Month: July 2021

In our preview of today’s jobs report we said it would be hot but not too hot, and that’s precisely what happened when the BLS reported that June’s payrolls data was strong (850K) but not too strong (wages eased, unemployment rose).

And as Bloomberg recaps in its intraday wrap, namely that “stocks climbed on speculation the economy is recovering at a pace that won’t make the Federal Reserve imminently take away the liquidity punch bowl that has helped push the market to a record”, we can conclude that today’s jobs report was goldilocks: “just right” to propel virtually all risk assets – including stocks, treasuries, gold and oil – higher, while the dollar tumbled as all those recent shorts who decided to close their positions and go long the greenback in recent weeks, were again stopped out.

Speaking of stocks, the S&P 500 rose for a seventh consecutive day, its longest winning stretch since last August when SoftBank was ramping stocks courtesy of a marketwide gamma squeeze…

… and one which has pushed it to seven consecutive record highs, for the first time seen since 1997!

Which of course, is remarkable considering the panicked freakout we observed in the immediate aftermath of the June FOMC when risk assets tumbled as the Fed previewed not one but two rate hikes in 2023. To think all that was needed to “fix” this sentiment was for Joe Biden to meet with Powell and Yellen…

…. sending stocks non-stop higher for the next two weeks.

Helping the low-volume was the latest plunge in the VIX, which tumbled to just above 14, the lowest level since the covid crisis…

… before rising modestly. And if Goldman is right in pointing out that stocks are entering the best 2-week period of the year …

… then we have much more downside in the VIX to go.

With the Nasdaq rising 1%, obviously rates did not surge after today’s payrolls report, and sure enough after a few kneejerk moves lower and higher, 10Y yields proceeded to drift to session lows with the bond market gradually agreeing with BofA’s view that the US economy is heading for stagflation in the second half.

This was the result of declining real rates while breakevens remains stubbornly high around 2.34%

We doubt stocks will get the memo any time soon.

In other news, cryptos were generally flat on the day, with bitcoin trading just around $33,000 while ethereum was caught in a range between $2000 and $2100…

… even as the dollar tumbled thanks to the “goldilocks” jobs report.

Meanwhile, gold benefited from the dollar plunge, rising to the highest level since mid-June although it has a long way to go before reclaiming its pre-FOMC levels.

Finally, despite the chaos in today’s OPEC+ meeting where UAE has emerged as a vocal objector to a deal that sees only modest increases in output, oil recovered much of of its earlier losses and was last trading just shy of the highest level since 2018.

At some point the Fed will need to stop oil’s ascent or as we noted earlier, the unstoppable oil surge could be a nail in the coffin for stocks.

Authored by Jonathan Turley,

“It’s not about politics.” 

That statement from prosecutor Carey Dunne had to be repeatedly stressed after Manhattan District Attorney Cyrus Vance Jr.  and New York Attorney General Letitia James paraded triumphantly in front of hundreds of cameras to charge the Trump Organization and its finance chief, Allen Weisselberg, 73, with a 15-count indictment for failing to pay taxes on corporate perks. It had to be repeated because it was demonstrably untrue. This is not to say that Dunne is lying. He is prosecuting what are violations that are real crimes if proven. Rather, it is not true that this case would have been investigated without the strong political interests.  

James ran for Attorney General on the pledge to get Trump and his associates.  The excitement around the courthouse itself had the feel of a thrill kill as the heavily Democratic city celebrated the arrest of someone close to Trump.

I admittedly view these cases through the lens of a longtime criminal defense attorney but few recognized the obvious problem of a big hunt and small game.  It is not that Weisselberg himself is small game, he was a close associate at the top of this company. The charges are small game when these prosecutors pledged to pursue Trump and alleged major crimes. However, the charges are based on violations that are ubiquitous among corporate executives and rarely the subject of such a major prosecution. 

If prosecuting untaxed perks was really a focus of these offices, they would have to frog march half of Manhattan to the hoosegow.

Nevertheless, the New York Times declared “the charges represent a major milestone for Mr. Vance, a Democrat who twice beat Mr. Trump at the U.S. Supreme Court in a battle to obtain the former president’s tax records.” Indeed, this effort has been going on for years and I also supported Vance’s right to gain such tax records. I stated repeatedly that I believed that the Trump arguments against turning over such records to Congress and prosecutors were unsupportable from a legal basis.

However, one can recognize that major victory in obtaining Trump’s taxes without inflating the significance of this indictment of his former CFO. The piling on of charges is clearly designed to get Weisselberg to flip against Trump. Standing alone, the case is hardly impressive.  These are tax reporting violations that go back to 2005 and had nothing to do with Trump’s presidency.  This was not Russian collusion or Ukrainian coercion to hush money payments to strippers. It was a failure to tell the IRS that Weisselberg was using cars and apartments paid for by the Trump organizations as well as other benefits.

That did not stop the “bag and brag” quality of the event held at the courthouse. People and many news outlets celebrated that a Trump associate was being handcuffed for anything. However, as a trophy kill, this is hardly enough to mount let alone brag out.

Moreover, the failure to pay taxes on benefits is usually a matter addressed civilly not criminally. If the prosecutors can prove the alleged effort to conceal the benefits, that certainly makes the matter more serious but this is not a big game charge eve if this is a major figure in the Trump company. It is of course possible that there are major criminal charges coming and that this is just the first small salvo. However, it would be difficult to nail Trump on such tax allegations over perks without showing knowledge and involvement in the tax omissions.

The prosecutors have alleged that as much as $1.76 million in benefits should have been taxes since 2005. Putting aside the common inflation of such valuations by prosecutors, that is a lot of money. It is result of adding everything from cars to apartments to wifi to holiday gift accounts.  I expect some of these should have been taxed, but reading the indictment leaves one wondering how many executives fail to include car and other benefits as income, particularly going back to 2005.

I have made an analogy to Major League Baseball cracking down on substances on the hats and arms of pitchers. Pitchers knew that it was illegal but saw this as a common practice. Umpires did not monitor or punish pitchers for adding substances for better adhesions. As I said yesterday, this is obviously far more serious as an act. This is an alleged crime and a lot of money, particularly the payment of tuition which are hard and reliable figures. However, the question is whether this is a common practice has been the focus of major investigations let alone major criminal cases in the past. It also raises the question of selective prosecution.

Weisselberg is charged with a scheme to defraud, conspiracy, four counts of criminal tax fraud and other crimes. However, the major charge is grand larceny in the second degree which can result in a sentence for as must as 15 years but it is extremely unlikely that a sentence would be long, let alone reach such levels.  This is a first offender, elderly businessman who did not claim perks for taxes.  It does not make him Mother Teresa but it also does not make him John Gotti.

Here is the indictment: Weisselberg indictment

Imagine you lost your job tomorrow. How long would you be able to sustain your current lifestyle? A week? A month? A year?

As we await Friday’s labor market update, Finder has just published the results of a recent survey attempting to gauge the financial stability of the average American in the post-pandemic era.

More than 2K adults to were interviewed to try and ascertain how long they could survive without income. It turns out that approximately 72.4MM employed Americans – 28.4% of the population – believe they wouldn’t be able to last for more than a month without a payday.

Another 24% said they expected to be able to live comfortably between two months and six months. That means an estimated 133.6MM working Americans (52.3% of the population) can live off their savings for six months or less before going broke.

On the other end of the spectrum, roughly 8.7MM employed Americans (or 3.4% of the population) say they don’t need to rely on a rainy day fund since they have employment insurance which will compensate them should they lose their job.

Amusingly, men appear to be less effective savers than women. Some 32.4MM women (26.7% of American women) say their savings would stretch at most a month, compared to 40MM men (29.9% of American men) who admit to the same. Of those people, 9.7MM women (8% of American women) say their savings wouldn’t even stretch a week, compared to 15.5MM men (11.6% of American men) who admit to the same.

A majority of employed Americans over the age of 18 say their savings would last six months at most. About 70.7MM men (52.8% of American men) and 62.8MM women (51.8% of American women) fear they’d be in dire straits within six months of losing their livelihood.

Unsurprisingly, younger people tend to have less of a savings buffer – but the gap between the generations isn’t as wide as it probably should be.

While increasing one’s income is perhaps the best route to building a more robust nest egg, Finder offered some suggestions for people looking to maximize their savings.

1. Create a budget and stick to it

Look at your monthly income against all of your monthly expenses. Add to them expenses you pay once or twice a year to avoid a surprise when they creep up. After you know where your money is going, you can allot specific amounts to different categories and effectively track your spending.

2. Start an emergency fund

The goal is getting to a point where you’ve saved enough money to cover expenses for a month, and then six months and then ultimately a safer nine months. Consider setting up automatic deposits from your checking into savings for a set-it-and-forget-it nest egg.

3. Put money where it’s difficult to access

To reduce the temptation of tapping into your savings, consider tucking away your automatic deposits into an online bank account or somewhere other than your main bank. Look for an account without a debit card for insurance against easy indulging.

4. Pay off or consolidate your debts

Use any leftover cash from your budget to chip away at your debts. Many people claim success with the snowball, avalanche and other methods of paying down debt. Compare 0% APR balance transfer credit cards or debt consolidation loans to save on interest and simplify your bills.

5. Take up a side hustle

• You may be able to turn extra time into extra money by:
• Driving for Uber or Lyft
• Putting your skills towards freelancing
• Selling your stuff online
• Doing odd jobs
• Renting out your apartment on AirBnb
• Participating in paid surveys

6. Invest in your future.

If the company you work for offers a 401(k) or investment alternative, sign up for the opportunity to passively save for retirement — especially if there’s a company match. Start small with 4% and increase your contribution with future salary increases.

7. Shop around for stronger deals

Compare cheap car insurance rates to see if you’re paying too much in monthly premiums. See if you can keep your grocery budget under a set amount by sticking to buying what’s on sale. If you get creative, you may find you’re squirreling away enough extra cash to get ahead of the paycheck-to-paycheck cycle.

8. Teach your kids strong financial literacy.

Start early by teaching your children healthy financial habits to set them up for success, helping them avoid the paycheck-to-paycheck cycle altogether. There are plenty of debit cards for kids designed to teach them finances, and some are even free.

* * *

Source: Finder

Earlier today we made the observation that after the brief post-FOMC freakout, stocks have risen for two weeks straight, making new all time highs virtually every day, and all that was necessary for this ramp higher was for Joe Biden to meet with Powell, Yellen and Gensler the morning of Monday, June 26. What happened next is familiar to all.

But it’s not just stocks where one can find the impact of Powell’s not so invisible finger. According to the just released May calendar notes for the Fed chair, on Tuesday, May 11 at 11:15am, Powell met – in person – with Coinbase CEO Brian Armstrong (less than a month after the company went public on April 12, along with Republican Paul Ryan.

This meeting was followed the very next day with former CFTC commissioner and current head of the Digital Dollar project, Chris Giancarlo.

What we find remarkable is that May 11 is the day when bitcoin began its plunge, tumbling from $57K to just $33K less than a week later.

And while the drop has been largely attributed to Musk’s tweet just a few hours later, on May 12, that Tesla would no longer accept bitcoin for car purchases, citing environmental concerns, one wonder just what Powell told the Coinbase CEO one day before the biggest drop in bitcoin since the onset of the “great winter” in December 2017.

Pulling its best “Lester Burnham masturbating in the bathroom” impression, earlier today Bank of America warned that “it’s all downhill from here” when its CIO Michael Hartnett looked at the second half of the year and warned that as the US moves from inflation to stagflation and from QE to QT, the “combo of rising Rates, Regulation, Redistribution (3Rs) & peak Positioning, Policy, Profits (3Ps)” assures low/negative returns in the second half (see here). In short, the party is over.

Well, Goldman disagrees, and in an a note from the tactical flow desk the bank has listed several reasons why the party is just getting started.

Putting the immediate past in context, Goldman writes that “the S&P 500 has seen 33 new all-time highs this year or 1 new ATH for every 3.73x trading days. Going back to 1928, only 1995 would annualize at a faster pace, 1 ATH per 3.27x trading days. And 53 new S&P 500 all-time highs since March 2020.”

But more to the point, unlike BofA which believes the stellar H1 will be followed by a stagflationary H2, Goldman thinks equities will come out of the gates strong in July, and then slow down at the end of month after options expiry: “Positioning is un-streched as we rally higher, we think investors will have FOMO to start the month.”

Claiming that a “strong 1H, typically means strong 2H“, Goldman seeks to ease some of its more nervous clients and notes that we are now entering the best two-week seasonal period of the year. Specifically the high point of this seasonal chart since 1928, is July 1st to July 16th.

Don’t believe in technical mumbo-jumbo? Here are the rest of Goldman’s tactical reasons why traders should be balls to the wall long stocks right now.

1. 401K Quarterly Money flows – July money flows are the biggest in Q3 as advisors rebalance investor client portfolios.+15bps of AUM of new money comes into the market in July, +$30B worth of inflows on ~$21 Trillion of assets. RIA’s are on the hook for running too low equity exposure and “waiting for a dip to buy”.
2. Sentiment and Positioning – GS Research Sentiment Indicator declined week over week and sentiment is very un-stretched. Heading into last week, GS SI was the lowest level in 55 weeks. This is also consistent with GS PB team, HF fundamental L/S Gross Leverage ranks in the 31st percentile.
3. S&P Index Gamma – Until recently, dealer long gamma(~$5.5B) is at 2-year highs but a significant portion of this gamma has just rolled off This means that the market can move more freely to the upside (or downside) after Wedensday’s close. This has prevented a material break out higher as dealers would need to sell futures into a rally. If there is a chase to the upside from here, its potential for spot up and vol up with dealers less long gamma.
4. Buybacks – the blackout window ends on 7/23/21 and opens 7/26/21 (~40% of companies will be in the openwindow). However the de-facto start to the open window is following JPM earnings / big bank reports on 7/13/21.Corporates remain the largest source of demand for 2H and bank demand may pick up mid-July (when overall money flows slow).
5. 1H 2021 fund flows scoreboard – YTD, Money Markets +$116B inflows + Global Bonds +$276B inflows vs. GlobalEquities +$575 inflows…. or said another way, the $3 Trillion wedge only declined by –$183B ytd. The cash position and bond position is still too high for advisors to send on their quarterly statement given the record ATH stock run.
6. Flow of funds winner of 1H – Households own 38% of the US equity market, the largest owner of the equity has become the largest trader. Tracking Friday weekly call options really just became a thing in 2021. 3 out of the top 15 call option volume days on record, going back to 1992 (7200 observations) happened since Memorial day 2021.

Finally, here is a snapshot of how Goldman’s bubble baskets are doing: GS Yolo +83% YTD, most short +53%, Bitcoin equities +39%, Retail Favorites +23%, High Vol +22%.