Month: April 2021

Authored by Robert Wenzel via TargetLiberty.com,

“Puritanism: The haunting fear that someone, somewhere, may be happy.”

-H.L. Mencken

The secular-puritan nut jobs, who can’t leave any joys of the world alone, are now escalating their attacks on meat and with it, virtue signaling has entered a bizarre new phase.

Epicurious is, according to The New York Times, “the popular online recipe bank where home cooks have gone to hone their skills for a quarter of a century.”

The editors there revealed to readers this week that not only were they done with new recipes containing beef, but they had been phasing them out for over a year, reports the Times.

“We know that some people might assume that this decision signals some sort of vendetta against cows — or the people who eat them,” Maggie Hoffman, a senior editor, and David Tamarkin, a former digital director, wrote in an article published on Monday.

“But this decision was not made because we hate hamburgers (we don’t!).”

The shift was “solely about sustainability, about not giving airtime to one of the world’s worst climate offenders,” they said.

“We think of this decision as not anti-beef but rather pro-planet.”

Hoffman and Tanarkin write as if they actually understand the first thing about the Pearson product-moment correlation coefficient and its application in the study of climate change.

These posers are so contradictory and out of touch with reality that they have become a vegan herd.

I call for a steer’s fart on all of them.

But the big question is: Will the masses be as meek against this mad movement as they have been against the lockdowns and cancel culture? 

Meat producers are already wimping out.

On Sunday, JBS and Pilgrim’s Pride, one of the country’s largest chicken producers, took out a full-page ad in the New York Times headlined, “Agriculture can be a part of the climate solution,” committing to net-zero emissions by 2040, The Washington Post reports.

The Post then added this:

[T]here is a lot of research when it comes to the contribution of industrial agriculture to the greenhouse gases that are warming the planet… beef consumption, in particular, has been singled out as uniquely harmful to the planet.

In 2019, the EAT-Lancet Commission report and the special report on climate change and land by the Intergovernmental Panel on Climate Change made strong suggestions about the need to move away from cattle ranching.

Livestock are responsible for about 14.5 percent of global greenhouse gas emissions, according to the United Nations’ Food and Agriculture Organization, on a par with all of global transportation.

Ezra Klein, in a New York Times column this past Saturday, called for a “moonshot” that would turn the United States away from industrial agriculture and toward “meatless meat.”

The anti-cow fart crowd needs to be stopped now. 

Last night we quoted Std Chartered’s Steven Englander who explained why unlike the Fed’s upcoming June meeting (when there is a high chance Powell will bring up tapering), markets should not expect much if anything from today’s FOMC meeting.

Others, such as Jones Trading chief market strategist Michael O’Rourke, agree: “I don’t expect anything from the Fed,” he said in an an interview with S&P Global Market Intel.

This week’s Fed meeting “promises to be rather uneventful,” said Aneta Markowska, chief financial economist at Jefferies, in an interview. The committee will likely acknowledge that the U.S. economy has “inflected,” drawing on Fed Chairman Jerome Powell’s comments to CBS’s “60 Minutes” earlier this month. “I don’t really see scope for a more significant tone change,” Markowska said. “It’s definitely too early for any strong taper signals. I think they start ‘talking about talking about’ tapering in June.”

Deutsche Bank economists are also in the “it will be boring” camp, writing that today should largely serve as a status check of the economic recovery relative to the substantial forecast upgrades that the FOMC unveiled at their March meeting. And in the press conference, they expect Powell will likely continue his subtle shift in tone in a more optimistic direction. However, they also think that given the remaining gaps in the labor market and the Fed’s focus on seeing actual rather than forecasted progress, April is too soon for the return of taper talk, and those discussions will heat up during the summer instead. So as with last week’s ECB meeting, today is likely to act as more of a placeholder rather than see any major headlines.

Echoing this, Goldman writes that while it expects the April FOMC statement to feature a more upbeat description of recent economic activity, beyond that the FOMC meeting should be uneventful: “we think it is clearly too soon for the FOMC to hint at tapering with core inflation low, the unemployment rate at 6%, and broader slack higher still”

While JPMorgan agrees that nothing market-moving is likely to emerge from today’s “nonevent” meeting which will have a “mostly unchanged statement”, and that the Fed is unlikely to change near-term holding pattern, it warns that taper talk + higher yields & dollar still around the corner. The bank does warn that this may be the last “uneventful” meeting before the taper discussion enters the formal Fed communication and the Fed ramps up into a policy normalization path. As such the risk is a bit skewed that there is some early hinting of this to come in the Powell press conference (though JPM Economists think it more likely appears first in the minutes to this meeting, which is published in mid-May). At the same time, there is minimal scope for the Fed to go the other way and inflame retracement lower in yields and the dollar. As the JPM team concludes,”we’ve continued to reiterate that the US exceptionalism theme as a source of support for the USD remains durable, and are staying long USD against low yielders (GBP, JPY, CHF, also NZD as a CB divergence RV trade).”

* * *

More importantly, as S&P Global reminds us, in its minutes from the March 16-17 meeting, the FOMC is now locked in on “outcome-based guidance” which dictates that monthly bond purchases will continue until “substantial further progress” is made toward the Fed’s maximum-employment and price-stability goals. Instead of altering policy in anticipation of a jump in inflation, the Fed now wants to see inflation run hot at or above 2% for some time.

Adherence to outcome-based guidance is “now part and parcel of the US central bank’s new policy of not reacting to perceptions of a direction of travel, but waiting until both goals of higher inflation and full employment has been achieved,” wrote Michael Hewson, chief market analyst at CMC Markets, in an April 26 note.

As market participants eagerly wait to see if the Fed will tap the brakes on its dovish monetary policy, Hewson, O’Rourke and many others expect no indication of change from the central bank at this week’s meeting.

And the Bank of Canada’s decision to cut its bond purchases will have no impact on the Fed’s quantitative easing path going forward.

“Not only are the QE programs of different scale and labor market progress at different points, but the Fed’s reaction function — starting tapering after substantial further progress is already made — is more dovish than the BoC’s reaction function — end tapering when the recovery is well underway,” wrote Matthew Hornbach, global head of macro strategy in an April 23 note.

Meanwhile, the bond and equity markets remain in the dark over when the Fed $120 billion in monthly bond purchases may be curbed. In an interview, James Knightley, chief international economist with ING, said he expects the Fed will make a formal taper announcement in December – well after many on Wall Street expect the first taper discussion some time in the summer –  and he said a “volatile period” in asset markets is likely to follow.

“Transitioning from an environment where the Fed has the accelerator peddle pressed to the floor to one whereby they removing the foot from the accelerator and the perception is the next step will be to then tap the brake peddle is going to be one that carries the risk of higher bond yields,” Knightley said. “However, the greater risk for a bond market sell-off would be if the perception increasingly becomes one that the Fed is ignoring the threat of inflation and markets start to lose confidence.”

In an April 22 note, David Mericle, chief U.S. economist at Goldman Sachs, said he expects the FOMC to begin “hinting” at tapering in the second half of 2021 with actual tapering beginning in early 2022. The Fed would taper about $15 billion in bond purchases per Fed meeting, leaving about one year to complete the tapering entirely, he said.

“After that, we think the FOMC will want to pause to take stock of the impact of tapering for at least one and ideally two quarters, putting rate hikes on the table around mid-2023,” Mericle wrote.

“Market pricing implies about three hikes by the end of 2023, consistent with the FOMChiking at what we see as the earliest possible date and continuing at a steady once-per-quarter pace” Mericle said, adding that “that is certainly one plausible outcome, but we think it is somewhat more likely that inflation will not pass the bar for liftoff until early 2024. We would chalk up market pricing of one to two hikes by end-2023 to a mean vs. mode distinction that is not necessarily indicative of a genuine difference with our view.”

Futures markets have begun to price in a potential rate hike as soon as next year despite signals from Fed officials that one is not coming until at least 2024. According to the Goldman strategist, “pricing three hikes puts insufficient weight on a range of plausible scenarios in which the Fed would not hike in 2023, such as inflation being too low, or the economy slowing enough naturally as fiscal support fades or financial conditions tightening enough after tapering that the Fed sees a hike as superfluous.”

* * *

With all that in mind, here is the FOMC statement and Powell press conference preview from our friends at Newsquawk:

• The FOMC is expected to reiterate an accommodative policy stance while expressing cautious optimism in the medium-term outlook.

• There are no forecast updates due, and accordingly focus will fall on any constructive upgrades within the statement language (nothing major expected) and Chair Powell’s post-meeting press conference, which could offer some insight on the timeline and sequencing of the Fed tapering its asset purchases  The Fed Chair might also begin defining the parameters of “substantial progress” means.

• Despite the encouraging tone within recent economic data, Chair Powell will keep his optimism grounded in the context of the large slack that remains within the labor market  relative to pre-pandemic; and analysts believe that should keep the risk of any explicit taper signal at bay.

GROWTH: The tone of incoming economic data has improved since the last meeting, and the Fed Chair has recently acknowledged that the economy was at an “inflection point”. There remains debate among economists regarding the sustainability of the recent growth impulse and labour market metrics (and how much of it is already priced in), with an argument that the series of fiscal stimulus may have engineered a front-loaded growth spurt, leaving the prospect of a more tepid performance ahead. The lack of visibility at this stage in the context of the 8-10mln Americans that remain out of work relative to pre-pandemic levels may keep Powell’s optimism somewhat anchored. Additionally, Powell will again emphasise that in the Fed’s new policy framework, it wants to see actual data that demonstrates that the economy is on track, not just expectations and forecasts.

INFLATION: On inflation, monetary policy officials globally have been making the point that they see any short-term spike higher in price pressures as a “transitory” phenomenon, related to pandemic base effects, higher energy prices, and possibly pent-up demand releasing as economies begin reopening. Expect Powell to stick to this script; the Fed chair recently responded to a Senator concerned about the risks posed by excessive monetary accommodation, stating that the Fed “does not seek inflation that substantially exceeds 2%, nor does it seek inflation above 2% for a prolonged period”. At least a couple of Fed officials have begun murmurings on this theme, so the Fed Chair may make this point again in his press conference.

TAPER: The Fed Chair has said that it is likely to take “some time” for “substantial further progress” to be achieved; his opening  remarks will be scrutinised to see how these phrases evolve, which may offer insight into when the Committee will seriously debate tapering monthly asset purchases. Powell has previously said that when the Fed sees the economy “on track” to achieve this “substantial further progress”, it would communicate that observation, which would presumably result in firmer guidance on the timeline and sequencing of scaling back its purchase rate. Powell is yet to define the exact parameters of what “substantial progress” implies. A consensus seems to be building that any taper announcement might be flagged in June, ahead of a move later in the year. And while some expect the taper to begin in June, others note that the Fed will not want to rush and repeat previous mistakes of tightening too quickly.

BOND BUYING: Recent remarks made by a NY Fed official gave the impression that the Fed might tweak the weighted average maturity of its asset purchases to match the Treasury’s issuance profile (which has been lengthening). This did not transpire when the NY Fed published its latest purchase schedule. Any tweaks will be framed as purely technical– which is likely why the notion was discussed by a NY Fed official rather than a member of the policymaking FOMC–and not a sign of a change in monetary policy stance

IOER: There remains a risk that the Fed will lift the IOER rate due to the pressure on money market rates as bank reserves swell amid an abundance of liquidity chasing a limited collateral pool. Once again, however, these types of changes will be framed as technical, and not a signal about the direction of monetary policy. But some analysts have warned that it might be too soon to make IOER, or Overnight Reverse Repo rates, which may be more appropriate should the effective Federal Funds Rate slips beneath 5bps.

Federal investigators in Manhattan executed a search warrant today on former New York City Mayor Rudy Giuliani’s Upper East Side apartment, according to the New York Times, whose three anonymous sources say is an escalation of a “criminal investigation into Mr. Giuliani’s dealings in Ukraine.”

According to the report, “Executing a search warrant is an extraordinary move for prosecutors to take against a lawyer, let alone a lawyer for a former president, and it marks a major turning point in the long-running investigation into Mr. Giuliani.”

Among other things, Giuliani’s electronic devices were reportedly seized as part of the search, according to one of the sources.

The feds are looking into whether Giuliani illegally lobbied the Trump administration in 2019 on behalf of prominent Ukrainians, who were simultaneously helping Giuliani uncover allegedly shady dealings by the Biden family while then Vice President Joe Biden was in charge of Ukraine policy for the Obama administration.

For months, the US Attorney’s office in Manhattan and the FBI had sought a search warrant for Giuliani’s phones – which senior political appointees in the Trump DOJ allegedly sought to block, according to the Times. Under new Attorney General Merrick Garland, the DOJ lifted its objection to the search.

While investigating Mr. Giuliani, prosecutors have examined, among other things, his potential business dealings in Ukraine and his role in pushing the Trump administration to oust the American ambassador to Ukraine, which was the subject of testimony at Mr. Trump’s first impeachment trial.

As he was pressuring Ukrainian officials to investigate the Bidens, Mr. Giuliani became fixated on removing the ambassador, Marie L. Yovanovitch, whom he saw as an obstacle to those efforts. At the urging of Mr. Giuliani and other Republicans, Mr. Trump ultimately removed Ms. Yovanovitch. –NY Times

Federal prosecutors are now looking at whether Giuliani was working for Ukrainian officials at the same time as he was serving as former President Trump’s personal attorney – and whether Ukrainian officials or businesses wanted Yovanovitch to be removed for their own reasons, according to the Times anonymous sources.

Another Ukrainian official under the spotlight is Yuriy Lutsenko, one of the officials who assisted Giuliani and his associates in their investigation of the Bidens. Lutsenko allegedly paid Giuliani’s firm hundreds of thousands of dollars in unrelated consulting business, which resulted in a draft retainer agreement which was never executed.

Giuliani has repeatedly said he turned down the deal, which would have involved his efforts to recover money that the Ukrainian government believes was stolen and stashed offshore.

Days after President Putin warned the West of a “harsh” and “asymmetrical” response if it crosses Russia’s ‘red line’ concerning NATO troop positioning and the recently renewed Ukraine standoff, the European Parliament in Brussels has proposed a new resolution to disconnect Russia from the SWIFT payment system. 

Dated Wednesday, April 28, it’s entitled, “European Parliament resolution on Russia, the case of Alexei Navalny, the military build-up on Ukraine’s border and Russian attacks in the Czech Republic.” The over 50 European Parliament lawmakers cited “aggression and continued destabilization of Ukraine, hostile behavior towards and outright attacks on EU member states and societies.” 

It further appears a ‘preventative’ and threatening measure in the instance of any future scenario of major Russian troop build-up in Crimea and along Ukraine’s border such as occurred over the last month. Despite the Kremlin last week ordering a troop draw down after the conclusion of Black Sea military drills, the EU is clearly seeking to drastically beef up the “cost” automatically imposed on Russia for “threats” against Ukrainian sovereignty. 

Here’s what the key section of the new punitive resolution says on SWIFT:

…Underscores that if such a military build-up were in the future to be transformed into an invasion of Ukraine by the Russian Federation, the EU must make clear that the price for such a violation of international law and norms would be severe; insists, therefore, that in such circumstances imports of oil and gas from Russia to the EU be immediately stopped, while Russia should be excluded from the SWIFT payment system, and all assets in the EU of oligarchs close to the Russian authorities and their families in the EU need to be frozen and their visas cancelled; 

It’s certainly not the first time that Western allies have threatened such. The threat to cut off Russia from the global system for financial messaging and cross-border payments which acts as the protector of the dollar reserve system has lingered for the past half-decade, since the initial Crimea crisis and the start of war in eastern Ukraine.

Russian officials have recently called Ukraine’s lobbying to get Russia banned from SWIFT “a declaration of war”…

Ukraine has asked the EU to disconnect Russia from SWIFT, the international system of transfers between banks, suggesting the measure be added to a new package of sanctions.

Moscow has previously said it would regard this as “a declaration of war.”https://t.co/ovFhriZNYI

— Bryan MacDonald (@27khv) April 22, 2021

Meanwhile Russia only two weeks ago made threats of its own, saying it’s gradually being “forced” to seek alternate payment mechanism and move away from the dollar…

“Naturally, all this casts doubt on not only the expediency of using the American currency as a priority payment currency, but also the reliability of using payment mechanisms controlled by the West,” Foreign Ministry spokeswoman Maria Zakharova said on April 15 in response to new US sanctions.

Further according to TASS:

She pointed out that Russia’s gradual reduction of the dollar share in national and cross-border settlements is a “forced decision” made “in the conditions of losing confidence in the West in matters of ensuring uninterrupted access to the international financial system” as well as declining predictability of US economic policy and uncontrolled introduction of unreasonable restrictive measures.

In recent years Russia has pursued talks with other countries – notably China, India, Iran and Turkey – over establishing major alternatives to the Belgium-based SWIFT system.

It began pursuing alternatives in earnest particularly after it was hit with Western-led sanctions after 2014, and is more recently said to be experimenting with blockchain-based solutions.

Authored by Garfield Reynolds via Bloomberg,

Treasury yields are signaling the global economy will be too weak in the coming years to sustain the explosion in commodity prices.

Source: Bloomberg

Ten-year yields dropped some 11 basis points this month amid a resurgent pandemic and uneven vaccine progress. In contrast, the Bloomberg Commodity Spot Index is up ~8% so far in April – heading for its best month since August.

Source: Bloomberg

Much of that has been powered by idiosyncratic issues, such as iron ore supply shocks in Australia and Brazil that combined with an acceleration in Chinese demand ahead of an expected crackdown on steel output later this year.

The coronavirus is suddenly making Asia an unexpected weak link in the recovery narrative, with India and Japan now likely to see growth forecasts downgraded. That’s a problem for the global outlook given the Asia-Pacific region is projected to expand at a 4.9%/yr pace in 2021-3, quicker than the world’s 4.4% rate.

Pandemic-related disruptions to supply chains threaten to further drag on growth, while causing demand spikes that will prove only temporary.

Source: Bloomberg

Even as copper climbs toward $10,000, there’s evidence of a reluctance to spend on fresh mines. Miners don’t see a repeat of the 2000s, when China had an insatiable demand for raw materials. Today’s drivers — pandemic recoveries, stimulus spending and the shift toward decarbonization — are perceived as being transitory.

Raw materials producers are dealing with three major distortions to the demand outlook:

• First, the trade war shifted the world’s two largest economies to a confrontational bias from a cooperative one.

• Then the pandemic hit just as the worst of the trade turmoil seemed over. The resulting disruptions are being compounded by a stimulus-fueled recovery that has outpaced anything anticipated a year ago, but that won’t be the permanent state of affairs.

• And, finally, the challenges surrounding climate change are complex. Copper, for example, is soaring partly on a greener future that looked to have been put on the back-burner a couple of years ago. However, the recent nickel price decline flags the dangers of seeing such gains as a one-way bet. For now there’s little to validate that decarbonization efforts will generate supercycle-level demand.

There is the potential that bond traders are underestimating inflation dangers, meaning they could once more suddenly adjust to the commodities rally. However, as I flagged before, if yields do spike that’s likely to then bring commodities crashing down.

The longer-term economic outlook, once we get past the immediate stimulus-fueled rebound, was looking anemic even before the pandemic intensified, and bonds are justifiably reflecting those dynamics. Commodities traders may want to take note.

As we mentioned earlier today, President Biden’s $1.8 trillion proposal to ‘expand the social safety net’ notably omits the removal of a Trump-era cap on the SALT deduction, which allows wealthy taxpayers to deduct state and local taxes from their federal returns.

The deduction – which largely affected the wealthiest Americans – most of whom are Democrats, has become a major sticking point on Capitol Hill, as Democratic lawmakers have been calling for Biden to repeal the 2017 cap instituted by former President Trump as part of his signature tax legislation, which lowered taxes or increased refunds for most Americans.

For high-tax states including Democratic-led California and New York, repealing the cap has been a key priority, with supporters of the repeal arguing that the cap constrains state and local government spending, much of which benefits lower-income residents.

In 2018, four states—New York, Connecticut, Maryland, and New Jersey—banded together to sue the Trump administration over the cap, alleging that it was unconstitutional, unfairly targeted New York and similarly situated states, and interfered in the rights of the states to make their own federal tax decisions. A judge dismissed the suit in 2019, ruling that the cap was not unconstitutionally coercive and that the states hadn’t laid out a convincing case for how the measure meaningfully constrained their decision-making processes. –Epoch Times

Last year, Democrats tried using the pandemic to lobby for lifting the cap on the SALT deduction for 2020 and 2021 as part of a COVID-19 relief package, arguing that people hit hardest by COVID-19 would see relief. More recently, there has been a bipartisan push to repeal the SALT cap – which has included SALT caucus co-chairs Rep. Josh Gottheimer (D-NJ) and Rep. Young Kim (R-CA).

“It is high time that Congress reinstates the State and Local Tax deduction, so we can get more dollars back into the pockets of Iso many struggling families—especially as we recover from the pandemic,” said Gottheimer.

Lawmakers have made multiple appeals to key administration officials, such as Treasury Secretary Janet Yellen, who has said that the SALT cap causes “disparate treatment” among taxpayers and that she would work with Congress to find a solution to address the issue — though she hasn’t endorsed any particular approach.

Marc Gerson, a former tax counsel for the Ways and Means Committee, said Congress is just at the beginning of a very long negotiation, and the demands for a full repeal of the SALT cap are an opening bid. –Bloomberg

Yet, according to a recent study from the Tax Policy Center, repealing the federal cap on SALT deductions would primarily benefit households making over $500,000 per year, while just 1% of the benefit would help those earning $100,000 or less. Meanwhile, repealing the deduction cap would cost the Treasury nearly $89 billion in lost tax revenue for 2021 according to the Joint Committee on Taxation – while lawmakers are seeking a repeal of the cap through at least 2025, when several portions of Trump’s tax laws are set to expire. This, of course, means that Congress would need to find hundreds of billions of dollars to either cut out of spending budgets, or raise through tax hikes.

Pelosi in a pickle

With Biden’s refusal to remove the Trump-era cap, House Speaker Nancy Pelosi now has to shepherd the White House’s plan “through the razor-thin margins in her chamber,” as Bloomberg describes it, as furious Congressional Democrats threaten to derail the spending bill altogether.

“I will be banging my fists onto the table to make New Jersey’s voice heard and do everything in my power to put SALT repeal on the books,” said Rep. Bill Pascrell (D-NJ) in a Wednesday statement hours after the White House released their plan. “I expect certain elements of the proposal to shift as it moves through Congress.”

Pascrell is one of the more than 20 Democrats who have said they won’t support Biden’s infrastructure and social-spending proposals without a restoration of the SALT deduction. That’s more than enough to hold up passage in the House.

In the Senate, Majority Leader Chuck Schumer is himself a lead sponsor on legislation to revive the break. He’ll need to get all 50 of his caucus on board with the final draft of Biden’s plan, besides counting on a tie-breaking vote from Vice President Kamala Harris to move the legislation. –Bloomberg

According to the report, some Democrats have accused Trump of limiting the SALT deduction as a way to punish Democratic areas, and that the cap unjustly harms middle-class households in their districts where the cost of living is high.

Regardless of one’s stance on taxation, it’s almost comical to watch Democrats – the self-proclaimed champions of the downtrodden – fighting so hard for the wealthy.