Tag: news

Fresh from her “ordeal” of almost being kidnapped by a couple of white supremacists  leftist, BLM-supporting militia nuts, overnight there was more bad news for Michigan Gov. Gretchen Whitmer when on Monday a conservative majority in the Michigan Supreme Court denied her request to extend the emergency powers which she invoked to curb the spread of the coronavirus, declaring it unconstitutional.

The justices reversed a lower court’s opinion that supported the governor’s use of executive powers amid the pandemic when they voted 6-1 against halting the precedential effect of its Oct. 2 opinion until Oct. 30. They reaffirmed their initial 4-3 ruling that declared unconstitutional her use of the 1945 emergency powers law.

Michigan Supreme Court justices are elected on the nonpartisan portion of the Michigan ballot, but they are nominated at state political party conventions. The four Republican-nominated justices — Stephen Markman, Brian Zahra, David Viviano and Elizabeth Clement — all ruled that the Emergency Powers of Governor Act that the governor relied on in issuing her orders is unconstitutional. The three Democratic-nominated justices — McCormack, Bernstein, and Cavanagh — all said that both the law and Whitmer’s orders under the 1945 law should be ruled valid.

In striking down her attempt to continue usurping power, the court wrote that executive orders issued under the law “are of no continuing legal effect. This order is effective upon entry.”

But new emergency orders that the Whitmer administration has issued through the state health department director — which replicate mask requirements, restrictions on gathering sizes and restaurant capacity, among other features — are not affected by the court’s ruling.

Monday’s Supreme Court ruling is in response to a lawsuit brought by the Michigan Legislature. The Oct. 2 ruling, which was a 4-3 decision striking down the Emergency Powers of Governor Act of 1945, was in response to questions sent to the court by a federal judge handling a lawsuit brought by medical service providers in western Michigan.

Whitmer had asked the justices to give her administration, lawmakers and local health departments 28 days to transition in the wake of the major decision. Last week, her administration quickly reinstituted mask requirements, gathering limits and other restrictions with orders issued by the state health department under a different law.

Separately, Fox News reported that legislators and Whitmer are negotiating legislation related to other orders negated by the decision, including an extension of unemployment benefits to 26 weeks from 20 weeks.

The ruling caused some confusion because it reached the Supreme Court in an unconventional way. A federal judge overseeing a lawsuit that makes state and federal claims about Whitmer’s powers asked for an opinion on the constitutionality of two laws related to gubernatorial emergency powers. The Supreme Court ruled in a similar case brought by the GOP-controlled House and Senate and said in an order that the decision is effective immediately.

Today Bank of America released its latest Fund Mangers Report, which is perhaps best known for capturing the sheer schizophrenia gripping Wall Street professionals (case in point, last month a record majority of respondents said “Long US Tech” was the most crowded trade on Wall Street, even as most professionals admitted to flooding into Long US Tech trades).

So what is the take home message from the latest survey of 224 pangelists managing some $624 billion in AUM? First and foremost, last month’s consensus that the current recovery is U-shaped (a view held by 32% of respondents in September) giving way to a majority view that the recovery will be a bumpy, double-dip, or W-shaped, held by 30% of respondents while the U-shaped crowd drops to 29%. Meanwhile the V-shaped optimists are far back in 3rd place with just 19% of the responses.

Alas, this question has now become a running joke where the answers are entirely dependent only on the market’s last up or downtick: as a reminder back in May it was nearly consensus that the Fed-inspired ramp in stocks was a bull market rally, while the U and W-shaped crowd was lumped into one category.

Even poll organizer Michael Hartnett hoped to gloss over these responses, and instead pointed out that the big change in the Oct FMS was a collapse in recession expectations, as the net % of investors expecting recession in the next 12 months plummeted to -54% from -28% in Sept. And to think that this respond hit an all time high back in March and April, shows just how much sentiment is influenced not by fundamentals but by the S&P500, something the Fed knows very well.

While we expect a prompt and violent reversal in this series as soon as stocks swoon lower, it was amusing to note just how eager Wall Street is to delude itself that all is well with the next question, in which we find that many more investors said the global economy is in an early-cycle phase (60%) as opposed to recession (26%). Just 4 months ago, the vast consensus was just the opposite: recession, with nobody even dreaming of “early-cycle.”

The survey next shifts to cash use, with Hartnett reporting that FMS cash levels fell to 4.4% from 4.8%; As a reminder, according to the BofA model, cash <4% = greed, >5% = fear. As a result, cash levels have collapsed 1.5% in past 6 months, the fastest drop since 2003 as everyone was forced to chase markets thanks to the Fed.

Curiously, there has once again been a divergence between retail and institutional sentiment, with retail funds (i.e. mutual funds) reducing elevated cash levels this month to 4.3% while institutional funds (i.e. pension, insurance) reduced cash levels to 3.6%.

As they turned even more bullish, FMS investors naturally increased their equity overweight to net 27% (from 18%); the net % saying equities markets are overvalued fell to 28% (from 41%) following the September pullback in stock prices. Notably, the October equity overweight of net 27% shows investors are optimistic on stocks but not “dangerously optimistic”, because according to BofA, a net equity overweight of >50% is dangerously optimistic.

At the same time, Hedge funds appears to be on the verge of “dangerous optimism” as they increased their net equity exposure to 42% (from 30%), the highest level since Jun’20.

Shifting topics, when discussing COVID-19, the respondents still view pandemic as the #1 “tail risk”…

… while the timing of credible vaccine pushed back from Jan’21 to Feb’21.

Meanwhile, the US election is viewed as the 2nd largest tail risk, and when asked what outcome causes volatility 74% say “contested election”, 14% “blue wave”, 8% divided Congress, 4% say Trump victory.

Oddly, even though most investors are bullish, with the US election now just 4 weeks away; 61% of FMS investors believe the US election result will be contested.

Finally, when looking at positioning, BofA finds the 5th largest short in energy in 20 years; while healthcare overweight surges to #1…

… as FMS investor preference for healthcare over energy is close to all-time highs (high was Apr’20). The spread was net +41% overweight for healthcare and -30% underweight for energy.

… even as long tech is still deemed #1 “crowded trade” by big margin;

Separately, the “cyclical rotation” paused in Oct due to a  “sellers strike” in tech, “buyers strike” in energy & banks. As shown below, there was a big increase in exposure to healthcare, staples, stocks & Japan; at the same time, a big reduction in expsoure to energy, REITs, bonds, banks.

Oct FMS contrarian trades: long UK, energy, bank stocks, short US, healthcare, tech, and consumer discretionary stocks.

In other words, one of these days, Exxon may even go up, although if it is red on the day Goldman upgraded it, we wouldn’t get our hopes up too high.

Hartnett’s bottom line: “respondents in our October Fund Manager Survey (FMS) said the recession is over, reduce cash, pause cyclical rotation, and price in contested election & February vaccine; we say sell SPX >3600 and cyclical rotation via banks/energy to resume in Q4.”

Trains that have been designed to literally vacuum New York’s 665 miles of subway tracks could actually be doing more harm than good. We know, you’re surprised that the MTA could be doing anything that winds up being counter-intuitive, right?

Even better, they are (of course), doing it with taxpayer money, according to The Daily News.  

The “VakTraks”, as the trains are called, were bought using $23 million worth of taxpayer money in 2017 as part of Governor Cuomo’s “Subway Action Plan”. And what did this $23 million buy the city? Trains that the MTA are literally referring to as “time bombs” due to safety and reliability concerns.

One MTA worker noted that its only a matter of time before they spark a catastrophic subway fire. The French built trains have filters that can easily handle European subway tracks, but that can be “overwhelmed by New York’s filth” sometimes. 

When filters tear, the trains can spew out clouds of dust and dirt that, when combined with diesel engines, can “make the air so bad it burns your eyes,” according to one MTA worker. 

Another worker said: “These filters are humongous, made out of a Gore-Tex-like material, and after a year they were already ripping and failing.”

And the failsafes on the trains for fires – 12 vent doors that are supposed to shut in the case of fire – “do not fit into their designed slots”, crews said. Crews at Coney Island have been complaining about the potential for catastrophe for “months”. 

One MTA worker said: “You ever see a semi truck down the road engulfed in flames? That’s what it’d be like if one of these caught fire.”

MTA spokesman Ken Lovett pointed to the fact that track fires are down 44% between 2017 and 2019 and that the arrival of the VakTraks allowed the MTA to cut 30 jobs and save $3 million annually. “Any claims that the vacuum trains are not working effectively are categorically false,” he said.

Mike Carube, president of the Subway Surface Supervisors Association, called it a “cover up” by the MTA. And some Coney Island workers said they were even disciplined for speaking out. One supervisor said:

“I try to explain to my manager that my job is to put out safe equipment into the public. He said, ‘Don’t worry about it, we know about all the issues, our main prerogative is to keep the trains rolling.’ They want to show the trains are out there even if they’re unsafe because it’s the governor’s pet project.”

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

House Financial Services Chair Maxine Waters and Senator Elizabeth Warren have introduced the Federal Reserve Racial and Economic Equity Act. This legislation directs the Federal Reserve to eliminate racial disparities in income, employment, wealth, and access to credit.

“Eliminating racial disparities in access to credit” is code for forcing banks and other financial institutions to approve loans based on the applicants’ race, instead of based on their income and credit history. Overlooking poor credit history or income below what would normally be required to qualify for a loan results in individuals ending up with ruinous debt. These individuals will end up losing their homes, cars, or businesses because banks disregarded sound lending practices in an effort to show they are meeting race-based requirements.

Forcing banks to make loans based on political considerations damages the economy by misallocating resources. This reduces economic growth and inflicts more pain on lower-income Americans.

The Carter-era Community Reinvestment Act has already shown what happens when the government forces banks to give loans to unqualified borrowers. This law played a significant role in the housing boom and subsequent economic meltdown. The Federal Reserve Racial and Economic Equity Act will be the Community Reinvestment Act on steroids.

This legislation also requires the Fed to shape monetary policy with an eye toward eliminating racial disparities. This adds a third mandate to the Fed’s current “dual mandate” of promoting a stable dollar and full employment.

Federal Reserve Chair Jerome Powell has already publicly committed to using racial disparities as an excuse to continue the Fed’s current policy of perpetual money creation. Since inflation occurs whenever the Fed creates new money, Powell and his supporters want a policy of never-ending inflation.

Supporters of this scheme say that inflation raises wages and creates new job opportunities for those at the bottom of the economic ladder. However, these wage gains are illusory, as wages rarely, if ever, increase as much as prices. So, workers’ real standard of living declines even as their nominal income increases. By contrast, those at the top of the income ladder tend to benefit from inflation as they receive the new money — and thus an increase in purchasing power — before the Fed’s actions cause a general rise in the price level. The damage done by inflation is hidden and regressive, which is part of why the inflation tax is the most insidious of all taxes.

When the Fed creates new money, it distorts the market signals sent by interest rates, which are the price of money. This leads to a bubble. Many people who find well-paying jobs in bubble industries will lose those jobs when the bubble inevitably bursts. Many of these workers, and others, will struggle because of debt they incurred because they listened to “experts” who said the boom would never end.

The Federal Reserve’s manipulation of the money supply lowers the dollar’s value, creates a boom-and-bust business cycle, facilitates the rise of the welfare-warfare state, and enriches the elites, while impoverishing people in the middle and lower classes. Progressives who want to advance the wellbeing of people in the middle and lower classes should stop attacking free markets and join libertarians in seeking to restore a sound monetary policy, The first step is to let the people know the full truth about the central bank by passing the Audit the Fed bill.

Once the truth about the Fed is exposed, a critical mass of people will join the liberty movement and force Congress to end the Fed’s money monopoly.

Tesla has once again cut prices for cars in China. This time, the company slashed prices for its longer-range and performance Model S by 23,000 yuan for each model, according to Bloomberg. Including today’s cuts, it is the seventh price cut for Tesla in China alone this year, according to GLJ Research’s Gordon Johnson.

Perhaps the company’s newly released September sales numbers in China were the driving force behind the cuts. As Johnson notes in his latest report on the company from Tuesday, October 13, Tesla actually lost market share in China and unsold inventory doubled. Johnson writes: 

TSLA sold 11,329 made in China (“MIC”) Model 3 cars in Sep. 2020, bringing quarterly totals to 34,333. This compares to 30,494 in 2Q20, a growth of +12.6%, while production grew 13.2%, and unsold inventory roughly doubled q/q (i.e., up +75.5% q/q). Interestingly, while the Chinese NEV market grew 26% m/m in Sep. 2020 (link), TSLA’s MIC M3 sales were down -2% over the same time frame (TSLA’s Model 3 MIC market share fell from 10.5% in Aug. to 8.3% in Sep.).

As Johnson notes, the company did stop production the last 10 days of September in China, but still saw its inventory nearly double. Johnson says this could be why the company plans on exporting cars it has made in China to the Asia Pacific and Europe. 

Johnson also noted that Tesla (purple line) is losing market share in the EU:

Meanwhile as Tesla looks to stoke demand in Asia, and while the market continues to ascribe a valuation to Tesla as though it is not a traditional auto manufacturer, people can’t help pointing out the obvious: that they are still behind legacy automakers like GM. For example, GM has sold more than 2x the amount of EVs in China than Tesla did last month:

GM sold more than TWICE the amount of electric vehicles than $TSLA sold in China last month, and far more than Tesla’s peak China sales in any month ever.

The market cap of $GM is 1/9th of $TSLA pic.twitter.com/0KHt9NlXnS

— Stultus (@StultusVox) October 13, 2020

Johnson concluded, stating about the price cuts: “That’s quite a few price cuts for a company that is said to be supply constrained (by definition, if you continuously have to lower the price of the item you’re selling, and have failed to sell out production for three straight months and running, you have a demand problem… not a supply problem).”

Barely a week after applying for emergency use approval from the FDA for one of its COVID-19 antibody therapeutics, it appears trials for one of Eli Lilly’s therapeutic drugs focused on the virus (Eli Lilly is working on more than just one) have been paused, according to an NYT report.

Per the NYT report, the government-sponsored clinical trial has been paused because of a “potential safety concern.” The report cited emails that government officials sent on Tuesday to researchers at testing sites, which the company confirmed. The trial was designed to test the benefits of the therapy on hundreds of people already infected with the virus. The company did not say how many volunteers were sick, or any details about their illness.

This comes after Johnson & Johnson confirmed that it had voluntarily paused its Phase 3 vaccine trials after a participant in the 60k person trial came down with an unusual and unspecified illness. An AstraZeneca trial in the US has still not restarted.

ELI LILLY ANTIBODY TRIAL IS PAUSED BECAUSE OF POTENTIAL SAFETY- NYT REPORTER pic.twitter.com/w70hWf8D5I

— Quoth the Raven (@QTRResearch) October 13, 2020

As we noted last night, convincing the public to trust the vaccines is critically important, according to a team of analysts at Goldman Sachs, who recently warned that convincing the public to accept the vaccine is an understated risk.

Stocks tumbled on the news.

By Michael Every of Rabobank

Real Clear Politics?

It seems only appropriate. The Nobel Prize for Economics, which is not actually the Nobel Prize for Economics, was just awarded to Bob Wilson and Paul Milgrom… and the latter was fast asleep and had to be woken up to hear the good news.

The two got the gong this year for their work on auctions, which are all about trying to flog things on an unsuspecting public. I suspected their prize-winning work says slightly more than that. Then I saw a press summary saying their ideas “can be used to improve the allocation of respirators and PPE in future pandemics. In the early days of the COVID-19 crisis, states bid against each other for supplies, escalating prices and creating chaos” – and I thought perhaps not. Haven’t we shown that the actual solution to a lack of PPE and respirators is government intervention and moving supply chains home so that ‘just in time’ becomes ‘just in case’? Apparently not in economic academia. “Of course it works in practice, but does it work in theory?” as the old economist joke goes. Sleep on, sweet neoclassical economics, sleep on, and dream your little utopian dreams.

Which can be said for a lot of the market. Bloomberg, for example, is on fine apolitical form today with a breezy take:

“With pollsters predicting that Donald Trump will soon be out of the picture, global investors can finally breathe a big sigh of relief. Foreign policy could become more predictable, so they can start buying Chinese government bonds, which actually pay interest. They can also invest in the mainland, where a successful Covid-19 containment strategy has allowed businesses to resume. Money managers won’t have to be on the edge all the time. That is certainly what traders are betting on.”

It’s certainly true that this is the meme the pollsters have gone all-in on. Well, not all the pollsters. Zogby and the Democracy Institute, neither of which are included in the benchmark Real Clear Politics polling average, say something very different. Moreover, where we stand today is almost exactly where we were in 2016 in some respects in the swing states.

Excuse me for repeating this again, and please take it in the most neutral, non-partisan spirit: polls can be wrong. Especially when it is harder and harder to find people who have the time and energy to answer a survey, a process that naturally leans towards the wealthier and more politically active.

As Pew research notes in a looong election note today, different polling agencies conduct their surveys quite differently; the barriers to entry in the field have disappeared; a poll may label itself “nationally representative,” but that’s not a guarantee that its methodology is solid; the real margin of error is often double that which is reported (and they are already quite large at +/- 3%); huge sample sizes sound impressive, but don’t mean much as this can mean cheap and problematic sampling; evidence suggests if the public hears a certain candidate is likely to win, they are less likely to vote; public estimates of policies are generally trustworthy, but estimates of who will win are less so; all good polling relies on statistical adjustment; not adjusting for education is a disqualifying shortfall (as we saw in 2016); more transparency on how a poll was taken is better; polling is not broken, despite 2016; the evidence for “shy” Trump voters is actually quite shy; yet a systematic miss in election polls is more likely than people think, especially on the electoral college outcome.

Last night the Trump campaign claimed –besides “Fake This, Fake That, and The Other”–that current polls are “massively oversampling Democrats”. Who knows if this is true or not. Yet objectively there does seem a dichotomy between voter registration trends, which have been strongly Republican, and a large lead for Biden. Likewise (according to data crunchers) the same trends in Google search data, Facebook likes, Twitter follows, and even old-fashioned yard-signs. Something or nothing? Also, look out for the drip-drip of early voting data: caveat emptor (we are back to auctions again!), but in some places this is NOT fitting the picture of the polls.

Of course, **nobody** knows what the final US election outcome will be. And that is the key point. The market is priced as if it knows exactly that outcome. Real Clear Markets, in fact.

Also clear, and clearly ignored in all the embryonic geopolitical bonhomie, is that China reportedly just banned Aussie coal imports – or so claim Bloomberg. Add it to the list of other things Australian no longer welcome there. AUD has only dipped a little on what should be bad news: there must be a US election to think about instead.

Not so clear is any US fiscal stimulus. Still talking: still not delivering. Just three weeks until election day, folks.

And regrettably not clear is a Covid vaccine, Trump’s “immunity” and promises to kiss his rally crowd notwithstanding. Indeed, Johnson & Johnson has just said its Covid-19 vaccine study has been temporarily halted due to an unexplained illness in a trial participant; AstraZeneca has also temporarily stopped US tests of its vaccine after an illness.