already a number of utilities have applied to extend reactor operating lives to 80 years from the previous limit of 60.

On the supply side, 2020 has seen a record uranium supply deficit due to previous mine shutdowns, flexing down by Kazakhstan, and 5-month mining suspensions at Cameco’s Cigar Lake and all of Kazakhstan’s ISR uranium mines.  Total mined supply this year will come in under 120M lbs, a level not seen since 2008. The 5-month cessation of ISR wellfield development, during what is usually Kazakhstan’s peak seasonal period for drilling and expanding wells to maintain production levels, is only now beginning to impact uranium production, and there is a high expectation that 2021 will see that supply destruction continue into Q2.  For the first time ever both Cameco and Kazatomprom have depleted their held inventory, forcing both to be active buyers in the Spot market in order to fulfill their contract delivery commitments.  With COVID-19 case numbers continuing to spike higher in Northern Saskatchewan, chances of another temporary shutdown of Cigar Lake are increasing daily.  Spot U3O8 price has responded, jumping above $34/lb in March/April then backing off to level off near $30/lb at present to create a new floor at 25% above its March low.

Further fueling the bullish outlook for uranium was the decision by BHP to scrap its Olympic Dam mine expansion plan.  Uranium is an 8M lbs/yr by-product of that mine, which BHP simply sells primarily to traders in the Spot market.  The expansion plan was expected to add another 7-8M lbs/yr supply to Spot market.  ERA’s Ranger Mine in Australia closes permanently next month, and Orano’s COMINAK mine in Niger, West Africa, will close permanently in March of next year.  Together they will reduce 2021 supply by somewhere around 7M lbs/yr.   The only major new mine actively trying to get into production is Berkeley Energia’s Salamanca mine in Spain.  It had received all but 1 of the dozens of permits needed to begin construction before being potentially shelved due to a policy change in government.  Brazil has just begun building a small new open pit mine which is expected to produce just over 500,000 lbs per year starting in 2022. All other mine projects remain on hold, as are all mine restarts as operators wait for uranium prices to move significantly higher into the $40-$50/lb range.

On the nuclear demand side, nuclear utilities have seen almost all of the political and trade overhangs removed that have been keeping them on the sidelines since the Section 232 Uranium Petition was served in January 2018.  They withdrew their RFP’s nearly 3 years ago, preferring to delay contracting until a long list of uncertainties were dealt with. The Section 232 morphed into the Nuclear Fuel Working Group but many of the recommendations were not actioned. Uncertainty over the Iran nuclear waivers became a major issue but that too has been resolved. The most significant uranium trade issue this year was negotiating an extension to the Russian Suspension Agreement, which Commerce and Rosatom eventually concluded successfully. The RSA was extended to at least 2040 with limits on Russian uranium imports being reduced from 20% to 15% of US nuclear fuel requirements by 2040. The last remaining political overhang is the US election outcome, as nuclear utilities do not want to enter into long term contracts until certain that they will get the support they need to keep them running under a new administration.

While COVID-19 has had a severe impact on uranium supply, it has had an opposite effect on demand.  Continuous baseload power has been in high demand throughout the pandemic, and many nations are targeting COVID recovery infrastructure funds to rebuild their power grids with carbon-free energy to achieve their net zero emissions goals.  In just the past few months there has been a strong shift to expand nuclear power generating capacity in China, India, and most recently in Britain where PM Boris Johnson is pushing for construction of a new 3200MW Sizewell-C power plant, and the 16 x 440MW UKSMR advanced reactors that the Rolls-Royce consortium is planning to build across the UK, hoping to expand into the global market.  Advanced reactor projects have found new legs in Canada and the US.  In all there are now 72 new advanced reactor designs under development in 18 countries. Many had thought that COVID-19 would hurt the nuclear industry by reducing demand, but the outlook now seems to be that it has instead fueled a new global nuclear renaissance, just as global uranium supply is in a record deficit. Demand this year is in the order of 187M lbs (vs 120M lbs of primary mined supply) and TradeTech expects demand to rise to 220M lbs over the next 10 years.  Where the supply will come from to bring the market back into balance is the big unknown.  All the major new mines are many years away from construction, and those looking to restart, like Paladin’s Langer Heinrich and Cameco’s McArthur River, are also 2 years or more away.  Kazatomprom has extended their production flex-down through to the end of 2022.  In the 11 years I’ve been following the uranium sector, never have the fundamentals been so strong for a major uranium price recovery like what was seen in 2004-2007. “If” is no longer the question… only “When” remains open.

COVID-19 has been sidelining nuclear fuel buyers as well, given the folks who have been engaged in a record number of reactor refuelings in 2020, under the added pressure of operating through a pandemic, are the same folks tasked with negotiating for new long term contracts with producers.  Term contracting has been very slow as utilities choose to draw down inventories, buying small quantities on Spot, deferring contracting into next year.  With Cameco, Kazatomprom and some utilities buying pounds in a depleted Spot market, the Spot price has found its floor near $30.  Once COVID begins to wane we are expecting to see a strong re-stocking cycle where utilities will over-buy to replace their cushions and acquire the new fuel needed in 2-3 years’ time. As the waiting game continues we are seeing new interest emerging in the uranium space, with some significant gains in quite a few developers and explorers over the past few weeks. I expect that to continue in what is usually a strong seasonal period from now until April/May.

That’s a synopsis of where things stand today with respect to the Uranium bull case. A major move in uranium and related equities seems closer than ever… things move slowly in this sector… until they don’t.

Authored by Daniel Lacalle,

According to JP Morgan, equity markets have not been this expensive so early into an economic recovery phase in the last twenty years. The Greed vs Fear Index also shows extreme optimism, while the Call to Put ratio in derivatives, that reflects the derivative exposure to a rising market, is also at multi-year highs. Meanwhile, the amount of negative-yielding bonds globally has risen to $18 trillion and the High Yield Index has risen to pre-crisis levels.

Many factors explain this level of optimism in markets. The news about vaccines and estimates of a rapid economic recovery accelerated investors’ bullish bets.

However, we must remember that all consensus estimates for 2021 already discounted the end of the pandemic, and that the quick recovery so many hoped for is not happening, and definitely not in a way that would justify the aggressive increase in risk.

Furthermore, the OECD released its latest estimate of economic growth for 2021 on the 4th of December and, opposite to what the most bullish investors hoped, the international body did not upgrade its estimates for the major economies. The same happened with the 2021 outlook published by S&P Global.

Recent macroeconomic figures have not added hopes for a stronger recovery. The manufacturing and services PMI (purchasing managers’ index) for the eurozone showed deep contraction in services and a weakening trend in manufacturing with weak new orders and job losses even in November. The United States economy has published more robust figures, but the jobs slowdown is concerning. While manufacturing and services remain in expansion in November, the U.S. economy added less than a third of the jobs it increased in October, and the labor participation rate fell slightly to 61.5% with unemployment falling to 6.7%, driven mostly by concerns about new lockdowns and more taxes and rigidity in the jobs market if Joe Biden is confirmed as president.  Even the economies that were showing positive surprises in October are showing an important slowdown, as seen in the Daily Activity Index published by Bloomberg.

So why are markets so bullish? Central banks play a major role in this risk-taking frenzy. The balance sheet of the major central banks has soared to more than $20 trillion, the ECB balance sheet is now more than 61% of the GDP of the eurozone and the Federal Reserve exceeds 34%. Many market participants are using an often-repeated “Bad Is Good” strategy. A large number of investors ignore macro and debt data and increase bullish bets assuming that if figures remain weak, central banks will increase their stimulus plans.

Why is this dangerous? Central banks’ ignore the excessive market valuations and risk of asset bubbles created by their “expansionary” policies because they see these as small collateral damages of a wider and more important impact on the economy. As long as headline and core inflation in their economies remains weak or below target, they do not see any risk. But there are plenty.

• The first risk is creating a debt and banking crisis. When rates remain artificially low for so long and solvency and liquidity ratios of borrowers deteriorate, the rise in non-performing loans and delinquencies is inevitable and bankruptcies pile despite massive liquidity injections. The accumulation of risk of the years of excess becomes the banking crisis of the “hangover” years.

• The second risk is ignoring inflationary pressures on the goods and services citizens really use. A recent study from Bloomberg Economics showed that the inflation suffered by the middle-class and poor is up to three times higher than the official CPI (consumer price index). The Eurozone inflation shows this very clearly. While headline inflation has fallen to deflationary territory due to energy prices, fresh food has risen 4%, and consumers do not feel the headline 8% fall in “energy” because power, gasoline and diesel bills are not falling 8% at all including taxes. This difference between “low inflation” for central banks and rising cost of living for consumers is what created significant social conflicts throughout 2018 and 2019. In the United States, education, healthcare, insurance and fresh food are rising much faster than real wages.

• The third risk is to create a perverse incentive in investors that fuels bubbles that create relevant ripple effects in the real economy when they burst. Central banks believe the risk of rising asset prices is contained but we know from the past that these “manageable” risks are rarely managed at all. Furthermore, when the biggest bubble in markets is sovereign debt, citizens suffer the risk in two ways, through higher taxes as deficits rise despite economic growth, and weaker purchasing power of savings and wages as central banks continue to use monetary policy to debase the value of their currencies.

Some investors may know that they are taking too much risk, but a large part also thinks that risk is gone because central banks will continue to implement stimuli, and this is really problematic. Too much debt and too much risk are not irrelevant factors, they mean lower growth, weaker productivity and higher probability of a crash in a few months. We have seen it in 2018, now in 2020.

Risk builds slowly and happens fast. Central banks cannot continue to ignore the insanity of sovereign bond valuations and the risk of concentration in markets. Low inflation is not an excuse to implement wrong policies even more aggressively. Governments cannot fall into the perverse incentive of recklessly adding debt because the cost is cheap. It is time to understand that the recovery will not come from larger deficit spending and monetary easing, but from prudent investment and saving. Demand-side policies have failed in this and the previous crisis. The solution to wrong policies is not to implement more of them. The world needs to stop this insane downward spiral of debt and constant bubble booms and busts.

The world needs more supply-side policies and less demand-side ones. This matters to everyone because the burst of the excessive optimism of these months of 2020 may end badly, not just for markets, but for an already crippled real economy.

After several months of solid growth (with the exception of a sharp drop in August), in October consumer credit grew far less than expected, rising just $7.2BN, half the Sept $15BN increase…

… and badly missing expectations of a $16.1BN increase.

While revolving credit continued its smooth, virtually unchallenged melt up, rising by $12.7BN in October, it was another unexpected decline in credit card debt which shrank by $5.5BN that led to the weak October print.

The decline in credit card debt is troubling, but expected in light of the lack of a new fiscal stimulus which had prompted many of the same households that levered up during the summer on hopes of continued government generosity to their recent credit card loans as uncertainty rose.

Finally, there were no such repayment concerns when it came to auto and student loans, which make up the bulk of non-revolving credit: according to the latest quarterly update, both student and auto loans hit a new all time high, increasing by $24.5BN and $16.5BN to $1.705 trillion and $1.219 trillion, respectively, both new record highs.

Why? Because since the paydown schedule on these loans is so far off into the future, Americans largely expect that either one or both will eventually be extinguished by future socialist administrations.

Chicago City Council Alderman Tom Tunney has been accused of running a “COVID speakeasy” after photos emerged on a local blog of people eating inside one of his three restaurants. Of note, dine-in eating has been banned in Chicago since October 30.

According to Second City Cop – a blog devoted to police issues, a tipster sent photos of themselves dining in at Tunney’s restaurant, Ann Sather. The photo includes a placemat menu for the restaurant, a copy of the New York Times from December 3, and clearly shows people dining in.

You enter the restaurant and ask the staff on the sly, “Can we dine in?” They’ll look around and whisper, “Yes” and take you to the “VIP Room.” Chances improve dramatically if they know you, and they knew our contributor. –Second City Cop

If anyone had further doubts, the decor matches a photo posted to Chicago building contractor Chas Bender & Co’s website.

In a Monday article in the Chicago Sun Times, Tunney acknowledged having defied Governor J.B. Pritzker’s order, saying “We have, on occasion, sat regular diners in the back of the restaurant. I acknowledge that. It’s not OK. I made a mistake, and I’m owning up to it. I should have not sat regular customers in my restaurant whatsoever.”

“I have a lot of repeat customers over the years. On a sporadic basis, I have let regular customers — very few and far between — in my store. I made an error,” he added.

Tunney was asked why he chose to defy the state and city orders. Was it because his restaurant was fighting for survival during a pandemic that has forced many Chicago restaurants to close?

“Everyone’s struggling,” he said. “I’m not gonna equate my situation with anyone else’s.”

Under repeated questioning about how many customers he had served indoors, Tunney hung up on a Chicago Sun-Times reporter.

In September, Tunney told Manufacturing.net that he’s put $250,000 of his own money – including proceeds from real estate sales – to replace lost revenue. It looks like running dine-in service at his restaurant while other Chicago restaurants die on the vine is also helping the city official.

Arizona officials are scrambling to enact coronavirus health and tracing measures out of abundance of caution following the late Sunday announcement that Rudy Giuliani tested positive for COVID-19 and was hospitalized.

Arizona’s state House and Senate have closed down for a week “out of an abundance of caution” after Giuliani visited and met with top state Republican officials,The Arizona Republic reports. 

Giuliani held a series of indoor events lobbying to overturn election results in key states, including in Arizona, Michigan, Georgia and Pennsylvania. He visited these within the two weeks prior to his COVID-19 confirmation. It was reportedly 48 hours after he returned to D.C. that he learned of his diagnosis. 

Giuliani was in Arizona last Monday (Nov.30) at the Pheonix hotel for nearly ten hours at an event in which Republican lawmakers for the state heard testimony of alleged widespread election fraud.

On Monday afternoon President Trump gave a briefing to reporters on Giulliani’s condition, saying his personal attorney is doing “very well” and does not have a fever.

“Rudy’s doing well. I just spoke to him. He’s doing very well,” Trump told reporters at a White House event where he presented the Presidential Medal of Freedom to wrestler Dan Gable. “No temperature, and he actually called me early this morning. He was the first call I got. No, he’s doing very well.”

The 76-year-old former New York mayor is currently in Georgetown University Hospital after personally confirming the diagnosis on Twitter, saying he’s “recovering quickly and keeping up with everything,” but without elaborating.

At various times in Arizona a week ago Giulliani appeared to be in close quarters with members of the Arizona Legislature, including for a photo op.

The AZ legislature will be closed all week because of Giuliani’s Covid diagnosis. https://t.co/6Mv1wluIjH

— Kyle Cheney (@kyledcheney) December 7, 2020

Predictably, Giuliani is coming under fire for appearing to not wear a mask at most or all the events he attended in various states of the past two weeks.

While some had hoped for a ‘combo’ stimulus/government-funding bill, it appears that will not be the case – at least in the very short-term – as The Hill reports that The House is expected to vote Wednesday on a stopgap measure to avert a government shutdown after current funding expires this Friday.

While House Democratic leadership had expressed hope for an all-encompassing bill, Democratic aides confirmed Monday that the stopgap ‘continuing resolution’ is expected to last through Dec. 18, and implicitly recognizing the fact that any COVID Relief is not imminent.

On the bright side, if this CR is passed, it will give lawmakers one more week to come to some agreement over the stimulus (and for that matter the omnibus spending bill which remains rife with bigger picture disagreements) before they leave for the holiday break.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Recently, Ed Yardeni discussed his view of why another “Roaring 20’s” may lie ahead. However, while I certainly can appreciate his always “bullish optimism,” there is a significant fundamental problem with his view.

The Reasoning

We can sum Ed’s view up in the following quote:

“There’s certainly a precedent for our current times in the past, one that was truly unprecedented back then.

World War I was followed by the Spanish Flu pandemic of 1918, which infected an estimated 500 million people and killed as many as 50 million. Given that the world population was 1.8 billion back then, that implied a 28% infection rate and nearly a 3% death rate. Both stats are currently significantly lower for the COVID-19 pandemic. Today, the global population is 7.5 billion. There have been 20 million cases and 735,000 deaths worldwide as of yesterday.

The good news is that the bad news during the previous precedent was followed by the Roaring Twenties. So far, the 2020s has started with the pandemic, but there are plenty of years left for the prosperous 1920s to become a precedent for the current decade. If so, the driver of the coming boom will be technology-enhanced productivity, as it was during the 1920s.”

While the reasoning certainly seems sound, there are vast fundamental differences between today and 1920, which will likely render the analysis mute.

The Fundamental Problem Of Technology

Let’s start with the impact of Technology. As Ed notes:

“Technological progress always confounds the pessimists by solving scarce-resource problems. It also fuels productivity and prosperity, as it did in the 1920s and could do again in the 2020s.”

He is correct that technology will continue to evolve and impact society in numerous ways. However, there is a fundamental difference between the impacts of technology in the 1920s and today.

As he notes, the rise of automation and the automobile’s development had vast implications for an economy shifting from agriculture to manufacturing. Henry Ford’s innovations changed the economy’s landscape, allowing people to produce more, expand their markets, and increase access to customers.

Technological advances led to increased demand, creating more jobs needed to produce goods and services to reach those consumers.

Conversely, the use of technology today reduces the demand for physical labor by increasing workers’ efficiencies. Since the turn of the century, technology has continued to suppress productivity, wages, and, subsequently, the rate of economic growth.

Technologies Dark Side

Such was a point we made in “The Rescues Are Ruining Capitalism.”

“However, these policies have all but failed to this point. From ‘cash for clunkers’  to  ‘Quantitative Easing,’ economic prosperity worsened. Pulling forward future consumption, or inflating asset markets, exacerbated an artificial wealth effect. Such led to decreased savings rather than productive investments.”

The critical distinction between the technology of the ’20s and today is stark.

When technology increases productivity and output while simultaneously increasing demand by increasing “reach,” it is beneficial.

However, when technology improves efficiencies to offset weaker demand and reduce labor and costs, it is not.

Given the maturity of the U.S. economy and the ongoing drive for profitability by corporations, technology will continue to provide a headwind to economic prosperity.

The Fundamental Problem Of Debt

Another difference is the level of debt. One of the fundamental requirements for creating strong economic growth rates is low levels of leverage. In the 1920s, consumers had very little, if any, debt. Such was also the case with Government debt. Such allowed higher economic growth rates and overall prosperity as incomes did not get diverted to service debt.

At the beginning of the “Roaring 20s,” total credit market debt to GDP was 154%. Such was also about the same level of debt-to-GDP when we entered into the “Roaring 80’s” bull market.

Importantly, when talking about “bull markets,” the amount of debt in the system plays an essential factor. The last time that debt-to-GDP ratios hit such a peak was going into the “Great Depression.” Not the beginning of the “Roaring 20s.”

The Fundamental Problem Of Economic Growth

Since debt retards economic growth by diverting savings into debt payments rather than productive investments, such also provides a significant headwind to Ed’s “Roaring 20s” aspirations.

The current deviation between the market and underlying economic growth is the largest in history. Given the high correlation between the economy, corporate profits, and stock prices over the long-term, the “Market Capitalization” to “Gross Domestic Product” ratio tells us much.

The indicator shows us that when “disconnects” between market participants and the underlying economy occur, a reversion ensues. The correlation is more evident when looking at the market versus the ratio of corporate profits to GDP. With a 90% correlation, investors should not dismiss these deviations.

There is additional confirmation with an 84% correlation between the S&P 500 and corporate profits growth.

Since corporate profits are a function of economic growth, the correlation is not unexpected.  Hence, neither should the impending reversion in both series. The current detachment would not exist without the Fed’s largesse.

Poor Future Outcomes

When it comes to the state of the market, corporate profits are the best indicator of economic strength. The detachment of the stock market from underlying profitability guarantees poor future outcomes for investors. But, as has always been the case, the markets can certainly seem to “remain irrational longer than logic would predict.”

However, such detachments never last indefinitely.

“Profit margins are probably the most mean-reverting series in finance. If profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system, and it is not functioning properly.” – Jeremy Grantham

As opposed to Ed’s view of a surging market ahead, the reality is the current detachment of the market from the economy guarantees investors a poor outcome in the future. As we showed in “Do, You Feel Lucky:”

“Currently, the ratio is near 1.50, or more than twice the historical average. The only other time it was this high was in the first quarter of 2000, as the tech bubble was bursting. As shown, the expected annualized return for the next ten years is 0%.”

Such an outcome will undoubtedly be disappointing.

The Fundamental Problem Of Valuations

“The stock market is NOT the economy. But the economy is a reflection of the very thing that supports higher asset prices – corporate profits.” – Investors Are Walking Into A Trap

Lastly, given the understanding of the relationship between the economy and the stock market, the idea that stocks will remain permanently detached from fundamentals is unlikely. Importantly, Ed’s view of markets entering into another “20s era” misses the point of valuations.

As shown, in 1920, stock market valuations were less than 5x earnings.

Context is critical. Those low valuations, and subsequent market surge, followed a nearly 20-year long bear market in stock prices. Such was due to a banking crisis in 1907, WWI, and a rarely discussed “economic depression” heading into 1920. Low valuations, combined with a depressed economy, lead to a massive recovery driven by sharply higher economic growth over the next 9-years.

Such is hardly the case today. After an 11-year expansion, extreme leverage of the financial and economic systems, and valuations elevated, support for a 20’s melt-up is limited. As shown below, such periods have not coincided with a subsequent decade of “roaring asset prices,” but rather a disappointment.

The 20’s Analogy May Be Misguided

While the idea of a “roaring 20s market” is undoubtedly optimistic, it is also a dangerous concept for investors to “buy” into.

As stated above, the stock market, over the long-term, reflects the underlying economic activity. Personal consumption makes up roughly 70% of that activity. Given that consumers are more leveraged than at any previous historical period, it is doubtful they will become a significantly larger chunk of the economy. As such, the capacity to re-leverage to similar extremes is no longer available.

Let’s also not forget the singular most important fact.

Our history’s previous secular bull markets grew from extreme under-valuations, washed-out financial markets, and extremely negative sentiment. 

Such was not the case over the last decade as the Federal Reserve and Government have pumped more than $36 Trillion into the economy to keep it “afloat.” 

I say “afloat” rather than “growing” because, during the last decade, economic “growth” was a function of population growth. Monetary interventions were successful in creating inflation in financial assets. However, during the same period, the economy grew by only $2.92 Trillion.

In other words, for each dollar of economic growth since 2008, it required $12.67 of monetary stimulus. Such sounds okay until you realize it came solely from debt issuance.

Conclusion

The “secular bull market” of the 1920s is probably the best example of the cycle we are likely ending, not beginning.

In 1920, banks were lending money to individuals to invest in the securities they were bringing to market. Interest rates were falling, economic growth was rising, and valuations grew faster than underlying earnings and profits.

There was no perceived danger in the markets and little concern of financial risk as “stocks had reached a permanently high plateau.” 

It all ended rather abruptly.

Today, while stock prices can be lofted higher by further monetary tinkering, the underlying fundamentals are inverted. The larger problem remains the economic variables’ inability to “replay the tape” of the ’20s, the ’50s, or the ’80s. At some point, the markets and the economy will have to process a “reset” to rebalance the financial equation.

In all likelihood, it is precisely that reversion which will create the “set up” necessary to begin the “next great secular bull market.” Unfortunately, as was seen at the bottom of the market in 1974, there will be few individual investors left to enjoy the beginning of that ride.

Intel has had a difficult year as a wave of consolidation in the semis space has stoked fears that the once-dominant American firm (which wasa once universally acknowledged as the global leader in processor-speed innovations) might lose its grip as Nvidia buys Arm in what’s been heralded as “the largest semiconductor deal ever”.

INTL was riding high as recently as 2018, when geopolitical entanglements stopped two proposed deals involving rival chipmaker Qualcomm. To be sure, the deals announced this year involving Nvidia, Arm, AMD and Xilinx will have more of an impact on industries like defense and the burgeoning “Internet of Things”. But Apple’s decision to start designing its own chips is shaping up to be a game-changer, at least as far as PCs are concerned.

According to Bloomberg, Apple is developing a second-generation of chips which, thanks in part to technology licensed from ARM, might soon surpass Intel in terms of sheer processing power, giving Apple a potential leg up as it seeks to boost its share of the PC market.

Intel shares tumbled on Monday, breaking a streak of strong performance inspired in part by Intel’s new partnership with Amazon.

Like all of Apple’s other products, its chip designs are also farmed out to manufactured in foundaries owned by a third party – in this case, Taiwan Semiconductor Manufacturing Company, the world’s largest maker of customer designs.

Less than a month ago, Apple introduced the “M1”, its first processor, which runs on an ARM-based system (but was designed by Apple engineers).

If Apple’s chips live up to expectations, they could help Apple bolster its PC business by building laptops and desktops that can outperform all but the most powerful personal computers.

What’s more, Apple might be ready with this next generation sooner than investors previously believed. The company’s next series of chips could debut as early as the spring, and they could be included in upgraded versions of the MacBook Pro, including both entry-level and high-end iMac desktops, and, later on, a new Mac Pro workstation.

The news is the latest indication that Apple is planning nothing short of the full-scale eradication of Intel’s chips from all of its products, from laptops, to the iPad, iPhone and even the company’s most powerful desktops.

The road map indicates Apple’s confidence that it can differentiate its products on the strength of its own engineering and is taking decisive steps to design Intel components out of its devices. The next two lines of Apple chips are also planned to be more ambitious than some industry watchers expected for next year. The company said it expects to finish the transition away from Intel and to its own silicon in 2022.

Bloomberg summed up the benefits for Apple thusly: the move sheds that dependency, deepens its distinction from the rest of the PC market and gives it a chance to add to its small, but growing share in PCs. Looking further into the future, Apple engineers are developing more ambitious graphics processors. While the current generation of Apple’s M1 processors are offered with a custom Apple graphics engine that comes in either 7- or 8-core variations, the company’s future high-end laptops and mid-range desktops could feature 16-core and 32-core graphics parts built by Apple.

For later in 2021 or potentially 2022, Apple is even planning 64 and 128 dedicated core chips to be featured in its most high-end machines. Those graphics chips would be several times faster than the current graphics modules Apple uses from Nvidia and AMD in its Intel-powered hardware.

As iPhone sales have slowed over the past few years, Apple CEO Tim Cook has been pitching the company’s services business as the new locus of revenue growth for the world’s most valuable company. Despite this, Apple has served up optimistic forecasts for the current generation of iPhones, arguing that the upgrade to 5G could inspire an upgrade “supercycle”. Of course, analysts and even some of the major carriers like AT&T have poured cold water on these hopes.

If nothing else, the news about Apple’s microchip ambitions offer one more potential growth area to help the world’s most valuable company avoid relying too heavily on a single business line – like, say, iPhone sales – for future revenue and bottom-line growth.

Via SchiffGold.com,

The US dollar has been showing significant weakness over the last several weeks. The dollar index closed at 90.814. Just two weeks ago, it was in the 94 range. Compared to the Swiss franc, the dollar is at a 6-year low. In his podcast, Peter talked about the dollar weakness and the Federal Reserve policy that’s causing it. The crazy thing about the rising inflation expectation is that the Fed appears poised to try to fight it with even more inflation.

Peter said recently dollar weakness is just the harbinger of much weaker days to come.

I think it’s going to finish out the year particularly weak and it is going lead to an even weaker 2021, which I think could be the weakest year ever for the US dollar.”

Then again, 2021 might not be the weakest year ever. The year 2022 could prove to be even weaker.

It is a long way down, and I expect the dollar to complete this journey and ultimately end it in a crisis.”

Dollar-denominated bonds are also falling and yields are creeping up. Although Treasury yields aren’t high by historical standards, they have crept up a long way from their lows just a few months ago. Last week, we saw weakness in the bond market even with a relatively bad jobs report.

Normally, when you get weak economic data, you get a rally in the bond market. But today [Friday] we got a sell-off. And what that tells me is that the bond market is worried about stagflation. They’re not just looking at the economic weakness. They’re looking at the monetary policy response to that economic weakness, meaning that if the economy gets weaker, that means we get more money printing. We get more inflation. And that is what the bond market is afraid of.”

Inflation expectations are hitting two-year highs. That means investors are more concerned about inflation now than before the COVID-19 pandemic started. When the economic shutdowns first started, everybody was talking about the pandemic as a deflationary event. At the time, Peter was saying, no, this is inflationary.

Because what the pandemic is going to do is disrupt supply chains. It’s going to lead to less production of goods and services. At the same time, it’s going to lead to even more money printing by the Fed as they try to compensate for the decline in the economy by printing more money.”

In fact, the money supply has been growing at record rates for months.

Investors have gone risk on and the stock market has soared. In the early days of the pandemic, investors moved into gold because they wanted a safe haven from the market volatility the response to coronavirus caused. But gold has shown weakness of late and has not responded to the growing inflation pressures because the stock market has been soaring.

Nobody wants a safe haven from the market. Everybody wants to be in the market. And so, therefore, they can sell their safe-haven assets to get more exposed to the markets. So, they want to take risk on so they’re taking the safe havens off. But ultimately, people are going to realize that they need a safe haven from inflation. They don’t need a safe haven from the stock market going down. They need a safe haven from the dollar going down. And ultimately gold and gold stocks are going to be a much better inflation hedge than just having industrial metals, or energy stocks, or agriculture stocks, or other types of cyclical stocks that people think are going to benefit from inflation.”

Another reason for gold’s weakness is a reflexive move out of gold when inflation gets warm because of the expectation that the Fed will fight it with higher interest rates and tightening the money supply. Peter said that’s not going to happen.

The Fed is not going to respond to an increase in inflation expectations the way it typically has because it can’t. The Fed is not going to fight inflation. The Fed is going to surrender to inflation. Inflation is going to win. And that means the dollar is going to lose, so gold is going to take off.”

Peter said he finds it amazing that investors have simply accepted the idea that the Federal Reserve is not going to let rates go too high even in an inflationary environment. Most people expect that even if rates start to rise due to fears of increasing inflation, the Fed will step in and keep rates from rising by increasing the amount of quantitative easing.

So, we don’t have to worry because unlike increasing inflation expectations in the past that may have led to a backup in interest rates that would be problematic for the market, or the housing, or the economy in general, we don’t have to worry about that anymore because the Fed is committed that it is going to keep interest rates down no matter how high expectations rise. Now, this is a huge problem.”

Conventional wisdom tells us that the Fed should lean against any increase in inflation by raising interest rates and tightening policy.

But if the Fed is going to respond to inflation by creating even more inflation, if the markets are worried about inflation and because they’re worried about inflation they’re selling Treasuries which is putting upward pressure on interest rates, if the Federal Reserve response to investors’ concerns about inflation is to create more inflation — is to print even more money to prevent those increasing inflation expectations from bleeding over into higher interest rates, well, now investors are going to be even more concerned than they were before. The inflation expectations are going to get higher. So, instead of dampening those expectations, the Fed is basically throwing gasoline on the fire. And now investors are going to expect even more inflation, so that’s going to put even more downward pressure on bonds and upward pressure on yields, which means now the Fed has to create even more inflation to try to artificially suppress those rates. So, this is a massive spiral. The markets should be scared.”

What this really shows is that the Fed is at the end of its rope.

This is the end of the line for the Fed. We are on the verge of a monetary crisis, of a sovereign debt crisis. Because when the Fed has to acknowledge that it can’t fight inflation, that it has to surrender and inflation wins, you know, they’re done.