Month: June 2018

Well Day 1 did not go according to plan…

The EU Council has cancelled the press conference at the end of Day 1 of the summit and in a very diplomatic statement, make it clear, it’s Italy’s fault…

The European Council this afternoon had an exchange of views with EP President Tajani and NATO Secretary-General as well as discussions on security and defence, jobs, growth and competitiveness, innovation and digital and other issues such as enlargement, MH-17 and MFF.

As one Member reserved their position on the entire conclusions, no conclusions have been agreed at this stage.

For this reason, the press conference by the EU institutional representatives has been cancelled and will instead take place tomorrow after the end of the Euro Summit.

Can you guess who the “one Member” was?

If you guessed Italy – you’re right.

As Bloomberg reports, Italian Prime Minister Giuseppe Conte issued a threat to veto the summit’s conclusions on Thursday during a two-day meeting of EU leaders in Brussels taking place under the cloud of a bloc-wide dispute over migration.

Conte is demanding other EU members share the burden of refugees landing in Italy at a time when German Interior Minister Horst Seehofer has told Merkel to broker a deal that would allow migrants to be sent back to Italy. Conte and Merkel met on the sidelines before the summit began.

Conte told reporters he had received many positive assurances from fellow leaders but “today we want these proposals to become fact.”

He said he doesn’t want to consider the “possibility” of vetoing a final statement, but if Italy doesn’t get what it wants “we surely won’t reach common conclusions.”

Italian officials later reiterated the threat during Thursday evening, while inside the room Conte refused to allow other topics such as trade to be signed off until migration was handled.

But it wasn’t just Italy standing up against Merkel’s migration plans:

“It’s possible to begin a turnaround in migration today,” said Austrian Chancellor Sebastian Kurz, who took power last year in a coalition with a far-right party on an anti-immigration platform. “I think it’s possible to reach an agreement on on-shore centers or platforms.”

He said migrants rescued at sea should be returned to Africa rather than brought ashore in Europe, which triggers certain rights. Rescue at sea should not necessarily “mean a ticket to Europe,” he said.

Hungarian premier Viktor Orban, who has refused to accept a quota of migrants under the existing rules, offered a reminder of how attitudes to migrants have soured in in many parts of Europe.

“We will do what the people really request,” he said. “The invasion should be stopped, and stopping the invasion means having strong border controls.”

Will anything change on Day 2?

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One year ago, when yield-starved investors were chasing for yield, any yield, in the remotest places of the globe, Argentina triumphantly returned to markets, with a bond issue that shocked many: a 100 year bond. And while many warned that either the massive duration risk of this issue, or just Argentina’s inherent economy instability would make the eager investors sorry in the very near future, euphoric managers of “other people’s money” wouldn’t hear of it.

Well, fast forward today when Argentina’s debut century bond just celebrating its first anniversary, just in time to prove all the skeptics right as the issue just hit an all time low price of just 76 cents on the dollar…

… and inversely, record-high yields of 9.3%…

… as the collapse in the Peso and the sharp slide of the economy threatens to push the economy into recession.

There were no clear signs any of this would happen: last June, the government sold $2.75 billion of 100-year bonds trumpeting that the arrival of President Mauricio Macri’s administration had put the serial defaulter in a new era of financial certainty. And investors believed it: the offering was 3.5x oversubscribed.

Exactly one year later, the yield on the bonds just hit a record 9.31%, up nearly 1.5% since it was sold at a discount as the peso lost 40 percent of its value, forcing the central bank to boost interest rates and fueling already high inflation. Meanwhile, the economy is in shambles: GDP posted its largest decline in April since Macri took office in December 2015, even as the IMF granted the serial defaulting Latin American nation a record $50 billion credit line.

“The government may celebrate, investors can’t,” said Guido Chamorro, senior investment manager of Pictet Asset Management Limited quoted by Bloomberg. “From a fundamental perspective, the big drop in GDP earlier this week is a bit of a nail in the coffin. Argentina needs growth.”

Making matters worse for bondholders they have been “primed” and are now second in line behind the multi-lateral lender should Argentina default. “The IMF never takes a haircut, thus reducing recovery values for ‘regular’ bondholders” Chamorro added.

Unfortunately, with the Argentina economy rapidly sliding into a recession, it looks that they will be primed: economic activity fell 2.7% in April from the month before, and dropped on an annual basis for the first time in 14 months, the country reported Tuesday. That collapse will complicate Macri’s plans to further cut government spending as agreed with the IMF.

But the worst is yet to come for the century bond, and according to Chamorro the yield is likely break the 10% barrier soon as global rates begin to rise led by the U.S. Federal Reserve.

“The root of the problem is that the emerging-market bond community has been positioned with a structural overweight position in frontier countries, led by Argentina as the largest overweight,” he said. “If the general international macro backdrop doesn’t improve it is very difficult to visualize who will be the buyer of the next Argentine sale.”

Not everyone is angry: according to Seaport’s emerging markets analyst Michael J. Roche, “the IMF program and the presence of pro-government policy changes have encouraged money managers to accumulate the century bond on weakness,” Roche said.

“Each additional 20 basis-point rise in yield from this point will bring in more demand, so getting to a 10 percent yield is possible, but may amount to one of those briefly-held opportunities.”

Which of course is what investors were also saying one year ago when the bond was first issued.

Meanwhile the currency’s collapse has resumed with the peso back above 28/USD, closing at a record low close.

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Via Dana Lyons’ Tumblr,

A slew of global equity markets are testing key bull market Up trendlines.

After a few slow weeks, our #TrendlineWednesday feature on Twitter today was more prolific. Much of that can be attributed to a wide array of equity indices testing key bull market uptrends. Specifically, several are testing their cyclical bull market Up trendlines – primarily from early-2016 lows (although, some of us would argue that the cyclical bull actually still stems back to 2009). In any event, these ~2-year old trendlines hold considerable significance. They have provided the necessary support to maintain the bull markets’ pace of advance thus far. Therefore, a break of such support would undermine the pace of advance, at a minimum – and potentially subject the markets to meaningful downside pressure.

As mentioned, several of these trendlines are under siege currently from a number of equity indices, both domestically and abroad. Leading off, due to visibility, is the Dow Jones Industrial Average which is testing the Up trendline from its early 2016 lows.

Similarly, the broader NYSE Composite is also testing its post-2016 Up trendline.

As we mentioned above, it’s not just U.S. indices experiencing tests of their bull market uptrends. In Hong Kong, the Hang Seng is also testing the Up trendline from its 2016 lows.

And around the world in Chile, we see it’s benchmark stock index, the IPSA likewise testing its post-2016 Up trendline.

Finally, another emerging market, Taiwan, is testing its Up trendline stemming back to its cyclical low in 2015.

So what will become of all these key trendline tests? Time will tell. There are markets that we like a great deal – and others that we don’t. But the fact that we have an abundance of tests underway simultaneously suggests that we’re at another important juncture in the global market – so stay on your toes.

*  * *

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Facing a grilling during the House Committee on the Judiciary hearing this morning, Deputy Attorney General Rod Rosenstein refused to say whether or not any member of the Obama administration tried to undermine President Donald Trump’s campaign leading up to the 2016 presidential election.

“What did the DOJ or FBI do in terms of collecting information, spying, or surveillance on the Trump campaign be it via Stefan Halper or anybody else working on behalf of the agencies?” GOP Rep. Ron DeSantis of Florida asked Rosenstein during a House Committee on the Judiciary hearing Thursday.

“As you know, congressman, I’m not permitted to discuss classified information in an open setting but I can assure you we are working with oversight committees and producing all relevant evidence to allow them to answer those questions,” Rosenstein answered.

Unsatisfied with Rosenstein’s response, DeSantis pressed him once again.

“Let me ask you this, then, did the Obama administration, anybody in the administration direct anybody, Halper or anybody, to make contact with anyone associated with the Trump campaign?” DeSantis asked.

“As I said, congressman, appreciate the — I understand your interest, I’m not permitted to discuss classified information,” Rosenstein said.

Watch the entire exchange below:

Source: The Daily Caller

Rosenstein used the same argument as Rep. Matt Gaetz (R-Fla.), one of the Justice Department’s fiercest critics, repeatedly asked questions centering on whether federal officials began collecting intelligence on the Trump campaign and Russia before launching its investigation in July 2016.

“Did any investigative activity regarding the Trump campaign and Russia occur before July 31, 2016?” Gaetz asked, noting this is the date the FBI initiated its counterintelligence investigation, according to the Democratic memo produced by the House Intelligence Committee.

“Congressman, as you know, we are dealing with the Intelligence Committee on that issue and Chairman [Devin] Nunes met with Director Wray and me. I received the same briefing that he received so I do not know any additional information beyond what he knows about that and I’m not able to produce any information beyond what the FBI has told me,” Rosenstein replied.

Gaetz also asked whether Rosenstein knew of any payments to collect intelligence on the Trump campaign before the FBI launched its probe.

“No, but keep in mind I wasn’t there. I only know the information we’ve obtained from the FBI records,” Rosenstein replied.

But, as The Hill reports, Rep. DeSantis was not done and suggested later in his questioning that Rosenstein should recuse himself from overseeing the Russia investigation, pointing to the fact the deputy attorney general himself wrote the memo to President Trump recommending former FBI Director James Comey be fired.

“They talk about the Mueller investigation. It’s really the Rosenstein investigation. You appointed Mueller. You’re supervising Mueller, and it’s supposedly about collusion between Trump’s campaign and Russia and obstruction of justice,” DeSantis said.

“But you wrote the memo saying that Comey should be fired and you signed the FISA extension for Carter Page. So, my question is to you, it seems like you should be recused from this more so than [Attorney General] Jeff Sessions just because you were involved in making decisions affecting both prongs of this investigation,” DeSantis continued. “Why haven’t you done that?”

Rosenstein responded he would recuse himself if “it were appropriate.”

“Congressman, I can assure you that if it were appropriate for me to recuse, I would be more than happy to do so,” Rosenstein said. “But, it’s my responsibility to do it.”

DeSantis drilled down, emphasizing that Mueller is said to be investigating potential obstruction of justice by the president in the Comey firing. While press reports have indicated that the special counsel is looking into possible obstruction of justice, officials have not spoken publicly about the lines of inquiry in the probe.  

“I am not commenting on what is under investigation by the Mueller probe and to the best of my knowledge, neither is Mr. Mueller,” Rosenstein said.

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The world’s largest hedge fund, Bridgewater Associates, is about to undergo a metamorphosis: according to the NYT: the fund which has long been tightly controlled by its founder, Ray Dalio, and his top two lieutenants, is reshaping itself, becoming a partnership that will give its top executives significantly more say in how the $150 billion fund is run.

As part of the new partnership model, which was announced to employees and clients on Thursday, the company’s founder Ray Dalio will play less of a day-to-day role managing the company over the next decade. The partnership model is meant to create what Bridgewater executives have described as a “continuously improving perpetual motion machine,” able to keep operating long after Mr. Dalio leaves.

“Consistent with our way of operating, we are providing transparency of this progress to our employees and our clients and we look forward to sharing further details as they emerge,” the co-chief executives wrote.

As the NYT adds, the restructuring will put Dalio’s management philosophy to the test:

He created a unique and often controversial culture at Bridgewater by establishing what he calls an idea meritocracy based on “radical transparency,” in which employees are encouraged to challenge one another openly.

And yet, as Andrew Ross Sorking writes, Bridgewater was far from a democracy as final decisions always rested with Dalio and the two other primary owners of the firm, his fellow co-chief investment officers, Bob Prince and Greg Jensen. By switching to a partnership model, other senior executives throughout the firm will get both an economic stake in the business and a vote in how it is managed. It is the sort of partnership that once dominated finance, akin to the model at the consulting giant McKinsey & Company or at Goldman Sachs before it went public in 1999.

In a letter to employees, Bridgewater’s co-chief executives, David McCormick and Eileen Murray explained that the change “will both broaden the ownership across the firm and help us remain employee controlled for generations to come.”

However, what it won’t mean, at least in the near term, is a move to take the company public.

The firm has already brought in some outside investors, including the Teacher Retirement System of Texas and Ontario Municipal Employees Retirement System, as well as Singapore’s sovereign wealth fund and the International Monetary Fund. Bridgewater executives believe those investments provided enough cash to eliminate the need to raise money through an initial public offering, these people said.

It also doesn’t mean that Dalio is retiring: “that day is far off. Mr. Dalio has said he intends to remain co-chief investment officer for as long as possible, though he has sought to cut back on managing the company’s operations.” As a reminder, Dalio gave up his title of co-chief executive last year, handing day-to-day management responsibilities to Mr. McCormick and Ms. Murray.

And yet, like with many other established hedge funds who have been led by just on “luminary”, the transition follows a period of upheaval within the firm’s ranks, including the departure of several top executives and outside scrutiny of Bridgewater’s tough internal culture, which has contributed to a high turnover rate among employees.

The company’s executive structure won’t change, but under the plan announced on Thursday, Bridgewater will begin rolling out the concept of “employee partners” for those who already own what is known as phantom equity, entitling them to cuts of the firm’s profits without being owners of the firm.

Initially, Bridgewater will have two classes of partnerships. A handful of senior employees have been chosen as so-called seed partners, including Mr. McCormick and Ms. Murray, who have begun laying out the contours of what the partnership will ultimately look like. That will include the financial arrangements, which haven’t yet been set.

Then there is a bigger group of 50 provisional partners, whose job will be to represent the broader group of phantom equity holders and work with the seed partners on finalizing the terms of the partnership.

The final details of how Bridgewater’s partnership works haven’t been set, and it will be up to its prospective members to decide how to govern themselves. But the expectation is that they will start gaining more power over the next six months.

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A week before CEO Elon Musk is due to admit his Model 3 production numbers – will he or won’t he hit 5,000 units a week – Tesla is sending out emails to all Model 3 reservation holders in the US and Canada explaining that they need to pay $2,500 to confirm their order online or lose it.

Reservation holders began paying $1,000 deposits when CEO Elon Musk first revealed the car in March 2016

As Bloomberg notes, the email also invites recipients to use online design studio to select options and configure their Model 3, and once reservations customize their car and place order, Tesla will provide an estimated delivery date, and the customer pays the rest owed to the company at the time of delivery.

While Tesla stocks have risen in the last day or two, bonds have not and are down again today as perhaps fears that Tesla needs cashflow – why demand the $2500 now? – may have spooked them…

Or maybe bondholders are less willing to give Musk yet another benefit of the doubt that he will achieve what he constantly promises he will.

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Concluding the week’s trio of coupon auctions, moments ago the Treasury sold $30 billion in 7 Year paper at a yield of 2.809%, “on the screws” with the When Issued, and just like this week’s prior 2 and 5-Year auction, a decline from last month’s 2.93%. This was the second consecutive “belly” auction that has seen the high yield decline after hitting a cycle high of 2.952% in April.

The internals were average, with Indirects dropping from 65.5% last month to 60.6%, below the 64.7% 6 month average; at the same time Directs increased from 12.9% to 15.2% while Dealers were left with 24.1%.

Overall, a stable auction, if like the prior two, in no way remarkable while confirming that demand for paper remains relatively solid in the primary market, if a little weaker among foreign buyers.

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