Month: April 2018

White House chief of staff John Kelly has reportedly been undermining morale in the West Wing in recent months – commenting to aides that President Trump is an idiot, while touting himself as the “savior of the country,” reports NBC News, citing “eight current and former White House officials.”

The officials said Kelly portrays himself to Trump administration aides as the lone bulwark against catastrophe, curbing the erratic urges of a president who has a questionable grasp on policy issues and the functions of government. He has referred to Trump as “an idiot” multiple times to underscore his point, according to four officials who say they’ve witnessed the comments. –NBC News

NBC notes that three White House spokespeople say the “idiot” thing just isn’t true, and he may have spoken in jest about saving the country.

In one heated exchange between the two men before February’s Winter Olympics in South Korea, Kelly strongly — and successfully — dissuaded Trump from ordering the withdrawal of all U.S. troops from the Korean peninsula, according to two officials.

For Kelly, the exchange underscored the reasoning behind one of his common refrains, which multiple officials described as some version of “I’m the one saving the country.“

“The strong implication being ‘if I weren’t here we would’ve entered WWIII or the president would have been impeached,'” one former senior White House official said. –NBC News

“He doesn’t even understand what DACA is. He’s an idiot,” Kelly said in one meeting, according to two officials who were present. “We’ve got to save him from himself.”

According to NBC’s sources, Kelly has been hiding behind his public image as a four-star, while in truth operating in an “undisciplined and indiscreet” manner. “The private manner aides describe may shed new light on why Kelly now finds himself — just nine months into the job — grappling with diminished influence and a drumbeat of questions about how long he’ll remain at the White House.” 

“He says stuff you can’t believe,” one senior White House official tells NBC News. “He’ll say it and you think, ‘That is not what you should be saying.‘”

According to presidential historian Michael Beschloss, Kelly’s comments about Trump vs. prior White House chiefs of “suggest a lack of respect for the sitting president of a kind that we haven’t seen before,” adding that the closest would have to be President Ronald Reagan’s chief of staff, Don Regan, who “somewhat looked down on” The Gipper, and eventually lost Reagan’s support – having been replaced after two years by Howard Baker.

Meanwhile, Trump is said to have soured on Kelly – and is aware of some, “though not all” of Kelly’s comments. And as NBC News points out, “The last time it became public that one of Trump’s top advisers insulted his intelligence behind his back, it didn’t go over well with the president. White House aides have said Trump never got over former Secretary of State Rex Tillerson calling him a “moron” in front of colleagues, which was first reported by NBC News. Trump later challenged Tillerson to an IQ test and fired him several months after the remark became public.”

Current and former White House officials said Kelly has at times made remarks that have rattled female staffers. Kelly has told aides multiple times that women are more emotional than men, including at least once in front of the president, four current and former officials said.

And during a firestorm in February over accusations of domestic abuse against then-White House staff secretary Rob Porter, Kelly wondered aloud how much more Porter would have to endure before his honor could be restored, according to three officials who were present for the comments. He also questioned why Porter’s ex-wives wouldn’t just move on based on the information he said he had about his marriages, the officials said.

So in addition to Kelly allegedly calling Trump an idiot, he’s also a misogynist, according to NBC.

Kelly is expected to leave by July – his one-year mark, according to sources, however others say it’s anyone’s guess. That said, “what’s clear is both Trump and Kelly seem to have tired of each other.” 

“Kelly appears to be less engaged, which may be to the president’s detriment,” a second senior White House official said.

If NBC is correct, we’re about to once again play White House Musical Chairs. 

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For months, analysts have been warning that the US is set to borrow an unprecedented – for a non-recessionary period – amount of money…

… and on Monday afternoon this was confirmed, when the US Treasury announced that in the quarter ended March 31 (the fiscal year’s second), the US borrowed $47BN more than its had anticipated three months ago, or $488BN to be precise.

This was the single biggest quarterly amount of debt sold by the US Treasury since the record $569BN in debt borrowed in Q4 2008 when the financial system nearly collapsed, and Treasury had no choice but to raise a gargantuan amount of money during the biggest financial crisis in modern US history.

What makes the just passed quarter different, however, is that there was no crisis, not even a recession. In fact, in the first quarter US GDP rose by 2.3% according to the BEA amid what, until recently, the “experts” said was a global coordinated recovery.

In retrospect, it appears the “recovery” was only around long enough for the US and/or China to raise near record amounts of debt.

As a result of the near-record borrowing spree, the US ended the quarter with $290BN in cash, more than the $210BN budgeted.

What is scary is how fast the US is raking up the debt: as a reminder, just a few weeks ago we reported that in the first six months of the fiscal year, the US budget deficit rose to $600 billion as spending increased at three times the pace of revenue growth in the October-to-March period. At that run-rate, the US deficit will soar to $1.2 trillion for fiscal 2018, far above the $804BN projected budget gap and resulting in an even greater amount of debt borrowed.

Commenting on the debt splurge, the Treasury said tax changes are “poised to underpin near-term consumption and investment” and “the stage is set for a pick-up in growth over the near term.”

They better, because if all we have to show for nearly a half a trillion in debt in one quarter is 2.3% GDP, then the US is in very serious trouble.

Looking ahead, the Treasury forecast a need to issue $75BN in net marketable debt in the current quarter, $101BN below the last forecast, and assumes the cash balance continues to rise by the end of June to $360 billion, the TSY said. The April-June borrowing estimate is $101 billion less than its previous forecast, which was partly driven by the higher cash flows.

As for the last quarter fo the fiscal year (calendar Q3), the Treasury plans to borrow a net $273 billion, assuming a cash balance of $350 billion by the end of that period.

It is safe to assume that the Treasury will be well “over” all its borrowing estimates.

 

 

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Authored by James Howard Kunstler via Kunstler.com,

I had a fellow on my latest podcast, released Sunday, who insists that the world population will crash 90-plus percent from the current 7.6 billion to 600 million by the end of this century. Jack Alpert heads an outfit called the Stanford Knowledge Integration Lab (SKIL) which he started at Stanford University in 1978 and now runs as a private research foundation. Alpert is primarily an engineer.

At 600 million, the living standard in the USA would be on a level with the post-Roman peasantry of Fifth century Europe, but without the charm, since many of the planet’s linked systems — soils, oceans, climate, mineral resources — will be in much greater disarray than was the case 1,500 years ago. Anyway, that state-of-life may be a way-station so something more dire. Alpert’s optimal case would be a world human population of 50 million, deployed in three “city-states,” in the Pacific Northwest, the Uruguay / Paraguay border region, and China, that could support something close to today’s living standards for a tiny population, along with science and advanced technology, run on hydropower. The rest of world, he says, would just go back to nature, or what’s left of it. Alpert’s project aims to engineer a path to that optimal outcome.

I hadn’t encountered quite such an extreme view of the future before, except for some fictional exercises like Cormac McCarthy’s The Road. (Alpert, too, sees cannibalism as one likely byproduct of the journey ahead.) Obviously, my own venture into the fictionalized future of the World Made by Hand books depicted a much kinder and gentler re-set to life at the circa-1800 level of living, at least in the USA. Apparently, I’m a sentimental softie.

Both of us are at odds with the more generic techno-optimists who are waiting patiently for miracle rescue remedies like cold fusion while enjoying re-runs of The Big Bang Theory. (Alpert doesn’t completely rule out as-yet-undeveloped energy sources, though he acknowledges that they’re a low-percentage prospect.) We do agree with basic premise that the energy supply is mainly what supports the way we live now, and that it shows every evidence of entering a deep and destabilizing decline that will halt the activities necessary to keep our networks of dynamic systems running.

A question of interest to many readers is how soon or how rapid the unraveling of these systems might be. When civilizations crumble, it tends to fast-track. The Roman empire seems to be an exception, but in many ways it was far more resilient than ours, being a sort of advanced Flintstones economy, with even its giant-scale activities (e.g. building the Coliseum) being accomplished by human-powered work. In any case, the outfit really fell apart steadily after the reign of emperor Marcus Aurelius (180 AD).

The Romans had their own version of a financialized economy: they simply devalued their coins by mixing in less and less silver at the mint, so they could pretend to pay for the same luxuries they had grown accustomed to as resources stretched thin. Our financialized economy — like everything else we do — operates at levels of complexity so baffling that even its supposed managers at the central banks are flying blind through fogs of debt, deception, and moral hazard. When that vessel of pretense slams into a mountain top, the effects are likely to be quick and lethal to the economies on the ground below.

In our time, the most recent crash of a major socioeconomic system was the fall of the Soviet Union in 1990-91. Of course, it happened against the backdrop of a global system that was still revving pretty well outside the USSR, and that softened the blow. Ultimately, the Russians still had plenty of oil to sell, which allowed them to re-set well above the Fifth Century peasant level of existence. At least for now. The Soviet Union collapsed because it was a thoroughly dishonest system that ran on pretense and coercion. Apparently, the US Intel Community completely missed the signs that political collapse was underway.

They seem to be pretty clueless about the fate of the USA these days, too. If you consider the preoccupations of two very recent Intel chiefs — John Brennan of CIA and James Clapper, DNI — who now inveigh full-time on CNN as avatars of the Deep State against the wicked Golden Golem of Greatness. Personally, I expect our collapse to be as sudden and unexpected as the USSR’s, but probably bloodier because there’s simply more stuff just lying around to fight over. Of course, I expect the collapse to express itself first in banking, finance, and markets — being so deeply faith-based and so subject to simple failures of faith. But it will become political and social soon enough, maybe all-at once. And when it happens in the USA, it will spread through the financial systems the whole world round.

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For many investors in April…

Earnings up, stocks down…

 

Stocks managed to cling to gains in April for the first time since January…

 

And while Stocks ended almost unchanged, VIX tumbled in April – erasing all of February’s spike…

With VIX seeing its biggest monthly decline since July 2016… (NOTE – the seasonality in VIX in April/May in the last few years)…

Large speculators have cut their bets for turbulence in the stock market, as Bloomberg notes that After hitting a record earlier in April, the number of net-long positions on VIX futures plunged by more than 46,000 contracts, one of the fastest paces ever,

And finally on VIX, it appears the 15 level – seen as the ceiling for the vol index last year – is now the floor…

As Bloomberg reports, it doesn’t necessarily tells us where we go from here, but it shows that when the trading regime shifts, it tends to be swift and lasting. For what it is worth, the VIX averaged about 13 during the second half of the Fed’s tightening during the 2004-2006 cycle. So vol may have some room to decline, but not that much.

HY Credit spreads plunged in April (along with VIX) – the biggest monthly spread compression since Feb 2017…

Treasury yields ended the month higher across the curve…

Just as we warned, CTAs tried – and failed – to break 3.00% for good on the 10Y Treasury yield in April…

(And 10Y is now back the same level as the highs on fed rate hike day and 30Y Yield is 2bps below pre-rate-hike levels)

Despite the greatest short bond position in history…

And while yields were higher on the month, the yield continued its collapse – down 8 of the last 9 months, and 14 of the last 17 months… to the flattest since Oct 2007

 

The Dollar Index soared in April – its biggest monthly rise since Trump’s election in Nov 2016…

 

What is perhaps most notable in April is the surge in the USD and bond yields coincided with HKMA’s needing to intervene in the FX markets to sustain its peg band to the USD…

 

Cryptos had a yuuge April with Bitcoin up over 35% -the best month since 2017…but Bitcoin Cash was the big winner – up 100% in April…

 

Despite the huge gains in the dollar, April saw commodities generally unmoved (except Oil)…

 

WTI Crude was up for the 8th month in the last 10 in April to its highest monthly close since Nov 2014…

Silver notably outperformed gold mid-month but the last week or so has seen that unwound…

Finally, April saw a total collapse in ‘soft’ survey macro data – the biggest monthly drop since Feb 2015…

*  *  *

On the day, it was quite a frenetic day session as stocks opened higher, exuberant on earnings then gave it all back as Bibi broke the dead-cat-bounce’s back… Futures show the overnight exuberance faded at the open despite good earnings as hawkish comments from Bibi sent stocks reeling…

Cash markets ended the day “not off the lows”…

The Sprint, T-Mobile deal sparked some chaos…

 

Bank stocks gave up early gains…

Treasury yields were all lower on the day… (Japan was closed)

 

And the yield curve kept flattening…

 

The Dollar rebounded from Friday’s losses today but was unable to reach Friday’s highs…

 

Cryptos are up from Friday’s close…

 

Commodities were weaker on the dollar gains but crude managed to jump on Bibi statements…

WTI spiked today after Israeli Prime Minister Benjamin Netanyahu said Iran is lying about its nuclear weapons. But note that $69 was once again a resistance level…

 

 

 

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Via Global Macro Monitor,

That was then (2005),

North Korea vows to abandon nuclear weapons project

• Cautious welcome by Bush for road map deal

• Aid and US promise not to invade seals agreement

North Korea has agreed in principle to end its nuclear weapons programme and rejoin the international non-proliferation treaty, marking the biggest breakthrough in its three-year stand-off with the US.

Under a draft accord issued by North Korea and five other countries in Beijing yesterday, the reclusive state promised to give up its main bargaining chip in return for energy, economic aid and a US promise not to attack.  – The Guardian,  Sept 19, 2005

This is now, 

Kim Prepared to Cede Nuclear Weapons if U.S. Pledges Not to Invade

SEOUL, South Korea — North Korea’s leader, Kim Jong Un, told President Moon Jae-in of South Korea when they met that he would abandon his nuclear weapons if the United States would agree to formally end the Korean War and promise that it would not invade his country, a South Korean government spokesman said Sunday.

In a faith-building gesture ahead of a summit meeting with President Trump, Mr. Kim also said he would invite experts and journalists from South Korea and the United States to watch the shutdown next month of his country’s only known underground nuclear test site.  – NY Times, April 29, 2018

Eyes Wide Open

This administration has its eyes wide open. We know the history. We know the risks. We’re going to be very different. We’re going to negotiate in a different way than has been done before.  We use the word irreversible with great intention. We’re going to require those steps that demonstrate that denuclearization is going to be achieved. We’re not going to make promises. We’re not going to take words. We’re going to look for actions and deeds. – Secretary of State Mike Pompeo, April 29

Like Father, Like Son

How do you know that the North Korean regime is lying? Answer: Their lips are moving. – National Security Adviser John Bolton 

Curb Your Enthusiasm 

George W. doesn’t have a Nobel Peace Prize that we know of.

We also hope it is not an all or nothing negotiation with Trump and Kim.  The environment seems ripe  to make the world safer and the lives better for the Koreans even if it just incremental and without achieving total victory as the administration sees it.

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Back on January 2017, we said that there was a reason why Anthony Scaramucci was smiling:

It was simple: the Davos regular, who just days earlier had been named assistant to president Trump, and shortly after would infamously be White House communications director for all of 10 days before he was fired, sold a majority stake in his SkyBridge Capital fund of funds to China’s HNA Capital, as part of eliminating his legacy conflicts of interest.

While terms of the deal were not disclosed, the deal, which includes the SkyBridge Alternatives Conference, or SALT, was said to be valued at about $200 million according to Bloomberg. SkyBridge’s senior management and investment teams will remain intact while Scaramucci will step down.

And since Scaramucci owned about 45% of SkyBridge, he was about to pocket $100 million.

So yes, it was a solid payday for the Mooch.

Unfortunately it was not meant to last, because as Dow Jones reported moments ago, it appears that the deal has fallen apart:

• HNA IS SAID SET TO DROP DEAL TO BUY SKYBRIDGE CAPITAL: DJ

While many had expected the acquisition to fall apart following China’s crackdown on outbound M&A as well as the US crackdown on all deal by Chinese acquirors, it was unclear if Scaramucci would get a fast-track approval due to his (one-time) proximity to Donald Trump.

The answer, we now learn, was no.

What happens next? Well, there will be no $100 million payday for Scaramucci. Instead as Dow Jones adds, SkyBridge Capital may try to strike a (far less lucrative) partnership agreement instead, although it was uncertain, while neither the size nor the scope of the partnership were clear.

Scarmucci, who recently launched his own news website, the ScaramucciPost, has not commented yet on the report of the failed deal.

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In the latest warning shot to investors from the world’s most influential bank that the good times are ending, this time coming not from some lowly Goldman strategist predicting that broken markets themselves will cause the next crash, or some chart showing that a bear market is dead ahead…

… but the replacement of Gary Cohn himself, Goldman president David Solomon, the man who is set to replace Lloyd Blankfein in the near future warned that investors who have gotten too used to the long bull market “are being motivated more by a search for yield than concern a correction is coming.” 

While Solomon did not feel compelled to expose those responsible for said rush for yield, and also for the biggest asset bubble in history, he did warn that when the market turns, it will turn so fast, few will be able to get out.

“We’re down the road in the cycle, so there’s certainly places where people are further along the greed spectrum than the fear spectrum,” Solomon said Monday in an interview on Bloomberg Television. “In an environment where money has been so inexpensive for such a long period of time, there’s no question that people have been reaching for yield.”

Solomon then followed up with the most direct warning he was could without losing clients – after all Goldman is an underwriter to virtually every “growthy” public tech company in the world, and hopes to take the rest public – that “people have been reaching for growth, and if you look at a bunch of these growthy companies and the value that people will pay for forward growth has been very high,” he said.

“At some point that may correct” he warned ominously.

When? He did not give a timeframe but hinted that by the time it becomes obvious, it’s too late: “History shows markets reprice more abruptly than people expect.”

 

 

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With the market having gone nowhere in the first 4 months of 2018, the year is shaping up as a wash for most Wall Street professionals, but not for associates at the bank that recently overtook Goldman Sachs in total revenue. According to Bloomberg, Morgan Stanley will raise junior banker salaries and offer quicker promotions as part of its push to “improve working conditions.”

As part of the compensation boost, base salaries for most associates in investment banking and capital markets will rise by 20 percent to 25 percent, the first big raise for associates in almost four years. Indicatively, associates at major investment banks typically receive base salaries of $100,000 to $150,000, according to Options Group, a number that hasn’t changed much the decade. Bloomberg adds that according to a memo sent to staff, associates’ salaries will be raised on Aug. 1.

Meanwhile, in a major overhaul to the bank’s “tenure track”, Morgan Stanley analysts will be delighted to learn that they will be promoted to associate after just two years instead of three, according to the memo.

“The ability to recruit, develop and retain top talent by offering attractive career opportunities is a key priority,” according to the memo. “We will continue to maintain the finite nature of the program by assisting those who have decided to pursue other careers at the end.”

In its attempt to make the ibanking lifestyle more appropriate for the current wave of ubiquitous snowflakedom, the bank is also keeping a tradition of two mandatory one-week vacations annually and limiting staffing on Fridays and weekends. Newly promoted vice presidents also get a four-week sabbatical to rest before they rise in their careers.

Unlike many of its peers which are cutting back on headcount and tent to part ways with junior staffers under “adverse” conditions, Morgan Stanley is among Wall Street firms that have been boosting pay and perks to try to retain young talent.

Notably, the bank is also seeking to maintain good relationships with bankers who defect early in their careers for buy-side roles in private equity or hedge funds, or at corporations, with the thinking that the former employees will become clients, the people said.

Morgan Stanley, which has been boosting salaries since the financial crisis, currently employs a total of 57,633 bankers, nearly double the 37,300 employed by its biggest competitor, Goldman Sachs.

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