Tag: news

By Michael Every of Rabobank

None More Black

Ian: Here it is, lads! “Smell The Glove”…gather round….Where’s David?… David, David, get up here!

Derek: David, “Smell The Glove” is here.

Ian: The moment we’ve all been waiting for…Here we go, plenty for everybody…here you are.

David: I never thought I’d see…I never thought I’d live to see the day.

Ian: What do you think?

Derek: Is this the test pressing?

Ian: No, this is it, yes, that’s right…

David: This is “Smell The Glove” by Spinal Tap….

Ian: That’s “Smell The Glove” that’s the jacket cover, it’s going out across the country in every store.

David: This is the compromise we made…this is the compromise you made?

Ian: Yes.

Derek: Is it going to say anything here, or here along the spine?

David: It’s not going to say anything?

Ian: No, it’s not going to say anything.

Nigel: It’s going to be like this, all black…

Ian: No, it’s going to be that simple, beautiful, classic!

David: Does look a little bit like, you know, black leather…

Derek: You can see yourself in… both sides.

David: I feel so bad, I feel so bad about this…

Nigel: It’s like a black mirror.

David: Well, I think it looks like death…it looks like mourning. I mean it looks…

Ian: David, David, every movie, in every cinema is about death; death sells!

Nigel: I think he’s right, there is something about this, that’s so black, it’s like; “How much more black could this be?”…and the answer is: “None, none… more black.”

David: I think, like you’re, like rationalizing this whole thing like into something you did on purpose. I think we’re stuck with a very, very stupid and a very, and a very dismal looking album,… this is depressing.

Nigel: David!

David: This is something you wear around your arm, you don’t put this on your turntable.

Nigel: David, it’s a choice.

Ian: I frankly think that this is the turning point, okay? I think, I think this is…we’re on our way now.

Who can argue with the immortal wisdom on Spinal Tap, and what else needs to be said about today? This is Black Friday in the US, and there have been None More Black. (For those younger readers who haven’t seen Spinal Tap, ‘Smell the Glove’ was a pure black LP with nothing written on it at all, title, band-name, tracks, etc., just pure shiny black on both sides; for those who haven’t seen an LP, it was a 12” vinyl disk inside an artistic cover that was how most rock music was stored before CDs and on-line music, and was highly tactile and collectible; and those who haven’t seen rock music, it was hairy guys with guitars, bass, and drums making a lot of great noise; and to link all three in a life-imitating-art kind of way, see Metallica’s 1991 album ‘Metallica’.)

It’s none more black not just because of the grim Covid backdrop; not just due to the crazy, crazy bargains on offer; not just down to the desire by those who have not been spending much in 2020 to splurge in a US cultural meme best captured by the South Park ‘Black Friday’ trilogy (episodes 7, 8, and 9 of season 17); but rather because Black Friday is going to be more online than ever, and so for traditional retailers the outlook is indeed black (one can imagine a future version of this daily: “For those younger readers who haven’t seen shops…”); and because it will show just how black, or red, the outlook is for US consumption and so GDP going forwards. Furthermore, Black Friday is also increasingly global, with more and more countries trying to do the same (the UK, for one).

Frankly, we don’t have a lot to do today other than wait for the media anecdotes to start flooding in of what an ‘amaaaaaazing’ level of sales specific parts of the global economy are seeing. So watch Spinal Tap or play some rock music and turn the volume up to 11, why not? Yet there is real news elsewhere if you want it:

• China has slapped 107% – 212% tariffs on Australian wine today, to take effect from tomorrow. That’s a very black outlook for many Aussie wine producers, obviously. Australia will of course appeal to the WHO. China, being such a big fan of free trade and multilateral institutions, is certain to move rapidly to comply with whatever the WHO eventually says, of course. AUD didn’t mind at all: it’s once again thinking of other things, such as all the Black Friday-ness ahead.
• The EU and UK are still on the edge of the precipice on a Brexit deal. Talks are going to restart tomorrow, apparently, while Bloomberg reports that “Brexit Britain’s Food Supply Is Imperilled by Christmas and Covid”. Wot, no sprouts? (Actually, no tinned tomatoes or olives, baby-food or wine, more likely. Mmm, who has extra wine right now?…but the issue is free warehouse space and not physical supply, sadly for Australia.)
• Poland and Hungary have decided that they will make a joint stand against the EU’s insistence on a rule-of-law conditionality in its USD2.0 trillion fiscal stimulus (the one that hasn’t arrived yet, is arguably too small, and yet which the market has been fully pricing in for months): both will veto it. The EU could push ahead via a qualified majority of its members for at least the EUR750bn coronavirus fund, but that would leave the EU operating under an emergency monthly budget rather than something more expansive going forwards. We already see the same thing in Israel, for different reasons, and the US is also short of fiscal stimulus, and it’s not doing wonders for the growth outlook there.

Soybean futures sold for around $11.84 per bushel on the Chicago Board of Trade on Wednesday, rejecting a breakout above $12 per bushel for the fourth consecutive session.

By comparison, CBoT soybean futures were trading around $9.40 per bushel when the U.S.-China Phase 1 trade deal was signed in mid-January. Now prices are 30% higher, hovering at four-year highs, around the $12 handle. 

The meteoric rise was triggered by China’s strong demand this past summer when prices were trading at multi-year lows. 

November’s steep rise in price is starting to erode enthusiasm among Chinese buyers.

Three trade sources told Reuters that Chinese soybean importers and processors are preparing to cancel deals signed with US firms for December and January shipments. 

The sources explained that crushing margins have collapsed following a rapid price rise in Chicago futures.

“Small private soybean importers are trying to wash out December and January U.S. soybean shipments as crush margins have turned negative,” said one trade at a top soybean processor in China. 

“This is for those importers who bought cargoes but did not (set the) price in the futures market.” -Reuters 

US soybean exports have strongly correlated with the gains seen in futures markets. As explained by Reuters, this has led to “export basis levels, or the premium above futures that buyers must pay to secure supplies, have dropped by just over 30%, indicating reduced competition among buyers.”  

Reuters also notes spot export basis at the US Gulf plunged 93 cents a bushel in early November to 63 cents this week. “This is a big drop,” said one of the sources. 

Other sources have said China and US firms are washing out prior deals through the end of the year. 

“It makes sense for small private importers to wash out (of U.S. cargoes) as they did not price in futures market earlier,” said one of them, a manager at a major crusher based in southern China.

“Bringing in U.S. beans to China, at this price, means you lose money.”

Sources did not give the numbers of deals cancelled or likely to be washed out.

This may suggest the recent rally in soybean prices could lose momentum to the upside and risk a reversal. 

Authored by Tavi Costa and Kevin Smith via Crescat Capital,

Dear Investors:

Crescat Global Macro and Crescat Long/Short hedge funds are having a pullback month to date. We wanted to bring this to your attention because we think it presents an excellent buying opportunity for those considering adding money to Crescat for the end of this month. The opportunity is being caused by the recent run-up in equity markets. We show below a set of timing indicators that are as good as they get against the long stock crowd. We strongly believe that the fundamental, macro, and now technical reasons, never looked so appealing to capitalize on short positions in a select basket of highly overpriced securities that Crescat has identified via its fundamental equity model. 

In our November research letter, we shared a Crescat macro model that combines 15 fundamental valuation factors to show how US stocks have recently reached their most overvalued levels since 1900. The problem with speculative excess and the risks it poses to unprepared investors is simple to understand. Ultra-easy financial conditions create major manic tops in markets. As we show in the chart below, with both the tech bubble of 2000 and the housing bubble of 2007, the GS Financial Conditions Index reached cyclically low levels that distinctly marked these market tops. Financial conditions today, driven by historic low interest rates and tight credit spreads, are the loosest yet, the easiest of the past thirty years, at the same time as valuations and leverage are the highest.

These excesses are clearly unsustainable and mark a potentially timely setup for a major market reversal. According to Bank of America, over the last two weeks, already fully-invested retail investors had their largest inflows into the stock market ever. Meanwhile, Goldman Sachs showed this week that hedge funds have their highest leverage since right before Volmageddon (250%) and are their most net long (84%) since they have been tracking the data (five years). Goldman also reported that the median short interest as a percent of market cap for the S&P 500 just plunged to the lowest it has been in the 16-year history of that data.

We can see below that speculative long call option positioning today relative to puts is the highest it has been since the peak of the tech bubble. Note also in this chart how the bull market has been losing steam since late 2017 as measured by the declining 14-day RSI, even as the overall market has pushed higher, a bearish signaling divergence.

In another sign of the unsustainable excess today, the percentage of S&P 500 Index members that are above their 200-day moving average just reached a new extreme for the uber-high valuation environment of last five years. Note how the three prior peaks in this indicator during this regime circled in the chart below preceded substantial corrections: Volmageddon in February 2018, Q4 of 2018, and March 2020. During each of these periods, Crescat’s two hedge funds mentioned above profited substantially.

We are hereby warning of the dangerous risks of chasing this extremely frothy bull market. Forward thinking investors should take a cue from smart-money corporate insiders who sold more stock in one day last week than on any other day since 2004 as also noted by Goldman. At Crescat, we remain committed to tactical short positioning today in our Crescat Global Macro and Crescat Long/Short hedge funds alongside precious metals long exposure.

The setup for our long gold and silver positions in these two funds and in our Crescat Precious Metals fund and SMA is equally exciting today. The gold and silver mining stock long sleeve of all three Crescat hedge funds has been creating massive alpha and absolute return even as this market has been pulling back since its early August highs. Since then, the Philadelphia Gold and Silver Index has pulled back 19% while Van Eck Junior Gold Miners ETF is down 25%. Since its August launch, the Crescat Precious Metals Fund at almost the exact same time is up over 90% net. Imagine what is possible when the gold bull market resumes as our analysis indicates it will. Our activist fund can and will short gold and silver stocks at key times indicated by our macro analysis, but such a time is not now. This fund has been long precious metals equities entirely since inception. In this fund and the similar sleeve of our other hedge funds, we are focused on the extremely undervalued and high growth exploration segment of the industry today. Our stock picking in this segment is enhanced thanks to Crescat’s geologic and technical advisor, renowned exploration geologist, Quinton Hennigh, PhD.

Our analysis shows that it is still extremely early in a new precious metals bull market, and the exploration segment in particular is where the most alpha and beta combined is likely to be extracted over the next several years. Gold has already corrected almost as much as during the February and March crash of this year. This time, there is a major difference in market behavior indicating a still early-cycle macro environment for gold and silver. Rather than leading to downside in this pullback, silver has been holding up incredibly well. In fact, the silver to gold ratio is only down 1/3 of the move it had back then.

With such a severe twin deficit problem in the US economy, further government debt monetization is almost certain. For this reason, the recent appointment of the former Fed chair, Janet Yellen, is relevant to our thesis as we should continue to see an effort towards combining monetary and fiscal policy. Moreover, we have noted that as the Fed’s balance sheet has recently turned up again, it has been one of the most important macro drivers for precious metals. Meanwhile, since the recent positive news about the vaccine, the media has repeatedly called for the end of the bull market for gold. We think these narratives are just noise. The macro reasons to be long precious metals today remain intact.

As the chart above shows, the price of gold relative to M2 money supply still looks historically attractive with significant upside likely ahead.

It’s official: ignoring any and all negative news, and rampaging higher day after day culminating in what a mindblowing 586% return YTD, Tesla has just surpassed Berkshire Hatahaway in market cap at just over $550 billion, a fitting tribute to Elon Musk who also recently overtook Warren Buffett in wealth, and is now the world’s 2nd richest man after Jeff Bezos.

The latest move appears to be yet another good old gamma grab, with SpotGamma reporting that on Wednesday TSLA alone traded over 1 million calls, with at least 350k of this volume was concentrated at the Friday expiration. Is SoftBank going for another squeeze?

As SoftGamma concludes, “these plays are similar to August, the question is will this call buying “infect” the broader indicies” and judging by the latest record high in the Nasdaq, the answer is a resounding yes.

Amid speculation that Israel is on war footing over a possible strike in Iran in the coming weeks, moments ago Iranian state media reported that the country’s top nuclear scientist Mohsen Fakhrizadeh was assassinated in Damavand, east of Tehran. He was reportedly accompanied by his bodyguard when they were attacked by a “suicide” attacker at the entrance of Absard town.

According to IPF News, Fakhrizadeh was killed by shooting, but before the shootout, his car has been stopped with an explosion at Mostafa Khomeini Blvd. Several others are also reportedly killed in the incident, but haven’t been identified yet.

Fakhrizadeh was a brigadier general in the Iranian Revolutionary Guards Corp (IRGC) and headed Iran’s nuclear weapons project.

He was a professor of physics at the Imam Hussein University in Tehran and was former head of Iran’s Physics Research Center.

While there has been no official confirmation of the death yet, and Iran Atomic Energy organization has denied the reports, saying that no incident involving nuclear scientists took place according to ISNA News Agency, Iran’s revolutionary guards commander wrote on Twitter that Iran will avenge the killing of scientists as it has in the past according to the Jerusalem Post.

No one has yet claimed responsibility for the assassination, but the Israeli regime has a history of hiring hit men to assassinate nuclear scientists in Iran.

In 2018, Prime Minister Benjamin Netanyahu said “remember that name” after he announced that the Mossad had obtained 100,000 files from Iran’s secret nuclear archives. The files retrieved by Mossad focused on the secret Iranian nuclear program that was developed from 1999 to 2003 called Project Amad, which was led by Fakhrizadeh. When Iran entered the 2015 nuclear deal, it denied that such a program existed.

After the April 2018 killing of several nuclear scientists in Iran, a “protective shield of secrecy and security” had been thrown around Fakhrizadeh, in an effort to protect him against Israeli assassins.

In 2003, Iran was forced to shelve Project Amad, but not its nuclear ambitions. It reportedly split its program into an overt program and a covert one that continued the nuclear work under the title of scientific knowhow development, Netanyahu said at the time. It continued this work in a series of organizations, which in 2018 were led by SPND, an organization inside Iran’s Defense Ministry led by the same person who led Project Amad – Mohsen Fakhrizadeh, Netanyahu said.

According to the WSJ, Fakhrizadeh is often described as Iran’s Robert Oppenheimer, the developer of the world’s first atomic bombs, and not because of the Iranian’s latent pacifist convictions. His name came to light about a decade ago as the elusive head of Iran’s Organization of Defensive Innovation and Research, widely believed to be the group conducting Iran’s nuclear-weaponization work. In 2012 the Journal’s Jay Solomon reported that, after lying low for a few years, Fakhrizadeh had “opened a research facility in Tehran’s northern suburbs involved in studies relevant to developing nuclear weapons.”

For more on Fakhrizadeh read “Mohsen Fakhrizadeh: The father of Iranian regime’s nuclear bomb.”

Not even two weeks after Pittsburgh’s PNC bought BBVA’s US lending business in what analysts described as the second biggest banking deal since the collapse of Lehman brothers more than 10 years ago, the consolidation of the European banking sector is apparently taking a breather.

According to the FT, BBVA and fellow Spanish bank Sabadell have given up on merger talks (talks they confirmed less than two weeks ago) because of disagreements over pricing of the deal as global equities power higher toward one of their strongest monthly performances in recent memory.

Apparently, one insider suggested that Spanish government officials won’t be too thrilled to hear about the collapse of the deal talks, which they had apparently sheperded along to some degree.

The collapse of the talks is a setback for champions of the consolidation of the Spanish banking sector — a process that had seemed near completion and which regulators support as a step towards cross-border mergers and a means of bolstering domestic lenders’ resilience. The failed deal would have amounted to an acquisition by BBVA, which has market capitalisation of €25bn compared with just over €2bn for Sabadell, but the smaller lender made clear that it considered the price suggested by BBVA to be unacceptably low. Sabadell said in a statement to Spain’s securities regulator that its board of directors “has decided to terminate the above-mentioned discussions, because the parties have not achieved an agreement on the exchange ratio of both entities”.

In a standalone statement, BBVA warned that talks with Banco de Sabadell had ended “without a deal” due to differences in price. One insider described the collapse in talks as “embarrassing”, hinting that there was widespread support for the deal coming from the government in Madrid as well as Brussels.

“It was a very surprising piece of news to wake up to this morning, this crashed and burned so quickly,” said a person familiar with the process. It is “difficult to explain and quite embarrassing because there was such supportive momentum among the media and regulators, for it to explode apart isn’t a good look”.

A combined BBVA and Sabadell would have accounted for roughly 20%-25% of Spain’s domestic market loans, deposits and mutual-fund capital.

That’s compared with with 25% to 30% for a proposed tie-up between CaixaBank and Bankia, whose boards next week are likely to approve their own merger, and 15% for Santander.

Sabadell says it’s now seeking a “new strategy with a clear focus on its domestic market” during Q1 2021. Part of this will involve the ‘transformation’ of its retail banking business, which is presently focused on small and medium-sized businesses.

The bank could finance these “restructurings” via the sale of government bonds, while also finding long-term “restructuring” efficiencies by aggressively cutting costs, which means closing bank branches and cutting employees. Of course, they’re not the only European banks looking to slash headcount to try and goose profits.

How long until they join DB in adopting some kind of permanent work from home strategy?

In what appears to be continuing spillover from Tesla’s recent contested recall of its Model S and Model X vehicles in China due to suspension  issues, U.S regulators are now investigating the issue. The U.S. NHTSA announced on Friday it had opened an investigation into about 115,000 Tesla vehicles over front suspension safety issues, according to Reuters.

It said it would be looking into 2015 to 2017 Model S and 2017 to 2017 Model X vehicles after having received “43 complaints alleging failure of the left or right front suspension fore links”.

Recall, Tesla had already issued a “service bulletin” in February 2017 warning about conditions that could cause the suspension to fail. Potential suspension issues with Tesla’s Model S aren’5 news. Many issues regarding Tesla suspensions were discussed on Twitter and Reddit under the guise of Tesla vehicles having “whompy wheels” for the last few years.  

In fact, as we noted last month, suspension issues are one of the oldest ongoing critiques involving Tesla’s manufacturing (before Musk shattered Cybertruck windows live on stage, before Model 3s had dirt collect in their bumper and before Model Ys saw their roofs fly off). Legacy complaints involving suspension date back years, to Tesla’s original run of Model S vehicles.

We pointed out that the Chinese had noticed the issue, resulting in Tesla having been forced into a recall of 30,000 Model S and Model X vehicles made for the Chinese market over suspension issues. 

We also noted last month that a similar issue could affect up to 200,000 vehicles in the U.S. market.

The issue surrounds “a weakness in the Model S and Model X suspension that can lead to a cracked linkage after an impact.”

Recall, as far back as 2016, we were reporting about an investigation into the suspension of Tesla vehicles. Back then the issue wasn’t just the suspension themselves, but a potential coverup of the issue by Tesla:

As the website notes, “where Tesla crosses the line here is not the “crime” itself, but the coverup. If Tesla used a TSB rather than a recall to fix a safety problem, if it has an institutional bias against ordering recalls and if it uses NDAs as a matter of course to prevent owners from reporting defects, this could become the biggest auto safety scandal since the GM ignition switch affair. That’s a lot of “ifs,” but thus far the evidence indicates that these are very real possibilities. Watch this space for further developments in this troubling story.”

This video described some of the early suspension issues well:

Authored by Bill Blain via MorningPorridge.com,

A short rant about how financial uncertainty will continue for years due to the consequences of the ongoing Global Financial Crisis that began in 2007. 

In light of more important news yesterday, it’s worth starting with Lord Mervyn King’s contribution to monetary theory, carried in the FT this morning, equilibrating Central Banking with Maradona:

“Maradona ran 60 yards from inside his own half beating five players before placing the ball in the English goal. The truly remarkable thing, however, is that, Maradona ran virtually in a straight line. How can you beat five players by running in a straight line? The answer is that the English defenders reacted to what they expected Maradona to do. Because they expected Maradona to move either left or right, he was able to go straight on.

Monetary policy works in a similar way. Market interest rates react to what the central bank is expected to do. In recent years the Bank of England and other central banks have experienced periods in which they have been able to influence the path of the economy without making large moves in official interest rates. They headed in a straight line for their goals. How was that possible? Because financial markets did not expect interest rates to remain constant. They expected that rates would move either up or down. Those expectations were sufficient – at times – to stabilise private spending while official interest rates in fact moved very little.

How the world changes… 

There is lots of earnest gabble on the wires this morning about how the appointment of Janet Yellen to run the US treasury will change the relationship between Central Banks and Government for ever, that the independence of central bankers may forever be tarnished/burnished. 

The World will change. That is nailed on. It’s clear the great Global Financial Crisis of 2007-2031 is not nearly over. 

The current Pandemic Crash of 2020-22 will prove deep and crushing, and is another spanner thrown into the creaking engine of western capitalism. Yesterday UK Chancellor Sunak did his Dr. Chris Whitty impersonation warning of 2.6 million unemployed if the economy behaves as expected. If we don’t all sacrifice Christmas it will be even higher! He pulled out some of the usual graphs to show everyone in the UK will have lost their jobs by mid-Feb unless we leave Granny on her own over the holiday…

Given the Government’s predilection for scaring the bejesus out of us – and sober macroeconomists who reckon unemployment may only hit 5.4% – it’s entirely possible the UK economy will cruise out of Covid in April; bruised, battered, dented but only in need of some basic body work. 

Running an economy is not like balancing a household budget. It’s more like running a car – every so often something breaks and you need to fix it, whatever it takes and however much it costs. 

Sometimes that means borrowing money. Government with monetary sovereignty have the ability to “borrow” as much money as they need, by printing it. The dangers of monetary expansion on confidence and inflation are widely cited by the market orthodoxy as deadly and dangerous. But we now live in a very different world…

To understand why, go back to the start of the crisis in 2007 when a couple of small structured bond funds wobbled, the first few pebbles rolling down the hill. These dislodged the larger stones that closed the money markets and triggered the panic and the run on names like Northern Crock which crushed bond market liquidity. Then the boulders started crashing down the hills as Bear then Lehman went to wall. AIG effectively failed, the western banking system stood on the brink of Armageddon. 

Ah.. happy times… 

Then a crack force of bankers, politicians and accountants reinvented finance in the same old way.. intervention. They applied sticky backed plastic, sealing wax and string to stabilise the mechanisms of finance, stopped markets collapsing, bailed out banks, restored liquidity, dropped interest rates and did all kinds of clever things like quantitative easing to keep the creaking global economy turning… 

But there have been massive consequences… and these will likely be the theme of the second half of the GFC – which will impact us all in coming years. 

How do you unwind the distortions of the last 12 years? These include the pernicious effects of ultra-low rates, the massive stagflation in financial assets (massively higher prices and minimal yields; lower yield for more risk) and the very real long-term disincentives of zero interest rates on growth, investment and business innovation and evolution. 

In 2008 central banks saved capitalism by completely undermining it. The challenge is to restore it. 

We also see behavioural effects that stem from the consequences of dealing with the crisis: when bonds return nothing, risks are so high, and conventional assets promise nothing, people start to believe in fantabulous perpetual motion machines that will deliver unreal returns – hence the stellar valuations of unicorns, imaginary crypto-treasure, and other mythical beats. 

When returns are so low management goals change – which is why we’ve seen such a large portion of the last decade’s corporate profits squandered and companies leverage themselves up on debt – both done to finance stock buy backs pushing up managerial rewards. It has made good companies go bad – look at Boeing as the prime example of a firm that effectively destroyed itself from the top. 

And then there is the fact that inflated financial assets put most of the central bank created wealth into the hands of a tiny number of asset owners – all that money that governments and central banks have been printing pushed up bond and equity prices, meaning it has gone straight into the hands of the already tremendously wealthy! While the middle classes and poor suffered austerity, the top one percent have become obscenely rich. No wonder concerns on wealth inequality has gone through the roof. 

The challenge of the next 10-years will be unwinding all these effect. If you were to simply unwind QE and raise rates – the result will be the most utter and complete market wipe-out of all time. It will destroy investment savings, markets and collapse nations as confidence in fiat money and government debt evaporates. 

Which is why markets believe central banks and governments will remain complicit together to keep markets stable – by more distortions, bail-outs, low rates and QE infinity. Great for markets? How long? Only in the short-term. Without the discipline of the invisible hand and ability of overlevered companies to fail, and the frisson that creates in opening new business niches for new nimbler companies, then economies will fall into the same kind of lethargy the globe experienced in the dark ages, when government-granted monopolies stuntified growth and invention. Which means the West falls and China wins. 

Yep.. this Global Financial Crisis of 2007-2031 continues. How do we get out of this one? 

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