Month: June 2021

It’s that time of the month when Bond King Jeff Gundlach regales his subjects, and investors in his DoubleLine, with his latest monthly thoughts revealed in the periodic webcast for this Total Return Fund.

Since it’s been about three months since Gundlach’s March 9 webcast when he laid out his outlook for the year, here is a recap of what he said then courtesy of Bloomberg:

• Gundlach reiterated his bearish dollar call in the short-term, saying the greenback will be correlated to the budget. The Bloomberg Dollar Index has since declined 2.4% since he said that.
• He called the Nasdaq “dicey,” making a daring call that it could eventually drop as much as it did from 2000 to 2003 (after the dot-com bubble deflated.) He also said it was unlikely to outperform, which he ended up being right about. Since those comments, the Nasdaq Composite rallied 6% relative to the S&P 500’s 9% gain.
• He called for a modest or moderate decline for long bond yields, but held his call for the 10-year yield eventually hitting 3%. Since then, the 10-year yield has remained unchanged, but the yield on the 30-year declined by two basis points.

Bottom line, as Bloomberg grundglingly admits, “in the last three months, his call on the Nasdaq, dollar and long bond yields have all been correct.”

Looking ahead, fans of Gundlach will be curious to hear his updated thoughts on inflation and the stock market. In April, Gundlach said it wasn’t clear that U.S. inflation will be “transitory,” as Federal Reserve economists have been trying to convey this year (and as Deutsche Bank dramatically posited this week). “How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively,” he told BNN Bloomberg at the time.

Gundlach also added that the U.S. stock market was overvalued by virtually every important metric versus foreign markets such as those in Asia and Europe. He disclosed that he’d bought European stocks “literally for the first time in many years. I can’t remember the last time I did it. And that’s largely because I think the U.S. dollar is almost certain to decline over the intermediate to long term.”

With the Stoxx 600 trading at a record high, this was yet another correct call.

Focusing on the economy, in his last call Gundlach put an emphasis on the jobs market, where only idiots and Fed employees don’t realize that we are facing a historic crisis due to labor shortages resulting from Biden’s massive handouts. Gundlach is likely to comment on the last two payrolls reports,  both of which were major disappointments. This will likely be key to his arguments on where markets are going next because he likes to dive into savings, income and spending trends, all of which are tied to the labor market.

With that in mind, here is Gundlach’s latest webcast “Clampdown” – click on the image below to get to the webcast page (registration required).

 

 

 

Throughout 2020, investors left the commodity sector discarded at the trash heap of the market, focusing instead entirely on growth and deflation names. Fast forward to today and boy have things changed: not only have growth names done little to nothing in 2021, a year which has seen near record shorting of tech names and a constant outflow of equity funds…

… but as sentiment shifts toward “value”, commodity-linked stocks have been rising every day, and even such boring names as Exxon and Chevron have recently turned into hedge fund darlings, attracting a bevy of activist shareholders and pushing higher by the day.

And now, according to JPMorgan, we may be poised for an even more powerful move higher in the commodity space, where estimated market open interest surged by ~$34 billion WoW to a record-seasonal high value of ~$1.25 trillion and is now only 2% shy of the historical peak of May 2018.

In the report authored by Ruhani Aggrawal, the largest US bank notes that price-led gains across crude oil and G&O drove the weekly increase, coupled with price- and contract-based gains across petroleum products, bulks, natural gas and softs. In contrast, precious and base metals open interest posted a combined weekly decline of ~$3.9 billion.

The report also reveals that contract inflows into base metals, petroleum products and bulks drove net commodity market inflows of ~$8.7 billion WOW, increasing the year-todate inflows to ~$18.6 billion. While energy is not nearly at a record level yet, it may soon get there: as shown in the next chart, energy market open interest surged by the most since April and has surpassed the near-term mid-March peak of $553 billion.

Some more details:

• Managed Money net length in oil F&O (NYMEX WTI and ICE Brent) jumped by 4% WoW over the week ending June 1 after three straight weeks of declines though, at ~649,520 lots,the net length is 12% below the near-term mid-February peak. Here JPM notes that “with summer now underway inthe northern hemisphere, oil demand tracking will be critical over the coming months.” As a reminder, last week we noted that JPM’s fundamental strategists’ base case is for a peak in prices around $80/bbl in late 2021; however if demand were to come in hotter than their projections over the next months, prices could peak towards $80/bbl earlier than their expectations.
• Non-Commercial net length across US traded agri markets bounced by 7% WOW to ~737,760 lots (June 1) after a month of declines, as the ongoing Brazilian drought supported net length additions, notably across ICE #11 Sugar, CBOT Corn and ICE Coffee. Moreover, F&O open interest rose by 2% WOW led by G&O, with contributions from softs.

Due to the reflexive nature of the derivatives sector, where positioning often dictates price, price momentum across energy markets increased in the past week, in part due to the near-record accumulation of bullish bets.

But what is perhaps most notable for oil bulls, JPM notes that the long-term NYMEX WTI trading signal is approaching a ‘sell-to-buy’ switch for the first time since January 2020.

Sadly for precious metal bulls, price momentum across precious and base metals slumped WoW with the short-term trading signals across COMEX Silver, NYMEX Palladium and LME Aluminum tracking close to a negative switch. At the same time, positive momentum across ags rose WOW, led by G&O.

Bottom line: with oil already trading at the highest level since 2018, and on pace to surpass its October 2018 highs, bets are surging that the next stop could be prices not seen since before the 2014 OPEC Massacre…

Authored by Bruce Wilds via Advancing Time blog,

Damn near every economist and analyst seem oblivious to the point being made in this article. The Fed should be ecstatic so many people are willing to invest in intangible assets. By not buying  tangible and real items they help to minimize inflation. In our bullshit world where media outlets like Bloomberg tout the message if you are not in this rising market, you are missing out, it is understandable that people want in. With this in mind, it is no wonder the investment world has become a minefield that is often compared to a casino.

An intangible asset is a useful resource that lacks physical substance. Examples are patents, copyrights, trademarks, and goodwill. Such assets produce economic benefits but you can’t touch them and their value can be very difficult to determine. These intangible assets are often in sharp contrast to physical assets like machinery, vehicles, and buildings.

This Does Not Tell The Whole Story

The term tangible assets, in this case, could be used to describe shorter-term assets, such as inventory since these items are intended for sale or conversion to cash. Most tangible assets can be easily converted to cash, this is why most people include as “tangible” the amount of money in a bank account. Even though money held by a bank is a paper promise, it falls into a “grey area” in that it holds the characteristic of being rapidly converted to something real like property such as cars, houses, or boats. Some of these accounts can also be used as collateral in case you want a loan.

Another example of quasi-intangibles is stock, when you buy stock what do you really have? You no longer get a certificate as in days of old, this should send the fear of God into those that worry about hackers. What you get is a glorified memo in a computer base somewhere, good luck proving what you have if things go bad. Most likely even getting a government official to listen will be a huge task. If you do get action most likely it would be years before you get any of your money back.

This Chart Is Proof It Is All “Bullshit”!

For a long time, I have taken the view that many “financial assets” have slipped into the intangible class. Assets such as stocks, pensions, and annuities harbor many of these qualities. These are things we can not touch and often live in the land of future promises. Today many are recorded on a computer somewhere and paper records of them are having a difficult time remaining current and in good order. Simply put, many people are not even sure where they have stored their wealth.

The theory that investments in intangible assets minimize inflation may be a chief reason government savings and wealth-building programs are centered on driving money into such assets. Over time, this has the potential to result in the collapse of the financial system. In our complex interdependent world, this would most likely hit the economy extremely hard, and the contagion from such an event could easily spill over and tear apart society.

To divert criticism of the fact no bona fide program exists which allows people to truly protect their wealth or preserve their purchasing power from inflation the U.S. government issues a type of Treasury security known as TIPS. This stands for, Treasury inflation-protected securities, these are indexed to inflation in order to protect investors from a decline in the purchasing power of their money. Sadly, even TIPS fail to hold up under scrutiny in that they are tied to the CPI which understates the true rate of inflation.

To be clear, I view the dollar as the best of the four fiat currencies, however, I expect all of them to come under attack in the near future. Circling back to the growing danger resulting in policies encouraging people to invest in intangibles to lessen inflation. When money is created or printed it has to go somewhere, this has been fueling the “everything bubble” and is not the key driver of inflation. The main reason it is not a main source of inflation is rooted in the fact this money is often diverted from goods everyone needs to live such as the intangible assets described above.

When you consider the amount of interest in cryptocurrencies and other inflation hedges it is easy to argue many investors are losing faith in the central banks and fiat currencies. A monetary crisis and the chaos that comes with it may very likely be coming down the road. The fact that over the decades, growth in intangible assets and the money supply has vastly exceeded the growth in real and tangible assets is problematic. 

There has been little resistance to moving investors into intangible or quasi-intangible assets because it is easier to own intangibles than deal with taking care of “real things.” This could account for part of the mismatch in growth between these two kinds of assets. Currently, the gap is so large that even if you allow for a great deal of the wealth stored in intangible assets to be washed away there will still be enough cash and credit available to create inflation. Ironically a huge washout in the value of this type of asset could be become a driver of inflation by igniting a shift into hard assets.

All this can be a difficult concept to grasp. When looking at soaring house prices, we should view the cause as more driven by inflation than because of a falling dollar. The important point is that everything is relevant and values and prices change. With this in mind, the one thing we as individuals should try to avoid is putting our wealth into something intangible that could vanish during the night.   

Now that it’s confirmed that G7 officials are seeking to enacted a global minimum tax rate of at least 15% (which however is unlikely to be uniformly implemented, and may not even pass in the US where Reuters reports that Senate Republicans have rejected Janet Yellen’s G7 deal), the question on investors’ minds is what impact will such a policy – if ever implemented – will have on corporate earnings.

Answering this question, Goldman’s Ben Snider estimates that such a policy would have a small aggregate impact on S&P 500 earnings, noting that “the direct impact of a 15% global minimum tax on US corporate profits would depend on which other tax reforms, if any, become legislation later this year.”

The tax plans proposed by President Biden even prior to his 2020 election included a15% minimum book tax for US companies along with hikes to the tax rates on both domestic and foreign income. We

Specifically, Snider says that in his estimates a 15% minimum tax – in the context of a larger tax plan – would represent a headwind of less than 1% toS&P 500 earnings. To be sure, a minimum tax rate would have a larger impact absent other tax reforms, especially if implemented on a country-by-country basis as suggested by the G7 agreement. However, Goldman estimates that a 15% global minimum tax rate would represent downside of just 1%-2% relative to current consensus S&P500 2022 EPS estimates.

There are some exceptions: drilling down within the US equity market, Goldman cautions that industries with low current effective tax rates and high foreign income exposure face the greatest risk. At the sector level, InfoTech and Health Care would face the greatest earnings risk, but even those sectors appear to face aggregate downside of less than 5% relative to current consensus estimates

So if one wishes to short any particular sector as a hedge to the latest G7 tax policy, the best bet would be to focus on semiconductors, which account for the largest number of S&P 500 stocks with consensus effective tax rates below 15%. The table below shows 41 S&P 500 companies with 2019 and consensus 2022 and 2023 effective tax rates all below 15%. The overwhelming majority of these companies have reported greater than 50% foreign income exposure in recent years.

 

Authored by Steve Watson via Summit News,

A leading advisor for the World Health Organisation said Monday that China is still engaged in a “massive cover up” of the coronavirus pandemic, calling for a “full investigation” to be conducted by the US government and it’s international allies.

Appearing on Fox News, Jamie Metzl urged that “The Chinese have engaged in a massive cover-up that is going on until this day, involving destroying samples, hiding records, placing a universal gag order on Chinese scientists and imprisoning Chinese citizen journalists asking the most basic questions.”

Metzl, a former State Department official and Senate Foreign Relations Committee staffer, added that “The more that China stonewalls, the more suspicious that it looks.”

“We can’t give China a veto over whether or not we investigate the world’s worst pandemic in a century and then do everything we can to make everybody safe,” Metzl asserted.

Watch:

Metzl also pointed out that the World Health Organisation “doesn’t have the mandate to have its own surveillance capabilities,” and was therefore easily batted away by China in the early days of the outbreak when it requested to send responders.

He previously acknowledged that the WHO’s investigation into the origins of the coronavirus outbreak was “entirely inadequate”.

Metzl also recently described Dr Peter Daszak’s attempts to have the scientific community dismiss the lab leak theory out of hand as “scientific propaganda and a form of thuggery and intimidation.”

Daszak, the scientist at the centre of the gain of function funding controversy, used his influence to have The Lancet journal publish a letter, signed by 27 other scientists, labelling the lab leak possibility as a dangerous conspiracy theory before any robust scientific investigation had occurred.

“By labelling anyone with different views a conspiracy theorist, the Lancet letter was the worst form of bullying in full contravention of the scientific method,” Metzl noted.

Calling for a robust investigation into the origins of the outbreak and its aftermath, Metzl explained “There’s a reason why after a plane crashes, we do everything possible to understand what happened.”

“If we don’t learn those lessons, there are other planes that are in the air. For all we know, the next pandemic is just around the corner and if we don’t understand and fix our biggest problems, we’re going to be at unnecessary risk. We have to get to the bottom of this, which means asking that tough questions and following the data wherever it leads,” Metzl emphasised.

Indeed, reports indicate that China is planning on opening scores of bio-labs just like the Wuhan Institute of Virology, over the next five years.

The Financial Times reports that “some Chinese officials have warned about poor security at existing facilities. In 2019 Yuan Zhiming, the director of the Wuhan Institute of Virology’s BSL-4 lab, wrote a review of the safety deficiencies in China’s laboratories. ‘Several high-level BSLs have insufficient operational funds for routine yet vital processes,’ Yuan wrote, adding that maintenance costs were ‘generally neglected.’”

The report adds that Yuan warned “Due to the limited resources, some BSL-3 laboratories run on extremely minimal operational costs or in some cases none at all.”

Lab leaks have happened multiple times from such facilities in China, with SARS escaping twice from the Chinese Institute of Virology in Beijing in 2004, one year after its spread was brought under control.

Former FDA head Scott Gottlieb has also urged that “These kinds of lab leaks happen all the time.”

Gottlieb recently warned that “In China, the last six known outbreaks of SARS-1 have been out of labs, including the last known outbreak, which was a pretty extensive outbreak that China initially wouldn’t disclose that it came out of lab.”

“It was only disclosed finally by some journalists who were able to trace that outbreak back to a laboratory,” Gottlieb explained.

Watch:

Gottlieb also noted that China has failed to make public blood samples from workers who got sick at the Wuhan lab, which would be vital to determining the origin of the outbreak.

Former head of British intelligence agency MI6, Sir Richard Dearlove, has warned that it may be too late now to hold the communist state accountable because it will have probably destroyed all that evidence. Dearlove is on record with his form belief that the pandemic was caused by a lab leak and then covered up.

As both Senator Rand Paul and former CIA director and secretary of state Mike Pompeo also warned recently, the Wuhan Institute of Virology is still up and running, and there is evidence pointing to its involvement with the Chinese military in bioweapons research.

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It certainly looks like that behind the scenes at Tesla, all may not be as well as it seems: it broke on Monday this week that the company has lost two more key executives, adding to what feels like a never-ending revolving door of executives that have come and gone at the electric auto maker.

The company lost its head of energy operations at a time electrek calls an “important growth phase for the ‘Tesla Energy’ division.”

To which we responded: Tesla has an energy division?

Regardless, the company saw the departure of RJ Johnson, who first joined the company as head of commercial energy before being promoted to lead overall energy operations last summer, electrek reports. The blog said it had been hearing rumors of Johnson’s departure for “months” but couldn’t confirm them until now, after Johnson updated his LinkedIn profile. 

Recall, Tesla’s solar roof offering – which it promised would be up and running at full-tilt (and a large portion of Tesla’s business) years ago – is still only deploying limited amounts of MWs compared to previous expectations and Tesla raised the price for the service this past year. 

Additionally, Tesla’s head of Heavy Trucking, Jerome Guillen, has also left the company. A brief 8-K was filed on Monday announcing his departure. Recall, back in March of 2021, Guillen had supposedly transitioned his role at the company from President of Automotive to President of Heavy Trucking. 

He lasted almost 3 months in the role. 

“As Tesla prepares to enter the critical heavy trucks market for the first time, Mr. Guillen will now leverage his extensive background in this industry to focus on and lead all aspects of the Tesla Semi program, including the related charging and servicing networks,” the March 8-K said about the transition.

Now, as many predicted would happen after he switched roles, Guillen will be “leveraging his extensive background” elsewhere. 

We start another week of Treasury auctions with today’s 1pm sale of $58BN in 3Y bonds and it was nothing short of a whopper.

With a high yield of 0.325%, this was the 2nd consecutive 3Y auction where the yield has declined (down from 0.329% in May and 0.376% in April). The reason for this: investors increasingly have to shift further out on the curve to park “safe” securities now that short-term funding markets are at or near zero. The auction also stopped through the When Issued 0.326% by 0.1bps, a rebound to last month’s 0.2bps tail.

The Bid to Cover jumped from 2.422 in May to 2.467, the highest since March and above the 6-auction average of 2.436.

But it was the internals where the demand for today’s paper truly shone as Indirects rushed to get as much as they could, and were allotted 54.2%, a big jump from last month’s 49.6% and the highest since October 2020. And with Directs of 18.3% practically unchanged from 18.1% last month, this left Dealers holding on to just 27.6% of the final takedown, the lowest since December 2019 when Dealers were awarded just 27.1%.

Overall, a blockbuster of an auction…and the last thing record bond shorts needed as they debate whether to keep holding on to underwater positions ahead of Thursday’s CPI print or to book losses and dump it.

And with that attention now shifts to tomorrow’s 10Y benchmark offering, and certainly to Thursday’s 30Y sale which will come just hours after what is expected to be another blowout inflation print.

Authored by Tom Ozimek via The Epoch Times,

Hundreds of suspects have been arrested and tons of drugs seized in one of the largest and most sophisticated global law enforcement operations ever, which relied on an FBI-developed encrypted messaging app that became popular with members of criminal networks and used to ensnare them.

In a series of large-scale sting operations across 16 countries over the past few days, European law enforcement agencies, along with the FBI and the U.S. Drug Enforcement Administration (DEA), made more than 800 arrests and seized over 32 tons of drugs—chiefly cannabis and cocaine—along with 6 tons of synthetic drug precursors and over $48 million in currencies and cryptocurrencies, Europol said in a release.

The operation, called Greenlight/Trojan Shield, is further expected to lead to “countless spin-off operations” in the weeks to come, Europol said, potentially leading to more seizures and arrests.

“This operation is an exceptional success by the authorities in the United States, Sweden, the Netherlands, Australia, New Zealand and the other European members of the Operational Task Force,” Europol’s Deputy Executive Director Jean-Philippe Lecouffe said in a statement.

The operation relied on an encrypted messaging app developed by the FBI, in close coordination with the Australian Federal Police, called ANOM. Its aim was to target global organized crime, drug trafficking, and money laundering operations. Over time, ANOM grew to service with more than 12,000 encrypted devices used by members of over 300 criminal syndicates operating in over 100 countries—including the Italian mafia, outlaw motorcycle gangs, and international drug trafficking syndicates, Europol said.

Australian Federal Police are seen during an operation against organized crime in this undated handout photo released June 8, 2021. (Australian Federal Police/Handout via Reuters)

The FBI, along with agencies from the 16 other member countries of the coalition, then exploited the intelligence from some 27 million messages obtained by monitoring ANOM as its “criminal users discussed their criminal activities.”

In developing the messaging platform, the FBI took advantage of the huge demand among criminal networks for encrypted communication platforms to facilitate their criminal activities. After law enforcement agencies in 2020 and in 2021 dismantled two encrypted messaging platforms popular with members of criminal organizations, many migrated to the FBI-developed messaging app.

“The goal of the new platform was to target global organized crime, drug trafficking, and money laundering organizations, regardless of where they operated, and offer an encrypted device with features sought by the organized crime networks, such as remote wipe and duress passwords, to persuade criminal networks to pivot to the device,” Europol said.

The high-quality information gathered by way of ANOM is expected to continue to help law enforcement identify operating high-value criminal targets on a global scale, the agency said.

“Encrypted criminal communications platforms have traditionally been a tool to evade law enforcement and facilitate transnational organized crime. The FBI and our international partners continue to push the envelope and develop innovative ways to overcome these challenges and bring criminals to justice,” the FBI’s Criminal Investigative Division Assistant Director Calvin A. Shivers, said in a statement.

“We have been in the back pockets of organized crime,” Kershaw said at a media briefing.

“All they talk about is drugs, violence, hits on each other, innocent people who are going to be murdered.”

He said the messages were brazen and ANOM users made no attempt to hide behind any kind of code.

“It was there to be seen, including ‘we’ll have a speedboat meet you at this point,’ ‘this is who will do this,’ and so on,” he added.

One murder plot that authorities got to know of involved plans to attack a cafe with a machine gun, while a family of five was also targeted. Authorities said they were able to prevent these attacks.

A total of 525 charges have been laid but authorities expect more in the coming weeks.