Tag: finance

One day after JPMorgan warned that the biggest threats for markets as we enter 2021 are “crowded trades and euphoric consensus“, Goldman has jumped on the cautionary bandwagon, writing that with its Friday close at an all-time high of 3699 (and a  16.5% total return YTD ), the S&P500 has reached the bank’s year-end target of 3700. Additionally, and as we discussed in our weekend post about the stupidity that is the Fed model and why low interest rates do not justify blow out multiples, Goldman also points out that “absolute valuation is high compared with history with the forward P/E at 21.1x”…

… even if hilariously, Goldman falls back precisely to the same strawman argument that “equities are more reasonably valued in the context of the low interest rate environment”, the same argument we debunked using data from Gerard Minack:

Perhaps Goldman realizes the folly of its recommendation, because moments after praising the “reasonableness” of stock valuations in a time of record low rates, the bank writes that “equity positioning is extremely stretched” and adds that as of Friday, its equity “Sentiment Indicator(SI) registered +2.0 standard deviations above average…

… which represents a 98th percentile reading since 2009.”

As Goldman strategist Arjun Menon explains, the index combines six weekly and three monthly measures of equity positioning across retail, institutional, and foreign investors, and “readings of +1.0 or higher have historically signaled stretched equity positioning.” As a reference, the last time Goldman’s SI exceeded +1.0 was in February this year – just before the covid crash – and the last time the index recorded +2.0 was in September 2019, around the time NOT QE was launched to prevent a bank funding crisis.

Digging into the components of the proprietary indicator, Goldman notes that the record inflows into US equity funds which we documented last week using BofA’s analysis of EPFR data, “have been the key driver of our Sentiment Indicator during the past month.” Specifically, since the start of November, US equity mutual funds and ETFs have witnessed $52 billion of inflows, the largest inflows relative to assets during any five-week period since March 2017. At the same time, and as also discussed two weeks ago, hedge fund net leverage has continued to climb and is just shy of the highest level on record. A further decline in US equity mutual fund cash positions to a 40-year low (just 1.7% of assets) and a jump in CFTC net futures length have also contributed to the recent rise in our SI.

So for all those who claim that there is cash on the sidelines, please keep quiet and instead read this assessment from Goldman: “total equity allocation now ranks in the 97th percentile since 1990. We estimate that, in aggregate, equities account for 48% of household, pension fund, foreign investor, and mutual fund assets. These four investor categories own around 90% of the overall corporate equity market. In contrast, aggregate allocation to bonds (22%) and cash (13%) are at the 7th percentile and 19th percentile, respectively.

Notably, US households represent the single largest owner of the US equity market, at 35%, and currently have cash allocations close to the 30-year average despite cash yields being substantially below average.“

So what does this record investor euphoria mean for stock prices? It probably won’t come as a surprise that after both Morgan Stanley and JPMorgan cautioned about near term weakness, Goldman too has jumped on that particular bandwagon, and writes that “in the near-term, the risk of a modest equity market pullback has risen because the worsening virus situation in the US could spur a positioning unwind.” The bank adds that although vaccine approval in the US appears imminent, “increased restrictions or shutdowns in the US could slow the near-term recovery in economic growth.” This is also why Goldman’s economist team recently downgraded their US GDP growth forecasts for 4Q 2020 and 1Q 2021 and cited “further downside risks to their estimates.” On the other hand, the prospect of fiscal stimulus represents a potential upside risk to growth expectations and Goldman’s political strategists believe that the odds of a near-term deal have increased.

In short while potential near-term catalysts are roughly even between bullish and bearish, the biggest risk remains outsized euphoric positioning (just as JPM warned) and the threat of a violent unwind of weak bullish hands, which would lead to a quick dip… which would then quickly be bought as investors frontrun the next fiscal or monetary stimulus.

It’s also why after expecting some turbulence in the near term, Goldman writes that in the medium-term, it remains confident in its forecast of strong equity market returns, and repeats its call for a “roaring 20s” return in the coming years, expecting the S&P to hit 4,300 by mid-2021:

“Our baseline assumptions that a vaccine will be widely distributed by mid-2021 and that the US economy will experience a ‘V’-shaped recovery are the key drivers of our S&P 500 2021 year-end forecast of 4300 (+16%). Stretched positioning has typically represented a downside risk only to near-term forward returns.

Finally, if there is a market correction as bull puke, how bad could it be? As the Goldman strategist explains, “although the historical sample is limited, during prior instances when our SI recorded +2.0 or higher, S&P 500 returns were weak in the subsequent 1-4 weeks but almost always positive after two months.“

So there you have it: expect 1-4 weeks of potential weakness, which however will be promptly reversed shortly after as the BTFD brigade – and various central banks and pension funds – not to mention the hordes of retail investors unleash their dip buying power.

Via RealClearInvestigations.com,

In one corner, President Trump and his allies claim massive fraud cost him the 2020 election. 

In the other, Democrats and sympathetic media allies argue that the vote was free and fair and that the charges of fraud amount to sour-grapes conspiracy mongering. 

President Trump and first lady Melania Trump at a weekend rally in Valdosta, Ga., in advance of Georgia’s U.S. Senate runoffs on Jan. 5. (AP Photo/Ben Gray)

Many allegations advanced by the president, his surrogates and supporters have been challenged and some have been dismissed by courts or debunked.

Still, in numerous instances, media fact checkers have not been diligent. They have simply run the allegations past state authorities and other officials who would have orchestrated the alleged fraud or had an interest in minimizing irregularities.

It was thus hardly surprising when the New York Times reported that it had called officials in every state and was told, as the headline said, that there was “No Evidence of Voter Fraud.” That’s the kind of statement that inspires skepticism because fraud is inevitable in any big election. The Times itself seemed to acknowledge just that in the article’s sub-headline, which said, without presenting evidence, that there were “no irregularities that affected the outcome.” 

Of course, “irregularities” in a basic function of American democracy, even if they did not affect the outcome, remain a significant part of the 2020 election story as court cases and controversies continue.

Below is a running, selective collection of hyperlinked articles detailing charges of ballot irregularities or electronic fraud being made in various states, especially key battlegrounds such as Arizona, Georgia, Michigan and Pennsylvania.

The Latest

Arizona

• FBI investigating voter data theft – Forbes

• Data expert: between 120,000 and 306,000 fake people cast ballots – NTD Television

• Maricopa GOP chairwoman: Trump votes credited to Biden – Capitol Times

• Anonymous: 35,000 illegal votes for Democratic candidates – Daily Signal 

Georgia 

• Trump campaign files suit seeking new statewide election – Reuters

• House Republicans seek mail-ballot process review before Jan. 5 runoff – Epoch Times

• Dekalb County can’t find chain of custody records for absentee ballots – Epoch Times

• Trump campaign: Video shows ballot-counting from suitcases after poll workers sent home – Townhall, Twitter

• Chief investigator: No ‘mystery ballots’ seen in security video – Washington Examiner

• Attorney L. Lin Wood: All 900 Fulton Co. military ballots for Biden – sdfish.com

• Wood: Video shows ballots shredded – Cobb County Courier

• Data analyst: 40,000 ballots illegally cast by people who had moved – NTD video

• Ex-gubernatorial candidate Stacey Abrams group investigated for seeking to “register “ineligible, out-of-state, or deceased voters” before Jan. 5 Senate runoffs – Fox News

Michigan

• Judge allows probe of Dominion machines in Antrim County – Fox News

• Four takeaways from the state Senate’s vote fraud hearing – Daily Signal

Nevada

• Nevada GOP to appeal judge’s refusal to nullify Biden win – Associated Press

• Native American voter advocacy group “handed out gift cards, electronics, clothing” in tribal areas, and on Facebook some recipients documented the exchanges for votes while wearing Biden campaign gear – The Federalist

• Trump legal team: Audit finds 2 percent of ballots cast in the name of people who said they never received a ballot and 1 percent by those who said they never filled one out – PJ Media

• Mail ballots were sent to abandoned businesses – Public Interest Legal Foundation

• Trump representatives said more than 1,500 ballots may have been cast by dead voters and that 42,248 people voted “multiple times” – Washington Examiner

• Witness: Early voting tallies in Carson County were inexplicably changed on election night – Hearing transcript

• Whistleblower affidavit: Clark County supervisors accepted ballots despite concerns regarding required signatures – Washington Examiner

Pennsylvania

• Justice Samuel Alito moves up U.S. Supreme Court deadline in mail ballot case – Epoch Times

• Lawsuit: Up to 280,000 ballots ‘disappeared’ after postal contractor’s trip from New York – Epoch Times

• Tens of thousands of ballots returned earlier than sent date, researcher says – Epoch Times     

• Mail carrier says he was ordered to collect late ballots for backdating. – Washington Times

• Pittsburgh ballots sent to vacant lots – Public Interest Legal Foundation

Wisconsin

• State Supreme Court deals Trump challenges third defeat in 30 hours – Milwaukee Journal Sentinel

Sidney Powell

• A former member of Trump’s legal team, Powell has filed lawsuits in Arizona, Georgia and Michigan alleging, as ABC News put it, “a complex plot involving shadowy foreign interests” (including Venezuela, China and Iran) as well as Dominion Voting Systems; Republican elected officials, and Democratic poll workers – “all allegedly in cahoots to steal the election from Trump.” This graphic details other claims made by Powell.

The U.S. Attorney General

• Barr: No evidence of fraud that would change vote outcome – Associated Press

Earlier: Week of Nov. 22-28

California

• Los Angeles prosecutors uncover scheme in which thousands of fraudulent ballots were cast – Just the News

Michigan

• Detroit worker swears she witnessed thousands of ballots being falsified – Just the News

Pennsylvania

• Large numbers of voters say their absentee votes weren’t counted or someone else requested their mail-in ballot – Just the News

• Abnormally low number of rejected ballots – Just the News

Also

• Whatever happened to the deepfake threat to the election? – Wired 

Nov. 8-21  

Georgia

• A sudden surge of some 20,000 mail-in votes for Joe Biden in the greater Atlanta area while some 1,000 votes for President Trump mysteriously disappeared – Paul Sperry, RealClearInvestigations

Nevada

• Election supervisors in Clark County counted mail-in ballots despite concerns that the signatures were invalid, according to a whistleblower’s affidavit – Washington Examiner

• People inside a Biden-Harris van were witnessed opening, filling out, and resealing mail ballots, a whistleblower alleged – Epoch Times

Pennsylvania

• Researcher: Tens of thousands of ballots returned earlier than sent date – Epoch Times

Texas

• Social worker accused of 134 counts of fraudulently casting ballots for intellectually challenged clients – Attorney General’s Office

Wisconsin

• Election officials used potentially illegal administrative policies that could disqualify tens of thousands of ballots – Just the News 

Nov. 1-7

Pennsylvania

• Supervisors ordered a mail carrier to collect and submit late ballots, the carrier alleged, which supervisors then backdated so that they appeared to have been mailed in time – Washington Times

Texas

• Bid to toss nearly 127,000 votes cast via drive-through voting during early voting period in Harris County – SCOTUS Blog

More

• Coverage of election irregularities and challenges – Epoch Times

• 2020 Election Litigation Tracker – SCOTUSblog, Election Law at Ohio State

• A Guide to 2020 Election Laws and Lawsuits – ProPublica

Remember that time CNBC’s Rick Santelli caused a media firestorm by (half-seriously) suggesting that people should infect themselves with SARS-CoV-2 to try and blunt the economic fallout?

Well, months later, scientists around the world are seriously debating the ethics of so-called “human challenge” trials – where participants are intentionally “challenged” (i.e. deliberately infected with a pathogen) to test the efficacy of a vaccine or treatment. On Monday, the WHO will hear from an advisory group of scientists who will discuss the pros/cons of running these trials with young, healthy volunteers who are at the lowest risk for the most severe consequences. The Netherlands is already ramping up plans for a trial that will involve the deliberate infection of hundreds of volunteers, and the British are finalizing plans for a “challenge” study of their own.

Skeptics like DoubleLine’s Jeff Gundlach have doubted the  extremely high efficacy numbers (~95%) released by Pfizer and Moderna, with the bond trading legend claiming he ‘doesn’t buy it’. Aside from the headline numbers, which Gundlach feels are unrealistically high,  he pointed to other shortcomings like the small number of actually infected patients documented in each ‘Phase 3’ trial.

Isn’t the fact that the WHO is seriously considering the ‘feasibility’ of these studies a tacit admission that the data we’ve seen so far is somehow lacking?

To be sure, there are plenty of scientists who have serious reservations about exposing volunteers to SARS-CoV-2. As we have reported, while consenting adults should be allowed to take whatever risks they want, there’s a known unknown regarding this relatively new illness – namely, the fact that many patients experience a brief bout of the ‘worst flu of my life’,  while others – nicknamed ‘long haulers’ – can remain ill for months, experiencing ‘waves’ of debilitating symptoms with no end in sight.

Interestingly, proponents of ‘challenge’ studies argue that recruiting young, healthy volunteers will help minimize risks, while the benefits to society are high.

‘Human challenge’ trials have been shot down in the past – including during the Zika virus outbreak in 2016, when an ethics committee denied a proposal to use HCTs to test a Zika virus vaccine due to concerns about the risks it could pose to volunteers and their sexual partners.

According to the Guardian, Monday’s WHO advisory group meeting to focus on reviewing existing plans for “human challenge trials” and discuss associated technical concerns will not involve any groups representing research participants, or members of the public.

However, observers representatives from the Wellcome Trust, the Bill & Melinda Gates Foundation, the National Institutes of Health and the FDA are expected to attend.

Advocates of challenge trials insist there is plenty of merit in conducting them, despite the latest data released by Moderna, Pfizer and AstraZeneca, arguing that the data produced will be much more helpful in determining relative efficacy of various experimental COVID vaccines. The executive director of an organization that was shut out of Monday’s WHO meeting, perhaps because he suggested that participants should be ‘part of the discussion’.

Joshua Morrison, executive director of 1Day Sooner, said: “If the argument is, we’re just giving advice into what the studies should look like – we think research participants should be a part of that. And if the argument is that this [meeting] is completely separate from the ethical side of things, I do think that’s hard to disentangle from the technical concerns.”

1Day Sooner has had the opportunity to contribute commentary to ethical guidelines on human challenge trials, as well as the technical roadmap for such trials published by the WHO this year. “That’s not really quite the same as being in the meetings where decisions are made,” Morrison said.

The UK has invested about £30MM to back a human challenge trial, although ethical approval is still pending. In the US, support for these types of trials is waning – according to the Guardian – following the Pfizer/Moderna PR blitz.

But as polls continue to show that roughly half of Americans remain skeptical of the vaccines and their efficacy, would moving ahead with ‘human challenge’ trials help change their minds?

The United States has sanctioned over a dozen more top Chinese officials related to interference in Hong Kong.

On Monday the Department of the Treasury announced it has designated 14 individuals who are all members of China’s National People’s Congress, after last month Hong Kong’s Beijing-backed government expelled four opposition member’s from its legislature. This immediately put pressure on other oppositionists to resign. 

Most prominent among the 14 newly designated include Vice-Chairpersons of 13th National People’s Congress Standing Committee Dafeng Cai, Jianming Cao, Zhu Chen, Padma Choling and Weihua Wu among others, according to the Treasury Department statement.

But the new US sanctions have stopped short of taking aim at one of the most senior officials. “There had been some anticipation that the U.S. might target one of China’s most senior officials – Politburo Standing Committee member Li Zhanshu – but he wasn’t among Monday’s targets,” according to Bloomberg.

News of Monday’s sanctions were leaked a half-day ahead of the official Treasury announcement, upon which Asian stocks slipped overnight, notably Hong Kong’s Hang Seng dropped 1.2%, with stocks in Shanghai sinking 0.8%, and Japan’s Nikkei 225 falling slightly, 0.8%.

Amid Trump’s continuing pressure campaign, which he’s promised to take right up to Biden’s inauguration on January 20, China’s Foreign Ministry has slammed the move as continuing to spiral relations down the “wrong path”.

“If the reports are true, I believe you can imagine China’s position,” said spokeswoman Hua Chunying. “We firmly oppose and strongly condemn U.S. interference in China’s internal affairs and sanctions on Chinese personnel under the pretext of Hong Kong. We have expressed our positions to the U.S. side many times and made legitimate and necessary responses,” she added.

Punitive anti-China actions out of the Trump administration are now effectively a daily occurrence, but it appears Beijing plans to simply endure it while counting down the days until Biden enters the Oval. However, by then the incoming Democratic president could be “boxed in” on China.

Authored by Sven Henrich via NorthmanTrader.com,

Now that Bitcoin has hit the wall of previous highs perhaps time for another technical update.

And before you @ me accusing me of being just another naysayer or bear a quick refresher:

In August, when Bitcoin was trading at $11,181, I had outlined a technical case for Bitcoin to hit $17,000. This was the chart I had presented then which left room for a retest of the trend line (outlined in pink):

That retest subsequently took place:

And see chart below of what happened since.
So note this was classic technical, a breakout, a retrace backtest of the trend line and rally from there.
All signaled in advance 😉$BTC pic.twitter.com/TXQb7dzGiw

— Sven Henrich (@NorthmanTrader) October 21, 2020

And then Bitcoin never looked back and marched straight toward the technical target:

BOOM! $BTC hits the $17,000 target outlined in early August.
Example of a really nice technical swing play.
Set-up concluded.
You’re welcome 😉 pic.twitter.com/kopMTEaPdW

— Sven Henrich (@NorthmanTrader) November 17, 2020

My general view on the reaching of technical targets: See the set up concluded then wait for the next technical signal.

Bitcoin promptly marched to further highs and retested the highs of 2017. The technical signal that emerged now is that of a negative divergence on the RSI:

Fwiw: The most recent high on $BTC came on a negative RSI divergence. pic.twitter.com/Io10ECYzDS

— Sven Henrich (@NorthmanTrader) December 1, 2020

What’s it mean? Perhaps nothing, perhaps everything for signals such as this can be meaningful if confirmed. After all the previous highs in 2017 came on a very similar RSI divergence before the complete reversal of the rally:

Should the divergence confirm here as well then Bitcoin is at risk of a sizable retrace move of the recent rally which in itself would not necessarily be bearish, but, dependent how it plays, could set up for an even larger rally down the road.

What would constitute a healthy retrace and correction? The fib levels outlined above offer a guidepost. One of the most common technical retrace points would be the .382 fib, in this case of particular interest as it currently offer perfect confluence with the 2019 highs at $13,790. Note also the secondary support line just beneath.

I should also note that following Bitcoin exceeding my $17,000 target the recent reversal stopped at exactly the $17,000 level, and bounced from that level meaning it is now support again confirming the previous technical target level. As such the corrective risk scenario outlined is by no means a given as long as the $17,000 area holds, which also means the current highs could be exceeded still, but the negative divergence continues to bear watching.

So Bitcoin is in a watch phase now with risk of a larger corrective scenario unfolding.

Why could the corrective scenario ultimately be bullish? For unlike the 2017 scenario support levels have formed over the past 2 years and they leave room for a different roadmap the could set up for significant new highs to come:

It’s somewhat unproductive to speculate too much about future scenarios without confirmation but I’m offering this potential cup building outlook nevertheless as how such a roadmap could firm over the next few months if the corrective scenario unfolds.

When would the corrective move actually be bearish? In my view a sustained drop below the .618 fib for it risks invalidating the original breakout of 2020.

Bottomline: As Bitcoin has reached the previous highs of 2017 and it very much extended following its near vertical run since the original trend line back test a corrective move may actually be healthy and a retrace to the .382 fib for example may set up as a buying opportunity. But with any speculative asset of high volatility Bitcoin is subject to a lot of hype leading to overly risk on behavior which can end in tears as we saw in 2018.

Expressed in another way: From a technical perspective bitcoin bulls may want to welcome a correction to set up for a stronger base to build upon as opposed to a further vertical move higher from here subjecting Bitcoin to risking another uglier technical breakdown down the road. But that’s just my opinion 

*  *  *

For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

Last week’s confusing headlines about vaccine availability sparked selling in stocks and it appears the same is happening today as Bloomberg reports HHS:

• *SOME STATES’ COVID VACCINE ESTIMATES USED OUTDATED FIGURES: HHS

• *STATE FIGURES ASSUMED MORE PFIZER SHOTS WOULD BE AVAILABLE

And that sent stocks lower…

Notably, HHS Secretary Azar said yesterday that any American who wants one could get vaccinated by the start of the second quarter.

But this drop did not last long as reports broke that Mitch McConnell was re-evaluating liability protections in order to ease a quick passage of a relief bill… which he is reportedly going to unveil as part of a $900 billion deal at 3pmET…

SCOOP via @LJMoynihan — @senatemajldr preparing to unveil GOP stimulus around 3pm, sized at around $900B BUT unclear if McConnell will keep his demand for #COVID19 biz liability protections. GOP advisers say he’s re-evaluating liability protections for quick passage. Developing

— Charles Gasparino (@CGasparino) December 7, 2020

And stocks bounced back…

Bear in mind that just a few minutes ago, we heard there were still majot sticking points:

Bipartisan group had wanted to unveil $908B bill text today, but some significant sticking points remain — namely lawsuit protections for businesses and workers that Republicans are demanding and aid to state and local governments that Democrats have been seeking, sources say

— Manu Raju (@mkraju) December 7, 2020

Will the GOP fold on state/local bailouts after all this?

Still along time yet before 3pm for algos to play.

After explosive video was presented during a Georgia state Senate hearing which clearly shows a handful of election workers in Atlanta waiting for observers and the press to leave, before producing several containers of ballots for a late-night vote-counting party, a group called Lead Stories published a “hoax alert” which falsely claims to have debunked the footage.

The “hoax alert” was peddled by the Washington Post, Newsweek and others – and among other things states that government officials told them that the ballots were in “containers — not suitcases,” and that “party observers were never told to leave because counting was over for the night.”

Nevermind the fact that Lead Stories breathlessly believes claims made by government officials – The Federalist‘s Mollie Hemingway just obliterated the entire ‘fact check,’ proving that the video hasn’t been debunked whatsoever.

First – Party officials claim observers were never told that counting was over for the night.

False: Georgia GOP Chairman David Shafer “has consistently said that’s what happened at State Farm Arena, beginning hours after the election.”

That claim, which he has repeated consistently, is backed by sworn affidavits from two Republican observers, who further allege they were kept an unreasonable distance from the ballots even while they were at State Farm Arena, making it completely impossible to meaningfully do their jobs. (The video, which shows the room from four different angles, fully supports the claim that poll watchers were kept away from meaningful observation of ballot handling.)

The observers say that they arrived for their observation jobs around 8 p.m. They say in the first half of the 10 o’clock hour, a woman with blonde braids who appeared to be a supervisor “yelled out” to those present in the room that they would stop working for the night and would resume in the morning. The Republican poll watchers said they asked Fulton County Elections Spokesperson Regina Waller questions about the status of the ballot count multiples times but that she refused to answer. –The Federalist

According to Lead Stories, however, “There was never an announcement made to the media and other observers about the counting being over for the night and them needing to leave, according to [Frances Watson, chief investigator for the Georgia Secretary of State], who was provided information by the media liaison, who was present.” Lead Stories doesn’t name this “media liaison,” however according to the affidavits, it was Regina Waller – the Fulton County public affairs manager for elections.

As The Federalist‘s Hemingway notes:

OK, so on the one hand you have sworn affidavits from observers saying that supervisors told ballot counters to go home for the evening shortly after 10 p.m. and a video showing everyone leaving en masse at that time. And on the other hand, you have two government officials promising that no one was told that counting was over.

Hemingway further points out that ABC News reported ballot counters were sent home at the same time GOP observers say everyone was told counting had stopped.

So, GOP poll watchers and the MSM reported that counting was delayed.

And it wasn’t just ABC that reported counting was being delayed. Many media outlets reported on counting delays. See, for example, “Fulton County stopped counting absentee ballots for the night.”

Local NBC journalists on site that night independently confirmed “they were told counting was done for the night” and given no indication it would continue before the next morning. The Atlanta Journal-Constitution even reported of a “plan” to stop scanning ballots at the same time the poll watchers said things were shut down… –The Federalist

Second claim – A designated election observer was sent by Secretary of State Brad Raffensperger’s office

Misleading: While Newsweek – and later Lead Stories – claim that while partisan observers may not have been present for the vote count, an “unnamed state election board monitor was present.”

A state election board monitor, who asked for his name not to be used due to safety concerns, told Lead Stories on the phone on December 3, 2020, that he was present at the vote counting location beginning at 11:52 p.m., after leaving briefly at earlier in the evening. He then stayed until about 12:45 a.m., when the work that night was completed.

The deputy chief investigator for the secretary of state’s office was present beginning at 12:15 a.m. November 4, he said. –Newsweek

Yet, the monitor was there for less than an hour – from 11:52 p.m. on election night to 12:45 a.m. – which means that nobody was observing the count for over an hour after the ballots began being scanned at 10:35 p.m. 

So you have the contemporaneous media report about the closing + the fact that GOP observers left, believing the counting to be over for the night.

Seems pretty clear that—regardless of who fesses up to making the announcement or not—it was a thing that happened.

— David Reaboi (@davereaboi) December 7, 2020

So, the Lead Stories ‘fact check’ actually reveals that the monitor wasn’t present for much of the time in question. Meanwhile, the Secretary of State’s monitor “is the subject of an affidavit from another witness, devoted exclusively to concerns about the monitor’s conduct prior to the late hours on election day, according to a member of the Trump team. The claims include that he was sleeping on the job and staring at his phone.”

Read the rest of the report here.

Overnight, China reported its latest trade data for the month of November which was, in a word, blockbuster: exports accelerated sharply to 21.1% Y/Y (from 11.4% Y/Y) in October driven by a surge in covid-related exports, with sequential growth up to +5.1% month-on-month; Imports moderated slightly in November and grew 4.5% Y/Y (1.0% month-on-month non-annualized expansion), compared with the 4.7% Y/Y increase in October (although as Rabobank’s Michael Every cautions, many of the imports were of soft commodities vs. higher value-added goods).

In any case, the result was a record monthly goods trade surplus in November of  $75.4BN, which below above consensus expectations of $46.3BN and was well above the October surplus of $58.4BN.

Digging into the number, exports of Covid-19 related products surged in November due to the resurgence of coronavirus in most major economies: exports of textile & fabric goods grew 21.0% Y/Y, vs 14.8% Y/Y in October, while “working from home” related exports accelerated as well – growth of exports in automatic data processing machines accelerated to 34.3% Y/Y in November vs 26.7% Y/Y in October. Growth of exports in electronic integrated circuits also improved to 26.4% Y/Y in November from 13.9% Y/Y in October. Exports of plastic articles remained strong and grew 112.9% Y/Y vs 97.9% Y/Y in October. Housing related exports accelerated further – exports of furniture grew 41.9% Y/Y vs 32.3% Y/Y in October.

But while the overall trade numbers were impressive, if not for positive reasons since China’s export boom continues to be driven by covid-related demand – yes, the same covid that was unleashed by, well, China – what was most remarkable in the latest data set released by China’s National Bureau of Statistics is that exports to the US surged 46.1% in US Dollar terms, putting the monthly bilateral surplus ($32.8bn) above levels observed at the end of 2019 (just as the US/China Phase 1 deal was being finalized); as BMO’s Stephen Gallo writes, “From the perspective of that agreement, the US/China bilateral balance has been trending in the wrong direction (helped by the effects of COVID-19). Merchandise exports to the US, as a share of total exports, ended 2019 at 13.6%, but they were back to 17.6% as of November 2020.”

In short, after the US made some headway in its trade war with Beijing, all that progress and more is now gone as Chinese net exports are steamrolling ahead… thanks to covid.

Yet here an interesting observation emerges: while the trade surplus with the US according to China Customs data indeed hit a record high, US Bureau of Economic Analysis data shows something quite different, and this deiscepancy is showin the chart below:

This is, to say the least, strange: after all data is data, and when one using the same nominal amount of trade exports and imports between the two countries engaging in trade, one should – in theory at least – end up with the same trade surplus (and respectively deficit) number.

Alas, as the chart above shows, not only has that has not been the case for the past two decades, but curiously, after years of US data showing a larger bilateral deficit with China than the Chinese data shows a surplus with the United States (largely due to the so-called Hong Kong port effect which explains much of the discrepancy), this has reversed in the past few months when China’s reported exports to the United States have significantly exceeded reported U.S. imports (the exact opposite of the established pattern). This can be seen clearly in the chart below which is a zoomed in portion the bilateral trade balances shown above:

This phenomenon which has escalated drastically in recent months, was first pointed out by former Treasury official Brad Setser who pointed out the data discrepancy in an October blog post , writing that “there is no doubt there is a gap. In July 2018, China said it exported $41.6 billion to the United States, and the United States reported importing $47 billion from China. In July 2019, China said it exported $38.9 billion to the United States (down because of the tariffs), and the United States reported importing $41.4 billion from China. And in July 2020, China said it exported $43.7 billion to the United States, while the United States only reported importing $40.7 billion from China.”

As a result, as Setser adds, “the answer to a lot of politically-salient questions—for example, is the bilateral trade deficit with China larger or smaller now than in 2016?—hinges on whether you use the U.S. or the Chinese data. “

If you look at the Chinese data, its current monthly surplus with the United States is at an all-time high for the months of July and August, topping its pre-trade war peaks by substantial margins

In the U.S. data, the July deficit with China and Hong Kong (adding in Hong Kong reduces the size of the deficit as the United States runs a surplus with HK) is only just above its 2016 levels.

Fast-forwarding two months to the latest December data only shows that this divergence has accelerated with the latest Chinese data showing yet another record surplus for the month of November.

To be sure, and as one can easily see in the charts above, the gap between China’s reported exports to the United States – red line – and reported U.S. imports – blue line – plus the larger deficit when reported from the U.S. side than the surplus on the Chinese side, has been a long-standing pattern. It reflects the previously discussed role of Hong Kong in U.S.-China trade, because as Setser explains, “a lot of what China records in its data as an export to Hong Kong historically has ended up in the U.S. data as an import from China, and a lot of what the United States reports as an export to Hong Kong has historically ended up in the Chinese data as an import from the United States.”

What is novel here is the change in the pattern – the long established and well-understood discrepancy between the import and export side data has gone away.    

The puzzle, as Setser wrote, “is why the sign on the discrepancy looks to be flipping.” There are two possible explanations which immediately come to mind.

Chinese exporters might be overstating their exports, in general and to the United States. Overstating exports is a classic way of getting capital into a country with capital controls.

However, a simpler explanation is that the US tariffs have created a strong incentive for firms importing into the United States to go to some lengths to understate their imports from China. Thus, U.S. imports from China are now likely under-counted (which by implication holds the bilateral trade deficit down).

As Setser concludes, while “mapping one country’s import data to a partner’s export data” is a dull but exercise, “sometimes it yields interesting results. A similar exercise back in 2015—the Chinese current account surplus stopped tracking the goods balance—led me to look at whether the reported increase in tourism imports in the Chinese data was matched by a rise in the number of actual tourists (it wasn’t) and ultimately produced quite a good Fed paper.” We are confident that economists looking at the growing discrepancy in trade data between the US and China will soon be busy coming up with their own theories, even if the real answer why this most critical trade relationship in a world where the US-China trade war has been the overriding theme for much of the past 4 years, will likely remain a mystery.

By Michael Every of Rabobank

Markets are generally trading as if we are all sailing fine seas on finer luxury yachts, basking in the sunshine and drinking gold-flecked cocktails. Guess what? We aren’t. In fact, there may potentially soon be an urgent need to find a safe harbour – if one can.

First, the US election (*again*). Sensible media say this is all over, and are focusing on Joe Biden’s socks. However, things might suddenly get stormy in the next 48 hours. Tuesday December 8 is so-called “safe harbor” day. Any state’s election outcome that is undisputed by that date is ‘locked’ into the Electoral College ahead of their actual vote on 14 December, which are sealed until read out and then approved by Congress on 6 January. (The figure who reads out those votes —and choses which electors to select, if necessary— is the Vice-President: worth remembering). Some constitutional scholars contend only 6 January matters, and some say only 20 January, presidential inauguration day. Regardless, there is a strong under-current of activity ahead of tomorrow’s “safe harbor”.

Supreme Court Justice Alito has moved forward the deadline from 4pm on Wednesday to 9am tomorrow for Pennsylvania to respond over appeals over the constitutionality of its vote-by-mail legislation. This could still mean Alito does nothing. However, having acted twice, and to within the “safe harbour”, there would appear a chance the Supreme Court acts. The question is how if so. Again, it may mean nothing; or it might invalidate some or all mail-in-votes, effectively flipping the state to Trump; or it saying that the election needs to be sent back to where the US constitution says power to appoint electors actually lies – the state legislature.

On which, there is a constitutional battle raging in at least three states: Georgia, Arizona, and Pennsylvania. State Republican leadership is refusing to call special legislative sessions to discuss the election results, yet some state legislators appear close to claiming “plenary” constitutional authority over elections to recall themselves unilaterally. All they would technically need, it appears, is a simple majority. If so, they could *potentially* flip their Electoral College votes, or send competing electors, or not send any at all. This actually has historical precedent. It is unlikely, but far from impossible in the current heated political atmosphere in the US.

Further, with key election court cases still being held in the Arizona, Wisconsin, Nevada, and Georgia state supreme courts, as well as in other courts in those states and in Michigan, it is not unthinkable –if still unlikely– that the Supreme Court opts to roll several or all of them into one ruling –**if** it acts– to try to find a clear resolution, either tomorrow or at least ahead of 14 December. In short, keep enjoying your gold-flecked cocktails – and maybe rightly so. Yet seasoned sailors know that sudden surprises do sometimes happen at sea.

Brexit presents a salient (and saline?) comparison. Since the day in 2016 when markets first choked on their gold-flecked cocktails at the UK referendum result, the assumption has consistently remained “there will be a deal”. With a timetable not much different from that in the US, the outcome is on even more on a knife’s edge. Access to fishing *may* be sorted, but the core issues of ‘level playing fields’ and ‘UK sovereignty’ certainly are not. Trade talks will continue today, and tonight PM Johnson will have to make a final call…and *potentially* then a statement to the nation that there will be no deal. (The only alternative will be to say talks continue until the EU summit on Thursday, the final deadline.)

In that case, as UK government analysis leaked yesterday makes clear, we end up with the ‘break-up of the USSR’ style border and supply-chain chaos nobody wants, and some food and medicines will be in short supply as soon as 1 January. At least we had a lot of practice during Covid-19.

These are two market-shocking events we have been flagging for some time: but there are more.

The US is pressing ahead with more sanctions against Chinese officials. This time there are suggestions that even more important figures within China may be targets. Note already-sanctioned Hong Kong CEO Carrie Lam is now reportedly paid in cash, and has to sit on literal piles of cash at home. Meanwhile, a former Hong Kong pro-democracy lawmaker currently in Denmark has seen his and his family’s Hong Kong-based bank accounts frozen under charges related to the territory’s new national security law. In short, on either side of this geopolitical argument —and for those caught unhappily in the middle– where, and what, one thinks is a true ‘safe harbor’ for one’s funds may need to be rapidly revised. (Also note the US Congress will also vote this week on legislation to help Hong Kongers wishing to leave for the States; that as applications for the path to British citizenship from Hong Kong have reportedly skyrocketed.)

Moreover, as some lick gold from the sides of their crystal glasses and ask for another round from compliant central banks, the head of the World Food Programme on Friday warned 270m people are “marching toward starvation” and that, in some countries, famine is “around the horizon” while “2021 is literally going to be catastrophic.” In short, as commodity prices soar on the back of supply shocks, demand shocks, and a market view of a Great Reflation (for those with lots and those with yachts), food prices in countries already smashed by Covid-19 are about to soar. You want a recipe for real instability? That is what it looks like.

In terms of key data seen today, China just reported its largest trade surplus in decades at over USD75bn, as all things Covid-related continue to fly out the door. Yet the only positive in the data from a global growth perspective was that imports were up 4.5% y/y, a welcome change from the contraction we have been seeing until now. Even then, consider how many of those imports were of soft commodities vs. higher value-added goods.

Meanwhile, the market continues to push key US 10-year yields higher “because gold-flecked cocktails”. Even the US payrolls report on Friday, which came in at 245K vs. 460K expected, still ended up seeing 10-year yields well up. The backdrop we describe above means we were trading around slightly better at 0.95% at time of writing, but expectations are continuing to build of a move above 1%, potentially triggering further Treasury selling. No safe haven there if so. Given the problems the trend of higher US borrowing rates will then cause for many, the market might secretly be happy for a risk-off political event to appear, like a kraken, to keep yields in check.