Tag: finance

Nasdaq futures tumbled ahead of the open, ripped higher as cash opened – to get back to green – and has since collapsed, extending losses from yesterday…

All the majors are now in the red but Nasdaq is weakest…

TSLA is giving up early gains once again…

Somebody do something! Isn’t there a vaccine headline due any minute?

Outspoken British comedian Ricky Gervais has once again exposed, in his usual direct manner, the escalating use of the term “hate speech” to crush any dissenting view from the mainstream narratives has unleashed “a new weird sort of fascism.”

In an interview with talkRADIO host Kevin O’Sullivan, Gervais dismissed the new ‘trendy myth’ that the only people who want free speech want to use it to say terrible things:

“There’s this new weird sort of fascism of people thinking they know what you can say and what you can’t say and it’s a really weird thing that there’s this new trendy myth that people who want free speech want it to say awful things all the time, which just isn’t true. It protects everyone.”

Critically, Gervais sees two catastrophic problems with the term ‘hate speech’:

“One, what constitutes hate speech? Everyone disagrees. There’s no consensus on what hate speech is.”

“Two, who decides? And there’s the real rub because obviously the people who think they want to close down free speech because it’s bad are the fascists. It’s a really weird, mixed-up idea that these people hide behind a shield of goodness.”

Additionally, ‘The Office’ star points out that “social media amplifies everything.”

“If you’re mildly left-wing on Twitter you’re suddenly Trotsky. If you’re mildly conservative you’re Hitler and if you’re centrist and you look at both arguments, you’re a coward and they both hate you,”

Listen to the full interview here:

Despite resistance from civil liberties groups and liberal journalists (which is ironic, considering that he was a white supremacist), the US has successfully executed convicted murderer Daniel Lee after the Supreme Court cleared the way overnight, according to a U.S. Bureau of Prisons spokeswoman.

Lee was pronounced dead at 0807ET, the government said.

The execution had been held up by a US District Court in Washington, which on Monday ordered the DoJ to delay four executions scheduled for July and August. That order was later affirmed by an appellate court.

Daniel Lee

But the Trump Administration immediately appealed to a higher court to ask that the execution move forward.

But at 0210ET, with fewer than seven hours remaining before Lee’s execution was due to take place at the US Penitentiary in Terre Haute, Indiana, the Supreme Court stepped in and, in a 5-4 vote, cleared the way for federal executions to resume. Lee, 47, is a one-eyed white supremacist who has maintained his innocence.

Before he was executed by lethal injection, Le said: “I didn’t do it. I’ve made a lot of mistakes in my life, but I’m not a murderer…you’re killing an innocent man.”

Submitted by Michael Every of Rabobank

Joining the dots (and dashes)

Yesterday saw swings in the markets, some key stocks in the US in particular, and equal swings in our underlying backdrop. Let’s try and join them into a coherent whole.

From the dots side we need to start with the plotters at the Fed. Dallas Fed President Kaplan spoke yesterday – and made a classic error, noting Fed emergency lending facilities “won’t be left in place indefinitely” and that “he is a believer that we will need to get bac to more unaided market function without as much intervention from the Fed. We’re just not at that point yet.” The key point/dot here is that our Robin Hood-y/Barstool-y markets clearly do not want to conceive of EVER going back to “unaided function”. They are predicated on a quite logical assumption that any reduction in central bank liquidity will result in a crash, which will result in the resumption of said liquidity. More money, please. And don’t think about taking it away.

From the dashes side, the US moved beyond not taking a formal stance on maritime disputes while insisting on freedom of navigation to openly calling some Chinese claims in the South China Sea illegal. In short, the Chinese 9-dash line showing the South China Sea as its own is rejected. Does one need to join many dots or dashes to see where such conflicting claims can lead? Not towards any kind of return to the US-China economic status quo ante at least.

Yes, and crucially, Bloomberg reports the US will not be specifically targeting the HKD peg over Beijing’s actions on Hong Kong by limiting access to USD because “it would be difficult to implement and might end up hurting the US”. It seems the ‘because markets’ side of the Trump administration has the upper hand over the geostrategic hawks here; naturally this is also the case with the de minimis EU response given in foreign policy dey are de mini-me and only understand markets – Germany’s foreign ministry just removed the Taiwanese flag from its website, for example.

This is a positive because such a US policy to be able to turn off the taps the same way the Fed can turn them on (and on and on) remains the financial equivalent of war as potent as the two US carrier strike groups now in the region. Yet there does not seem to be much dot and dash joining from the US side: how does it confront China over the South China Sea and Hong Kong, which is says it wants to, if ‘because markets’ is the White House rule?

Decoupling, perhaps. As Reuters reports the “The Trump administration plans to soon scrap a 2013 agreement between US and Chinese auditing authorities…a move that could foreshadow a broader crackdown on US-listed Chinese firms under fire for sidestepping American disclosure rules.” So new Chinese listings in the US, it would seem. At least that’s more business for Hong Kong – but then why leave the peg alone and let the US lose out without effecting any real change? Again, the dots and dashes don’t join up.

Indeed, the risks of stronger US actions are arguably still there. Sanctions over Hong Kong still loom and would end up having the same negative effect on HKD, and CNY, if applied as in Iran (whom China is signing a 25-year geostrategic cooperation agreement with.) Moreover, the UK has stated they expect 200,000 Hong Kongers to arrive over the next four years. That’s far less than 10% of those allowed to come, but still points to a huge drain of capital/FX reserves if each migrant arrives with savings; more so if US, Australia and Canada see a similar number.

In which case, it’s a good job Chinese exports were up 0.5% y/y in June (vs. -2.0% consensus) and even imports were up 2.7% (vs. -9.0% consensus). But can we really expect this export trend to continue in H2 with lockdowns coming back and the back of the US increasingly up? Even Europe is miffed, given if there is one thing mercantilists don’t like, it’s mercantilism.

On which front, current presidential favourite Joe Biden is today going to launch a plan to spend USD2 trillion over his first term in office to get to 100% clean electricity by 2024. That’s a large stimulus that would have been called insane six months ago. Now it’s moderate. He’s also talking about a global apology tour to stress that America First is over – and about making things in America with state spending – so that new USD2 trillion in liquidity, under-written by the Fed if you join the dots, is going to stay in the US and not flow to major exporters like China and Japan and the EU (so please don’t join those dots – or any US dots to Chinese dashes).

Could someone help Joe join the dots too? Either the apology tour won’t be very apologetic, or new US liquidity will lift boats other than American, or the US is going to continue America First anyway as it reflates. (Of course, to really close itself off it would need to impose capital controls on inflows….which are not going to happen ‘because markets’. )

Meanwhile, as a harbinger of how bad our Q2 is going to look when we get the data, Singapore’s GDP collapsed -42.1% q/q annualised.

This time last year one would have been brave to say even -4.2%. How the world changes. Indeed, with reports that: Covid-19 now infects more than 13 million people; natural immunity after catching it only lasts a few months; the latest Hong Kong outbreak variant is 30% more infectious than the previous wave; a large percentage of those who survive even moderate cases apparently end up with permanent heart damage; and as articles dribble out asking what the world looks like if we don’t get a vaccine at all, it’s perhaps time to join a few more dots and say ‘Dash it’.

Summary:

• US daily cases below 60k
• Global daily cases below 200k
• Hong Kong imposes new restrictions
• France makes mask wearing mandatory in public
• Australia cases top 10k.
• Iran closes mosques, schools
• WHO warns: “there will be no return to normal”

* * *

The number of new coronavirus cases reported yesterday in the US remained below the critical 60k threshold, but from Asia to Europe, economies that only recently appeared to have beaten the coronavirus are now imposing new restrictions to try and prevent a resurgence.

But globally, the number of new cases remained near a recently hit record high, pushing the worldwide total to 13,238,121 as of Tuesday morning. Though crucially, the number of cases reported yesterday came in just below 200k, roughly 30k shy of the record.

The death toll from the deadly virus has reached 575,543 globally, according to Worldometer. Of the currently infected 4,964,306 patients, 4,905,425 were in mild condition, while 58,881 were in serious or critical condition.

Last night (Tuesday morning in HK), Hong Kong announced plans to impose a new lockdown that appears to be even more restrictive than the measures it imposed during the opening weeks of the outbreak. While HK had previously relied on closing borders with the mainland, the new measures focus on suppressing domestic transmission. They include: that face masks will be mandatory for people using public transport and restaurants will no longer provide dine-in services, instead only offering takeaway service.

We teased the new measures in our report from yesterday, when a top HK epidemiologist warned that a mutated strain of the virus circulating in HK is even more infectious than its predecessor.

If an individual doesn’t wear a mask on public transport, they face a fine of HK$5,000 ($645). Gatherings would be limited to 4 people from 50. Gyms, places of amusement and other establishments must shut for a week.

“The recent emergence of local cases of unknown infection source indicates the existence of sustained silent transmission in the community,” the government said in a statement late on Monday.

The Chinese-ruled city recorded 52 new cases of coronavirus on Tuesday, including 41 that were locally transmitted, health authorities said, bringing its total outbreak to 224 people over the past week.

In Australia, Melbourne remains on lockdown while the number of new cases being reported continues to climb, the Australian state of Victoria has recorded 270 new cases of coronavirus, while New South Wales recorded 13, bringing the national total to about 10,250.

As the US outbreak in the Sun Belt nears its peak, the EU is reportedly set to recommend keeping its external borders shut to Americans and most other foreigners for at least two more weeks as fears grow of a second coronavirus wave.

As fears about a resurgence in Asia intensify, the WHO raised concerns over the Philippines’ rising number of new cases, which have swamped some local hospitals as the number of new cases being reported daily hits record after new record.

The proportion of positive cases in the country is gradually increasing from about 6.5% two weeks ago to about 7.8% on Monday, WHO representative in the Philippines Rabindra Abeyasinghe warned.

“This is worrying as it shows that there is continuing transmission. This is also reflected by the increased number of admissions into hospitals,” he said.

Similarly, after recording a record jump in deaths a few days ago, Iran is reeling from its own resurgence, prompting Tehran to close schools, universities, Shia seminaries, mosques and other sites of religious gatherings for at least a week, local state news reported. Iran reported 2,521 new cases and 179 deaths overnight, bringing the total figures to 262,173 cases and 13,211 deaths.

As Catalonian government imposes new restrictions on local hot spots, across the border in France, President Macron warned that the virus “is coming back a little bit” and that starting next week, France will make mask wearing compulsory in public spaces.

During a press briefing Tuesday in Geneva, the WHO warned the pandemic could get far worse if countries around the world do not follow basic healthcare precautions.

“The virus remains public enemy number one,” WHO Director-General Dr. Tedros Adhanom Ghebreyesus told a virtual briefing from WHO headquarters in Geneva.

“There will be no return to the old normal for the foreseeable future,” Tedros said.

The Trump administration has been plagued with leaks from establishment loyalists – enemies of the administration who feel its their duty to undermine Trump’s agenda. One swamp operative even penned a book, “A Warning” penned by “Anonymous,” who claimed “many of the senior officials in [Trump’s] own administration are working diligently from within to frustrate parts of his agenda and his worst inclinations.”

This traitorous behavior often takes place in the form of anonymous leaks to various MSM outlets in order to harm the duly elected sitting US president.

Tracking down the leakers has been assigned to Trump’s Chief of Staff, Mark Meadows, who joined the Trump administration on March 31, 2020 after serving as the ranking Republican on the House Oversight Committee.

According to Axios, Meadows has notified multiple White House staffers that he’s been feeding certain information to specific people to see what gets passed on to reporters.

“Meadows told me he was doing that,” one former White House official told Axios. “I don’t know if it ever worked.”

According to the report, White House staffers are now on edge, “with multiple officials telling Axios that Meadows has been unusually vocal about his tactics.”

So far Meadows’ efforts have produced one minor leaker.

More via Axios:

• Trump is especially furious about two recent leaks of classified and sensitive information.
• As Politico first reported, the administration has interviewed people with access to the intelligence that the Russians were paying the Taliban bounties to kill American soldiers. A senior White House official confirmed Politico’s reporting that they have narrowed down the list of suspects to fewer than 10 people.
• Trump was also enraged when the New York Times reported that the Secret Service rushed him down to the bunker during the protests outside the White House.
• So far, Meadows has yet to deliver on either of these high-priority leak hunts. A source familiar with Meadows’ thinking said he is “focused on national security leaks and could care less about the palace intrigue stories.”
• On a recent podcast with Ted Cruz, however, Meadows said they tracked down and fired a federal employee who leaked information about a White House social media executive order. 

Trump’s previous chiefs of staff were unable (at best) to plug leaks over the last three and a half years – none more so than Mick Mulvaney, who “never netted the sort of catch Trump wanted,” according to the report. One former White House official, however, said that the ‘one time’ Mulvaney did present damning evidence to Trump, the president dismissed it.

Even more via Axios:

• In January, Mulvaney asked the White House’s IT department to search the work cellphone records of senior staff. His office gave the IT department the cell phone numbers of the top reporters who cover the White House.
• After getting back the spreadsheet and finding senior staff contacts with reporters to be mostly unremarkable, Mulvaney zeroed in on what he thought were some unusual phone calls for White House Counsel Pat Cipollone.
• Mulvaney, who had been in a bitter feud with Cipollone, had already told Trump he thought the White House counsel was a leaker.
• When he’d made those accusations, Trump replied, “The guy doesn’t even talk to the press. Never has,” said a source familiar with their interactions.
• The spreadsheet the IT department produced for Mulvaney in mid-January showed that Cipollone had multiple phone calls with the New York Times’ Maggie Haberman and CNN’s Pamela Brown. But when Mulvaney presented this information to the president, Trump brushed it off and did nothing about it, the former official said.
• A former administration official familiar with the impeachment defense defended Cipollone. “Pat was encouraged by the president to talk with the media because the president viewed him as a strong advocate on his behalf. This was part of a coordinated effort.
• “It’s important to note Pat made all of these calls from his official phone,” the former official added. “If he was leaking do you really think he’d be doing it from his official phone?”

Told of this incident, Chris Whipple, presidential historian who wrote the definitive book on White House chiefs of staff, called it “unprecedented.”

• “It’s a level of paranoia that we never even saw in the Nixon White House,” said Whipple, whose forthcoming book is “The Spymasters: How the CIA Directors Shape History and the Future.”

Read the rest here. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

In this week’s “Technically Speaking,” the “Golden Cross” arrives, but are the bulls safe? As noted two weeks ago, is the 50/200 dma crossover is historically bullish for equities. However, with markets facing one of the worst earnings declines on record, could overly exuberant investors be walking into a trap?

Let’s start with what we wrote previously:

“As shown below, the market broke out of that consolidation and triggered “buy signals” across multiple measures. This breakout will give the “bulls” an advantage in the short-term with a retest of the June highs becoming highly probable.”

“The bulls will also gain some additional support from the “Golden Cross” (when the 50-dma crosses above the 200-dma). That “bullish signal” will likely occur over the next week or two depending on market action.”

As noted then, the “bullish supports” for the market kept our portfolio allocations weighted towards equity risk.

The “Golden Cross” Arrives

This week, the “Golden Cross” occurred as the 50-dma crossed back above the 200-dma. As suspected, the media was quick to take note. As noted by this headline from CNBC:

Bloomberg, via Yahoo Finance, was also quick on the trigger:

“The S&P 500 is sending a technical signal that has marked the end of every bear market in modern history.”

As Jeffrey Marcus noted at RIAPRO.NET (30-Day Risk Free Trial) the “Golden Cross” is indeed bullish for stocks.

“On Thursday, the S&P 500’s 50-DMA crossed above the 200-DMA. Such is known as a “Golden Cross” and has now happened 25-times over the past 50-years. The long term performance of the S&P 500 following such an occurrence is unabashedly positive.

TPA calculated the performance of the S&P 500 10, 20, 40, 80, 160, and 320 days following each of the 25 Golden Crosses since 1970. The average performance is 0.88%, 0.98%, 3.25%, 6.73%, 9.57%, and 15.70%, respectively.

The positive cross has happened 6-times in the past 10-years. The averages for 10, 20, 40, 80, 160, and 320 days following each was 0.53%, 0.89%, 2.64%, 8.17%, 10.45%, and 20.95%, respectively. “

No Guarantee Short-Term

While it is undoubtedly bullish from a historical standpoint, it isn’t always as simple as it seems. As Jeff further notes:

“There were years when using the S&P 500’s Golden Cross as a buy signal was a lot trickier than just owning stocks for the entire 320 days. In the years of 1977, 1984, 1990, 1994, 1999, 2015, and 2019 were years, the signal either did not work or spent long periods in negative territory. ” 

Such was a point also confirmed by Sentimentrader.com, where Jason Goepfert has analyzed these types of technical signals for decades. He found they’re “barely useful” as a standalone metric. Take 2019, for example, when a golden cross registered, only completely to reverse a year later with the Covid-19 crash.

“We wouldn’t put a lot of faith in the golden cross by itself. The biggest reason for optimism is that it has reversed what had been a very negative medium- vs. long-term trend. That has led to big gains over the next 6-12 months every time over the past 70 years.” – Jason Goepfert

2015-2016

An excellent example of a period where the “best of indicators” can lead you astray was in 2015. While the “Golden Cross” has a strong record over 12-months, it doesn’t mean it will be a straight line higher.

At that time, the markets climbed above the 200-dma, combined with a “Golden Cross” as the 50-dma also “crossed the Rubicon.”  While the media bristled with bullish excitement, it was quickly extinguished as the markets set new lows as “Brexit” engulfed the headlines.

Importantly, while concerns about a “Brexit” on the global economy were valid, “Brexit” never materialized.

Conversely, the economic devastation in the U.S., and globally, is occurring in real-time. The risk of market failure as “reality” collides with “fantasy” should not be dismissed. It CAN happen.

Such doesn’t mean the next great “bear market” is about to start. It does mean that a correction back to support that reverts those overbought conditions is likely.

Such is why, as we discussed this past weekend, we took actions to reduce risk within our portfolios.

Lot’s Of Hope

The current advance is not built on improving economic or fundamental data. It is largely built on “hope” that:

• The economy will improve in the second half of the year.

• Earnings will improve in the second half of the year.

• Oil prices will trade higher even as supply remains elevated.

• The Fed will not raise interest rates this year.

• Global Central Banks will “keep on keepin’ on.” 

• The U.S. Dollar doesn’t rise

• Interest rates remain low.

• Bankruptcies and Delinquencies will subside.

• More stimulus will come from the Federal Government

• A vaccine will soon be available.

• The pandemic will subside

• There will be a “V-shaped” economic recovery

• Employment will recover quickly.

I am sure I forgot a few things, but you get the point. There is a lot of “hope.”

However, “reality” may be more disappointing. Such is particularly the case with valuations expensive, markets overbought, and sentiment pushing back into more extreme territory.

There is much that could go wrong.

Technical Review Of The Market

While the “Golden Cross” is certainly bullish over the next 6-12 months, it is important to note that markets are currently egregiously overbought on a short-term basis.

Furthermore, speculative excess has certainly become evident in the market on a variety of levels. However, options contracts are an excellent indicator of exuberance. As Jason went on to note:

“In mid-February, we saw that options traders were speculating heavily, a disturbing wrinkle in the positive momentum that markets were enjoying at the time. The pandemic slapped that speculation out of them. For a while.

They returned in force, and by early June, surpassed any previous speculative record. It was enough to push the ROBO Put/Call Ratio to the lowest level since November 2007. 

Among all traders, the Options Speculation Index gives us a very good view of the distribution of speculative versus hedging activity on all U.S. exchanges. Once again, it’s above 50%, meaning that they opened 50% more bullish contracts than bearish ones.

Rebalancing The Equity Portfolio

For all of these reasons, this is why we chose to reduce our risk a bit last week.

“For the second time in a single year, we have begun the profit-taking process within our most profitable names. Apple, Microsoft, Netflix, Amazon, Costco, PG, and in Communications and Technology ETF’s.

(Note: Taking profits does not mean we sold the entire position. It means we reduced the amount of our holdings to protect our gains.)”

Taking profits in our portfolio positions remains a “staple” in our risk management process. We also continue to maintain our “hedges” in fixed income, precious metals, and a slight overweight in cash.

We don’t like the risk/reward of the market currently and continue to suspect a better opportunity to increase equity risk will come later this summer. If the market violates the 200-dma, or the current consolidation is breached to the downside, we will reduce equity risk and hedge further.

My colleague Victor Adair at Polar Trading, previously made a valid observation. 

“The growing divergence between the ‘stock market’ and the economy the past several months might be a warning flag that Mr. Market is too exuberant. With the Presidential election just over 3-months away, the polls show that Biden may be the next President. The U.S./China tensions have been escalating, and the virus’s first wave continues to spread around the globe.”

I agree. While the markets may be ignoring the risks for the moment, markets have a nasty habit of delivering unpleasant surprises. Such is particularly the case when a handful of “Megacap” stocks are driving the markets higher. (H/T TheMarketEar.com)

What lifted the market higher, can, and usually does, become the catalyst that pulls it down.

It’s Probably A Trap

I can’t explain the current market environment. Yes, it is the liquidity from the Fed. It is also a chase for momentum. Regardless of the explanation, price is driving portfolio management for now.

We can deny it, rail against it, or call it a conspiracy.

But in the “other” famous words of Bill Clinton: “What is…is.”

The markets are currently betting the economy will begin to accelerate later this year. The “hope” that Central Bank actions will indeed spark inflationary pressures and economic growth is a tall order to fill, considering it hasn’t worked anywhere previously. If Central Banks can indeed keep asset prices inflated long enough for fundamentals to catch up with the “fantasy” – it will be a first in recorded human history. 

My logic suggests that sooner rather than later, someone will yell “fire” in this very crowded theater.

When that is, is anyone’s guess.

In other words, this is all probably a “trap.”

But then again, “hope does spring eternal.” 

Pay attention to how much risk you are taking. The “Golden Cross” doesn’t provide the bulls a “guarantee of safety.”

After three months of ‘deflation’, consumer prices were expected to rebound strongly in June and it did, with headline CPI beating expectations (+0.6% MoM vs 0.5% exp). That is the biggest monthly jump since June 2019…

Source: Bloomberg

Both Goods (Ex-Energy) and Services (ex-Energy) CPI growth slowed on a YoY basis…

Source: Bloomberg

The driver of the headline beat and surge in CPI was soaring motor fuel costs – up 12% MoM…

Source: Bloomberg

Will The Fed shrug this off as ‘transitory’?

Global stocks slumped on Tuesday as a safety bid appears in the dollar as Sino-US tensions continue to worsen. 

There were a couple of significant developments in the overnight session involving China and the US. First, Chinese Foreign Ministry spokesman Zhao Lijian said Beijing would sanction US defense contractor Lockheed Martin for its latest arms deal with Chinese-claimed Taiwan.

The second development is from Reuters, detailing how the Trump administration plans to abandon a 2013 agreement between the US and Chinese auditing authorities, a move that suggests a widespread crackdown on US-Listed Chinese firms sidestepping US disclosure rules is ahead.

The deal allowed the Public Company Accounting Oversight Board (PCAOB) to seek auditing documents in enforcement cases of Chinese companies listed on US exchanges – was considered a breakthrough at the time. 

But PCAOB has complained over the years that many of the requests into Chinese firms were ignored. 

Keith Krach, the undersecretary for economic growth, energy, and the environment, said, “lack of transparency has prompted administration officials to lay the groundwork to exit the deal soon.” 

“The action is imminent,” Krach told Reuters, in an emailed response on Monday. “This is a National Security issue because we cannot continue to afford to put American shareholders at risk, to put  American companies at a disadvantage and  allow our preeminence of being the gold standard for financial markets to erode.”

Reuters notes an official within the Trump administration and three former White House officials said the termination of the 2013 auditing deal was under careful consideration. 

There’s been very little information about withdrawing from the agreement – the discussions so far point to increasing frustrations by the Trump administration over Chinese companies failing to disclose critical financial data. 

And maybe the Trump administration has a point, due mostly because in April, Chinese company Luckin Coffee, trading on the Nasdaq, crashed 85% in one day over allegations it fabricated $300 million sales. 

The Trump administration has recently pressured pension funds for federal employees to stop investing in Chinese companies for risks that could result in malinvestment – such as what happened to Luckin Coffee. 

In June, President Trump demanded the Securities and Exchange Commission (SEC) and PCAOB to recommend new measures within 60 days to protect investors “from the failure of the Chinese government to allow PCAOB-registered audit firms to comply with United States securities laws.”

The Republican-led Senate has passed a bill if approved by the Democratic-led House of Representatives and signed into law would prevent any foreign entity from listing stock on US exchanges unless they had three years of consecutive audits that meet PCAOB standards.

Republican Senator Marco Rubio, a China hardliner and sanctioned by the Chinese government on Monday for his involvement over sanctioning Chinese officials last week for their human rights abuses against minority Uighur Muslims, described the move as “long overdue” and said more measures are needed.

“In addition to terminating this MOU [Memorandum of understanding], which allows Chinese companies to openly defy USS laws and regulations for financial transparency and accountability, we must address the Chinese Communist Party’s exploitation of USS capital markets, which is a clear and ongoing risk to USS economic and national security,” Rubio said in a statement to Reuters.

Hayman Capital’s Kyle Bass said, “The MOU represents a gaping hole in US investor protections while providing the framework for systemic Chinese fraud,” adding that, “It’s unconscionable that the United States continues to allow Chinese companies raising trillions of dollars from US investors to avoid complying with basic USS securities and audit standards.” 

Simmering Sino-US tensions could derail the rally in global stocks as the US appears to kick financial decoupling with China into overdrive ahead of elections.

While JPMorgan at least had a stellar trading quarter to offset another surge in loan loss reserves (i.e. balance sheet deterioration vs income statement improvement), Wells Fargo just had the ugly balance sheet to flaunt and boy was it ugly.

For the second quarter, Warren Buffett’s favorite bank reported a Q2 loss per share of 66 cents, down sharply from the $1.30 profit a year ago, and far worse than the 13 cent loss consensus estimate. More importantly, this was the first time Wells posted a quarterly loss since 2008, confirming that this is indeed the biggest crisis since Lehman.

And while it was widely expected that the bank would cut its dividend of 55 cents, with the bank saying last month that it would cut the dividend to comply with the new restrictions the Federal Reserve brought on payouts, consensus expected the cut to be to 20 cents per share. Which is why when Wells unveiled that its new dividend would be just 10 cents (from 55 cents previously), it led to even more disgust with – and selling of – one of the worst performing stocks of 2020.

A few other Bloomberg headlines from what was a catastrophic quarter for Wells:

• 2Q Rev. $17.84B, -17% Y/Y
• 2Q Net Interest Margin 2.25%, Est. 2.33%
• 2Q Loans $935.2B, Est. $1T
• 2Q Net Interest Income $9.9B, Est. $10.32B
• 2Q Total Average Loans $971.3B, +0.7% Q/Q
• 2Q Incl $8.4B Boost in Credit Loss Reserve
• 2Q Efficiency Ratio 81.6%, Est. 70.4%
• View of Length, Severity of Downturn Deteriorated

There was more. Consensus also got a kick in the groin after Wells reported that its Q2 provision for credit losses would be a whopping $9.5BN, double the $4.86BN expected, and consisting of $8.4 billion increase in the allowance for credit losses as well as $1.1 billion of net charge-offs for loans. The provisions were 17 times the amount taken a year ago and double last quarter’s, when we warned the number was not nearly enough.

How did Wells get to this $8.4BN number? Well, the bank first laid out its total allowance for credit losses, which was a paltry 2.19% of the $935BN in loans outstanding, of just $20.4BN, meaning that the full losses will be orders of magnitude higher…

… which then prompted the following frentic discussion, attempting to justify the surge in reserves… which unfortunately will not be nearly enough.

It’s about to get much worse, though, because as Wells conveniently highlighted it has some $146BN in commercial real estate loans, most of which will be impaired in the coming months amid a record delinquency and default wave.

But wait, there’s even more, because as of Q2, JPM also has $32.7BN in total oil and gas loan commitments, of which $12.6BN are currently outstanding.

Finally, the cherry on top is that all this is happening as Wells Net Interest Margin just plunged to the lowest ever as rates are preparing to go negative.

With all that in mind, perhaps nobody summarized Wells’ dismal quarter better than CEO Charlie Scharf:

“We are extremely disappointed in both our second quarter results and our intent to reduce our dividend. Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.”

Scharf also said the dividend cut to 10 cents, half the consensus estimate, reflected “current earnings capacity assuming a continued difficult operating environment, evolving regulatory guidance, and protects our capital position if economic conditions were to further deteriorate.” Plus, “regulatory commitments” remain the bank’s top priority, Scharf said.

To be sure, the stock was just as disappointed:

What can help the stock here? Probably nothing… except perhaps for Buffett to fully liquidate his entire holdings.

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Here is the full Q2 earnings slideshow (pdf link)