Tag: finance

While Musk may have much bigger headaches on his hand following his bizarre “unvetted” tweets from this morning which as even Musk reportedly admitted were in violation of his SEC settlement, in the latest letter to investors published today by Greenhorn’s David Einhorn, the hedge fund billionaire – smelling blood not to mention various mind-altering drugs emanating from Musk’s twitter feed – tripled-down on his years-long feud with the Tesla CEO (as a reminder, last November Einhorn accused Tesla, and by implication, of “significant fraud”), and one day after an Einhorn tweet questioned Tesla’s “suspect” accounts receivable and income statement over the same concerns we first laid out on Wednesday, and hammering Tesla stock (which as even Elon Musk agrees is “too high“), the billionaire hedge fund manager unloaded on Tesla in his letter, repeating many of the same questions he has asked previously (without getting an answer) and making Musk’s job of lowering TSLA price even easier.

Below we have excerpted the key parts from Einhorn’s letter discussing Greenlight’s persistent Tesla short (which is not an outright stock short, but as we now learned, a put spread):

The TSLA melt-up from $418 at year end to a high of $969 on February 4 caused only a moderate loss, as much of our short position was structured in put spreads. Considering our continued negative view of the company, we did a good job maintaining a large exposure to our thesis working while avoiding a large loss in the parabolic move higher.

However, in the subsequent market decline, we would have expected to be rewarded in our TSLA puts. TSLA does not have a conservative balance sheet and has all kinds of exposure to the current crisis. Luxury car sales of all types are likely to collapse in a recession. We won’t know right away because TSLA’s plant is closed and the company can claim (without seeing the irony) that demand currently exceeds supply.

The closing of the factory is also inopportune because TSLA still enjoys a window in which its Model 3 and Model Y face limited global competition. The window is beginning to close, as TSLA has already lost a lot of share in Europe’s electric vehicle market. By next year, the U.S. market should become similarly competitive.

The first quarter (announced Wednesday) raised a host of new questions. For the last several quarters, TSLA has carried accounts receivable balances that are difficult to reconcile with its business model – where customers pay before taking delivery.

TSLA has given multiple and contradictory explanations. The most recent version claimed that it takes a few days for payments to clear the banks and a little longer to arrive from Europe. TSLA also claims that because sales are crammed into the end of the quarter, it matters whether a quarter ends on a weekday. The first quarter ended on a Tuesday and unlike prior quarters, TSLA sales were not crammed into the last week of the quarter due to the pandemic. Had TSLA’s prior explanation been correct, days sales outstanding (DSO) should have plunged. Instead, they rose (TSLA claims that part of this came from sales of regulatory credits in the first quarter, “most” of which had not been collected. Even adjusting for this, DSO did not plunge as one might have expected). The receivables remain a source of mystery. To the extent they exist, it is unlikely that they are explained by TSLA’s responses.

TSLA now produces in two factories, which has increased its overhead costs, while utilization rates are down significantly in Fremont. Despite an adverse product mix, the launch of the Model Y, shutdowns at its factories and currency headwinds, TSLA only had a modest decline in auto gross margin (excluding regulatory credit sales) for the quarter. Given the circumstances, this is hard to explain. Moreover, TSLA opened its factory in China while still somehow reporting reduced depreciation and SG&A expense sequentially. None of this makes sense to us and casts doubt on TSLA’s income statement.

TSLA is not a “growth” stock; rather it is a “story” stock. Even as TSLA furloughs its manufacturing workers, fires part of its salesforce, cuts everyone else’s salary, and renegotiates its rents with landlords, Elon Musk is days away from a nearly $1 billion option bonus due to TSLA sustaining an inflated stock price.

The TSLA “story” has resonated strongly with ESG investors. Relating to Governance, the insurance industry seems to get the joke. TSLA seemed unable to obtain D&O insurance on commercially reasonable terms. The Directors are now being insured by Musk. This creates an obvious conflict of interest that cripples the Directors’ ability to curtail Musk’s behavior – as he can now threaten that if the Board brought him down, the insurance may not have value. Making the Directors so beholden to Musk by definition makes them not independent (The Board, of course, proclaimed that it still judges itself to be independent. Of course, having a majority of independent directors is a NASDAQ listing requirement, and having independent directors was also part of the SEC settlement over Musk’s tweeting. The SEC or NASDAQ will probably not notice in the middle of the pandemic).

Musk’s overhyped response to the pandemic echoes his behavior in previous crises, and is little different from his fake promises to his customers. For example, for the last three years TSLA has sold a vaporware add-on called “full self-driving” for thousands of dollars. A year ago, Musk claimed that when the company’s software was “feature complete,” it could begin to enable TSLA cars to operate as autonomous “robotaxis” starting in mid-2020. On the fourth quarter of 2019 conference call, Musk admitted that “feature complete just means like it has some chance of going from your home to work let’s say with no intervention.” However, with TSLA’s stock price on the edge of vesting Musk with a windfall, he recently used Twitter to double down on the “robotaxi in 2020” narrative.

President Trump has called Musk a “genius” who “needs to be protected,” which is strange since TSLA is shifting its manufacturing to China. The President hasn’t seemed to mind… yet. This could be TSLA’s undoing, as its story increasingly depends on China for both cheaper manufacturing as well as consumer demand, against a backdrop of deteriorating relations between the two countries. TSLA shareholders are assuming enormous political risk in betting on the “TSLA in China” thesis.

Perhaps Musk’s flippant behavior around the pandemic – endangering his workforce and calling the government response “fascist” – will reveal his true nature to broader society and be reflected in the share price. Historically, stock promotions like this tend to unwind in economic down-cycles. TSLA advanced 25% in the first quarter and another 49% in April, bringing its year-to-date return to 87%

And now, to the sheer fury of all those gullible investors who bought into Tesla’s $2 billion equity offering at $767/share on February 14, none other than Elon Musk agrees with David Einhorn.

Tesla stock price is too high imo

— Elon Musk (@elonmusk) May 1, 2020

 

Something’s wrong…

After the best stock market gains in decades in April, May is off to an ugly start… with the biggest 2-day drop in since the March collapse

The week started out so well, but the last two days have seen all the gains given back with S&P, Dow, and Nasdaq all red on the week (but Small Caps managed to cling to some gains)

The Dow is down over 1300 points from yesterday’s highs, and back below the 50% retrace line…

Small Caps are back below the Dec 2018 lows…

Source: Bloomberg

The virus-fear trade is back…

Source: Bloomberg

The last 3 days saw the worst performance of equal weight vs cap weight Nasdaq since 2008…

Source: Bloomberg

…back to its weakest level in over six weeks…

Source: Bloomberg

Today was the worst day for FANG stocks since March 16th after reaching a new record high yesterday (and the first down week in the last six)

Source: Bloomberg

AAPL had its 8th straight day of panic-buying at the open and selling… (after an ugly session overnight following earnings)…

AMZN hit a new record high at the close last night and has fallen ever since…

Energy stocks were clubbed like a baby seal today, despite oil price gains…

Source: Bloomberg

Everyone was loving bank stocks until The Fed…

Source: Bloomberg

The most virus-impacted sectors reverted back lower the last two days…

Source: Bloomberg

An ugly end to the week for both IG and HY credit…

Source: Bloomberg

Mixed picture in Treasury-land this week with the short-end lower in yield and long-end higher (somewhat understandable after Boeing’s massive issuance)

Source: Bloomberg

10Y remains in a tight range…

Source: Bloomberg

The yields curve also remains range-bound, glued to the 50% retracement of the March steepening…

Source: Bloomberg

 

 

 

 

Just as we saw at the end of March, start of April, the USDollar has reversed its downtrend and rallied hard today…

Source: Bloomberg

Offshore yuan was monkeyhammered today – after Trump comments on pulling capital allocations – leading to its worst week since March

Source: Bloomberg

Big week for cryptos with Bitcoin leading the way…

Source: Bloomberg

Bitcoin tested back up to $9,500 this week…

Source: Bloomberg

A big mean reversion week…

Source: Bloomberg

Spot the odd one out in commodity land…

Source: Bloomberg

WTI Crude (June) has bounced back to its cliff-edge this week, unable to break above $20…

Gold was lower on the week, hovering around the $1700 (futures) level…

Similarly, Silver is strangely attracted to $15…

Finally, spot the odd one out…

Source: Bloomberg

Tribune Publishing Company, the owner of Chicago Tribune, New York Daily News, The Baltimore Sun, Orlando Sentinel, South Florida’s Sun-Sentinel, and several other newspapers, has seen its full-year forecast revised lower by analysts who believe the publisher is headed for tough times in 2020 amid pandemic and recession. This has forced Tribune Publishing CEO Terry Jimenez to furlough employees and cut salaries as a move to protect shareholders. 

Vice News released an internal Slack conversation of more than 100 Tribune Publishing employees detailing how they overwhelmingly believe the CEO is putting shareholders’ interests over workers. The conversation is absolutely heartbreaking and provides insight into the economic hardships that many Americans are now facing as the economy collapses. Employees have pleaded with the CEO to reconsider the cuts, but his response to them has been silent. 

Tribune Publishing is backed by venture capital firm Alden Global Capital, which has a track record of stripping newspapers for cost-cutting measures. The CEO has already completed several rounds of furloughs: 

“Earlier this year, the company offered buyouts to all employees who’d been working there eight years or more. More recently, facing the same pressure every media company is facing, Tribune Publishing has been instituting rolling cuts and furloughs as a result of financial stress caused by the coronavirus pandemic. On April 9, the company announced permanent pay cuts of 2 to 10 percent for all non-union employees making more than $67,000 a year. CEO Terry Jimenez generously said he would forgo his salary—$575,000, a year per an SEC filing—for two weeks.

“On April 21, the company announced new three-week furloughs for employees making as little as $40,000 a year. Some of the Tribune newspapers are unionized; as a result, the company must negotiate with the NewsGuild in order to institute the furloughs. The Morning Call, the Hartford Courant, the Tidewater Guild (comprising three Virginia newspapers), the Chesapeake Guild (comprising the Capital Gazette and other suburban newspapers), and the company’s shared print group, called Design and Production Studio (DPS) are bargaining together. As they do so, staffers are putting pressure on their overlords by making them look like the assholes they are,” Vice reported. 

Here are the internal conversations among employees on Slack that detail how corporate greed and the CEO’s protection of shareholders over employees will ruin lives. 

“I can’t afford three weeks without pay,” wrote one staffer in an internal company-wide Slack channel with more than 2000 people in it.

“My husband was laid off and we have a daughter in college,” another wrote.

“Tribune gives $9 million on shareholder dividends, and then tells employees it’s critical that they take pay cuts and furloughs that will save them just $556,979,” another staffer wrote. “The person who made these decisions at Tribune hasn’t mastered basic math.”

Good point… 

They don’t care. @TribPub just cares about shareholders. The sooner you realize the better (for you). PS: They also don’t care about journalism.

— Wally Trimble (@wallytrimble) April 30, 2020

Authored by James Howard Kunstler via Kunstler.com,

Slouching Towards Resolution

The people of this land have enough trouble in mind – what with livelihoods, careers, businesses, marriages, hopes and dreams circling the drain in the new insta-depression – but let’s hope they have just a little attention left over for the whirlwind denouement of the odious RussiaGate affair, now finally shredding the last defenses of the Deep State’s rogue Intel forces after years of deceit, treachery, and juridical depravity. The beginning of the end is at hand in the malicious prosecution of General Michael Flynn, and, as that’s revealed for the criminal plot it was, all the other threads in this vast tapestry of sedition will unravel.

Why does that even matter anymore, you may wonder?

Because so many of our current troubles are mostly due to the culture of pervasive dishonesty America retreated into to avoid the mandates and rigors of reality in the 21st century. It operated in every area of our national life from the racketeering in medicine and higher-ed, to the games we played with our national debt, to the stupendous grift of politics, the futile wars we prosecuted, the idiotic gender conflict and race hustling, and, most flamboyantly, to the lawlessness around the CIA, FBI, and Department of Justice during and after the 2016 election. This was the culture of Anything Goes and Nothing Matters. It has to be defeated if we expect to go on as a credible nation.

General Flynn had been an irritant to the Obama administration in his role as chief of the Defense Intelligence Agency. He disagreed with a lot going on around him and he said so, especially the nuclear deal that was percolating with Iran. Mr. Obama canned General Flynn in 2014. Afterward, CIA chief John Brennan and DNI James Clapper put him under surveillance and played entrapment games with him, using some of the same shady characters (Stefan Halper, Richard Dearlove) who later showed up as RussiaGate players.

In early 2016, Gen. Flynn joined the Trump campaign as a foreign affairs advisor and that summer made the mistake of leading the “Lock her up,” chant to a delirious crowd at the Republican Convention. Perhaps he knew a thing or two about the activities of the Clinton Foundation. Perhaps he also knew what Jeffrey Epstein was up to. Then Mr. Trump shocked the world and won the election. Gen. Flynn was soon appointed incoming National Security Advisor. One can imagine the anxiety crackling through a Democrat-controlled Deep State on the verge of surrendering power to its enemies. The alarm bells that went off through the vast US Intel underground must have been deafening.

In a panic, the Intel Community set in motion a suite of operations to get rid of both Flynn and Trump. On December 29, late in the transition-of-power, President Obama lit up a diplomatic flare by confiscating country retreat properties in Maryland and Long Island owned by the Russian embassy and expelling 35 embassy employees, supposedly as payback for Russia “interfering in the 2016 election.” This prompted a conversation between incoming National Security Advisor Flynn and Russian ambassador Sergey Kislyak. That cued the FBI to entrap General Flynn. The news media played along with the preposterous falsehood that high American officials should not communicate with diplomats posted to the USA. The shady gotcha interview about that with Flynn, conducted by FBI officers Peter Strzok and Joseph Pientka, has been dissected to death, so I’ll spare you that, except to say that it was carried out in obvious bad faith.

The court case over all that has dragged out for more than three years now, though anyone could see from the get-go that it was a malicious prosecution. (I said as much more than once in this blog years ago.) Presiding Judge Emmet Sullivan has overlooked flagrant misconduct by DOJ prosecutors, led by Brandon Van Grack. FBI Director Christopher Wray has concealed exculpatory evidence of FBI and DOJ misconduct that favored General Flynn for three years. General Flynn’s previous attorneys from the DC law firm of Covington and Burling ­­­­­­­­— where Mr. Obama’s Attorney General Eric Holder is a partner — represented Gen. Flynn poorly, and did so apparently on-purpose. In spite of all that, the case is unraveling thanks to the diligence of Gen. Flynn’s new attorney, Sidney Powell, who cuts through government bullshit like a samurai sword through tofu.

The case is now moving swiftly to a climax, perhaps due to William Barr appointing Missouri federal attorney Jeffrey Jensen to review the matter. Someone, perhaps new Acting Director of National Intelligence Richard Grenell, has pried bales of previously hidden documents from FBI Director Wray’s sweaty hands. They amount to clear evidence of a scheme to lawlessly railroad Gen. Flynn. If Judge Sullivan doesn’t dismiss the case in another two weeks, he will look like a fool and a scoundrel. He probably cares about his reputation. Any fair reading of this case would have this judge cite the DOJ lawyers for criminal contempt at a minimum.

The question arises: why has Attorney General Barr allowed this to go on and on. My guess is that he thinks the best course would be for Judge Sullivan to be forced by the weight of evidence to do his duty and move to dismiss the case against Gen. Flynn. After all, the objective is to restore the rule-of-law, and that includes getting the federal courts to operate honestly and fairly. If Mr. Barr took the extraordinary action of intervening, it would signify that the court could not be trusted, and that will not restore the rule-of-law. The same applies to a presidential pardon.

In the background looms federal attorney John Durham who has been at work for year looking into the matrix of suspicious conduct around all aspects of the RussiaGate hoax, the greatest scandal in US history. Mr. Barr has been accused of allowing quite a few culpable DOJ higher-ups to remain in their jobs this whole time,including FBI Director Wray, despite the shade thrown on them by the drip-drip-drip revelations of their misdeeds. I think both Mr. Barr and Mr. Trump have resisted the temptation to intervene in order to 1) steer clear of malign RussiaGate collaborators in Congress and the news media, and 2) for reasons similar to the process involving Gen. Flynn ­— to reestablish the regular wheels of justice and faith in the system.

RussiaGate and all its subsidiary mischief amounted to a seditious conspiracy by several agencies of government against the chief executive. It was explicitly an effort to overthrow a president by illegitimate means. The conspiracy extended to members of congress, who are not privileged with immunity against felony crimes, by the way.

The partial list of government officials, current or former, who may be subject to prosecution in these matters should include Barack Obama, Susan Rice, John Brennan, James Clapper, James Comey, Andrew McCabe, Rod Rosenstein, John Carlin, Mary McCord, Michael Atkinson, James Baker (DOJ), James Baker (DOD), Loretta Lynch, Sally Yates, Dana Boente, Peter Strzok, Lisa Page, Joseph Pientka, William Priestap, Bruce Ohr, Kevin Clinesmith, Robert Mueller, Andrew Weissmann, Aaron Zebley, Jeanie Rhee, David Lauffman, Senator Mark Warner, Senator Richard Burr, James Wolfe, Rep. Adam Schiff, Eric Ciaramella, Col. Alexander Vindman. Players outside government include Glenn Simpson, Nellie Ohr, Christopher Steele, Stefan Halper, Sidney Blumenthal, Cody Shearer, David Kramer. The following media figures might be named as unindicted co-conspirators: Dean Baquet, Martin Baron, Jeff Zucker, Andrew Lack, Rachel Maddow, Lawrence O’Donnell, Chris Cuomo, Joe Scarborough, David Corn, David Ignatius, and Ari Melber.

*  *  *

Note: The New York Times has not covered this week’s developments in the General Michael Flynn case. So, there is no record of this epic injustice in the newspaper-of-record. Therefore, it is no longer the newspaper-of-record.

One doesn’t have to read our weekly flow reports showing that while algos and quants are busy buying stocks hand over first (because momentum) even as human and hedge funds investors continue to sell (see “Only Machines Are Buying Stocks As Humans Stay At Home“), to get a sense that virtually no carbon-based trader with an organic brain believes this rally: there is a far simpler indicator of what most investors think about the market.  We are referring of course to the amount of inert cash in money-market funds which this week rose again – despite the tremendous April stock rally – hitting a record high $4.7tn, and up an unprecedented $1.1tn past 9 weeks.

For those confused by the chart above, here is the explanation: instead of risking their capital, investors have parked a record amount of cash – far more than during the financial crisis – in inert money-equivalents which yield zero as they have zero faith in any other asset class, be it bonds or stocks.

This is taking place when, as we reported on Wednesday, the US household savings rate exploded to a massive 13%, the highest in 40 years.

To Bank of America’s Michael Hartnett this means that the consumer has the “ability” to finance recovery, but the question is “willingness”; And, as Hartnett adds, watch US mortgage applications for purchase as key indicator consumer “animal spirits” returning;

As he further adds, “Wall St always undershoots and overshoots…most plausible reason overshoot continues is that US policy makers have stimulated more in 10 past weeks than Japan has in 30 years and US real estate/banking/consumer data turns out not to be Japanese.”

That may explain why despite the record allocation to money market funds, we continue to see aggressive allocation to bond funds which are now explicitly backstopped by the Fed, and so in addition to the $91.5bn going into cash, $10.6bn went into bonds, $0.8bn into gold; while $6.7bn came out of equities this week.

In terms of flows to know, Hartnett points out the following:

1. investors continue to crowd into tech ($2.4bn this week – Chart 12) & healthcare funds ($1.5bn – Chart 13);

2. investors continue to flee EM assets ($13bn redemptions past two weeks);

3. HY bonds (piggy-in-middle) unambiguously seeing inflows ($2.2bn).

And explaining the ongoing flood into fixed income, BofA points out the $14 trillion in Fed of global policy stimulus which has “miraculously” prevented credit event in IG, munis, energy, mortgage servicers, EM, Italy…on contrary IG has rallied back to highs despite a massive $767bn of issuance YTD; but policy bazooka yet to cause

1. US dollar to give all-clear (need DXY <98) and,

2. HY outperformance of IG, without which hard to see new highs in stocks and sustained rotation large cap growth to small cap value.

SoftBank may have succeeded in stiffing WeWork shareholders out of $3 billion, but the company recently informed shareholders that its loss for the fiscal year ended in March was even larger than it had anticipated, largely due to WeWork, though the company’s investments in Uber and a handful of other startups that failed or shut down over the last six months have also hurt.

With its debt trading deep in junk territory, the reputation of the company’s founder-chairman Masayoshi Son lies in tatters, as the coronavirus outbreak essentially sealed WeWork’s fate after a string of blowups among other SoftBank and Vision Fund portfolio companies.

In a matter of months, a man once heralded as the greatest momentum investor of a generation is just the guy who thought WeWork’s low-margin, hyper-cyclical core concept might be worth $54 billion. Even Goldman’s clients couldn’t swallow that one.

Now, SoftBank’s international arm is laying off 10% of its employees as it continues to try and cut costs after its worst run ever.

Here’s Bloomberg:

SoftBank Group International, an arm of SoftBank Group Corp. led by Marcelo Claure, has cut roughly 10% of its staff as part of a plan to operate more efficiently, according to people with knowledge of the matter.

The reductions affected about two dozen employees in cities including San Carlos, California, and Miami, according to one of the people, who asked not to be identified because they haven’t been made public. SoftBank Group International is prioritizing enabling its portfolio companies to emerge from the coronavirus pandemic in a stronger position, while continuing to make selective investments, the person said.

In addition to the job cuts, two managing partners of SoftBank’s $5 billion Latin America fund, Murtaza Ahmed and Andres Freire, voluntarily departed, one of the people said. Mike Bucy, an operating partner at the firm who had been appointed as WeWork’s chief transformation officer in November, also has left SoftBank of his own accord, the person said.

A SoftBank spokeswoman declined to comment.

SoftBank said this week it expects a wider net loss for the fiscal year ended in March, because of deeper struggles at one of its largest investments, office-sharing startup WeWork. The Japanese conglomerate expects to lose 900 billion yen ($8.4 billion), up from a previous estimate of about 750 billion yen.

Its Latin America fund has backed companies including Colombia-based delivery startup Rappi, Brazilian fitness company Gympass and Argentine financial-technology firm Uala.

For those who haven’t been following along lately, here’s a summary of what’s going on with the guidance, according to Pitchbook.

In light of steeper losses from its WeWork investment, SoftBank has again revised its annual guidance for the latest fiscal year.

The Japanese tech giant now expects a net loss of 900 billion yen (about $8.4 billion)—150 billion yen more than it announced over two weeks ago. SoftBank said its investment in WeWork, as well as its loan commitment and financial guarantee for the co-working company, was responsible for about 700 billion yen in losses.

The new guidance follows an announcement in mid-April, when SoftBank told investors it expects the value of its Vision Fund portfolio to drop 1.8 trillion yen. Earlier this month, WeWork sued SoftBank, its largest investor, for backing away from a $3 billion tender offer that SoftBank said would primarily benefit founder Adam Neumann and fellow investor Benchmark.

Many SoftBank-backed companies showed signs that they were struggling before the coronavirus pandemic; the crisis has only exacerbated those problems. In recent months, real estate tech startups Opendoor and Compass, construction tech provider Katerra and restaurant robot-maker Zume have each reportedly laid off hundreds of employees. And internet satellite company OneWeb has filed for Chapter 11 protection.

And you haven’t heard the worst part yet: It looks like there’s more pain to come as Masa Son pledges more of his personal fortune against the company’s debt, allowing him and his team to remain in control, so they can make more of the bad decisions that brought what had been a Japanese global champion to its knees.

Submitted by Joseph Carson, Former Chief Economist of Alliance Bernstein

The great divide between finance and the economy rolls on. In the past 6 weeks, jobless claims have increased by 30 million, while the S&P 500 index has increased by more than 30%.

The last decade saw the greatest divide ever between finance and the economy. At the end of 2019, household holdings of equities stood 2 times the level of disposable income, an all-time high.

That divergence between finance (stock market) and the economy was fueled by easy money. To be sure, policymakers kept official rates near zero for roughly half of the 130-month economic expansion. Also, except for a brief 6-month period in early 2019, policymakers kept official rates below the core rate of inflation. Never before in any business cycle has official rates remained below the inflation rate for almost an entire growth cycle.

In 2020, the policy of easy money policy has gone to new heights. On March 23, the Federal Reserve announced plans to make unlimited purchases of financial assets to support the financial markets while also indicating they planned to utilize emergency lending powers.

Artificially evaluating finance over the economy does not guarantee a recovery, while it can also lead to financial instability at some point as asset prices become unhinged to underlying corporate profitability.

Cheap money can create the illusion of recovery, but a policy that results in more debt and inflated asset prices is not a bridge to recovery; it’s another bubble.

 

From an initial $75 billion per day when the Fed announced the launch of Unlimited QE in March, the US central bank first reduced its daily buying to $60 billion per day, then  four weeks ago announced another ‘taper’ in its bond-buying program to $50 billion per day, which was followed by a reduction to 30 billion per day, which was then  again cut in half to $15 billion per day. Then, last week the Fed again slashed its daily POMO by another 33%, to $10BN per day, and now in its latest schedule, the Fed unveiled that in the coming week it would purchase “only” $8BN per day.

Contrary to some expectations that the Fed would only announce a month POMO total, the Fed continued the practice of providing a weekly preview of its purchasing operations, which in the coming week will amount to $40BN in TSYs.

Here is the full schedule of Treasury purchases for the week ahead. Note the increasing divergence between some days of the week, such as the $4.5BN in POMO on Monday vs the $13BN on Tuesday.

Additionally, the Fed will also taper its MBS buying from $8 billion to $6 billion on average in MBS per day next week:

• Mon: $6.16Bn from $8.213BN last Monday
• Tue: $5.76BN from $7.68BN last Tuesday
• Wed: $6.16BN from $8.213BN last Wednesday
• Thur: $5.76BN from $7.68BN last Thursday
• Fri: $6.16 from $8.213BN last Friday

The chart below summarizes all the Fed Treasury and MBS buying completed and scheduled since the relaunch of QE on March 13:

So, in aggregate, the Fed will buy a total of $70 billion of MBS/TSYs next week, down from $90 billion but still vastly more on a weekly basis than the largest QE programs monthly totals before this crisis, if well below the $625 billion in purchases conducted in the week starting March 23, when the financial system was once again on the verge of collapse and only the Fed could bail it out… just don’t call it a bail out because nobody could have possibly anticipated an economic shock especially after banks repurchased trillions in their own stock in the past decade.

Meanwhile, as we showed last night, as of April 29, the Fed’s balance sheet was a satanically record $6.66 trillion, up $82.8 billion on the week and up $2.5 trillion from a year ago. Just staggering numbers and unprecedented attempts at dollar debasement, which however remains stubbornly strong as a result of the ongoing $12 trillion global US dollar short squeeze.

Finally, for those curious what the “helicopter money” big picture looks like, now that the Fed and Treasury are merged with the Fed stuck monetizing Treasury issuance indefinitely, here it is: as we reported last week when the Fed did QE in the years following the 2008 financial crisis monthly Treasury purchases never exceeded US Treasury net issuance, but the Fed is now on track to buy double the amount of net issuance.

Authored by Michael Maharrey via SchiffGold.com,

The conventional wisdom seems to be that the economy will quickly recover once governments open things up again. But recent moves by the National Football League indicate its leadership isn’t so confident.

On Wednesday, NFL Commissioner Roger Goodell announced deep cost-cutting moves for the league, including employee furloughs and pay cuts.

“It is clear that the economic effects will be deeper and longer-lasting than anyone anticipated and that their duration remains uncertain. The downturn has affected all of us, as well as our fans, our business partners, and our clubs,” Goodell wrote in the memo. “We hope that business conditions will improve and permit salaries to be returned to their current levels, although we do not know when that will be possible,” he added.

The move is telling because the NFL is in its offseason. ESPN’s broadcast of draft coverage last week garnered record ratings. The league ostensibly shouldn’t be losing money at this time.

But Goodell’s moves indicate he expects to see significant decreases in revenue moving forward.

Keep in mind, the NFL season doesn’t start until September. That’s five months away.

Goodell clearly doesn’t expect a quick economic recovery.

Granted, how quickly governments will open up remains uncertain. There is a strong possibility that NFL teams will play games in empty stadiums. But the vast majority of the NFL’s revenue comes from television and merchandise. Goodell’s proactive moves tell me he’s expecting a protractive and deep dip in league revenues.

This makes sense when you really think about it. Even if the economy was strong going into the pandemic, it will take a long time for things to restart. Over 30 million people have filed for unemployment in just six weeks. That represents about 18.6% of the US labor force. Businesses have been shut down for weeks. Many small businesses will face significant cash-flow problems. There are high hurdles to jump before the economy returns to “normal.” Goodell knows this. Thus, furloughs and pay cuts.

You don’t have to be an economist to realize that the damage done to the economy is deep and will take a significant amount of time to recover from. It will take time to rehire millions of workers. People will be hesitant to start spending money again.

Reuters recently ran an article headlined “With confidence shattered, the road to a ‘normal’ US economy looks long.” The writer points out that the 9/11 attacks shut down airlines for three days. It took three years for the industry to recover. After the housing crash, it took five years before the balance between builders and buyers was healthy enough to revive the construction industry. The damage done to the economy over the last six weeks is far deeper than the 2008 financial crisis. Just look at the data.

There’s an even more fundamental issue. The economy wasn’t normal before the pandemic.

It was a huge bubble blown up by record levels of debt facilitated by exraordinary Federal Reserve monetary policy. Coronavirus popped the bubble. In response, the US government and the Federal Reserve have quadrupled down on the policies that blew up the bubble in the first place. This is like an arsonist throwing gasoline on the fire he set while swearing he’s putting it out. The Fed has pumped trillions of dollars created out of thin air into the economy. As Peter Schiff put it, hyperinflation has gone from the worst-case scenario to the most likely scenario with this monetary policy.

Goodell isn’t likely considering where the economy was going into this crisis. He just recognizes that an economy doesn’t come to a screeching halt and then restart on a dime. He’s making the most reasonable calculation even within a mainstream framework.

And yet the markets and the vast majority of the mainstream pundits seem to think things will quickly go back to normal. The stock markets have rallied this month, for goodness sakes. Things aren’t going right back to normal. Goodell knows it. And you should know it!

Authored by Ian Lyngen, Benjamin Jeffrey and Jon Hill of BMO Capital

Elbow Bumps and Bandanas

It’s May Day and Trump’s trade war is back. Shifting away from addressing the pandemic, the White House is reportedly designing retaliatory actions against China – picking up where the issue was paused for the outbreak. It’s an election year and the efforts at laying the groundwork for The Donald’s reelection bid are clearly well underway. With only six months to go, the coronavirus has derailed the normal campaigning process and the summer promises to be a sprint unlike any in recent political memory – elbow bumps and bandanas required. At present, the White House’s attempts to block the federal government’s retirement fund from investing is Chinese equities on the basis of national security is the latest political contribution to the risk-off sentiment. It’s difficult to imagine the administration’s efforts stop there as rumblings of an uptick in tariffs are once again making the rounds.

As the political machine appears to be getting back to ‘business as usual’ attention will soon shift toward assessing the post-pandemic economic landscape. This isn’t to suggest the Covid-19 threat has been eliminated, but rather the reopenings scheduled to commence in the coming weeks will serve as the first step in getting back to the new normal. As the consumer emerges from enforced hibernation, eyes adjusting to the sun, enjoying the fresh air filtered through quality N95 protection, and strangers, friends, and acquaintances a respectful social distance away, we cannot help but ponder what will be the first post-lockdown purchases. The sales of necessities (food, health, etc.) haven’t suffered in the same manner as big ticket items and goods deemed delayable – apparel, etc. There is little doubt that pent up demand will become evident for certain purchases, however there are also lost months of spending on services which will never be realized.

The more germane question is how consumption patterns will permanently be altered as a result of the pandemic. There are plenty of dire predictions about how large venues and sporting events will never be the same; perhaps, but that is entirely different from permanently closed. Our take, for whatever it might be worth, is that there will be a period of adjustment accompanied by a modest shift in spending behavior, which eventually resolves into a ‘new’ reality which quickly becomes, well… reality. This transition will not occur overnight and it’s the redefining of the consumption landscape that has created the next meaningful unknown for 2020. As with most unknowns, the uncertainty is more paralyzing than the results themselves.

It’s Friday, and not a day too soon. The recent patterns of risk-on accompanied by higher yields ahead of the weekend appears in jeopardy this morning as global equities are under pressure. The renewed trade tensions along with guidance from Amazon and Apple have weighed on the near-term outlook and the extent to which the shift in sentiment extends will be of particular note as the weekend swiftly approaches. We maintain that with the coronavirus curve flattened and reopenings on the horizon, the balance of headline risks over the weekend have been skewed toward positive/risk-friendly, although there is little question the passage of month-end has altered the tone, at least on the margin.