Tag: news

In at least one way, CNBC and the Fed share an unspoken “third mandate”. While according to Congress, the Fed is responsible for maintaining stable prices and low unemployment – and CNBC proclaims to be a purveyor of real-time news and analysis – both organizations have also taken it upon themselves to help prop up asset prices. For anybody who doubts CNBC’s perennial bullishness, just take a look back at all of the talk about ‘this is what a market bottom looks like’ that has occurred this week.

And while CNBC has typically laughed at market “conspiracy theories” like the notion that the Federal Reserve has used asset purchases and low interest rates with the explicit goal of propping up stocks, once in a while, a rare nugget of truth slips out.

During a segment on Friday morning’s “Squawk on the Street”, Vinay Pande, head of trading strategies for the wealth management unit at UBS Group AG, said during a discussion about QE that the Fed’s easy money policies and their impact on asset prices has been far more nebulous than many economists would have viewers believe.

CNBC’s Sara Eisen reacted to this with a mix of surprise and incredulity, and apparently couldn’t stop herself from pointing out that “everybody” agrees that the Fed’s policies resulted in a very specific outcome – namely, they sent asset prices higher.

Vinay Pande: “I have not met two economists who agree on the impact of QE…”

Sarah Eisen: “But every body agrees that it propped up the stock market.”

Pande: “No.”

Eisen: “No?”

[laughter]

Pande: In the sense that it conveyed that the Fed was serious – it was a signaling tool…

Pande then contrasted the Fed’s QE with the BOJ’s. The BOJ bought stocks directly, which definitely propped up the country’s equity market, while the Fed stuck with bonds, and didn’t buy stocks outright.

Setting aside the fact that plenty of economists agree that QE directly propped up the stock market, Pande is effectively arguing that the act of buying trillions of dollars of assets isn’t what sent stocks higher in a virtually uninterrupted rally over the past eight years. Instead, he’s saying that the Fed’s asset purchases were merely a “signaling tool” – ie that the impact on markets from QE1, QE2 and QE3 was purely psychological. By buying stocks, investors were merely reacting to a highly credible Fed’s determination to revive US economic growth at all costs.

It’s just the latest example of the theoretical gymnastics that some economists prefer over

Watch the full conversation below. The exchange between Eisen and Pande begins at the 4:50 mark:

Next six months will be positive for the markets, says expert from CNBC.

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Just over a week after Wells Fargo agreed to pay $480 million to settle a class-action lawsuit brought on by the many dishonest (and in some cases outright fraudulent) customer abuses that have come to light in the wake of the now-infamous cross selling scandal, Wells has agreed to shell out another $575 million to settle charge charges brought by attorneys general from all 50 states (and Washington DC) over its cross-selling scandal, what appears to be a final chapter in a saga that has already cost the bank hundreds of millions of dollars in fines.

For those who need a reminder, the bank was exposed in 2016 after regional branch managers opened millions of fraudulent credit-card and checking accounts for customers to help meet strict sales quota.

Despite the hefty price tag, Wells shares climbed on the news as investors hoped that the bank might finally be able to put the scandal – which tarnished its reputation as the most honest bank on Wall Street – behind it.

Here’s more on the settlement from the New York Times:

The deal ends investigations that began after federal regulators revealed in September 2016 that Wells Fargo employees had for years opened millions of unauthorized bank accounts in customers’ names. The employees said they had done so because they feared losing their jobs if they could not meet the bank’s aggressive sales goals.

The agreement comes after New York reached a separate, $65 million settlement with Wells Fargo in October over the sham accounts, and after the bank paid $1 billion in April to settle federal charges related to its handling of mortgages and auto loans.

Wells Fargo admitted what it had done and paid fines of $185 million, but the company’s scandals kept multiplying. The bank was accused of forcing unwanted auto insurance on some customers who took out car loans, enrolling more than 500,000 people in a bill-paying service they might not have sought, overcharging some mortgage customers and charging customers for life-insurance policies they did not purchase.

In February, it will have been a year since the Federal Reserve applied a cap to Wells’s balance sheet, effectively preventing the bank from growing until it could show marked improvement in its compliance controls.

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Confirming once again that all that matters to the current administration is the market, CNBC rpeorts that a high-ranking Trump administration official reached out to at least one notable hedge fund investor for advice on markets after the record Christmas Eve rout, which saw all major US indexes tumble more than 2 percent as rumors swirled that President Donald Trump was contemplating firing Fed Chair Jerome Powell.

It is unclear who the “well known” investor was.

The source told CNBC that the administration was “determined” to boost equities which have become a key barometer of Trump’s “success”, at least in the president’s own view.

The investor was said to tell the official to tell the president to end his criticism of Powell on Twitter, stop administration turnover and reach a trade deal with China in order to help markets.

Whereas Trump celebrated a consistent rise for stocks during his first year in office, frequently tweeting all memorable market milestones, markets have faltered in 2018 amid a trade war with China, concerns about the Fed’s four interest rate hikes and fears about slowing global growth. Trump has yet to tweet about markets despite the recent sharp two-day rebound.

Even with the recent spike in the S&P, stocks were still on track for their worst December since 1931, with the S&P down about 10% and down almost 7% for the year.

Prior to the Monday plunge, Trump repeatedly blame market carnage on the Fed, most recently tweeting that “the only problem our economy has is the Fed.” He contended the U.S. central bank does not “have a feel for the Market.”

The tweet followed the Fed’s decision to raise the target range for its benchmark interest rate by a quarter point to 2.25 to 2.5 percent.

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Sears, which filed for bankruptcy in October, has less than 24 hours to survive.

The 125-year-old employer of more than 68,000 has one last shot at survival as it waits for a $4.6 billion rescue package by chairman Eddie Lampert to materialize, according to CNBC, which adds that Lampert’s ESL Investments has been the only party offering to buy Sears as a whole. 

Without Lampert’s bid or another like it, the company will be broken up into pieces by liquidators. Unfortunately, the embattled chairman is running out of time. 

As of Thursday afternoon, Lampert had neither submitted his bid, nor rounded up financing, the people familiar said. Should Lampert submit a bid, Sears’ advisors would have until Jan. 4 to decide whether he is a “qualified bidder.” Only then, could ESL take part in an auction against liquidation bids on Jan. 14.

It is possible Lampert, Sears’ largest investor, secures financing in time to meet the deadline, these people said. The hedge fund manager turned retailer has managed last-minute feats before. Due to requirements by the Securities and Exchange Commission, Lampert will be required to make his bid public. That stipulation that could sway him to prolong the filing until its exact deadline of 4:00 p.m. ET Friday. –CNBC

If the deadline passess, Sears and Kmart could both be liquidated within weeks, according to bankruptcy court guidelines – however that process has already slowly begun, as the retail icon weighs the closure of 50 to 80 more stores on top of the 142 unprofitable locations announced to be closing amid the October 15 bankruptcy filing. In November, 40 more store closures were announced. 

In short, there has been a slow-paced liquidation underway. 

Lampert reportedly planned to save Sears by combining it with Kmart – which ESL bought out of bankruptcy after its 2002 filing, however the cultures of both stores were too different to make the integration successful as cross-selling agreements between Sears’ appliances and Kmart’s apparel was a dud. 

In his five-year reign as CEO and even longer term as chairman, Lampert has largely run the company like the hedge-fund manager he once was, say former executives, employees and people familiar with his thinking. That meant investing less in its stores and advertising, believing such investments were optional.

It also meant keeping Sears alive through complex investments from ESL. Lampert poured millions of dollars through ESL into Sears, which struggled for years with losses and debt. Those investments came amid Lampert’s strong belief in his ability to turn Sears around, in part through its loyalty program, “Shop Your Way,” say people familiar with Lampert’s thinking. But Sears finally hit a cliff, when it had a $134 million payment it could not meet. –CNBC

Prior to the October bankruptcy filing Sears was easier to keep afloat, as ESL’s loans were largely protected by Sears’ assets such as its prime real estate portfolio. Now, not so much. ESL’s talks to save the company by financing a junior portion of Sears’ bankruptcy loan fell apart after Lampert demanded that lenders improve the terms of the loan and offer him more protections. 

The $4.6 billion rescue offer, meanwhile, contains various tranches of financing as well as some of Lampert’s own cash. Unfortunately,  the outside lenders he has asked to support his bid are apparently not as motivated to save Sears from its Friday demise. 

The asset-based loan he is seeking has faced scrutiny from investment banks, weary of lending to a business that hasn’t turned a profit since 2010.

Some creditors he asked to support his offer have called his efforts to keep Sears alive a “foolhardy gamble with other people’s money,” according to court filings. They have also taken aim at his efforts to fund $1.8 billion of his bid by forgiving Sears debt owed to him, through a so-called credit bid.

Those creditors last week said they believe there may be claims against Sears for transactions under Lampert’s leadership. Those deals include Sears’ spinoff of Lands’ End and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through select Sears’ properties. As such, they have said they will object to the credit bid.

Lampert could use his own cash to backstop the $1.8 billion credit bid, but it remains unclear whether he is willing to do so.

Meantime, Lampert has also asked as part of ESL’s bid that Sears’ creditors agree to a release from potential lawsuits over his past transactions. With the threat of litigation looming large, that ask is far from trivial. –CNBC

So – unless Lampert can pull off an 11th hour miracle, the death rattle of retail behemoths just got considerably louder.  

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One months from now, most of the contenders for the 2020 Democratic nomination will have officially declared their intention to run, according to NBC News. In a report published Friday, NBC News said that Senators Elizabeth Warren, Kamala Harris and Corey Booker are all planning to announce their campaigns next month, while a handful of other contenders are also gearing up for campaign launches of their own.

The reason candidates are planning to announce so early in the cycle really comes down to one factor: Money, as NBC explained. Particularly in what’s expected to be an intense battle of attrition between potentially more than a dozen candidates, the candidates with the biggest purses will have a distinct advantage.

Many potential Democratic candidates have circled January or early February on their calendars as the ideal launch window — early enough to try to raise an impressive amount of money in the first quarter of the year without stepping on November’s midterm elections.

[…]

Meanwhile, Democratic Sens. Elizabeth Warren of Massachusetts, Cory Booker of New Jersey and Kamala Harris of California are all also quietly preparing for potential campaign launches in early 2019, people close to them have said.

Meanwhile, Joe Biden and Bernie Sanders – the two leading candidates according to the opinion polls – have said they will decide whether to seek the nomination by the end of next month. According to the latest poll of likely Iowa caucus-goers, Biden holds a commanding lead. However, many politicos have pointed to his age (he’s currently 76) as a factor (even though another poll showed that Biden is the only serious Democratic contender who would have a chance against Trump). 

Other candidates who are expected to announce next month are former Obama Housing Secretary Julian Castro and South Bend Mayor Pete Buttieig (Texas Congressman Beto O’Rourke’s name was conspicuously absent from the NBC story).

“I have an announcement on Jan. 12,” Julian Castro, the former Obama Housing secretary, who is publicly exploring a presidential campaign, said on NBC’s “Meet the Press” on Sunday.

[…]

“Anything I might do politically is probably not something that I’ll be making any news about before January,” Mayor Pete Buttieig of South Bend, Indiana, said this month after announcing he won’t run for re-election, potentially to make a bid for the presidency.

Another name that was notably absent from the NBC report: Hillary Clinton. Two Clinton allies wrote in an editorial earlier this year that they expect her to run – and that if she does, she will strategically wait until later in the cycle in the hope that she can capitalize on the disarry that could emerge once a unifying front-runner fails to emerge.

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While most traders may be clueless how to trade this painfully illiquid, directionless market, with some refusing to even participate and are instead “on the golf course“, Nomura’s Charlie McElligott, is not among them.

The head of cross-asset strategy has a clear idea of why the right tactical trade here remains to be “bullish Equities”, which he justifies with broad institutional underexposure which makes the case for “renter” longs in Equities “as clients continue to voice desire to play for “January Effect” and gross-up books, especially against much more attractive entry points/valuations from the long-side”

Longer-term, however, he is anything but bullish and believes that as the market increasingly witnesses the slowing growth- and inflation- impacts of:

1. “tighter financial conditions” / lagging negative impact of prior Fed hikes / QT,
2. fading fiscal stimulus,
3. deteriorating “wealth effect” due to recent market shocks and impact of spending and
4. the cyclical reality of corporate deleveraging late in the cycle—which means lower CAPEX

… that early 2019 rallies are to be faded and/or used to move “up in quality” ahead of the upcoming painful end-of-cycle realities.

Looking at recent market action, McElligott concludes that this “late-cycle” trade is exactly what is occurring within US Equities, observing that yesterday’s “incredible” late-day rally showing a huge preference for “Quality stocks as 7 of 8 “quality” factors in the bank’s factor suite up on the day, “and even more incredibly, 6 of 8 up MTD against most US equity indices down 9%, while equity hedge fund long/shorts are anywhere from -1.5% to -5% MTD.”

What would it take for McElligott to reverse his long-term bearish view? Nothing less than a breakthrough in one of the following three major fronts:

• A Fed reversal towards EASING of policy / pausing- or stoppage- of the balance sheet unwind;
• A conclusive resolution to US / China trade in the form of a “deal”;
• A major Chinese policy easing “capitulation”

However, as it currently stands, none of those are remotely close “realizing”, according to the Nomura strategist who cites the bank’s house view that China cannot appease the market’s “full QE and policy rate cut” desires, while China/US trade will be a few more months of “noise” with little signal.

But the biggest reason why McElligott is bearish has to do with a specific realization he made on the Fed’s balance-sheet unwind—which remains “untouchable” as per Powell’s recent commentary… as well as a  quote from the Fed’s 2012 Minutes which we first dug up back in January, and which McElligott noted yesterday, to wit:

“I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.

First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?

Second, I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.

My third concern—and others have touched on it as well—is the problems of exiting from a near $4 trillion balance sheet. We’ve got a set of principles from June 2011 and have done some work since then, but it just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think.

Take selling—we are talking about selling all of these mortgage-backed securities. Right now, we are buying the market, effectively, and private capital will begin to leave that activity and find something else to do. So when it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position. When you turn and say to the market, “I’ve got $1.2 trillion of these things,” it’s not just $20 billion a month— it’s the sight of the whole thing coming. And I think there is a pretty good chance that you could have quite a dynamic response in the market.”

Re-reading the above quote, especially in the context of Powell’s FOMC “autopilot” commentary, McElligott writes that “it is increasingly obvious to me that J. Powell believes that the balance sheet expansion has engendered excessive risk-taking and outright asset bubbles, which in-turn are likely the largest systemic risks to the US financial system.”

If the Nomura strategist is correct, that would have epic consequences for a market which is convinced that it is only a matter of time before the Fed put is hit for the simple reason that… there is no Fed put. As McElligott concludes, “speculation has always been that Powell and Jeremy Stein were the “catalysts” behind what ultimately became the “taper tantrum” episode in 2013 as well—and as a smart client said last night, “Just wait until the 2013 transcripts come out…the notion of the policy put is sorely mistaken.“

The good news is that once the current pension fund reallocation concludes and the bear market rally ends and the vicious selling resumes, Charlie’s theory can easily be tested if when the S&P drops back below 2,400…. then 2,300…. then 2,200… then 2,100 and 2,000… Powell still does nothing – much to the fury of President Trump – then yes, it will indeed be the case that any hopes for a Fed put will have been “sorely mistaken.”

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Authored by Patrick Buchanan via Buchanan.org,

If Democrats are optimistic as 2019 begins, it is understandable.

Their victory on Nov. 6, adding 40 seats and taking control of the House of Representatives, was impressive. And with the party’s total vote far exceeding the GOP total, in places it became a rout.

In the six New England states, Republicans no longer hold a single House seat. Susan Collins of Maine is the last GOP senator.

In California, Democrats took the governorship, every state office, 45 of 53 House seats and both houses of the legislature by more than 2-to-1. In the Goldwater-Nixon-Reagan Golden State bastion of Orange County, no GOP congressman survived.

Does this rejection of the GOP in 2018 portend the defeat of Donald Trump in 2020, assuming he is still in office then?

Not necessarily.

For consider. Nancy Pelosi may want to close out her career as speaker with solid achievements, but she could face a rebellion in her party, which is looking to confront and not compromise with Trump.

The national debt may be surging, but Capitol Hill progressives will be demanding “Medicare-for-all” and free college tuition. Trump-haters will be issuing reams of subpoenas and clamoring for impeachment.

Other Democrats, seeing the indulgent attention their colleagues are getting from the media, will join in. Chairman Jerrold Nadler’s House Judiciary Committee may have to accommodate the sans-culottes.

Is this what America voted for?

By the Ides of March, a dozen Democrats may have declared for president. But looking over the field, no prospective candidate seems terribly formidable, and the strongest, unlike Barack Obama in 2008, are too old to set the base afire.

According to a USA Today poll, 59 percent of Democrats say they would be “excited” about “someone entirely new” leading the party in 2020. Only 11 percent say they would prefer a familiar face.

Yet, who did these same Democrats view most favorably? Joe Biden, a 76-year-old white male first elected to the Senate when Richard Nixon was president.

Biden polls better than any of his rivals, with 53 percent of all Democrats saying they would be “excited” about his candidacy, and only 24 percent saying he ought not run a third time for president.

The candidate who comes closest to Biden in exciting the base is 77-year-old Vermont socialist Sen. Bernie Sanders. Bernie’s problem?

Almost as many Democrats believe he should not run again as would be excited about having him as nominee.

As for Elizabeth Warren, the USA Poll must be depressing news. Twenty-nine percent of Democrats would be excited about her candidacy, but 33 percent believe the 69-year-old Massachusetts Senator should not run.

Beto O’Rourke, the three-term Congressman from Texas who put a scare into Sen. Ted Cruz in November is less well-known than Bernie or Biden. But those excited about an O’Rourke run outnumber those who think he should not run.

Senators Kamala Harris and Cory Booker, both African-American, are less well-known but have more Democrats excited about their running than are opposed to it.

However, as Harris is from California and Booker from New Jersey, both blue states that Democrats are almost certain to carry in 2020, and both are from a minority that already votes 90 percent Democratic, even their appeal as vice presidential nominees would not seem to equal that of O’Rourke or Sen. Sherrod Brown of Ohio, who won re-election while his state was going Republican.

Yet, Brown, too, at 66, is eligible for Medicare.

A Biden-Brown ticket would present problems for the GOP. But could a Democratic Party that ceaselessly celebrates its racial and ethnic diversity and appeal to women and millennials get away with nominating a ticket of two white males on Social Security?

Other problems are becoming acute within the Democrats’ coalition of blacks, gays, Asians, Hispanics, women and LGBT, fraying the seams of the party.

After Nation of Islam leader Louis Farrakhan praised the Women’s March co-president Tamika Mallory, and declared Jews to be the enemy in a speech last February, the Women’s March movement has splintered.

Asian-Americans who vote Democratic nationally are growing bitter over diversity policies in the Ivy League and elite schools that admit black and Hispanic students over Asian students with far higher test scores.

The BDS movement (boycott, divest, sanctions), targeted against Israel, is angering Jewish Democrats while gaining support on campuses.

Elizabeth Warren opposes BDS, but also opposes efforts to punish those who champion BDS. “I think the boycott of Israel is wrong,” said Warren at a town hall meeting, but added that “outlawing protected free speech activity violates our basic constitutional rights.”

In identity politics, loyalty to race, ethnic group and gender often trump the claims of party. The diversity Democrats celebrate is one day going to pull their party apart, as the social, cultural and racial revolutions of the 1960s pulled apart the party of FDR and LBJ.

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WTI has slid lower overnight following API’s surprise large crude build (and no equity pump) and was unable to hold gains after a bigger than expected gasoline build (and tiny crude draw) along with a production rebound to record highs.

If U.S. crude output rises, it’s likely to see more inventory builds, according to Stewart Glickman, an energy equity analyst at CFRA Research. “The Permian has surprised to the upside over the last couple of months,” he says.

 

API

• Crude +6.92mm

• Cushing +1.76mm

• Gasoline +3.67mm

• Distillates -598k

 

DOE

• Crude _46k (+3.4mm exp)

• Cushing +799k

• Gasoline +3.003mm (+1.0mm exp)

• Distillates +2k

Tiny crude draw (4th week in a row) but another Cushing build along with a rise in gasoline stocks took the edge off for the bulls.

 

US Crude production had stalled from its never ending surge higher in recent weeks as the rig count stabailized but rebounded to record highs last week…

 

WTI hovered around $44.50 into the DOE print and was very modestly lower after….

 

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Former Trump attorney Michael Cohen has denied a Thursday report that he was in Prague in the summer of 2016 to meet with Russian officials.

If true, the claim which would support the infamous “Steele Dossier” – a collection of opposition research on the Trump Campaign during the 2016 US election. The dossier was funded in part by Hillary Clinton’s campaign and used by the FBI to justify spying on the Trump campaign. 

McClatchy reported on Thursday that a phone traced to Cohen “briefly sent signals ricocheting off cell towers in the Prague area in late summer 2016,” a report which echoed their April claim that special counsel Robert Mueller had evidence of Cohen’s trip – which FBI and CIA sources told a Pulitzer Prize-winning Washington Post reporter that they didn’t believe Cohen took. 

On Thursday afternoon Cohen tweeted: “I hear #Prague #CzechRepublic is beautiful in the summertime. I wouldn’t know as I have never been. #Mueller knows everything!”

I hear #Prague #CzechRepublic is beautiful in the summertime. I wouldn’t know as I have never been. #Mueller knows everything!

— Michael Cohen (@MichaelCohen212) December 27, 2018

Cohen became ensnared in the Russia investigation earlier this year, after the FBI raided his Manhattan office and hotel room on a referral from Mueller. Cohen pleaded guilty to a slew of unrelated federal charges in August and later admitted to lying to Congress about plans to build a Trump Tower in Moscow, striking a plea deal with the special counsel to cooperate in the probe.

Mueller is investigating whether members of the Trump campaign coordinated with Moscow to interfere in the election and has said that Cohen provided valuable information and went to significant lengths to assist the investigation. Cohen has since been sentenced to three years in prison for his crimes. –The Hill

Earlier this month we reported that FBI email exchanges – kept from Congressional investigators for over two years, revealed that the agency was aware that the US intelligence community doubted the reliability of Steele Dossier.

The email exchanges show the FBI was aware — before it secured the now-infamous warrant — that there were intelligence community concerns about the reliability of the main evidence used to support it: the Christopher Steele dossier.

The exchanges also indicate FBI officials were aware that Steele, the former MI6 British intelligence operative then working as a confidential human source for the bureau, had contacts with news media reporters before the FISA warrant was secured. –The Hill

On August 21 Cohen pleaded guilty in New York to tax evasion, bank fraud and making an illegal campaign contribution to porn star Stormy Daniels, for which he was sentenced to three years in federal prison on December 12. 

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