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Following upwardly revised December data, January’s Dallas Fed manufacturing survey printed 22.1 – the highest since April 2010.
Of course, as we noted previously, this is ‘soft’ survey data and not actual economic data, which has yet to produce any notable improvement.
As RBC’s Charlie McElligott noted “it’s time forthe rubber to meet the road” in real economic improvement… as opposed to just hope.
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Following leaks this morning that the Trump administration is considering executive orders around the H1-B worker via program, tech stocks are tumbling with the Nasdaq down most since September…
Additionally, the S&P 500 just dropped 1.0% for the first time since October…
And VIX is spiking above key technical levels (50DMA) – the biggest spike since September…
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Speaking to reporters, President Trump said he was going to “dramatically” reduce regulations with an executive action while praising Lockheed Martin, Boeing for being “so responsive” to his concerns about government contract costs. According to a senior administration official quoted by Reuters, the imminent deregulating executive order will be as follows:
It was not immediately clear if this executive directive is in addition to the previously reported one on H1-B and foreign worker labor certification.
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It appears that Wall Street's nearly 3 month honeymoon with Trump is ending. Because no matter how much the courts or public pressure force the watering down of Trump’s immigration order, Bloomberg's Mark Cudmore warns that "the long-term damage to Brand USA has been done."
Here is why "trader #1" is angry:
With a few hasty pen scratches, Trump has confirmed that he is impulsive and liable to act without concern for convention or precedent or, it seems, the law. At the margin, the premium for U.S. assets will now be eroded.
The U.S.’s place at the centre of global financial markets is partially based on the perception that the country generally acts in the logical long-term interests of business and capitalism. The rule of law is strong and you can have faith that your rights will not be unjustly or arbitrarily curtailed.
Trump actions — his willingness to trample the rights of selected classes of people — shatter those well-established assumptions. The consequences may be slow to play out but are manifold. The attraction of the U.S. as a base for wealthy individuals, multinationals and skilled workers has just been marred. A new risk has been introduced.
The message is that, if you choose the U.S., your life could be disrupted at a moment’s notice.
It’s not like this is just one erroneous measure that can be chalked off as an exceptional mistake by Trump. Instead, it’s the icing on the cake of his administration’s first week in power, where it was abundantly clear that protectionism and isolationism are the priority.
Last week, I used the phrase “irrational stubbornness” to describe the market’s determination to buy the dollar in the face of both contrary newsflow and price action. Stubbornness is not a trait that’s closely correlated with profits in markets.
Expect U.S. equities and the dollar to suffer. The framework has shifted negatively, not just in the short-term but long-term as well.
Put another way, at some point policy uncertainty leaks into actual uncertainty and requires pricing in…
And as Bloomberg's Richard Breslow – or angry trader #2 – adds, "Trump’s certainly not making it easier for investors to stay comfortable with their positions. The legal and moral issues aside, what was the first thing you thought of when you saw the weekend news from the White House? When does my FX salesman get into the office?"
It’s hard not to at least call and make sure there are indeed bids out there. But a pattern of going home with your trend trades on, waiting nervously to see if there’s going to be any weekend firestorm, selling into a low-ball bid Sunday and being forced to pay up for those same assets as the week progresses is a tough scenario for making money.
Especially if you are model-based and haven’t figured out how to program moral outrage as one of the inputs.
If the game changes on you, it requires a change in strategy. For your sanity as well as P/L. So what is likely to emerge? The reverse of what we saw at the height of the European leg of the financial crisis.
Back then it seemed there was an emergency EU summit every weekend. Traders got into the habit of selling risk all week, the news was bad after all. Then on Friday buying some back in case there was that promised news that would save the day. And on Monday putting the risk back out, hopefully on some headline bounce. For a long time it looked like there was indeed faith in the system because weeks seemed to end better than they started.
Now, with risk generally bid, traders may realize that you buy risk during the week, the global numbers are getting better, and then lighten up on Friday. Let him sow some mayhem on Saturday, you’ll be there with your own low-ball bid sometime Monday or Tuesday. Friday weakness that leaves a soured-tone heading home, giving way to trends sneaking back into formation by hump day.
It seems Trump's grace period on Wall Street is finally coming to an end.
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President Trump’s sweeping ban on travelers from seven majority Muslim countries (including Iraq) from entering the United States was intended to protect the homeland from a vanishingly small threat of terrorism. But U.S. diplomats stationed on the front lines in the battle against arguably the world’s most notoriously violent and sadistic group of Islamist extremists—ISIS—say the president’s plan is both morally and strategically misguided.
According to a memo sent by the U.S. Embassy in Baghdad to the State Department, the travel ban risks the U.S. losing critical support from the Iraqi government, military, and the militias which the U.S. continues to support as they collectively try to retake territory occupied by ISIS for the past three years. The Wall Street Journal reports the memo reveals the diplomats in Baghdad were “blindsided” by Trump’s executive order and are worried that the fallout could irreparably damage relations between the two countries, which are nominally “close allies.”
The memo cited examples of unforeseen consequences of Trump’s order, including an Iraqi army general who has worked closely with U.S. forces now being unable to visit his family in the U.S., a scheduled meeting in the U.S. between Iraqi officials and General Electric over a multi-billion-dollar energy investment now may not take place, and perhaps most crucially, the fate of approximately 60,000 Iraqis who risked their lives to aid the U.S. in Iraq now hangs in the balance. These Iraqis had applied for Special Immigrant Visas and if they were to be abandoned by the U.S., securing the cooperation of the locals in any U.S. military theater could be imperiled, but especially in Iraq, which has been war-torn since the U.S.-led war to depose Saddam Hussein began in 2003.
Iraqi officials have already called for reciprocity in the form of banning U.S. citizens from entering Iraq, and a spokesman for The Popular Mobilization Forces, a coalition of Iranian-backed Shiite militias fighting the Sunni extremists of ISIS said Trump’s action insulted “the dignity of Iraqis who have suffered thousands of martyrs fighting terrorism on the behalf of the world,” according to the Journal.
President Trump campaigned on being “the toughest guy” when it came to projecting U.S. military strength around the world, but his clumsy and cruel edict is a threat to U.S. military interests at a crucial time in Iraq, where ISIS loses more territory by the day, but where “winning the peace” has always been the unattainable victory for almost a decade-and-a-half.
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President Trump says Twitter is wrong about the executive order he signed on Friday. “This is not a Muslim ban, as the media is falsely reporting,” he said in a statement yesterday. “This is not about religion—this is about terror and keeping our country safe.” Trump is right in the sense that his order does not ban all Muslim visitors, as he suggested during his presidential campaign. The order nevertheless will mainly affect Muslims.
The seven countries covered by Trump’s 90-day ban on visitors—Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen—all have overwhelmingly Muslim majorities, ranging from 90 percent (Syria) to nearly 100 percent (Somalia). The people covered by Trump’s 120-day ban on refugees (and his reduction in the maximum number of refugees to be accepted this year from 110,000 to 50,000) are more religiously mixed. Muslims accounted for 46 percent of the 85,000 refugees admitted to the U.S. last year. But almost all of the people affected by Trump’s indefinite ban on Syrian refugees are Muslims, who accounted for 99 percent of refugees from that country in 2016.
The religious skew of Trump’s order is compounded by its preference for refugees who face persecution as members of religious minorities. People in that situation get a leg up in case-by-case exemption from the refugee moratorium and in admission after the refugee program resumes. That group would consist mainly of Christians in the case of Muslim-majority countries, although it also might include Muslims from countries such as Burma. As Matt Welch noted on Saturday, Trump himself emphasizes that he is trying to help Christians.
Still, Trump’s #MuslimBan is a far cry from his recommendation following the 2015 terrorist attack in San Bernardino, when he called for “a total and complete shutdown of Muslims entering the United States until our country’s representatives can figure out what is going on.” Trump reiterated that idea after the deadly attack on a gay nightclub in Orlando last June. But a month later, his “total and complete shutdown of Muslims entering the United States” became a suspension of “immigration from any nation that has been compromised by terrorism until such time as proven vetting mechanisms have been put in place.” That language was both narrower, in that it did not cover Muslims from countries not “compromised by terrorism,” and broader, in that it covered everyone from countries “compromised by terrorism,” regardless of religion. Since it was not clear what “compromised by terrorism” meant, it was anybody’s guess whether the net effect was to decrease or increase the number of people affected.
In a July 24 interview on Meet the Press, Trump presented the switch as if it were more rhetorical than real:
I actually don’t think it’s a rollback. In fact, you could say it’s an expansion. I’m looking now at territories. People were so upset when I used the word Muslim. “Oh, you can’t use the word Muslim!” Remember this. And I’m okay with that, because I’m talking territory instead of Muslim.
Given his own admission that he wanted to achieve his Muslim ban by a different name, Trump’s critics can perhaps be forgiven for concluding that is what he is doing now. But compared to the ban he was urging a year ago, his executive order is both overinclusive (since half of the refugees it covers are not Muslims) and underinclusive (since it does not cover Muslims who are not refugees and do not come from any of the seven specified countries).
The ACLU nevertheless thinks the order can be challenged as a violation of the First Amendment’s Establishment Clause. “The smoking gun they put in the executive order is the idea that they would grant exceptions for minority religions,” ACLU Executive Director Anthony Romero told The New York Times. “The one thing you can’t do under the Establishment Clause is denomination favoritism. That’s a very promising claim, but it requires the right plaintiff.”
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Inconceivable?
Remember the trumpflation trade has been questionable for weeks…
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President Tru8mp is not done with his morning tweet-storm…
Where was all the outrage from Democrats and the opposition party (the media) when our jobs were fleeing our country?
— Donald J. Trump (@realDonaldTrump) January 30, 2017
Additionally, Trump is dropping headline bombs during a discussion with a press pool at a small business leaders’ meeting:
SCOTUS:
Opposition:
Cutting Costs:
Immigration:
Regulation:
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This week, the prices of the metals had been up Sunday night but were slowly sliding all week—until Friday at 7:00am Arizona time (14:00 in London). Then the price of silver took off like a silver-speculator-fueled-rocket. It went from $16.68 to $17.25, or 3.4% in two hours.
What does it mean? We don’t know. We would bet an ounce of fine gold against a soggy dollar bill that no one else does either. The old stories of silver shortage or manipulation have no power to explain this move. Why not? Because they are old. The explanation would have to say that earlier in the day there was a reason for silver to trade well under $17 but as of that moment, it was urgent that the metal trader well over $17.
As often occurs, once the move hits certain levels on a price or momentum chart, that’s all it takes. It’s of no use to say that in the long run this will be just another blip of noise. In the heat of the moment, these 60-cent moves are exciting.
Below, we will have an intraday silver chart that shows clearly something that is almost never available to the public. We have a plot of the basis against price. If other theories are right (e.g. manipulation, shortage) this chart should show nothing of interest.
We are at no risk of that. 🙂
But first, the price action and regular basis charts.
The Prices of Gold and Silver
Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It fell this week.
The Ratio of the Gold Price to the Silver Price
For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.
Here is the gold graph.
The Gold Basis and Cobasis and the Dollar Price
The pattern of the past few weeks did not continue. This week, when the price of gold went down, the cobasis (scarcity) went down on some days. When the price went up, the cobasis went down.
Our calculated fundamental price fell $32 to just about $100 over the market price.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
In silver, scarcity increased a bit on Wednesday and stayed there through Friday (for our normal daily reading, but see below).
Our calculated fundamental price moved up 20 cents from last week. It had been higher, but actually fell a bit on Thursday and Friday. It is now a dime or two above the market.
Below is the chart we promised at the top of the Report.
Intraday Friday Silver Basis Silver Price
(times are GMT)
As the price rises about 40 cents, the basis rises about 60bps from around -0.25% to +0.35%.
To understand this, picture a spread between the price of silver in the spot market—a bar—and silver in the futures market—a contract for March delivery of a bar. When the market is quiescent, this spread is consistent. If there buying pressure in spot, then the spread will compress. If there is buying pressure in futures, then the spread will widen (or if it is negative like Friday morning, it can go positive).
On Friday, this spread widened about ¾ of a cent. This may not seem like much, but the market makers are fighting it all the way. They make money by buying spot and selling futures, called carrying silver. Carrying tends to compress the spread. Despite the market makers, the speculators forced this spread wider by nearly a cent.
Spread is much more stable than price. This move is a big deal.
© 2016 Monetary Metals
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Confirming a leak overnight from The Information, moments ago Fitbit announced that in order to manage expenses, it would lay off some 110 employees ot about 6% of its workforce. At the same time the company also slashed its guidance, and warned that it now expect a full year loss per share of 51-56 cents, far lower than the previous guidance of a profit of 14-18 cents, as a result of a big drop in revenue growth which it now expects to rise just 17%, far below the previous forecasted growth of 25% to 26%.
The stock has plunged on the news, and was trading some 18% lower in the pre-market.
Select highlights from the jsut released preliminary Q4 earnings report:
Based upon preliminary financial information, Fitbit expects to report 6.5 million devices sold and revenue for the fourth quarter of 2016 to be in the range of $572 million to $580 million, compared to the company’s previously announced guidance range of $725 million to $750 million. For the full-year 2016, Fitbit expects annual revenue growth to be approximately 17% from the previous forecasted growth of 25% to 26%. Non-GAAP diluted net loss per share for the fourth quarter is expected to be in the range of ($0.51) to ($0.56) compared to the previously announced guidance range of non-GAAP diluted net income per share of $0.14 to $0.18. The non-GAAP effective tax rate is expected to be materially higher than prior guidance. For the full-year 2016, Fitbit expects to earn approximately $32 million in non-GAAP free cash flow and have approximately $700 million in cash, cash equivalents, and marketable securities on its balance sheet. Fourth quarter results are subject to change based on the completion of the company’s customary year-end audit review process.
Fitbit is taking direct action to reduce the expense basis of the company while maintaining necessary investments to drive future growth and maintain its global leadership position in the wearables market.
- Targeting a reduction in the 2016 exit operating expense run rate of approximately $200 million, to approximately $850 million for 2017, which includes realigning sales and marketing spend and improved optimization of research and development investments.
- Conducting a reorganization of its business, including a reduction in force, that will impact approximately 110 employees, constituting approximately 6% of the company’s global workforce, creating a more focused and efficient operating model. The cost of these reorganization efforts is expected to be approximately $4 million to be recorded in the first quarter of 2017.
Blame excess inventory, i.e., time for a business model pivot as walking up stair is no longer cool perhaps?
The company expects non-GAAP fourth quarter gross margin to be materially below its previously issued 46% guidance due to excess inventory and other related charges as follows:
- One-time write downs of tooling equipment and component inventory of approximately $68 million.
- Increased rebates and channel pricing promotions of approximately $37 million which is recorded as a reduction in revenue.
- Increased return reserves of approximately $41 million due to greater channel inventory.
- Increased warranty reserves for legacy products of approximately $17 million.
For the full year 2017, Fitbit is providing some targeted financial metrics as the company transitions its business to the next stage of growth. The company expects a challenging year over year comparison in the first half of 2017 given that new product introductions represented 52% of revenue in the first half of 2016. In addition, the company enters 2017 with a higher operating expense run rate than the first half of 2016, and channel inventory levels that are higher than previously anticipated. The company expects stabilization in financial performance in the second half of 2017.
Good luck. CEO James Park had the following words of encouragement to battered shareholders:
“Fourth quarter results are expected to be below our prior guidance range; however, we are confident this performance is not reflective of the value of our brand, market-leading platform, and company’s long-term potential. While we have experienced softer-than-expected holiday demand for trackers in our most mature markets, especially during Black Friday, we have continued to grow rapidly in select markets like EMEA, where revenue grew 58% during the fourth quarter. To address this reduction in growth and what we believe is a temporary slowdown and transition period, we are taking clear steps to reduce operating costs. Looking forward, we believe Fitbit is in a unique position to stimulate new areas of demand by leveraging the data we collect to deliver a more personalized experience while developing upgraded versions of existing products and launching additional products to expand into new categories,” said James Park, Fitbit co-founder and CEO. “As the overall wearable category leader, we exited the year with an engaged community of over 23.2 million active users, making us uniquely positioned to be the partner of choice for the healthcare ecosystem, which is a key component of our long-term strategy.”
And just like that, the “wearables revolution” will no longer be televized.
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