Month: February 2018

Submitted by Bill Blain of Mint Partners

Bond Yields Rising, Stock Market hesitant? Its fine.. And Groundhog Day for Deutsche

In Bonds there is Truth: the US 30-yr bond is over 3% – while the 10-yr bellweather hovers round 2.80%, looking likely to test the next big number. Yet, the bond market continues to pump out new supply… What will today’s US payrolls tell us? It’s just one number among billions of pieces of information floating out there… but, hey, its something we can worry about this morning.

Meanwhile, there are plenty of talking heads warning us the outlook for stocks is mixed. This morning’s Big Miss from Deutsche Bank (wow.. what a surprise.. (US readers sarcasm alert)) caps what’s looking the worst week for European stocks since the summer – although they are not even down 3%, to put it in perspective!

Meanwhile, its all about the big names in the US. Alphabet slipped – looking like investors aren’t convinced by its mix of brands from Google to YouTube. Bloomberg says its costs that disappoint; but did you know that it authorised a $8,589,869,056 stock buyback – its a “perfect number” – equal to the sum of all its divisors. Fascinating. Apple posts record numbers, and despite some complex management explanations sales have slipped, revenues are lower, while there is the implied promise of stock buybacks and acquisitions. Facebook admitted its News Flow is putting customers off – NSS Sherlock award (and no one under 50 apparently uses it anymore) – but the stock is up.  

It’s no wonder stock pickers are getting antsy.

They look at stretched valuations, signs the market is overbought, and fret about signals the market has topped. Sitting here watching, it does feels like sentiment is changing. Investors are getting selective. The last few months have felt like they have been chasing the market – buying at whatever level they can in pursuit of a runaway market. This week I can detect a shift – folk are looking to pick the winners and losers again. The return of some rationality, combined with a complacency check, might just see this market pause – but that’s not a bad thing.

Rising bond yields should be a bigger threat?

Being somewhat confused by it all I asked my Macro Guru, Martin Malone, what’s going on and why rising bond yields aren’t causing much more concern.

He explained it all in terms of market structure. Over the past 10-years the bond market has doubled in size to $20 trillion. However, the risk assets economy – think “stuff”, property and stocks – have risen to $80 trillion – 4x the size of the bond market. Therefore, a 5% gain in risk assets adds 4 trillion to risk asserts, while a 5% loss in bonds is only $1 trillion. In fact its even more complex than the simple math.

A good number of clients have told me recently they are increasingly concerned this US growth phase is running out of steam and we will be into economic slowdown as early as Q4 this year, triggering the end of this frothy global alignment of growth drivers.

Martin’s watching macro like a hawk – and he’s happy yield curves, Domar spreads (NGDP-10-yr), real rates, employment, Central Bank balance sheets, and the alignment of positive global macro remains very much on track. He says: “The Bear Bond moves is a GOOD RATE RISE – supporting macro economic conditions as well as wider financial markets.”

Martin’s got the benefit of his Alphabook Macro Machine. He and his chums have built a deep delving AI, learning from over 5 million Macro factors – using the numbers to illustrate what’s going on in surprising ways and informative ways. To get his Alphabook research – it’s a cost… but absolutely worth every penny. Happy to send him your way if you want to understand why your fears might be unjustified. 

Today, I am told is Groundhog day. The classic film where Bill Murray is caught in a timeloop. Bit like Deutsche Bank. Reporting another annual loss, crashing revenue, and a CEO finding crumbs to tell us how much better its all getting. “We believe we are firmly on the path to producing growth and higher returns……..” If I had more time, I’d deep dive the numbers, read all the reports, and come to some sage conclusions, but since I don’t I’ll just pose the question about the definition of lunacy.

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Strong ‘headline’ earnings growth (despite all the caveats) has sparked a hawkish tilt to trading sending bond yields higher and spiking the dollar index by the most since Jan 2017.

There’s just one thing though…

The 0.9% spike in the dollar index is the most since January 18th 2017 and sounds impressive, but for a trader, it appears the spike is for fading as it hits the Trump Rescue highs and rolls over…

So the strongest wage growth in years merely enabled machines to run some stops before the trend lower continues?

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Authored by James Howard Kunstler via Kunstler.com,

It’s beginning to look a little like The Day the Earth Stood Still out there, with Devin Nunes in the Klaatu role, roiling the Earthlings into a frothy hysteria as they attempt to defend their puny empire of errand boys, grocery clerks, and elected buffoons. At dawn’s early light, we await The Memo.

The New York Times was running veritable Chinese fire drills on its front page this morning denouncing The Memo in advance, shrieking about the end of the Republic, with the laughable caveat that… “None of this is to say the F.B.I. and the rest of the federal law enforcement apparatus should be immune from criticism or reform.” The Times editorial did not go into any detail about what exactly might invite that reform — like perhaps one top-rank agent telling another one that the “loathsome” president had to be gotten rid of at all costs.

The casual observer — say, one who is immune to the charms of Donald J. Trump — can’t fail to notice that there is a bit more smoke emanating from the upper echelons of the FBI than has yet been seen in the sludgy narrative called “Russian Meddling in the 2016 Election.” Going into two years of that yarn, not one concrete detail has emerged. Meddled how? For all the “we now know” talking points uttered by Grand Inquisitor Rachel Maddow, it seems to me that we now know next to nothing about “collusion” between Russians and Trump, while we know a great deal about the indelicate behavior of FBI officers in important positions with grave responsibilities — government agents with the power to wreck lives — who cooked up an enormous hysteria in the body politic.

The situation certainly puts the nation in a quandary. An uncouth and ridiculous President called forth to battle a vicious, dishonest, bureaucracy and in particular its gigantic, out-of-control “security” apparatus, which appears to have been hijacked by politically interested parties — namely, the minions of Hillary Clinton. You have been reminded here before that history is the supreme prankster. In Fourth Turning terms, the poor old disintegrating USA pined for a “gray champion” and all it got was this booby prize: a Manhattan real estate schmikler with a mean streak. Well, that’s how things roll in a long emergency. And this might only be the beginning of it.

In any case, it appears that the FBI, in the hallowed words of Ricky Ricardo, has got some ‘splainin’ to do. Recall, it was not so long ago that the FBI was run by a cross-dressing maniac addicted to blackmail, so let’s not act as if the agency was something that the Lord Yahweh brought into being on the fifth day of creation, after the lobsters and the cockateels. Granted, J. Edgar Hoover was a hard act to follow, but we are now, evidently, living in an age of even lower men (and women, to be fair).

CNN reminded viewers relentlessly last night that The Memo was sure to be a disappointment, a “nothingburger,” for a nation that expects a righteous half-pound beef patty with lettuce, tomato, pickle, and special sauce on a sesame bun. Personally, I expect something more like a three-day-old dead carp in a plain brown wrapper. Maybe “the Resistance” will try to make gefilte fish out of it, which is a burger of sorts: chopped meat, anyway.

Meanwhile, we await the report of DOJ Inspector General Michael Horowitz, who has been rooting around in the same burger den as the House and Senate committees, questioning the same cast of characters. The DOJ report is liable to be more damaging than The Memo. The whole nasty gumball of suspicion and innuendo seems destined to climax in a constitutional crisis.

Ludicrous as it seems — like some rogue army out of the stupid Star Wars epic — the “Resistance” bethinks itself the nation’s savior. In the best American tradition, they’ll burn the joint down in order to save it.

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A glitch in the monetary matrix?

Fed watchers will recall that shortly after he departed the Fed to make way for Janet Yellen, Ben Bernanke first joined the Brookings Institution in DC (before also joining PIMCO and Citadel as an advisor), where he became blogger emeritus. Fast forward a little over three years, when deja vu has hit, and as Steve Liesman reported moments ago, Janet Yellen – who is still technically employed by the Fed until this weekend – will begin work Monday morning as a distinguished fellow at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution in Washington, DC.

In heading to Brookings, Yellen follows in the steps of former Fed Chairman Ben Bernanke and former vice chairman Donald Kohn, along with former top Fed staffer Nellie Liang.

Yellen, 71, spent 17 years in the Federal Reserve system, including four as chair, four as vice chair, three as a Federal Reserve governor and six as San Francisco Fed president.

In addition to blogging, what will Yellen do at Brookings?

The Hutchins Center seeks to “improve the quality and efficacy of fiscal and monetary policies and public understanding of them,” according to the Brookings website

We doubt, however, that Brookings will be eager to distribute such Yellen op-eds as “no financial crisis in our lifetime.”

It was not immediately clear if Yellen would also follow Bernanke in his more profitable ventures, and advise PIMCO how to trade Treasury derivatives, or frontrun retail traders at Citadel’s HFT trading desk.

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January was expected to be a far stronger month for payrolls than December with adverse weather conditions gone, and that’s precisely what the BLS unveiled as employers added 200,000 jobs in January, while more importantly the average hourly earnings for workers rose 2.9% from a year earlier, to $26.74 from $25.99, even if this was largely the result of a sharp drop in hours worked.

So which sectors were responsible for the rebound in January employment?

As SouthBay Research summarizes, solid payroll strength was observed in Durable Goods Manufacturing (+18K) reflecting the generally stronger manufacturing environment.

Meanwhile, services was hit by weakness in Accounting and Education. Accountant hiring typically picks up in January but this year Accounting payrolls were softer than normal.

As a result, Accounting payrolls (seasonally adjusted) actually fell (-10K) in January. This development is particularly strange in light of the recent tax law changes that always boosts demand for accounting and bookkeeping support.

Also contributing to the softness was deeper-than-normal seasonal layoffs in Education payrolls (Winter break).

Pointing to underlying consumer spending is the boost in Construction (+36K) and Leisure/Hospitality (+35K).  Businesses appear to be responding to continued strong consumer spending and hiring accordingly.

Meanwhile, Retail was soft (+15K) but that’s to be expected in light of the ongoing brick-and-mortar problems (i.e. the long-running debate if it’s a channel issue – Amazon – or consumer spending issue – record low savings).

Employment in food services and drinking places continued to trend up in January (+31,000); the industry has added 255,000 jobs over the past 12 months. Meanwhile, employment in manufacturing remained on an upward trend (+15,000) with Durable goods mfg industries adding 18,000 jobs.

Finally, as , below are the industries with the highest and lowest rates of employment growth for the most recent month: monthly growth rates are shown for the prior year.

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Can anyone blame him?

The father of three girls who were each molested by former US Gymnastics Doctor Larry Nassar who was sentenced to up to 175 years in prison last week, lunged at the disgraced doctor during his sentencing hearing on Friday in Eaton County, Michigan – and was swiftly tackled and restrained by three officers, according to NBC.

After being admonished by the judge for swearing, Randall Margraves begged her to “let me have five minutes in a room alone with that demon.”

“You know I can’t do that,” replied the judge.

“Fine, one minute,” Margraves insisted.

”Well I’m going to have to,” Margraves responded, and he launched into a sprint at Nassar, but was tackled by three deputies, who handcuffed him.

Then Mangraves shouted “Give me one minute with that bastard.”

The outburst sparked harsh words from Michigan Assistant Attorney General Angela Povilaitis in court.

“You cannot behave like this,” she said. “This is letting him have his power over us.”

As he was ushered out of the room, Margraves responded: “You haven’t lived through it, lady.”

Margraves is the father of Lauren and Madison Margraves, two young women who had delivered emotional impact statements about how Nassar abused them just before their father addressed the court. A third Margraves daughter spoke at Nassar’s sentencing in neighboring Ingham County last month.

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Authored by Ari Fleischer via TheHill.com,

I don’t know former FBI Deputy Director Andrew McCabe. I’ve never met him. But I was supposed to...

I was in an FBI car last June on my way to meet him and other top law enforcement leaders at a counterterrorism communications training event at the 9/11 Museum in New York City when McCabe suddenly ordered me not to show up. The car pulled up outside the museum and I was told not to come inside. I took a taxi back to my hotel and went home.

Based on my one and only experience with McCabe, it proved to me that he has a “circle the wagons and protect James Comey at all costs” approach that is inconsistent with the type of behavior our nation should expect from a man who, at the time, was leading the FBI.

Here’s what happened. In January 2017, I was invited by then FBI Director Comey to deliver the keynote address for a major meeting of law enforcement directors from the United States, United Kingdom, Australia, Canada and New Zealand. These English-speaking countries are called the Five Eyes nations. In addition to the FBI director and his foreign counterparts, the heads of the Drug Enforcement Administration and Immigration and Customs Enforcement were to attend. The meeting was a big deal.

As someone who is an admirer and supporter of the FBI, I looked forward to going and sharing what I learned about how to communicate in a crisis. Having been the White House press secretary on Sept. 11, 2001, there was a lot I wanted to share with the Five Eyes leaders.

One month before the event, Comey was fired, and McCabe became acting FBI director. The day prior to the event, Comey testified before the Senate Intelligence Committee. He acknowledged telling President Trump he was not under investigation, and he admitted he provided FBI memos to a friend so they could be leaked to the New York Times.

That evening, I went on Fox News and was mildly critical of Comey. I said when President Trump sought a one-on-one meeting with him, he should have resisted it, a statement Comey himself made at the hearing. The next morning, about an hour before I was due at the 9/11 Museum, I was on another TV show and again was mildly critical of Comey. I questioned the ethics of his leaking FBI memos to a private citizen so they could be given to the press. I also said I saw no evidence of collusion between President Trump and Russia.

I left the show, got into an FBI car and headed downtown for the counterterrorism training event. That’s when my assistant called me to tell me that she got a call from the acting FBI director’s office telling me not to show up. No explanation was provided.

I was infuriated. I couldn’t understand it. I had worked hard and prepared a lot of useful information for these law enforcement chiefs. I called McCabe’s chief of staff, James Rybicki, and asked him to arrange a call with McCabe.

On Monday, June 12, McCabe called me and said bluntly that he heard about what I said on the news and he made the decision to cancel my keynote speech. He said it was a particularly sensitive time for the FBI and, knowing what I said on the air, he thought his agents would be too upset to have me at the event.

I told him I thought his decision was “inappropriate.” I couldn’t believe he could be so thin-skinned that my mild remarks would lead him to cancel a counterterrorism training event. I also had a hard time believing his agents would be so upset by an opinion.

And that was that. I don’t know anything else about McCabe, other than what I have read in the press. But I do know that in this instance he demonstrated a “protect Comey at all costs” approach to his job that I find troubling.

It is McCabe’s right to be close to Comey. It is his right to see Comey as a mentor. But it was wrong of him to retaliate against someone because he didn’t like what they said about Comey on a news show. The FBI I know is better than this.

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