Tag: finance

Authored by MN Gordon via EconomicPrism.com,

The general mood presently being fortified by the chattering classes is one of perpetual fear.  The basic stratagem includes continuously implanting the populace with extreme panic.  For a fearful populace is a subservient populace.

The current hobgoblin is the delta variant of the coronavirus.  The bug, at this very moment, is dispersing through the population…as viruses do.  And, per latest reports from the front lines, the lambda variant’s now on the loose too.

Nonetheless, there’s something on the loose that’s far more deadly to society than a mutated coronavirus.  That is, the virus of fear.  It originates with the control freak central planners.  Then it’s showered on the populace in rapid succession.

Last Sunday, for example, at the conclusion of a meeting of Group of 20 finance ministers, Treasury Secretary Janet Yellen said she was, “…concerned that coronavirus variants could derail the global economic recovery and called for an urgent push to deploy vaccines more rapidly around the world.”

And to avoid catching the delta variant, Dr. Anthony Fauci – a complete doof – stated that, “…if you want to go the extra mile of safety even though you’re vaccinated when you are indoors, particularly in crowded places, you might want to consider wearing a mask.”

Certainly, the opportunities to spread the virus of fear are countless.  New coronavirus variants.  Cyberattacks.  Climate change.  Terrorism.  The Russian menace.  The China problem.  UFOs.

You name it…the sky’s the limit…

Situation Perpetual Fear

The most advantageous kind of fear in the eyes of the political class is fear that can be tied to some sort of imminent economic calamity.  Such fears are not entirely fabricated.  Rather, they stem from a real threat, which is then whooped up and overblown to the max.

This presents the central planners with carte balance opportunities to go big…and save the people from a supposed otherwise disaster.  When the fear’s orchestrated just right, the people actually demand it.  They plead for the government to save them.

Perpetual fear, you see, is a prerequisite for perpetual government intervention.  Fear means big spending programs.  Fear means big centrally planned solutions.  Fear means great big deficits.  Fear means excessive levels of excessive nonsense.

Conversely, without fear spending programs are politically untenable.  Without fear stimulus bills financed with credit created from thin air die on the Senate floor.  Without fear stimmy checks go away.  Without fear zombie corporations are left for dead.

Indeed, fear is an essential lubricant for all collective governments.  What’s more, fear delivers the lard for inflationism…where the money supply is continually inflated to support expanding government obligations and promises.

Inflationism is what makes a national debt of $28.5 trillion possible.  Inflationism is what makes $3 trillion budget deficits possible.  Inflationism is what makes unfunded liabilities of $153.5 trillion possible.  Inflationism is what makes the exponential growth of government, and all its agencies and bureaucracies, possible.

Inflationism is what stimulates an ever expanding class of dependents…

No doubt, centralized control and power has been consolidating in Washington for well over 100 years.  Since at least the reign of Teddy Roosevelt.  These days many electorates advocate for it.  They trip over themselves in their rush to vote for big government solutions.

These same voters, however, like to flatter themselves with an American narrative of freedom and liberty.  Some may reject communism or socialism as a valid system of government.  Just last week, for example, President Biden called communism a “universally failed system.”

Yet politics demands tell a different narrative…

Life and Death in the Age of Fear

The central planners, and the public adherents, are zealous supporters of bankrupt transfer payment programs.  The mathematical flaws of social security and Medicare are conveniently ignored.  Instead, they want more.  They want bigger programs, and government contracts…so long as they get their cut.

At the same time, the general American populace isn’t ready to give up their pretenses and go whole hog in support of socialism.  But feed them a steady diet of fear and they’ll line up and beat their chests in unison for the government to do something – anything – to save them.

Currently, the post-pandemic boom is turning out to be a great big dud.  The 10-Year Treasury yield is slumping towards 1.28 percent.  Consumer prices are “officially” increasing at 5.4 percent.  By all honest accounts, they’re rising at double that rate.

Here’s the point…

The federal government, and some state governments, have turned a large segment of the population into dependents.  This ensures votes come election time…so long as the political class can deliver the goods. 

And to deliver the goods they need to keep the free money flowing.

But to keep the free money flowing, in the form of massive spending programs and goodies, the public needs to be implanted with more fear… which brings us to the latest schemes making their way through the Senate…

The $1.2 trillion infrastructure bill.  And the $3.5 trillion budget resolution bill to address climate change, child care, and expanded Medicare coverage for hearing, vision and dental care.

Perhaps the Republicans and Democrats will come to agreement on how to distribute the pork.  This seems likely for the infrastructure proposal.

The budget resolution bill, however, will likely need an additional nudge.  Specifically, it will need heavy doses of manufactured fear…

The delta variant.  Lambda.  Forest fires.  Summer heat waves.  Southern floods.

If these bills aren’t advanced before the Senate leaves for the August recess on August 6, the fear machine will spend the rest of August whooping things up to a matter of life and death.

Alas, a new round of lockdowns may be in order to get the job done.

After an ugly Delta-driven growth scare plunge at the open on Monday, “Get Out & Party” stocks soared this week. The Nasdaq outperformed and Dow lagged on the week as Small Caps gave back their mid-week panic-buying (swinging from down over 2.5% to up over 3.5% to end the week up 2%)…

And the S&P is hitting all time highs because yeah fun-durr-mentals…

“Everything is awesome” though right?

The midweek surge in stocks was all short-squeeze-driven and the last day’s push appears simple momentum and lack of gamma pushing back…

Source: Bloomberg

After Monday’s monkeyhammering, Energy stocks made it back to unch on the week, Tech and Discretionary outperformed…

Source: Bloomberg

Cyclicals outperformed Defensives on the week but both ended higher (NOTE today’s gains were dominated by Defensives)..

Source: Bloomberg

Cryptos followed a similar path, tumbling into lows on Monday night before rallying back as Ethereum handily outperformed, Bitcoin was around unchanged…

Source: Bloomberg

The dollar managed gains on the week (the 3rd weekly gain of the last 4) back to 3-month highs

Source: Bloomberg

The “weak dollar” narrative driving stocks higher has been conveniently disregarded…

Source: Bloomberg

Bonds were bid on Monday as the world briefly fell apart but sold back to unch on the week. 5Y yields actually fell around 5-6bps on the week…

Source: Bloomberg

10Y Yields tried and tried again to get above 1.30% and hold… they failed…

Source: Bloomberg

Copper rebounded strongly this week. Gold’s modest drop on the week was its first in 5 weeks. Crude managed to barely end green (still pretty impressive after Monday’s barf)…

Source: Bloomberg

Gold has decoupled from the drop in real yields for now…

Source: Bloomberg

Finally, don’t tell anyone but the T-Bill market is starting to get spooked by the debt ceiling chatter…

Source: Bloomberg

Get back to work Mrs.Yellen.

With Bloomberg headlines hitting moments ago and reminding us that it’s time for the periodic debt ceiling drama, as Janet Yellen said in a letter to Congress leadership that the Treasury will start special measures due to debt limit, and warning that the now familiar special steps could run out soon after Congress recess ends, it’s time to remind readers what all the drama is (or rather will be) about, while also reminding that total US debt will hit $30 trillion in about six months.

With the now mandatory late November “kink” starting to emerge in T-Bills as some in the market try to arb out the risk – modest as it may be – of a technical US default…

… Goldman’s chief political economist Alec Phillips writes that the debt limit looks likely to become a constraint for the Treasury in October although November is also likely. According to a Congressional Budget Office (CBO) estimate released on July 21, the Treasury will exhaust its ability to finance government activities in October or November (Goldman’s assessment is that the debt limit will need to be raised by early October).

By way of background, Senate Republican leader McConnell has stated that no Republican would vote for an increase in the debt limit (spoiler alert: they will as they always have in the past although some crisis may be required first). Since Democrats are unlikely to want to take sole responsibility for increasing the limit, Democratic leaders might still insist on passing an increase with bipartisan support, most likely as part of legislation to extend government spending authority after September 30.

Neither the CBO estimate nor McConnell’s statement was particularly surprising, so they are unlikely to affect the outlook for the fiscal package congressional Democrats hope to pass later this year.

With that in mind, here is Goldman’s answer to how much of a risk is the looming debt ceiling:

The Debt Limit: How Much of a Risk?

The debt limit suspension that has been in place since 2019 expires at the end of the July. On July 21, the Congressional Budget Office (CBO) released a projection that the Treasury will exhaust its ability to finance government activities under the debt limit in October or November. To project the timing, one needs to estimate three amounts:

• The cash balance when the debt limit is reinstated: CBO has taken on board Treasury’s projection of a $450bn cash balance as of July 31. This is far more than the Treasury has started with when prior debt limit suspensions have expired over the last several years, as the most recent debt limit suspension bill in 2019 did not prohibit the build-up of cash balances the way that prior suspensions over the last decade had.
• Extraordinary measures: Treasury has various bookkeeping strategies at its disposal to swap debt that counts toward the limit with other debt that does not, and to avoid accumulating debt that it otherwise would. The CBO estimate suggests that these strategies will provide around $350bn in headroom.
• The deficit over the next few months: The Treasury ran a cumulative cash flow deficit of around $170bn in August/September 2019 and $346bn in August/September 2020. During this period in 2021, GS expects a deficit somewhere around $300bn. The deficit in October and November is usually fairly large (an average of around $200bn per month in 2019 and 2020) similar figures are expected this year.

There are two other points of uncertainty regarding debt limit timing:

• The interaction of the cash balance and extraordinary measures: The Treasury projects a cash balance of $450bn on July 31, compared with $134bn when the debt limit was suspended in 2019. That 2019 law states that on August 1 the debt limit will rise by the amount of debt issued since the 2019 suspension to the extent that the debt “was necessary to fund a commitment incurred pursuant to law by the Federal Government that required payment before August 1, 2021.” Since increasing the cash balance does not appear to meet that definition, the new, higher, limit might be set at $316bn below outstanding debt. If so, Treasury would use nearly all extraordinary measures in early August, for a total of $484bn in headroom ($450bn – 316bn + 350bn). By contrast, if the new debt limit is set at total debt outstanding (including the rise in cash) the Treasury will have around $800bn in headroom ($450bn + $350bn). The first interpretation would suggest an early October deadline, while the second interpretation would suggest a late November deadline. CBO’s “October or November” range is wide enough that it is unclear which of these interpretations CBO is following.
• The minimum cash balance the Treasury is willing to run: Ahead of the debt limit deadline in 2017, the Treasury’s cash balance dipped as low as $32bn, but it has not dropped below $100bn in the nearly 4 years since. CBO’s “October or November” estimate refers to the date when extraordinary measures and cash are fully exhausted. As the Treasury is likely to want to maintain some cash on hand, the practical deadline is likely to be several days to a couple weeks before the Treasury fully exhausts its cash and extraordinary measures.

There are two ways congressional Democrats could raise the debt limit:

• A suspension with bipartisan support: Nearly every increase in the debt limit over the last few decades has passed under regular order with bipartisan support. Usually this happens as part of broader fiscal legislation. If the debt limit needs to be raised in early Q4 as most expect, expect congressional Democratic leaders to combine a debt limit suspension with an extension of spending authority, which will need to pass by September 30. While Senate Republican Leader McConnell has indicated that Republicans will not vote for suspending the debt limit, they might ultimately support it if the alternative is voting against spending authority, which would lead to a government shutdown (spoiler alert: republicans always cave after making a big stink first).
• An increase using the reconciliation process: If Republicans block a debt limit suspension under regular order, Democrats also have the option of increasing the limit using the reconciliation process. However, this would have at least three disadvantages: First, while there has not yet been an official ruling on the matter to our knowledge, the Senate’s Byrd rule probably prohibits suspending the debt limit, as has become customary. Instead, Democrats would probably need to increase it by a specific dollar amount (e.g., $3 trillion). Passing a suspension under regular order would avoid a large headline dollar amount. Second, the accumulation of debt over the last two years is likely to become a campaign issue, and Democrats will not want to shoulder the political blame for the increase. While the majority party typically provides most of the support for debt limit increases – some have referred to these votes as a “tax on the majority”—they are likely to want to avoid it if possible. Third, the forthcoming budget reconciliation bill might not pass by the time the debt limit needs to be raised. While it is technically possible to pass a separate reconciliation bill addressing only the debt limit, this looks unlikely in practice.

The timing of the debt limit deadline and the intersection of the issue with the broader fiscal debate is likely to lead to elevated uncertainty in late September when Congress will need to extend spending authority. While Goldman does not rule out a government shutdown if Republicans block an attempt to pair the issues, it is skeptical it will come to this, for three reasons:

• The most disruptive debt limit debates have occurred in divided government. In 2011 and 2013, Republican leaders did not have to block a clean debt limit increase, they simply declined to vote on it. This year, Democratic leaders in the House and Senate will control what legislation comes to a vote and when, which is likely to put greater pressure on Republicans to support a debt limit increase of some sort.
• Republicans have not proposed an alternative. There is no amount of politically realistic spending cut or tax increase that would allow Congress to avoid raising the debt limit. While raising the limit might not be politically popular, spending cuts of the size necessary to eliminate the deficit would be far less popular.
• Filibuster changes looks unlikely, but a debt limit crisis and government shutdown might raise the odds somewhat. Senate rules changes regarding the filibuster appear unlikely this year or next. One reason is that there is always the possibility that some bipartisan compromise might be reached on various issues like police reform or voting rights and, without a high-profile deadline, centrist Democrats prefer to let those discussions continue. While changes to filibuster rules are unlikely to happen under any scenario, a repeat of the fiscal crises of 2011 or 2013 might increase the odds somewhat.

The need to increase the debt limit could also affect the debate over the upcoming fiscal package, even if they are legislatively separate. While it seems unlikely that a showdown over the debt limit would lead centrist Democrats to abandon their support for spending on infrastructure, child care, or extension of tax benefits, for example, it could strengthen their insistence that tax increases or other spending changes offset most of the cost.

As we pointed out recently, the preliminary version of the Democratic budget resolution is reported to be “fully paid for” and suggests downside risk to our assumption that Congress approves $1.5 trillion in tax increases and $3 trillion in new spending (a reconciliation bill of around $2.5 trillion in spending with another $500bn in infrastructure and competitiveness legislation). We expect Senate Democrats to formally introduce their budget resolution next week, which will clarify the targeted amounts of spending and revenue changes as well as whether they intend to pass a debt limit increase via the reconciliation process. While the broad outlines of the fiscal package will be clear before the debt limit debate begins in earnest, the reconciliation bill that includes the actual policy changes is unlikely to pass until after Congress addresses the debt limit.

Something strange is going on in the market: after a brief but sharp 3.5% 3-day selloff into Monday, stocks have erupted higher on a frenzy of short covering (even if institutional buying is strangely absent). What we find more surprising is that whereas in the past, the largest US banks would be generously encouraging US retail investors to pile into sto(n)ks, this time we are seeing the opposite as both Goldman and Morgan Stanley are warning that we are months if not weeks away from (at least) a 10% correction. But what is most surprising of all, is that it’s not just a “one and done” bearish slam from the likes of Goldman – the bank has been publishing a stock market hitpiece virtually every day, similar to what JPM has been doing to bitcoin for the past six months.

Take the latest Global Markets Daily note from Goldman’s closely followed head of global market strategy, Christian Mueller-Glissman who today writes that Goldman’s Risk Appetite Indicator (RAI) – which just a few weeks ago hit an all time high – has tumbled since mid-June as markets have moved from ‘Reflation Moderation’ to ‘Reflation Capitulation’ – and is now back below zero and at levels from before the US elections. According to the Goldman strategist, the current RAI level is consistent with an ISM manufacturing index in the low 50s – in other words, markets seem to anticipate a sharp slowdown of growth in the second half.

According to the Goldman strategist, the decline in the RAI has been “one of the sharpest on record, which is unusual from elevated, positive levels.” He goes on to note that “normally, such large declines in the RAI occur during sharp ‘risk off’ episodes, when macro momentum and the RAI are already negative – during such episodes it is quite common for investor sentiment to overshoot to the downside relative to macro fundamentals.”

Which is why even Mueller-Glissman has to concede that the current plunge is strange because until the recent correction and VIX spike, the S&P 500 and stocks in general had broadly performed well and volatility was low. They have performed even better since then.

In any case, according to Goldman, drivers behind the spectacular plunge have included “more mixed macro data, especially in China, fears on Fed tightening and a potential policy error, fading US fiscal support and rising concerns related to COVID-19, and in particular the Delta variant.”

So how does one make sense of the plunge? Goldman explains that “when the RAI declines from its peak levels it was usually a gradual process, and while procyclical rotations across and within assets were often less consistent, equities tended to deliver positive albeit lower returns (led by earnings growth rather than valuation expansion). In those instances markets became more range-bound and often volatility was relatively anchored – in fact, there were even low vol regimes in a number of instances during the last cycle, such as in 2014 and 2017.”

Fast forward to today when up until the recent correction, the S&P 500 had made new all-time highs with relatively low volatility despite a falling RAI. But this week the VIX had started to pick up (if only briefly), fueling concerns about rising equity drawdown risk. Considering the large decline in the RAI, Goldman notes that the S&P 500 has performed much better than expected (Exhibit 2).

This, according to the vampire squid, has been due to the boost from lower bond yields for large cap, long duration secular growth stocks, which has supported the broad index-level. In other words, without the generals, stocks woulc rash.

Goldman also picks up on what Morgan Stanley warned about yesterday, namely the market’s abysmal breadth, noting that “the breadth in US equity markets has been relatively low: the Russell 2000 was down 9% peak-to-trough.”

So what next? Well, with relative valuations for growth vs. value nearing all-time highs and less of a buffer from bond yields, Goldman warns that drawdown risk for equities broadly could increase in the event of a continued decline in risk appetite. And to underscore this point, Mueller-Glissman warns that “historically, equity volatility has picked up once the RAI has fallen below zero.”

There is more to Goldman’s bearish bias, with the bank next warning that elevated equity valuations coupled with a worsening macro backdrop tend to increase equity drawdown risk, and adding that there is a “somewhat elevated” risk of a 10% drawdown. Here’s more:

While valuations alone are not a good signal for market timing, combining them with information about the macro backdrop helps assess equity drawdown risk better. One way to combine the signals is a logit model that relates the risk of a 10% S&P 500 drawdown over the next 12 months to levels of Shiller P/E and growth or realised volatility as an indicator of the macro backdrop (Exhibit 4). Currently, a purely valuation-based signal indicates somewhat elevated risk of a 10% drawdown, which is not surprising with equity valuations nearing Tech Bubble levels. However, adding the US Current Activity Indicator as a proxy for growth, which remains very strong, still suggests an average probability. Also, up until recently lower volatility helped reduce equity drawdown risk despite high equity valuations.

But as Goldman notes, markets are, of course, forward-looking, and with the RAI discounting a sharp growth slowdown there is potential for more volatility: “Not every large S&P 500 drawdown was driven by the US business cycle alone – rate shocks linked to monetary policy or global growth shocks have often led to larger corrections (e.g., the Asian Financial Crisis/Russian Default/LTCM in 1998, or the Euro area sovereign crisis in 2011).” So as markets assess risks to the cycle and the pace of the slowdown in 2H, Mueller-Glissman warns that the potential for more volatility spikes remains and elevated equity valuations increase the risk of deeper drawdowns.

The bottom line:

With several positioning and sentiment indicators still somewhat bullish and multi-asset portfolios unlikely to benefit from much of a buffer from bonds from here, the vulnerability to volatility spikes remains elevated.

If that wasn’t enough, the Goldman strategist also notes that “there are risks for the current growth pessimism to linger near term without clear catalysts for a pro-cyclical turn, especially with ongoing COVID-19 concerns.”

As a result, Goldman’s advice to investors is to look at equity correction hedges or ways to reduce equity risk in the near term. Option markets are already pricing higher equity drawdown risk than normal during an ISM slowdown phase, with particularly large left tails (Exhibit 5) – S&P 500 put skew and other convexity risk premia in equities are at a multi-decades highs, reflecting investor concerns about sharp and large drawdowns (although perversely, by hedging for this risk, the probability of a market crash drops substantially as it eliminates the risk of forced selling). Since the GFC,vol of vol has increased steadily with the sharp COVID-19 drawdown adding to this trend. Also, the likelihood of smaller equity corrections has been repriced lower. Back in March, when the RAI reached a peak, option markets were pricing higher right tail risks, and a higher probability of small corrections. We continue to like shorter-dated put spreads which, with elevated skew, can offer cheaper correction hedges – they look particularly attractive in Europe and EM (Exhibit 6).

This isn’t the first time billionaire investor Stanley Druckenmiller has warned that US markets are caught up in a “raging mania” fostered by the trillions of dollars in government spending. Druck, an acolyte of George Soros known for his macro investing prowess (even as he complains that contemporary Fed-backstopped markets “make no sense”) is a frequent guest on CNBC. But on Friday morning, he made a brief appearance on MSNBC’s Morning Show with Stephanie Ruhle, who seemed ill-equipped to respond to Druck’s arguments about why the Dems’ multi-trillion two-part infrastructure plan will end up hurting America’s poorest citizens.

Druckenmiller

As Druck explains, the “V-shaped” economic recovery has been “the sharpest recovery in history,” noting that it took 10 years for the American economy to achieve the same gains following the start of the Great Depression.

The problem is that the nearly $6 trillion allocated by Congress to combat the economic impact of COVID has been spent after the economy already finished recovering. The accelerating pace of inflation, and inability of certain businesses to hire lower-wage workers, are but byproducts of this.

Source: Committee for a Responsible Federal Budget

Moving on, Druck pointed out that the biggest economic crises of the last 100 years have largely been caused by asset bubbles and inflation. “Inflation is a tax the poor can’t afford or avoid,” Druck added.

Any further stimulus spending is intended to fix a problem that, in Druck’s words, “doesn’t exist anymore.” He added: “If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy.”

“You usually get a bubble out of that, and you get inflation of of that. Frankly, we now have both. This is the biggest bubble I’ve seen in my career.”

And it’s not just stocks: Druck pointed to the state of crypto and housing markets.

“What are we going to get out of this? You’re going to get a sugar high, the higher inflation, then an economic bust,” Druck warned.

When Druck added that he would prefer Dems postpone their infrastructure spending plans (even though he said he supports many of the provisions of the Demcoratic plan, including improving high-speed infrastructure access in rurual areas), Ruhle interjected. Poor people don’t care about bitcoin crashing, since they don’t own that much bitcoin (or stocks) anyway. But the infrastructure plan will help all Americans, especially those with the fewest resources, Ruhle argued.

“I dont think we need to do anything, we need to take a step back take a breath and see where we are…I think any net spending is a problem. I love a lot of stuff in the infrastructure plan particularly the investments int he digital infrastrucutre. There’s a lot of other stuff im okay with.”

First of all, Druck argued that the growing retail exposure to equities means a market crash will impact main street even more quickly this time around.  And even if they own no financial securities or crypto assets, they will still be impacted by the economic declines, as Druck explains: “It’s going to cause a financial crisis, it’s going to cause inflation and nothing is going to hurt the poor more than that.”

Alabama’s Republican Gov. Kay Ivey on Thursday suddenly changed her tune on vaccinations, urging “the unvaccinated folk” in her state to seek out the vaccine as COVID cases climb in a handful of southern and western states, including Alabama. 

But she’s not alone. Now that Sen. Minority Leader Mitch McConnell is urging Kentuckyians to get vaccinated as soon as possible, more GOP lawmakers and politicians are jumping on the pro-vax bandwagon.

Apparently, with hospitalizations and deaths starting to climb amid a surge in new infections caused by the delta variant, the fearmongering of health experts like Dr. Anothny Fauci has caused GOP strategists to worry that they risk being blamed if there’s another surge in COVID cases (even as scientists warn that the virus will very likely remain endemic to the human population, like the flu).

“We as a Republican party have decided that we have to be all in on the vaccine, even though we’re not sure where our followers are,” said John Feehery, a partner at EFB Advocacy and a former Republican congressional aide.

“There’s real political risk in the idea of re-shutting down the country. I think Republicans don’t want to be blamed for it.”

Still, a handful of mostly red states has passed laws prohibiting the government and private businesses to make vaccines mandatory in keeping with the GOP’s emphasis on personal choice. Gov. Ron DeSantis, whose handling of Florida’s outbreak has been widely praised, especially by conservatives, warned this weekend that Floridians should get vaccinated. “These vaccines are saving lives…they are reducing mortality.”

In Arkansas, the worst-hit state in the country right now, Gov. Asa Hutchinson has embarked on a tour of the state to try and convince voters to get vaccinated.

Despite the mainstream media’s demonizing President Trump for allegedly stoking anti-vaccine fears (in fact, few did more to aid in their development than the former president) a handful of heavily pro-Trump GOP lawmakers tried to broadcast a similar message. The group included Elise Stefanik and Steve Scalise.

Andy Harris, aother lawmaker who attended a Thursday pro-vaccine event, told the FT that “people for whom the benefits clearly outweigh the risk . . . should get vaccinated.”

“For others however, there are still side effects that are coming to light, and these are decisions that should be discussed with a trusted healthcare provider.”

The shift in tone has been echoed by Fox News, a favorite news network of conservatives, where Sean Hannity, one of the channel’s biggest stars, said this week that “I believe in science. I believe in the science of vaccination.”

President Joe Biden, eager to blame the GOP and their “messaging” for his failure to meet his vaccination targets, gently ribbed Republicans over the “change of heart”.

“They’ve had an altar call, some of those guys. All of a sudden, they’re out there saying, ‘Let’s get vaccinated, let’s get vaccinated’.” But he added: “I shouldn’t make fun of this. That’s good.”

Blaming Republicans is a convenient political strategy for Biden, since he has over-promised with his impossible vaccine targets since the beginning. Dr. Scott Gottlieb and others first pointed out months ago that vaccine demand would likely peter out as many adults refuse to get the jab. And now, the US is insisting that a “booster” shot isn’t necessary (likely because the administration fears it would give people one more reason to pass on the vaccine) even as new data out of Israel shows vaccines aren’t even that effective at blocking infection with the Delta variant.

Whirlpool is the latest in a growing line of companies publicly stating that inflation has been a headwind for their business. Whirlpool CEO Marc Bitzer said yesterday that his company is going to run face first into $1 billion worth of inflation this year. 

“We have raised prices across the globe and we feel we are in a pretty good position to mitigate the effects of raw materials,” Bitzer said yesterday, according to Yahoo.

He noted that “peak increases” due to inflation would be materializing in the current quarter. 

Despite the headwind, Whirlpool is aiming to try and not raise prices with hopes that inflation could subside heading into 2022. Good luck with that.

Bitzer continued: “Right now we feel like we are in a good position to deal with what we saw coming. We have been pretty predictable in terms of raw materials and pretty stable in terms of our outlook.”

He also commented that “we don’t feel good, we are letting consumers down,” when asked about issues the company was having meeting demand. 

Bitzer concluded: “They need new appliances because for many people right now they have been using appliances a lot more in the last year than any time before. You have high consumption. People need to replace certain appliances and we of course, feel really bad about having so many consumers waiting for our appliances.”

 “If current trends persist, there will be a carryover of inflation to next year. At the appropriate point, we will quantify how much of a carryover will be there.”

Recall, we noted just days ago that automaker Stellantis’ CEO said he could see inflationary pressure “very clearly”. His exact words were: “I see the inflationary pressure very clearly. I see inflation coming from many different areas.”

Days before that we wrote about how paint company PPG, who supplies to major manufacturers like Ford and Boeing, is raising the prices of its paint and coatings solely as a result of “inflation in raw material and logistics costs”.

PPG’s CEO commented earlier this month: “What we’re obviously studying now is the need to be out with a third set of price increases. Inflation is across-the-board, it’s obvious and customers don’t have a lot of good ways to counter the argument that we need to have price relief.”

And it isn’t like PPG is just a localized business experiencing a one-off in costs: the company is in more than 70 countries and is still “feeling the pinch from the prices of oil, freight and distribution going up and raw materials running scarce”. 

Chief Executive Officer Michael McGarry continued: “I’m not seeing this as transitory. This work-from-home phenomenon is going to lead to additional wage inflation, because people are going to have the opportunities to figure out where they want to work.”

While somewhere a Tesla is spontaneously combusting with nary an acknowledgement from Elon Musk, GM is once again recalling some of its Bolt EVs – for the second time this year – due to a potential fire risk.

On Friday the company announced that two Bolts had caught fire without impact recently and that at least one of the two was related to the battery and happened despite the owner getting a fix from a previous recall, according to the Detroit Free Press.

The recall includes all Bolt EVs from 2017 to 2019, encompassing 68,000 vehicles. 50,925 of those vehicles were located in the U.S. and they have batteries that are produced at LG Chem’s Ochang, South Korea, facility, the report notes.

A spokesman for GM said: “As part of GM’s commitment to safety, experts from GM and LG have identified the simultaneous presence of two rare manufacturing defects in the same battery cell as the root cause of battery fires in certain Chevrolet Bolt EVs. As part of this recall, GM will replace defective battery modules in the recall population. We will notify customers when replacement parts are ready.” 

GM is recommending that current owners: 

• Return the vehicle to the 90% state of charge limitation using Hilltop Reserve mode (for 2017-2018 model years) or Target Charge Level mode (for 2019 model year), or visit a dealer to make that change.
• Charge the vehicle after each use and avoid depleting the battery below  70 miles of remaining range.  
• Park the vehicle outside immediately after charging and do not leave the vehicle charging overnight.
• Customers who have not received the advanced diagnostics software should visit their dealer to get the update.  After obtaining the software, limit the state of charge to 90% and follow the advice above.

Recall back in November of 2020, tens of thousands of Chevrolet Bolt vehicles were recalled after the company became aware of “five fires involving the cars” that resulted in two injuries from smoke inhalation.

A notice was issued in November for 50,932 of the vehicles in the U.S. dating from 2017 to 2019. General Motors said the battery could “catch fire when charged to full or nearly full capacity,” at the time.

As a temporary fix, the company said it would be reprogramming its battery’s “hybrid propulsion control module 2” to only allow charging to 90%. This fix clearly looks as though it didn’t work and the company will likely now be forced to take more drastic measures.

Two weeks ago, Deutsche Bank’s credit strategist Jim Reid pointed out something troubling for the hapless “inflation is transitory” crowd, which includes most central bankers and their sycophantic media muppets as well as virtually all Wall Street economists: while 2021 inflation projections are off the charts, why are 2022 inflation consensus estimates rising as rapidly as they are… or as Reid put it “with inflation forecasts creeping ever higher, at what point will the surge in 2022 inflation render the “transitory” debate moot?” Reid is right, especially since if inflation is truly transitory the higher base effects of 2021 would mean that 2022 FY inflation growth should actually be lower and well below the Fed’s 2% target.

Only, as Bank of America’s Chief Investment Strategist Michael Hartnett notes, that is not happening. Instead, as the following chart shows, consensus 2022 CPI has now risen to 2.5%, which while clearly below the 3.5% of 2021 will be – if Wall Street is correct – the highest full year inflation of any year in the past decade.

In other words, Wall Street can’t have it both ways: it can’t be saying that soaring inflation is transitory on one hand while on the other predicting the highest 2022 CPI since the global financial crisis.

But wait, it gets worse because while CPI forecasts are rising rapidly, upward revisions to 2022 GDP have stalled and are about to turn downward, suggesting that whether it wants to admit it or not, the US is facing a growing risk of stagflation…

… a conclusion which is further validated by the stall in TSY forward yields.

Finally, in an interview on Bloomberg TV, this morning Mohamed El-Erian confirmed that all the unelected career academics making live more expensive by the day for billions of people are dead wrong:  “Inflation is not going to be transitory,” the chief economic adviser at Allianz SE said in an interview on Bloomberg TV’s The Open show. “I’ve been pretty certain in my mind about three prior calls. This is the fourth one.”

“I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick,” El-Erian said.

He explains the current 10-year Treasury yield is below 1.3% because the Fed is injecting liquidity into the market with monthly purchases of $120 billion in securities.

“The Fed should ease its foot slowly off the accelerator,” he said, but the Fed won’t at least until it’s too late and yields explode higher.

Chinese telecom giant Huawei is hiring Democratic lobbyist Tony Podesta to try and ‘warm relations with the Biden administration,’ according to Politico which cites two people familiar with the matter.

Podesta, the art-collecting, red-shoe wearing, K-street lobbyist whose firm self-destructed after he became a target in the Mueller probe, was reportedly offered immunity to testify against former partner Paul Manafort.

Manafort and Podesta both made millions together as unregistered agents on a pro-Russia project in Ukraine. While Podesta had the uncanny foresight to retroactively file as a foreign agent in April 2017, Manafort did not, and was subsequently found guilty of tax fraud, failing to disclose foreign bank accounts, and bank fraud.

One week after Mueller announced he was targeting Manafort and an unnamed “Company B” in October, Podesta resigned from his position as chairman of the Podesta Group, which he co-founded with his brother Tony in 1988.

As we noted in 2018, Manafort and Podesta worked with the Pro-Russia European Centre for a Modern Ukraine (ECMU), a Brussels based think tank tied to former Ukrainian president Viktor Yanukovych which was pushing for Ukraine’s entry into the European Union. Manafort oversaw the ECMU project, on which the Podesta Group made some $1.2 million, Manafort’s firm also earned $17 million between 2012 – 2014 consulting for Yanukovychs centrist, pro-Russia Party of Regions. Yanukovych fled from Ukraine to Russia after he was unseated in a 2014 coup.

The Podesta Group received more than $1.2 million from the European Centre for a Modern Ukraine for its work from 2012 to 2014, according to the new disclosures. The Podesta Groups work included meetings with State Department officials Tom Nides and Jake Sullivan and staffers of Sens. John McCain (R-Ariz.) and Dick Durbin (D-Ill.), as well as contacting congressional staff, reporters and think tank researchers. –Politico

As Mueller began to close in on Paul Manafort, Podesta Group clients became spooked.

Before dawn on Monday Oct. 23, 2017, NBC News reported that Mr. Mueller was preparing to indict Mr. Manafort and implicate Mr. Podesta regarding the Ukraine work. The phones started ringing: Clients wanted to know what was going on. The firms bank wanted to discuss its account.

The following night, Mr. Podesta threw himself a birthday party, serving hundreds of guests pizza from a brick-oven stove in his backyard in Kalorama. –WSJ

Podesta’s problems began long before Mueller’s probe grazed his orbit. During the summer of 2016, SunTrust bank severed ties with the Podesta Group over their work for a U.S. subsidiary of a sanctioned Russian bank – presumably Russias Kremlin-owned Sberbank – which paid the Podesta group $170,000 over a 6 month period through September 2016 to lobby against  economic sanctions handed down by the Obama administration over the 2014 annexation of Crimea. 

SunTrust Banks Inc. sought to sever ties with the firm over the sanctioned Russian bank. The Podesta Groups chief executive sent an exasperated email to a colleague. Tony thinks these types of clients have no repercussions on the firm, she said, but this should really provide evidence that we have to take the clients we bring on seriously.

Following Mrs. Clintons defeat that November, the Podesta Group cut bonuses and commissions. –WSJ

Fast forward to October, 2017 – just one day after US prosecutors announced the indictments of Manafort and Gates, “an official with the firm’s new bank, Chain Bridge Bank, demanded $655,000 in cash or collateral within 24 hours – or it would cut the firm’s credit line.“

Mr. Trump, who occasionally pointed an unwelcome spotlight on the firm, tweeted that day: The biggest story yesterday, the one that has the Dems in a dither, is Podesta running from his firm. –WSJ

Finally, in April of this 2018, the Podesta Group shuttered its doors in what the Wall Street Journal described as a “calamitous collapse“:

Then he fell, a calamitous collapse propelled by unexpected blows, delivered by fate and made worse by hubris. Financial problems, legal threats and the election of President Donald Trump took it all awaythe clients, the firm and, finally, Mr. Podestas position as one of Washingtons most influential players. –WSJ

Last but not least; in October 2017 a “long time” former Podesta Group executive with “direct personal knowledge” of the operation divulged several other aspects of life inside Tony Podesta’s lobbying machine to Tucker Carlson, after he says he was interviewed by special counsel Robert Mueller. Perhaps he felt his testimony would end up on the cutting room floor, which detailed potential money laundering through Tony’s art collection, Clinton Foundation links to Uranium One, and claims that the Russians were trying to establish inroads to the Obama White House through the Podestas. 

According to the Politico report, “Podesta is expected to soon pick up more clients. He has known President Joe Biden for decades and is friendly with a number of his advisers. Podesta also lives down the street from former President Barack Obama in the glitzy D.C. neighborhood of Kalorama. His brother John was a counselor for Obama as well as chief of staff to President Bill Clinton.”

Let’s see if the ol’ Podesta magic can help Huawei worm its way into the Biden administration’s good graces.