Month: July 2021

After two solid auctions earlier this week ahead of the Fed which many rates experts predicted would tail (neither did), few were too concerned about today’s sale of $62BN in 7Y paper. Well, maybe they should have because while today’s auction was certainly better than the catastrophic, “failed” 7Y auction in February it was the ugliest in many months.

Stopping at a high yield of 1.050%, the auction priced well below last month’s 1.264%, however the tail of 1bps to the When Issued 1.040% was the biggest since March.

The Bid to Cover was also ugly and sliding to just 2.231, it was also the lowest since the 2.230 in March.

Finally, the internals were mediocre at best, with Indirects dropping to 58.4% from 60.0%, Directs sliding to 19.5% from 21.3%, the lowest since March, and Dealers left holding 22.2% of the takedown, the highest since April.

Overall, an ugly, tailing auction which was unexpected considering the generous concession as yields drifted higher all day. Alas, it was not enough, and the 10Y yields spiked briefly above 1.27% once the results were published as buyside sentiment is suddenly on the rocks following today’s massive Apple related rate locks.

After a rollercoaster move in Chinese stocks following a regulatory crackdown that has prompted many to wonder if China is doing away with capitalism in capital markets entirely (having declared the entire tech-edu space non-profit overnight), Goldman’s clients have had enough and are justifiably asking the bank if the stock market has become too dangerous.

In a note from Goldman’s Kinger Lau, the China strategist writes that the word “uninvestable” has featured in many of his recent conversations with clients regarding investing in Chinese stocks. Here Lau counters tentatively that he “would be hard-pressed to extrapolate the rather extreme regulations such as non-profit orientation and capital raising restrictions to the whole equity universe.”

He then lists several reasons why that’s not the case just yet, including:

1. The Social sectors in the POE universe amount to 35% of total listed market cap, and those that are at (regulation) risk (i.e. seeing relatively high price inflation over the past 5 years) represent only 25% of the full-universe market cap;

2. Some POEs in the Social sectors are already generating sub-SOE or sub-market-aggregate profitability, suggesting limited room for abnormal economic rent extraction without creating dead-weight loss to the system;

3. Given the emphasis and actual policy support from the government on developing foundational technologies and nurturing innovation to support high-quality growth, wauthorities would be pragmatic when striking a balance between social/ideological goals and capital markets in non-social sensitive industries over time;

4. The underlying demand in the digital economy is unlikely to be structurallydamaged by regulations if they are confined to select areas, although the share of the TAM could be more evenly distributed among industry players;

5. Current investor sentiment is comparable to the 2015 market selloff episode where China A experienced a peak-to-trough drawdown of 43% and 31%of market cap was suspended trading at one point. However, when concerns dissipated and confidence gradually recovered, foreign portfolio inflows resumed and surpassed previous highs roughly one year after the incidence;

6. From a long-term macro perspective, the new regulations could potentially lead to a more balanced economy in terms of growth drivers and resource allocation, lower Gini Coefficient which is conducive to aggregate consumption growth, foster fairer competition which is crucial for innovation and creativity, and lower systemic risk in the highly levered sectors.

7. The overwhelming regulation concerns have overshadowed policy support in select areas that are aligned with national development objectives, notably green energy, electric vehicle, enterprise/B2B software, semiconductor, and “New Infrastructure”. See next section for details.

Laundry list of sheepishly positive considerations aside, Lau then admits that

“the regulation headwinds will continue to dominate investors’ valuation framework for Chinese stocks until a new equilibrium (price and positioning) is reached, which could be realized by: a) market clearing events (e.g.strong and clear signals from the authorities to remove regulation concerns); b)improved policy clarity in terms of how regulations will be implemented and their impact on fundamentals; c) significant positioning and risk reduction; and/or, d) meaningful adaptive response by the corporate sector (i.e. business restructuring).”

As a result, Goldman says that “it seems premature to call for an inflection point in the price/sentiment cycle” considering that:

1. the regulation intensity and velocity has remained strong;

2. risk appetite is depressed and positioning reduction across mandates is underway but the potential for US and Southbound investors to further offload exposures remains; and,

3. the flow picture in the public market could be complicated by the potential collateral damages in the private market, where US$700bnof capital has been deployed over the past 3 years and hedging demand seems high at present.

And in case the message was unclear, the chart below shows that the “latest regulatory tightening cycle is unprecedented in terms of duration, intensity, scope, and velocity (of announcement) per our POE Regulation Proxy“

Lau also goes off on a tangent about socialism which all progressives in the US should read carefully since China is taking precisely those steps that far-left Democrats in the US believe should happen in domestic capital markets:

Recent regulations have signaled that the Chinese authorities are prioritizing social fairness/stability over the capital markets in areas that are deemed public goods or important to strategic policy goals. While these moves may help improve social equality over time, they have provoked the worst selloff for China since 2018, with AST companies collapsing 65% since last Friday, and China Tech losing another US$400bn in market cap in the past two weeks (US$1.2tn from mid-Feb).

What does all this mean in practical terms? Well, in typical Goldman fashion, with Chinese stocks having already suffered the brunt of the selloff, and many seeing furious bounces from oversold lows, Lau writes that “while index valuations (13.1x fP/E; 0.8x fPEG) have derated 33% from recent peaks the regulation uncertainty will likely translate into a flatter expected earnings slope and higher ERP for POE equities, therefore compressing their fair value until a new equilibrium is reached and positioning is reset.”

And since he does not see this new equilibrium coming any time soon, Goldman “neutralizes” its views on MSCI China by cutting it from Overweight (15% 12m upside) even as the bank still remains Overweight on China A “given its favorable sensitivity to potential (fiscal) policy easing, lower POE/Tech weightings, and robust Northbound flows potential.”

Well thanks for all that Goldman: but in all honesty, it would have been a little more useful if the downgrade had come before Chinese stocks had plunged 31% in the past 6 months…

… wiping out $1.2 trillion in market cap from listed tech stocks.

Translation: buy MSCI China and short China A shares, because as even shoeshine boys know by now, one has to do the opposite of what Goldman recommends to be profitable.

Which is not to say that everything in the report was useless. It had some useful charts including this one summarizing all the announced regulation by Beijing in this cycle…

… a couple of cool valuation charts…

… some speculation on what sectors may be considered as “social” in the eyes of policymakers…

… Goldman’s estimation of how much of market cap in Social sectors is exposed to regulation risk…

… and much more – the full report can be found in the usual place.

Authored by Zachary Stieber via The Epoch Times,

Auditors in Arizona’s largest county on Wednesday finished a third count of ballots and will shift to compiling a draft report on the audit results.

Workers overseen by retired auditor Randy Pullen, a former Arizona Republican Party chair, completed the third count at the Wesley Bolin Building on the Arizona State Fairgrounds in Phoenix, according to Arizona Senate President Karen Fann.

“The physical tabulation of the ballots are complete and are being returned to Maricopa County tomorrow,” Fann told The Epoch Times via email.

The data gathered by the auditors will now be taken to their labs for analysis.

Teams led by Florida-based Cyber Ninjas last month finished an initial hand tally of the nearly 2.1 million ballots cast in the 2020 election.

The third set of numbers was needed because the initial recount and the number Maricopa County reported didn’t match, Fann said earlier this month.

Maricopa County’s Board of Supervisors has repeatedly attacked the auditors and Jack Sellers, the chairman of the board, saying that the methods used were “flawed” and would “produce incorrect results.”

In the third count, workers led by Pullen only tabulated the number of ballots, instead of marking down some or all of the votes like auditors and the county did.

The third count was done on the advice of the Arizona Senate Republicans’ attorney, according to Fann.

The completion of the physical audit work comes after days of tension between Cyber Ninjas and Ken Bennett, a former Republican secretary of state tapped by Fann to serve as the state Senate’s audit liaison.

(L-R) Doug Logan, CEO of Cyber Ninjas, the firm leading Arizona’s vote audit in Maricopa County, gives testimony on preliminary findings at a Senate hearing, sitting beside Arizona Senate audit liason Ken Bennett, and Ben Cotton, the founder of digital security firm called CyFIR LLC, in Phoenix, Ariz., on July 16, 2021. (Allan Stein/Epoch Times)

Bennett said Monday that he was considering stepping down after being blocked from the audit following his sharing of some of the auditors’ findings with outside analysts, casting doubt on whether the third count was done independent of Cyber Ninjas. On Wednesday, he told radio host James Harris he would resign later in the day.

“I do remain locked out of the audit and as such, it’s impossible for me to really function as the liaison,” he said.

Bennett did not respond to a request for comment. He later told the Arizona Mirror that he had reached a deal with Fann to remain as the liaison.

Arizona Sen. Warren Petersen (L), and Arizona Senate President Karen Fann (R) hear testimony during a hearing on the Maricopa county audit on July 15 in Phoenix, Arizona. (Allan Stein/Epoch Times)

While speaking to Harris, Bennett remained open to helping examine the draft report and final report, but said he would only do so if he had access to the source data and any other information used to produce the report.

“I can’t just come in at the last minute and be asked to endorse something I can’t be a part of really building the way it needs to be built,” he added.

Fann told The Epoch Times in an email that senators do not have access to the numbers the auditors have tallied.

“We should not be looking over their shoulder, telling them how to do their job or asking for premature information. When the audit is complete, then they will need to provide us with all their proof and documentation of their results,” she said.

She also said in a statement that it was irresponsible of Bennett to disclose how many ballots were in some of the boxes to a trio of analysts who have repeatedly disparaged the audit.

But she said Bennett would “be involved and a vital part of the draft and final reports to ensure their accuracy with his knowledge and contributions throughout the audit process.”

The completion also came after the Department of Justice issued a new warning against audits like the one conducted in Arizona, and after Arizona senators subpoenaed the county and Dominion Voting Systems—whose machines the county uses to run elections—for more election-related data, including administrative passwords for the machines.

Both county officials and Dominion have refused to hand over more information, despite a judge ruling in February the initial subpoenas issued last year lawful.

Without the additional data, the final report will be incomplete, state Sen. Warren Peterson, a Republican, told a hearing in mid-July.

“We sincerely hope Maricopa County will produce the missing documents and information we have requested for the audit to be complete and finalized. The voters deserve to know their votes are safe, secure, and legally counted,” Fann said.

As we reported last night, Robinhood sold 55 million shares at $38 (the low end of its marketed price range of $38 to $42 per share), as the popular trading platform met tepid demand for its highly anticipated debut.

At that price ($38 per share), Robinhood raised $2.1 billion and achieve a market valuation of more than $31 billion.

There was a lot of chatter in the pre-market about Goldman having issues getting the deal fully allocated but nothing, obviously, was confirmed; and as a reminder, for Robinhood’s own IPO, the company has stated that it plans to sell its users between 20% and 35% of its IPO shares through the app’s IPO Access feature.

Pre-open chatter was that retail interest was at the lower-end (20-25%) of that 20-35% range.

As the morning went on the indicative open for Robinhood (HOOD) shares dropped from $42 to $40 to $39, then stabilized around $39.25/50, before fading again to $39, then $38.50… to $38.25 to $38.06…then $38 and that’s where it opened, right at the IPO Price…

One thing to note: users who received allocation can’t sell their shares in the next 30 days or they’ll be shut out of future IPOs for 60 days.

..when does The Fed unveil its Standing Robinhood Backstop Facility?

Jay Ritter, professor of finance at the University of Florida, cautioned these investors to keep risk at the top of their mind.

“These are younger companies, and for a growth company like Robinhood, if they don’t execute and don’t grow their profit, the stock price is going to collapse,” he said.

“But on the other hand, it could be the next Tesla.”

Robinhood CEO Vlad Tenev concluded a pre-open interview with CNBC this morning by pronouncing that:

“In 5 years we want Robinhood to be the most trusted and most culturally relevant app worldwide”

…or at a minimum, still in business.

*  *  *

Finally, as MishTalk.com’s Mike Shedlock detailed earlier, Christopher Bloomstran compiled detailed of Robinhood in a lengthy series of Tweets that every would be Robinhood investor ought to read.

Warning to Robinhood Investors

I don’t follow Robinhood other than reporting the numerous problems it has had with account theft and customer service.

However I know a good set of Tweets when I see them. This Tweet Thread by Bloomstran is a must read for anyone thinking of investing in Robinhood.

1. For those that haven’t read Robinhood’s 360-page S-1 and subsequent registration amendment, some brief observations follow on some of the most egregious aspects of one of the most one-sided, enrich the insider casino offerings I’ve ever seen, and there have been some doozies. 

2. If Robin Hood robbed the rich to give to the poor, the modern-day version is now in the business of gutting the sheep and pocketing the wealth of the retail speculator for himself. Fleecing at least. “Robinhood is democratizing finance for all,” reads the prospectus. Sure. 

3. Robinhood, who in December paid a $65 million fine (without admitting or denying guilt, wink) for best execution and payment for order flow alleged violations, will raise on the order of $2.3 billion from new shareholders in its upcoming IPO. What does The IPO investor get?

4. The expected $2.3B brought to the party by new shareholders represents almost 30% of all of capital raised since 2013, including proceeds raised in the offering. For their money these new “investors” will only own 7% of the company and far less voting rights. Dilution, baby.

5. Including proceeds from the IPO, the VAST MAJORITY of capital will have been raised just in the past two years, mostly 2021. Reread the breakdown of how much capital the IPO buyers are investing and what percent of the company they will own. This makes SPACs look non-dilutive. 

6. From its founding in ’13, $HOOD raised $5.6B in a series of $2.2B convertible preferreds and 2 tranches of $4.7B in converts (the converts sold just this year). Additional paid in capital totals $149m. The balance sheet has $4.8B cash with shareholder equity a negative $1.5B. 

7. Most of the negative equity value reflects “losses” on the degree to which converts issued in February are already “in the money.” They were money good at issue! More on this in a bit. The IPO will sell 55 million shares, with the founders & CFO selling 2.6 million of those.

8. An over-allotment option for another 5.5m could bring the total to 60.5m shares sold at an expected range of $38-$42 per share. Using the midpoint, the company may raise $2.3B, bringing cumulative capital raised to $7.9B. At $40, Robinhood will have a market value of ~$33.6B.

9. Remember, this is against $7.9B in cumulative capital raised, including proceeds from the IPO. In their generous hearts of hearts, 25% to 30% of the shares offered in the IPO are “reserved” for Robinhood “customers.” That’s 13 to 16 million shares at a midrange $40 per share.

10. That’s $500 million to more than $600 million. Rob from the fools, give to the poor insiders. What a deal. But it’s a brokerage firm. With capital requirements. Growing revenues will require new capital, either retained profit or new capital. Regardless, let’s talk dilution.

11.  What’s missing from outstanding shares at 3/31? Hold on to your wallets. There are $2.55B in tranche 1 converts outstanding which will be exercised at the LOWER of 70% of the IPO price or $38.29. Assume at $28, which at an IPO price of $40 yields a quick 42.9% gain or $1.1B.

12. The converts were sold in February 2021, not bad for 5 months of ownership. If the IPO is wildly oversubscribed and prices north of $55 per share, the option holders get in at no higher than $38.29. The only way the converts were anything but free money was if no IPO ensued. 

13. There are $1.03B in tranche 2 converts outstanding which will be likewise exercised at the LOWER of 70% of the IPO price or $42.12. Again assume at $28, which at an IPO price of $40 yields the same quick 42.9% gain or a gain of $441m. Same deal as above. Quick. Free. Money.

14. These converts were also sold in February 2021, again not bad in 5 months of ownership. Who wouldn’t invest at 70 cents on the dollar if an IPO was coming tomorrow? On both tranches of converts, buyers were further rewarded with 6% interest in the interim. Payable in shares!

15. These converts were also sold in February 2021, again not bad in 5 months of ownership. Who wouldn’t invest at 70 cents on the dollar if an IPO was coming tomorrow? On both tranches of converts, buyers were further rewarded with 6% interest in the interim. Payable in shares!

16. There are 39.1m “time-based” RSUs outstanding. At a $40 price these have $1.6B of pre-tax value. Not bad. The company will withhold the tax liability. There are 27.7m (I think that’s the #) 2019-class “market based” RSUs out that vest at the IPO. Graduated hurdle is an IPO!

17. There are 35,520,000 2021-class “market based” RSU shares outstanding that vest at the IPO. These will have $1.42B of value at a $40 IPO price. Not bad for a few months of ownership. These were granted in MAY – TWO MONTHS AGO. Brilliant timing. What luck.

18. There are 27.8m shares set aside for future SBC. This is a $1.1B set-aside for insiders. In total, an additional 14% dilution is authorized. There are additional shares set-aside for an Employee Stock Purchase Plan, offering new shares at a discount to market value. Why not.

19.  Any A-share RSUs vested and exercised by the founders can be converted to uber-voting B shares upon exercise. There were 230.7m shares outstanding (vested and held by insiders/private owners) at 3/31 (before the IPO). After the IPO, the share count stands to be ~840 million. 

20. New shareholders will bring $2.3B to the party, over 29% of all of the capital raised since 2103. For their money they will own 7% of the company. Did I already mention dilution? Wait until you see the dilution in book value and evisceration of per share book value.

21.  Cash in the firm will total about $7 billion with the addition of proceeds from the IPO. So how do you get to a ~$34B valuation? On fundamentals, 2020 REVENUES totaled $959m. 3/31 quarterly revs were $522m & 6/30 are estimated by the company at a range of $546 and $574m.

22. At the midpoint, sequential revenues were up 7.3%, growing fast but decelerating in a hurry…In fact, monthly revenues in March of this year actually declined from February. The company reports $81 billion in assets under custody at March 31 and 18 million accounts.

23. That works out to a whopping $4,444 per account (the median must be even WAY lower). The company further reports annual revenue per user of $137. No doubt some averaging is involved, but what they don’t report is that $137 in revenues from a $4,444 account is 3% per year.

24. On those 18 million $4,444 accounts, total assets under custody break down as: $65 billion in equities (AMC, GME & TSLA for sure) $2B options $11.6B crypto (up from $3.5B at 12/31 & $481m a year ago) $7.6B cash ($5.4B) margin Total assets under custody total $81B. 

25. 14% of customer assets are crypto! You don’t see any bonds. You don’t see any mutual funds. Half of transaction revenue, which are 81% of firm revenues, come from OPTION rebates, while options at market value account for only $2B of customer assets. Tell me it’s not a casino.

26. Option trading should definitely be allowed for the inexperienced, small, retail “investor.” This is how you get experience, and initiated. On assets held as crypto, these “assets” can neither be transferred in our ACAT’d out. They must be transacted while in the hood.

27.  The company naturally collects transaction fees from its trading partners and “can not guarantee the risk of a hack or theft.” Most crypto is stored in “cold pockets” but, of course, no SIPC protection exists on crypto. I can’t imagine anything untoward or going wrong here.

28.  17% of firm revenues were earned in Q1 from crypto transaction “rebates,” up from 4% in the prior quarter. While  $HOOD supports 7 cryptos for trading, no less than 34% of crypto revenues were from DOGECOIN! Hilarious reading this. I’m probably wrong about this being a casino.

29. In the first quarter alone, “customers” traded $88B of crypto against $11.6B held at 3/31 and $3.5B at year-end 2020. Definitely not a casino, but a platform encouraging the long-term ownership of investments. You think new “customers” learn all about the coffee can approach?

30. Robinhood further discloses that 81% of Q1 revenue came from selling equity and option order flow to 4 market makers, up from 75% of revenue during 2020. Regulatory issue on the horizon? Durability of “moat” issue? It’s in the Risk section, but so is lots of boilerplate.

31. Reasons for concern? In the first quarter, the company lost 5% of account value to transfers out, versus a quarterly average of 1.2% in 2020. Hopefully not a trend, particularly since customers cannot transfer crypto in and out. That said, crypto transactions = revenue! So…

32. The two company founders will own 135 million shares, 16% of those outstanding after the IPO with a value of $5.4 billion. If viewed as a percent of cumulative capital raised, including the IPO, that’s 68% of capital on virtually nothing invested. Ambitions on space travel?

33.  Voting control through super-voting B shares give the lads 65% of the vote. Lockups for insiders and newly converted shareholders are benign. A flood is coming, but only after the share price reaches certain thresholds triggering the vesting of additional performance shares.

34. The CFO and Chief Legal Officer were each paid more compensation in 2020, mostly in shares, than Berkshire Hathaway’s two operating Vice Chairmen, Greg Abel and Ajit Jain are paid, all in cash, each year to operate the largest company in the world by fixed tangible assets.

35. The CFO & CLO, non-founders, were each given shares that at a $40 IPO will be valued at almost $100 million each. The CFO signed on in Dec 2018. The CLO joined up in May 2020, so just over a year in. The good news is he was CLO at Mylan, so knows his way around a courtroom.

36.  The valuation seems insane, but will be “justified” because the company is a FinTech player. By comparison, Schwab’s market cap is $128 billion on $58 billion of book value and $5 billion of profit. Profit at Schwab is more than twice Robinhood’s total revenues.

37.  Schwab’s assets under custody (larger retail & institutional clients) total $7.5 trillion on only 31.5 million active customer accounts. Fewer than 2x the accounts but nearly 100x the assets under custody with a valuation only 3x as great as the expected valuation of $HOOD.

38. Bully for those investing $5.6 billion in Robinhood prior to the IPO. Their investment plus shares given to founders/insiders will own 93% of the company post-IPO, which at a $33.6B valuation represents a $31.3B position & a gain of 650%, mostly earned over the past 2 years

39. Brokers have capital requirements, of which Robinhood has been short of at times. Schwab earns a roughly 10% ROE over time. The IPO will remedy capital need, for now. But a firm highly levered to selling customer order flow, rebates on crypto transactions and margin interest?

40. Equity, option & crypto trading are advertised in the prospectus as, “commission-free.” Um hum. Costless to the unwitting “customer.” The business wins only if the “customer” transacts or borrows. This is good for society? Know that Robinhood’s shave is only part of the cost.

41.  Citadel doesn’t pay for flow for grins. The platform is not encouraging the long-term investment of patient capital. What I do know is that on a successful IPO, there will be corks a-popping in Menlo Park. This is massive dilution and delusion about valuing a retail broker.

42. Rob the unsuspecting and keep the gold, or the crypto, is sadly the new Robin Hood. In a week where famously introduced himself to Twitter, perhaps he has room on his plate for this one. The IPO is what it is. The way the company makes money, on the other hand…

43. On the IPO, it’s all there in black & white in the S-1. None of it is illegal. Moral? Surely contemptible. If you like investing in IPOs, where sellers are selling for a reason, and if you like being diluted by people who are in the business of taking, get your subscription in.

Robinhood the Disruptor

To add my 2 cents, sure Robinhood was a disruptor. It forced other brokerages to drop commissions. But once everyone does the same thing, where is the value?  OK it also has a phone app. 

What’s stopping any other company from offering such a platform?

But unless one has a portfolio of at least $25,000 you’re generally limited to no more than 3 day trades in a 5 trading day period. 

And it locked out customers at a critical time from trading GameStop and AMC. It had to because it was undercapitalized and could not hedge its risks. It still faces multiple lawsuits over the outages. 

* * *

Trade accordingly.

Thursday has been another difficult day for the Tokyo Games, as more athletes, including US pole vaulter Sam Kendricks – a world champion widely seen as a contender for the gold, who is known to many for stopping mid-run to stand for the national anthem – was removed from competition after testing positive for the virus.

Kendricks is the latest in a growing number of infections inside the Olympic Village “bubble” that was compromised even before the Games began.

His infection also placed the entire Australian team at risk, though the squad has been cleared to return to training after passing preliminary tests. Three of the squad’s members may have been exposed to Kendricks, the team says. But because of the infection risk, 41 athletes and 13 officials were forced to isolate in their rooms for two hours while testing was under way.

But that wasn’t the only bad news. Tokyo also reported 3,865 new cases on Thursday, the third record tally in as many days.

Source: Worldometer

 

Japan’s national infection rate also rose to a record 9,576. New cases recorded in the capital have already doubled from their levels just two weeks ago.

“We have never experienced the expansion of the infections of this magnitude,” Japan’s Chief Cabinet Secretary Katsunobu Kato told reporters.

In total 903K Japanese have been confirmed infected with the virus, while just over 15,100 have succumbed.

“While almost nothing is helping to slow the infections, there are many factors that can accelerate them,” said Dr. Shigeru Omi, a top government medical adviser. “The biggest risk is the lack of a sense of crisis, and without it the infections will further expand and put medical systems under severe strain.”

Now, Japanese PM Yoshihide Suga is in the uncomfortable position of deciding whether to strengthen the State of Emergency in Tokyo – which is Japan’s fourth since the start of the pandemic – which he will decide on Friday. He will decide whether to expand the order to cover three additional prefectures near Tokyo. The government is also weighing whether to extend emergency orders in Tokyo and the southern island of Okinawa beyond the current end date of Aug. 22.

Given the fact that the Games are proving immensely unpopular domestically largely because spectators have been barred from nearly all events (hundreds even showed up to protest the opening ceremony) this doesn’t exactly bode well for PM Suga’s political future.

Via SchiffGold.com,

The Federal Reserve insists inflation is “transitory” and the economy is making “progress.” Yet, it continues with the extraordinary monetary policy it launched at the onset of the COVID-19 pandemic. Meanwhile, we’re seeing all kinds of data hinting that the economy may not be as great as advertised. Despite this, and even as prices continue to spiral higher, the Fed’s only monetary policy is talk. Peter breaks it all down on his podcast and drills down to the key question: what happens if the markets call the Fed’s bluff?

The July Federal Reserve meeting took center stage this week, but there was a lot of economic data that got lost in the shuffle. Peter said the data “really evidences the stagflationary environment that we’re in.”

On Wednesday, the trade deficit in goods data came out. It exceeded the high end of estimates and set another record high, rising 3.5% to $91.2 billion. Peter said he doesn’t think this record will last long.

These records are going to fall like dominoes. And this is not happening because we have a strong economy. It’s happening because we have a weak economy.”

A lot of mainstream pundits keep looking at these numbers as if they somehow reflect strength because Americans are buying so much stuff. But as Peter pointed out, the strength of an economy isn’t measured by what you buy but by what you produce.

Strong economies produce more. They don’t simply consume more. We are consuming more despite the fact that our economy is weak. How are we doing that? Well, the Fed is printing money and we are spending it. But that does not constitute strength. That really evidences profound weakness.”

Recklessly spending money created out of thin air does not create economic strength. The only reason these numbers look good is because of Fed magic via monetary policy.

The Fed is really not as clueless as people think when it comes to inflation. They’re not missing the inflation problem. I think they understand that there’s an inflation problem. They also understand that they would create an even bigger problem, from their perspective, if they tried to do anything about it, which is why they’re not, which is why they are pretending that the situation is transitory.”

The mainstream understands that inflation is worse than the Fed claims. But it doesn’t understand why the Fed isn’t doing anything about it because they don’t understand the Fed can’t do anything about it without collapsing the economy.

They don’t understand that we have a bubble. It is the biggest bubble in history. And even the tiniest little pin would prick it, which is why the Fed does not want to supply that pin.”

Most people in the mainstream think the Fed did the right thing by expanding monetary policy in response to the pandemic. (It didn’t.) But they don’t understand why the Fed is continuing that policy now, given that we’re in a recovery. They’re sitting around scratching their heads wondering why the Fed doesn’t go ahead and tighten things back up.

They don’t understand that we haven’t recovered. We’ve just become addicted to the stimulus. The stimulus is a monetary heroin. And not only can’t the fed withdraw the drug; the Fed has to continue to supply the habit with greater and greater quantities of the drug.”

Over the last two months, exports have remained flat while imports exploded. Peter said this is like a company hemorrhaging red ink. How can the US finance these massive deficits? Because foreigners are willing to trade stuff for financial assets. But how much longer can this continue?

June durable goods data also came out on Wednesday. It was also a big miss on the downside and the number is trending lower. Meanwhile, new homes sales collapsed in June for the third consecutive month, hitting a 14-month low. Why are home sales slowing? Because prices are rising so fast. Even with mortgage interest rates at record low levels, people are being priced out of the market. Peter said he doesn’t think the rise in home prices is anywhere close to ending because the cost of construction continues to rise. At some point, construction will likely slow and that will have an impact on employment.

Rent is a big component of CPI. According to government calculations, rents have remained relatively low. But MarketWatch analysis shows that actual rents are up 25% year-over-year. That is 10 times the level the government is using to calculate CPI.

Imagine what the CPI would be right now if you replaced the government number with a 25% private-sector number from Realtor.com. You would be looking, I think, at a year-over-year inflation rate, right now, at 13%.”

Meanwhile, the Fed continues to insist inflation is “transitory” and everything is fine.

Peter goes on to break down the Fed meeting and Jerome Powell’s post-meeting press conference. He notes that it’s all talk and the Fed is basically bluffing.

The real question is what happens if markets call that bluff? And there are signs that may be happening.