Month: January 2022

Hong Kong’s Politicians and Cops Use Pandemic Justifications To Do Beijing’s Bidding


zumaglobaleleven477131

In March 2020, curfews were implemented in most major American cities. Schools were shuttered and people were given stay-at-home orders. Though many in the West have rightly wondered about the degree to which COVID-19 suppression has actually been a guise for state actors to seize more control, in Hong Kong, the case is airtight: Pandemic mitigation measures have provided cover for Beijing to stifle whatever pro-democracy holdouts remained, to fully implement the national security law that went into effect in June 2020 and aims to bring long-autonomous Hong Kong under Chinese Communist Party (CCP) control, destroying the freedoms Hongkongers hold dear.

When Britain handed its prosperous colony Hong Kong over to China in 1997, a condition of the transfer was that Beijing would allow the territory to maintain significant freedoms, along with a separately functioning system until 2047, called “one country, two systems.” With the national security law, Beijing has opted to prematurely seize control and suppress dissent, censoring any people deemed disloyal by the state.

The law, which was proposed after legislators in Hong Kong had put forth an extradition bill that would’ve allowed Hongkongers to be tried for specific crimes on the mainland, was roundly criticized by The New York Times (and many other outlets) “for introducing ambiguously defined crimes such as separatism and collusion that can be used to stifle protest.” The national security law marks the end of Hong Kong’s era of freedom and, possibly, the end of its prosperity. But all this went down in early 2019, sparking a protest movement later that year, and continued up until the first part of 2020, until the pandemic hit.

Then, COVID-19 served as the convenient excuse for why Legislative Council (LegCo) elections had to be postponed for a year. With tempo on its side and the goodwill that had been generated by a million-person-strong protest movement, the pro-democracy coalition could have maintained some influence within Hong Kong’s legislative body even as electoral viability dwindled in the face of Beijing’s increased exertions. But between elections, LegCo rules were swiftly changed allowing only “patriots” who pledge loyalty to Beijing to run.

“The government spared no effort to paint the election as legitimate, even threatening foreign newspapers that suggested otherwise,” reported The New York Times. But such loyalty oaths and purity tests meant to weed out members of the pro-democracy opposition prove that these elections were a sham, bolstered by the fact that the November 2019 elections—those held directly prior to the pandemic—resulted in a pro-democracy coalition sweep, with those candidates winning more than 85 percent of district council seats (a lower level of government than the LegCo, but a useful bellwether in terms of understanding pro-democracy sentiment).

What happened next was no surprise: a sweep in the LegCo by candidates who had sworn loyalty to the mainland. “Leading opposition figures are in jail, exile or have been intimidated into silence,” reported the Associated Press. Voter turnout was a paltry 30 percent—the lowest it had been since Hong Kong became semi-independent in 1997. (For comparison, 71 percent of registered voters showed up in November 2019 for district council elections.)

The new Potemkin legislature convened for the first time this month. In its new form, there’s no expectation that it will serve as a useful check on Beijing’s power, or a useful means of representing the many Hongkongers who remain convinced that their autonomy is worth preserving, that “one country, two systems” should not have been violated. The fact that so few of them even showed up to vote, in a place with historically strong voter turnout, substantiates the idea that these elections were a farce.

Though the complete electoral overhaul is the most disturbing example of pandemic safety being used to justify national security law implementation, there are plenty of others. COVID-19 has been used as pretense to shut down pro-democracy protests for violating social distancing rules, arguably even leading to the fizzling out of the 2019–2020 anti–extradition law protest movement. And every year in Hong Kong since 1990, people have taken to the streets to march and hold a vigil, keeping the memories alive of the Tiananmen Square dead—until 2020, when Hong Kong announced that the city would be extending COVID-19 restrictions, lifting them on June 5, the literal day after the anniversary. Not subtle.

The city’s COVID-19 rules at the time banned public meetings of more than eight people, with a potential six months in jail for violating these rules. With such high penalties on the line, only a small vigil for the victims of the Tiananmen Square massacre was held; the activists responsible were arrested and sentenced to up to 14 months of jail time. The sentencing judge remarked that defendants had “ignored and belittled a genuine public health crisis.”

College campuses aren’t faring much better. The culture of dissent that once thrived has atrophied, replaced by one of caution. Professors rightfully worry about colleagues and students snitching on them via tip lines; remote learning adaptations enable possibly more government surveillance or recording than in-person instruction; certain subjects have been removed from syllabuses. Sometimes, it’s patently obvious that national security law is the reason for speech suppression and paranoia; other times, vague “safety” justifications are what’s used, and it’s hard to tell whether administrators mean safety from viral contagion or from police.

University administrators have also tried to use the pandemic as the justification for speech restrictions, perhaps in an attempt to hide the degree to which the national security law is forcing their hands. At Hong Kong Baptist University, administrators abruptly canceled a photo exhibition last year that would have featured pictures from 2019’s anti–security law protests, after state media called them out. The university pointed to both security and pandemic concerns as the justification. (The same exhibition, during its Macau stop, was also abruptly canceled in October 2020 without any explanation, as rumors circulated that Beijing had intervened.)

Pursuing a Zero COVID policy in much the same way mainland China has, Hong Kong is currently expanding lockdowns and restrictions, including by suspending overseas flights, requiring a 21-day quarantine (with the first 14 days spent in a government-designated facility) for all arrivals, and forcing restaurants to ban indoor dining after 6 p.m. Chek Lap Kok Airport, which in 2019 was the (somewhat unwilling) host of a multi-day pro-democracy sit-in which led to flights being paused for at least two days, is now comparatively sparse with arrivals. “If Hong Kong is not connected to the rest of the world, it loses its reason for being,” long-term resident Simon Cartledge told The Financial Times.

The type of speech that had once been allowed, and the type of business investment that had once thrived, and the type of civic culture born out of Hong Kong’s unique status have all been crippled by the twin threats of the pandemic and the national security law—the former too often being the state’s sneaky justification for the latter.

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Atlanta Fed Shocker: US Economy On Verge Of Contraction

Atlanta Fed Shocker: US Economy On Verge Of Contraction

Nothing says “BTFD in stocks” like collapsing sentiment (UMich 10 year lows this morning) and crashing growth expectations and no lesser entity than The Atlanta Fed just released its latest GDPNOW forecast for Q1 economic growth in the US… and it’s a doozy.

The initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 0.1 percent on January 28, i.e. on the verge of contraction.

This is dramatically below consensus (for now), but as we recently noted, BofA is already hinting at a recession being imminent.

And that has sent rate-hike expectations lower (though only modestly for now)…

Is bad news, good news for stocks? Hard to say when inflation’s over 7% and consumer expectations for inflation are at multi-decade highs. This is the absolute definition of The Fed’s nemesis – Stagflation.

Get back to work Mr.Powell!

Tyler Durden
Fri, 01/28/2022 – 12:13

via ZeroHedge News https://ift.tt/3o8BqPh Tyler Durden

Here Comes The Fund Rebalancing: $65 Billion In Month-End Buying

Here Comes The Fund Rebalancing: $65 Billion In Month-End Buying

It’s not just buybacks that emerge seemingly out of nowhere (technically, the tend to emerge out of select VWAP desks) to help lift stocks higher: month end is notorious for pension and mutual fund rebalancing flows, and in a month when stocks tumbled far more than bonds, funds are now catching up as they are mandated to buy a certain amount of stocks to balance their portfolios.

So how much in buying is there? Well, according to JPMorgan’s Nick Panigirtzoglou, “In the very near term, one flow that could support the equity market is potential month-end rebalancing by balanced mutual funds for which we estimate $65bn of equity buying by the end of this month.”

Goldman’s own estimate is for a net $12 billion of US equities to buy from US pensions given the moves in equities and bonds over the month. While this ranks in the 31st percentile amongst all buy and sell estimates in absolute dollar value over the past three years, Goldman notes that it is the biggest month-end estimate since the March 2020 collapse.

Here, JPM’s resident permabull Marko Kolanovic also chimes in, nothing that he has been getting questions about month end buying – which he believes translated into 5% upside pressure on broad indices. The reason cited by Marko is “very low liquidity (1/5th of average liquidity)” something we have been noting every single day this week, pointing out that liquidity now is as bad as it was in March 2020 when the Fed had to inject trillions to kickstart the market.

As Kolanovic continues, “stocks are underperforming bonds by ~8% (some indices more), and usually beta is about 20-25%, so say 2% in normal market conditions, but there is a significant liquidity multiplier to amplify the move. Also, historically – month end flow start ~3 days before month end, and trend was that on 31st flows were completed.” That leaves Thursday and Friday (and judging by yesterday’s action, there wasn’t a lot of forced buying).

So focusing on the market’s scant liquidity, which Kolanovic compares to December 2018, he notes that “in those situations, these flows can almost entirely reverse the month to date bond-equity performance. Also note short gamma that would be amplifying any equity buying. Also CTA levels are in the range so that is another amplifier.”

And speaking of gamma, GS estimates that dealers are the shortest gamma they have been since Jul’20. Interestingly, the bank sees this short gamma positioning spread across several expiries and strikes to the downside as opposed to concentrated on one or a few particular option lines, as is often the case. “This gamma dynamic coupled with the current liquidity environment sets up for exacerbated moves at the index level.”

Translation: even a modest upward spark could send the market exploding higher, and that particular spark was just provided by the Atlanta Fed, which just came out with a 0.1% estimate for Q1 GDP.

Translation: the rate hike panic is over and with now that bad news are good again, risk is about to go vertical…

Tyler Durden
Fri, 01/28/2022 – 12:05

via ZeroHedge News https://ift.tt/3u7g34N Tyler Durden

Hong Kong’s Politicians and Cops Use Pandemic Justifications To Do Beijing’s Bidding


zumaglobaleleven477131

In March 2020, curfews were implemented in most major American cities. Schools were shuttered and people were given stay-at-home orders. Though many in the West have rightly wondered about the degree to which COVID-19 suppression has actually been a guise for state actors to seize more control, in Hong Kong, the case is airtight: Pandemic mitigation measures have provided cover for Beijing to stifle whatever pro-democracy holdouts remained, to fully implement the national security law that went into effect in June 2020 and aims to bring long-autonomous Hong Kong under Chinese Communist Party (CCP) control, destroying the freedoms Hongkongers hold dear.

When Britain handed its prosperous colony Hong Kong over to China in 1997, a condition of the transfer was that Beijing would allow the territory to maintain significant freedoms, along with a separately functioning system until 2047, called “one country, two systems.” With the national security law, Beijing has opted to prematurely seize control and suppress dissent, censoring any people deemed disloyal by the state.

The law, which was proposed after legislators in Hong Kong had put forth an extradition bill that would’ve allowed Hongkongers to be tried for specific crimes on the mainland, was roundly criticized by The New York Times (and many other outlets) “for introducing ambiguously defined crimes such as separatism and collusion that can be used to stifle protest.” The national security law marks the end of Hong Kong’s era of freedom and, possibly, the end of its prosperity. But all this went down in early 2019, sparking a protest movement later that year, and continued up until the first part of 2020, until the pandemic hit.

Then, COVID-19 served as the convenient excuse for why Legislative Council (LegCo) elections had to be postponed for a year. With tempo on its side and the goodwill that had been generated by a million-person-strong protest movement, the pro-democracy coalition could have maintained some influence within Hong Kong’s legislative body even as electoral viability dwindled in the face of Beijing’s increased exertions. But between elections, LegCo rules were swiftly changed allowing only “patriots” who pledge loyalty to Beijing to run.

“The government spared no effort to paint the election as legitimate, even threatening foreign newspapers that suggested otherwise,” reported The New York Times. But such loyalty oaths and purity tests meant to weed out members of the pro-democracy opposition prove that these elections were a sham, bolstered by the fact that the November 2019 elections—those held directly prior to the pandemic—resulted in a pro-democracy coalition sweep, with those candidates winning more than 85 percent of district council seats (a lower level of government than the LegCo, but a useful bellwether in terms of understanding pro-democracy sentiment).

What happened next was no surprise: a sweep in the LegCo by candidates who had sworn loyalty to the mainland. “Leading opposition figures are in jail, exile or have been intimidated into silence,” reported the Associated Press. Voter turnout was a paltry 30 percent—the lowest it had been since Hong Kong became semi-independent in 1997. (For comparison, 71 percent of registered voters showed up in November 2019 for district council elections.)

The new Potemkin legislature convened for the first time this month. In its new form, there’s no expectation that it will serve as a useful check on Beijing’s power, or a useful means of representing the many Hongkongers who remain convinced that their autonomy is worth preserving, that “one country, two systems” should not have been violated. The fact that so few of them even showed up to vote, in a place with historically strong voter turnout, substantiates the idea that these elections were a farce.

Though the complete electoral overhaul is the most disturbing example of pandemic safety being used to justify national security law implementation, there are plenty of others. COVID-19 has been used as pretense to shut down pro-democracy protests for violating social distancing rules, arguably even leading to the fizzling out of the 2019–2020 anti–extradition law protest movement. And every year in Hong Kong since 1990, people have taken to the streets to march and hold a vigil, keeping the memories alive of the Tiananmen Square dead—until 2020, when Hong Kong announced that the city would be extending COVID-19 restrictions, lifting them on June 5, the literal day after the anniversary. Not subtle.

The city’s COVID-19 rules at the time banned public meetings of more than eight people, with a potential six months in jail for violating these rules. With such high penalties on the line, only a small vigil for the victims of the Tiananmen Square massacre was held; the activists responsible were arrested and sentenced to up to 14 months of jail time. The sentencing judge remarked that defendants had “ignored and belittled a genuine public health crisis.”

College campuses aren’t faring much better. The culture of dissent that once thrived has atrophied, replaced by one of caution. Professors rightfully worry about colleagues and students snitching on them via tip lines; remote learning adaptations enable possibly more government surveillance or recording than in-person instruction; certain subjects have been removed from syllabuses. Sometimes, it’s patently obvious that national security law is the reason for speech suppression and paranoia; other times, vague “safety” justifications are what’s used, and it’s hard to tell whether administrators mean safety from viral contagion or from police.

University administrators have also tried to use the pandemic as the justification for speech restrictions, perhaps in an attempt to hide the degree to which the national security law is forcing their hands. At Hong Kong Baptist University, administrators abruptly canceled a photo exhibition last year that would have featured pictures from 2019’s anti–security law protests, after state media called them out. The university pointed to both security and pandemic concerns as the justification. (The same exhibition, during its Macau stop, was also abruptly canceled in October 2020 without any explanation, as rumors circulated that Beijing had intervened.)

Pursuing a Zero COVID policy in much the same way mainland China has, Hong Kong is currently expanding lockdowns and restrictions, including by suspending overseas flights, requiring a 21-day quarantine (with the first 14 days spent in a government-designated facility) for all arrivals, and forcing restaurants to ban indoor dining after 6 p.m. Chek Lap Kok Airport, which in 2019 was the (somewhat unwilling) host of a multi-day pro-democracy sit-in which led to flights being paused for at least two days, is now comparatively sparse with arrivals. “If Hong Kong is not connected to the rest of the world, it loses its reason for being,” long-term resident Simon Cartledge told The Financial Times.

The type of speech that had once been allowed, and the type of business investment that had once thrived, and the type of civic culture born out of Hong Kong’s unique status have all been crippled by the twin threats of the pandemic and the national security law—the former too often being the state’s sneaky justification for the latter.

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Biden Team Briefs Wall Street Banks On Looming Russia Sanctions, Including ‘Nuclear Option’

Biden Team Briefs Wall Street Banks On Looming Russia Sanctions, Including ‘Nuclear Option’

Bloomberg reports that the Biden administration has briefed Wall Street on possible new far-reaching sanctions on Russia, and ongoing efforts to ensure that they wouldn’t disrupt the global financial system. 

This included National Security Council officials this week holding discussions with executives from major banks including Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. – according to the Bloomberg report.

This similarly comes as the administration is said to be reaching out to energy firms in the Middle East, Asia, and Africa – in hopes of helping Western Europe tapping alternate supply sources should things escalate to the point of Russia drastically cutting off gas to Europe, which could be a likely retaliatory move by Russia. But while Washington has been talking sanctions and even cutting Russia off from SWIFT, Ukraine’s President Zelensky himself has been busy attempting to reign in the loose canon and “dangerous” rhetoric coming out of Washington officials…

Moscow too has been consistent over the past two months in saying there are no “plans” to invade Ukraine, even as it’s recently acknowledged a heavy Russian forces presence in areas near the Russia-Ukraine border – however which are all stationed within its own sovereign territory, which the Kremlin has reminded Washington that it has every right to do.

Officials from the Treasury Department’s Office of Foreign Assets Control were also said to be involved in briefing US financial firms on the possible measures. In terms of the likelihood or unlikelihood, and severity, of new sanctions on Russia, Bloomberg had this to say:

“The U.S. and European Union are honing in on a package that would include targeting Moscow’s ability to convert currency. While energy penalties and cutting off access to the Swift system, which manages 42 million orders a day for payments, are on the table, Swift is considered the nuclear option and the most divisive.”

For now the Swift option indeed looks unlikely. “One person familiar with the discussions said it’s coming up only occasionally in talks between the administration and the banks, as the lenders ask whether such a measure is likely,” the report notes. 

Meanwhile, talk about giving a “heads up” to Wall Street on potential plans directly impacting investment strategy…

The scenarios is also unlikely given the already deep fissures within the NATO alliance over just how to respond to the Ukraine crisis.

Germany and France have already made abundantly clear that they want to avoid military conflict at all costs, coming on the heels of relatively positive Normandy format talks in Paris on Wednesday, which has resulted in denunciations from eastern European states – Latvia foremost among them – that Germany’s trade and energy relations with Moscow and Beijing have introduced division in Europe.

Increasingly the Ukrainians themselves appear to be seeking de-escalation, and are fast backing off talk of military confrontation in the country’s east…

Tyler Durden
Fri, 01/28/2022 – 11:41

via ZeroHedge News https://ift.tt/3G6jiM9 Tyler Durden

Manic Meltup In Stocks: HOOD Goes Green, Dow Erases Week’s Losses

Manic Meltup In Stocks: HOOD Goes Green, Dow Erases Week’s Losses

Arguably due to rising recession risks, rate-hike expectations are fading modestly this morning…

And that – it would appear – is all that anxious dip-buyers needed as they ripped stocks higher from an ugly overnight session. Nasdaq is now up 2% after being down 1%…

The ramp has lifted The Dow back to unchanged on the week…

And under the hood – pun intended – HOOD has exploded from down around 15% to up around 5%…

We wonder what happens when Europe closes?

Sometimes you just have to laugh… and look at liquidity…

This won’t end well.

Tyler Durden
Fri, 01/28/2022 – 11:26

via ZeroHedge News https://ift.tt/3AJgwLJ Tyler Durden

Recession On Deck? BofA Slashes GDP Forecast, Sees “Significant Risk Of Negative Growth Quarter”

Recession On Deck? BofA Slashes GDP Forecast, Sees “Significant Risk Of Negative Growth Quarter”

With a panicking Biden likely to continue freaking out over soaring inflation, and calling Powell every day ordering the Fed chair to do something about those approval rate-crushing surging prices…

… which in turn has cornered Powell to keep jawboning markets lower, with threats of even more rate hikes and even more price drops until inflation somehow cracks (how that happens when it is the supply-driven inflation that remains sticky, and which the Fed has no control over, nobody knows yet) we recently joked that the market crash will continue until Biden’s approval rating raises.

Sarcasm aside, we are dead serious that at this point only the risk – or reality – of a recession can offset the fear of even higher prices. After all, no matter how many death threats Powell gets from the White House, he will not hike into a recession just because Biden’s approval rating has hit rock bottom. It’s also why we said, far less joingkly, that “every market bull is praying for a recession: Biden can’t crash markets fast enough”

Which brings us to the current Wall Street landscape where some banks, most notably the likes of Goldman, continue to predict even more rate hikes while ignoring the risk of a slowdown, it’s entire bullish economic outlook for 2022 predicated on households spending “excess savings” which they have spent a long time ago (expect a huge downgrade to GDP in 2022 from Goldman in the next few weeks as the bank realizes this), while on the other hand we have banks like JPMorgan, which recently pivoted to the new narrative, and as we reported last weekend, now sees a sharp slowdown in the US economy following a series of disappointing data recently…

… and as a result, JPM now “forecast growth decelerated from a 7.0% q/q saar in 4Q21 to a trend like 1.5% in 1Q22.“

And while not yet a recession, today Bank of America stunned market when it chief economist joined JPM in slashing his GDP for 2022, and especially for Q1 where his forecast has collapsed from 4.0% previously to just 1.0%, a number which we are confident will drop to zero and soon negative if the slide in stocks accelerates due to the impact financial conditions and the (lack of) wealth effect have on the broader economy.

Harris lists 4 reasons for his gloomy revision, which are all in line with what we have been warning for quite some time now, to wit:

1. Omicron: The Omicron wave has exacerbated labor-supply constraints and slowed services consumption. All else equal, we estimate that services spending could slice 0.6pp off January real consumer spending, although a pickup in stay-at-home durable goods demand could offset some of the shock. This is consistent with the aggregated BAC card data: Anna Zhou has flagged a significant slowdown in spending on leisure services, and a pickup in durables spending. Meanwhile Jeseo Park finds that our BofA US Consumer Confidence Indicator has slipped further from already weak levels. All of this points to a slowdown in economic activity in January. With cases already down around 25% from their mid-January peak, however, we expect the Omicron shock to be short-lived. The data should improve meaningfully starting in February. This creates downside to 1Q GDP growth and upside to 2Q, given favorable base effects.

2. Inventories. Earlier this week we learned that inventories surged in December and contributed 4.9pp to 4Q GDP growth. Inventories remain depressed relative to pre-pandemic levels because of continued supply bottlenecks. And with demand surging, there is room for even more of an increase. However, it is important to remember that GDP depends on the change in inventories (not the level), and GDP growth depends on the change in the change in inventories. Therefore the $173.5bn increase in inventories in 4Q limits the scope for inventories to drive growth again in 1Q. So inventories create more downside for 1Q growth.

3. Less fiscal easing.  We now expect a fiscal package about half the size of the Build Back Better Act, with less front-loaded fiscal stimulus. We think it will boost 2022 growth by just 15-20bp, compared to our earlier estimate of 50bp. Our base case is that outlays will start in April: the delay in passage means that the growth impact relative to our earlier forecast will again be largest in 1Q. Given the deadlock between moderate and progressive Democrats, the risk is that nothing gets passed. We think that the retirement of Justice Breyer increases this risk because appointing his replacement will be a policy priority for Democrats, eating into the limited time they have before the midterm elections. If there is no further fiscal stimulus, we would expect modest downside to 2Q-4Q growth.

Putting together the Omicron shock, the expected path of inventories and our base case fiscal outlook, BofA has cut its 1Q growth forecast to 1.0% from 4.0% and ominously adds that “risks of a negative growth quarter are significant, in our view.” To offset the risk of a full-blown technical recession (where we get 2 quarters of negative GDP prints) however, BofA has increased 2Q slightly to 5.0% from 4.0%: this would amount to only partial payback for various 1Q shocks. Growth remains unchanged for 2H 2022, but it would now be coming off a lower base. As a result, BofA’s annual growth forecast for 2022 drops to 3.6% from 4.0%. But what about 2023?

The wildcard of course, is monetary tightening. As a reminder, with Dems guaranteed to lose control of Congress, any further fiscal stimulus becomes a non-factor until at least the Nov 2024 presidential elections, meaning the fate of the US economy is now entirely in the hands of the Fed, especially if Biden’s BBB fails to pass, even in truncated form.

Here the core tension emerges: while the US economy is slowing, BofA still sees inflation remaining quite sticky for a long, long time.

As such, and following the continued hawkish pivot at the January FOMC meeting, BofA now expects the Fed to start tightening at the March 2022 meeting, raising rates by 25bp at every remaining meeting this year for a total of seven hikes, and in every quarter of 2023 for a total of four hikes. This means that BofA’s target for a terminal rate of 2.75-3.00% will be reached in December 2023. Harris explains the logic behind this upward revision to the bank’s tightening forecast:

… the Fed is behind the curve and will be playing catch-up this year and next. We think the economy will have to pay some price for 175bp of rate hikes in 2022, 100bp in 2023, and quantitative tightening. Given the lags with which monetary policy affects the real economy, we think growth will slow to around trend in 1Q 2023, before falling below trend in 2Q-4Q. This compares to our previous forecast of slightly
above-trend growth throughout 2023.

As the chief economist also notes, at of this moment, the markets are now pricing in 30bp of hikes at the March meeting, 118bp for the year and a terminal rate of around 1.75%. In his view, “that is not enough. Markets underpriced Fed hikes at the start of the last two hiking cycles and we think that will be the case again (Exhibit 2). We now expect the Fed to hike rates by 25bp at all seven remaining meetings this year, and also announce QT (i.e., balance sheet shrinkage) in May. When you are behind in a race you don’t take water breaks.”

But how does the Fed hike up a storm at a time when BofA admits the risks are growing for a negative GDP quarter in Q1? Well, as Harris admits, “the new call raises a number of questions.”

  • Will the Fed hike by 50bp in March? We think this is unlikely. If the Fed wanted to get going quickly they would have hiked this week and ended QE. Moreover, we see the Fed continuing to gradually concede ground rather than suddenly lurching in a hawkish direction. Hence we think it is more likely that the Fed will quickly shift to 25bp hikes at every meeting.
  • Could the markets force them to do more? On the margin more aggressive pricing in the markets could nudge the Fed along. For example, if the markets start to price in a high likelihood of a 50bp move in March, the Fed could see that as a “free option” to start faster. However, the Fed is still in charge of the narrative. The sell-off in the bond market in recent weeks has been driven by more hawkish commentary out of the Fed. Powell is quite adept at dodging questions at his press conferences, but this week he left no ambiguity about the hawkish shift at the Fed, driving the repricing.
  • How will the economy and markets handle hikes? Clearly risk assets are vulnerable. One way to view the recent stock market correction is that with the Fed no longer in deep denial, markets have caught on to the idea that inflation is a problem and the Fed is going to do something about it. As the Fed pivot continues—and the bond market prices in more hikes—we could see more volatility. However, the stock market is not the economy. The fundamental backdrop for growth remains solid regardless of whether stocks are flat or down 20%. Even the hikes we are forecasting only bring the real funds rate slightly above zero at the end of next year

Then there is the question whether we worry about an inverted yield curve (spoiler alert: yes)?

As BofA notes, historically the yield curve slope — for example, the spread between the funds rate and 10-year Treasuries — has been the best standalone financial indicator of recession risk. However, as now everyone seems to admit (this used to be another “conspiracy theory” not that long ago), “the yield curve is heavily distorted by huge central bank balance sheets and US bond yields are being held down by remarkably low yields overseas, “according to Harris. As such, in an attempt to spin the collapse in the yield curve, the chief economist notes that if Fed hikes lead to smaller-than-normal pressure on long-end yields that is good news for the economy, not bad news (actually this is wrong, but we give it 2-3 months before consensus grasps this).

And while Harris caveats that the Fed could hike even more, going so far as throwing a 50bps rate increase in March “if the drop in the unemployment rate remains fast or if inflation cools much less than expected”, we think risks are tilted much more in the opposite direction, namely Harris’ downside scenario, where he writes that “our old forecast could prove correct if we have misjudged the fragility of the economy or if there is a serious shock to confidence from events abroad.” Actually not just abroad, but internally, and if stocks continue to sink, the direct linkage between financial conditions and the broader economy will express themselves quickly and very painfully.

Bottom line: yes, inflation is a big problem for Biden, but a far bigger problem for the president and the Democrats ahead of the midterms is the US enters a recession with a market crash to boot. While this particular scenario remains relatively remote on Wall Street’s radar, we are confident that as Q1 progresses and as data points continue to deteriorate and disappoint, there will finally be a shift in both institutional and Fed thinking, that protecting the economy from an all out recession (if not worse) will be even more important than containing inflation, which as we noted previously is driven by supply-bottlenecks, not demand, which the Fed doesn’t control anyway.

Meanwhile, as David Rosenberg points out today, stocks are already in a bear market…

… and absent some assurances from the Fed, we could be looking at another Lehman-style crash in the coming months, especially if BofA’s forecast of seven hikes in 2022 is confirmed.

In short, for all the posturing and rhetoric, we always go back to square one, best summarized in the following tweet:

Tyler Durden
Fri, 01/28/2022 – 11:10

via ZeroHedge News https://ift.tt/3HefD0m Tyler Durden

NatGas Soars As 45 Million Americans Face Winter Storm Threat

NatGas Soars As 45 Million Americans Face Winter Storm Threat

A powerful Nor’easter has put 45 million Americans under winter storm watches and warnings Friday into Saturday from the Carolinas to northeastern Maine. The prospects of the storm and cold weather have sent U.S. natural gas futures soaring Friday morning. 

The National Weather Service (NWS) warned about a “powerful Nor’easter is expected to develop off the Mid-Atlantic coastline on Friday before impacting eastern parts of the Northeast and New England this weekend.” Heavy snow is expected across eastern Long Island/New England with gusty winds that could produce blizzard conditions. 

AccuWeather meteorologists believe the storm will strengthen into a “bomb cyclone,” a weather pattern we noted on Wednesday that had a very strong possibility playing out across the Northeast late Friday into Saturday. As early as Monday, we told readers multiple meteorologists sounded the alarm on the possible development of the weekend storm. 

Now it appears the storm could dump as much as 36 inches in parts of Long Island and pummel Wantagh to Westhampton with 12 to 18 inches. New York City is on the edge of the storm and could receive six inches or fewer. 

Saturday snowfall rates per hour (at the height of the storm) could exceed 3 to 4 inches per hour in eastern Massachusetts. The latest snowfall total project map shows coastal areas will receive the heaviest snow. 

NWS Boston points out the “exact storm track” has yet to be determined, which means if the storm travels closer to the coast, the heaviest snowfall could occur more inland. 

A cold front is expected to pour into East Coast. We noted parts of South Florida are bracing for a rare freeze that could damage citrus crops on Saturday morning. 

U.S. natural gas futures have risen for the sixth day ahead on prospects of a winter storm and colder weather. Futures for March delivery were up more than 13% to $4.786 around 0900 ET.

We must point out yesterday’s epic squeeze in February’s contracts ahead of expiration which rippled through later-month contacts (as seen below, highlighted in the orange box). 

Shedding more light on what happened yesterday is Goldman Sachs’ Samantha Dart, who told clients Friday that yesterday’s squeeze in February’s contracts was not driven by fundamentals but a short covering trades in limited liquidity. 

While we don’t yet have full clarity on what drove today’s 46% rally in US natural gas prices to $6.27/mmBtu during the last 30 minutes of trading before the close, we do not believe it was supported by fundamentals. The more likely explanation is that the rally reflected limited liquidity during short covering trades near the close as the February contract expired. Accordingly, we expect a correction lower from here to align NYMEX gas more closely with physical markets. Assuming 10-year-average weather for the remainder of winter, we maintain our $3.65/$3.45/mmBtu Bal winter/Sum22 Nymex gas price forecast, vs forwards currently at $4.28/$4.29/mmBtu.

Commodity analysts at Rabobank added their take on yesterday’s squeeze: 

For example, US natural gas prices leaped 72% overnight before retreating. Thin markets, yes, and a short squeeze into options expiry. Regardless, hardly the kind of calm trading in a key commodity that already-rattled markets wanted to see. And hardly a bearish price signal.

Forecasts are becoming more locked in as this could only mean one thing for folks trying to fly out of the Northeast on Saturday: expect elevated flight delays and cancellations.

Tyler Durden
Fri, 01/28/2022 – 10:58

via ZeroHedge News https://ift.tt/3He0prW Tyler Durden

A Hero Is a Movie in Which Everyone Both Is and Isn’t a Hero


a-hero-movie-lg

Is the hero of A Hero actually a hero? For that matter, is anyone, ever? As it turns out, the answers are rather complicated—narratively, but also morally. And therein lies director Asghar Farhadi’s new movie, a knotty social fable about justice and decency in present-day Iran.

When we first meet Rahim (Amir Jadidi), he’s on a brief leave from prison. He’s been locked away for three years because of a debt he owes to his ex-wife’s brother, Bahram (Mohsen Tanabandeh); in the Iranian legal system, an unpaid creditor can have his debtor jailed until the debt is either paid off, or the creditor decides to forgive what is owed. At first, Rahim is on track to pay off a large chunk of what he owes, since Farkhondeh (Sahar Goldust), the woman he plans to marry, has found a purse with a sack of gold coins.

But after inquiring about selling the coins—it turns out their value has gone down—he takes the advice of a clerk to post a sign advertising the lost bag. A woman claims it, saying it’s money she hid from her lout husband, hoping it might provide a measure of personal freedom. Hearing about his seemingly good deed, the administrators at Rahim’s prison facility, trying to distract the public from a recent suicide, decide to alert the local media. But Rahim, it turns out, cannot tell the whole truth, since he must conceal his relationship with Farkhondeh for various reasons. So he begins to lie even as he is being held up to the public as a virtuous hero, which in turn seems to feed Bahram’s belief that Rahim is misleading people, perhaps enacting an elaborate plot to save himself at his creditor’s expense.

In Farhadi’s cunningly plotted story, each individual action leads to a reaction, sometimes from an individual, sometimes from a family, sometimes from an organized group—the media, the prison authorities, a background investigator who holds the keys to Rahim’s employment, a charity that helps pay off prisoners’ debts looking to use his case to gain attention—until Rahim’s predicament consumes the entire community.

Thus, an apparently simple tale of a man trying to escape debtor’s prison becomes a labyrinthine journey through Iranian middle-class life. It’s a story about the interwovenness of human affairs, the ways in which individual decisions are not truly isolated, but instead always exist in the context of other people’s desires and imperatives, and the sometimes arbitrary, sometimes cruel systems in which they are trapped. Everywhere Rahim goes, there are rumors, legal mandates, cultural codes that cannot be broken, personal histories that must be accounted for. A Hero is, on the surface, a tale of one man, but really it’s the story of a complete society trying to work itself out.

It also acts, I suspect, as a subtle critique of that society—not of the people within it, but of the legal and cultural systems that maintain an invisible control over their lives. This is not a movie of Big Speeches or Lessons Learned; on the contrary, part of what makes the film so powerful is that everyone simply accepts the social reality around them as a given, then tries to work things out for themselves, their friends, and their family as best they can. But the story pivots on multiple instances of women whose roles, for various reasons, must be kept in the background, and a legal system that allows complex familial disputes to result in prison time, so long as there are financial debts involved. (Indeed, the movie suggests that in a complex society, most debts are not financial, but social and familial, and impossible to reduce to a simple figure.) If nothing else, it sometimes plays, perhaps unintentionally, like an extended advertisement for the U.S. bankruptcy system, which allows for the orderly discharge of most interpersonal financial debts without the prospect of prison time. 

What’s remarkable about the movie is how finely balanced its motivations are; almost everyone in the movie manages to be both selfish and self-sacrificing, sensible and stubborn, decent and callous in some way. A Hero is a movie of fractal moral complexity; no matter how closely you look at it, it does not resolve into a simple lesson, except that all people have seemingly infinite capacity for both generosity and self-interest, and separating the two is often much harder than it seems.

The post <i>A Hero</i> Is a Movie in Which Everyone Both Is and Isn't a Hero appeared first on Reason.com.

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A Hero Is a Movie in Which Everyone Both Is and Isn’t a Hero


a-hero-movie-lg

Is the hero of A Hero actually a hero? For that matter, is anyone, ever? As it turns out, the answers are rather complicated—narratively, but also morally. And therein lies director Asghar Farhadi’s new movie, a knotty social fable about justice and decency in present-day Iran.

When we first meet Rahim (Amir Jadidi), he’s on a brief leave from prison. He’s been locked away for three years because of a debt he owes to his ex-wife’s brother, Bahram (Mohsen Tanabandeh); in the Iranian legal system, an unpaid creditor can have his debtor jailed until the debt is either paid off, or the creditor decides to forgive what is owed. At first, Rahim is on track to pay off a large chunk of what he owes, since Farkhondeh (Sahar Goldust), the woman he plans to marry, has found a purse with a sack of gold coins.

But after inquiring about selling the coins—it turns out their value has gone down—he takes the advice of a clerk to post a sign advertising the lost bag. A woman claims it, saying it’s money she hid from her lout husband, hoping it might provide a measure of personal freedom. Hearing about his seemingly good deed, the administrators at Rahim’s prison facility, trying to distract the public from a recent suicide, decide to alert the local media. But Rahim, it turns out, cannot tell the whole truth, since he must conceal his relationship with Farkhondeh for various reasons. So he begins to lie even as he is being held up to the public as a virtuous hero, which in turn seems to feed Bahram’s belief that Rahim is misleading people, perhaps enacting an elaborate plot to save himself at his creditor’s expense.

In Farhadi’s cunningly plotted story, each individual action leads to a reaction, sometimes from an individual, sometimes from a family, sometimes from an organized group—the media, the prison authorities, a background investigator who holds the keys to Rahim’s employment, a charity that helps pay off prisoners’ debts looking to use his case to gain attention—until Rahim’s predicament consumes the entire community.

Thus, an apparently simple tale of a man trying to escape debtor’s prison becomes a labyrinthine journey through Iranian middle-class life. It’s a story about the interwovenness of human affairs, the ways in which individual decisions are not truly isolated, but instead always exist in the context of other people’s desires and imperatives, and the sometimes arbitrary, sometimes cruel systems in which they are trapped. Everywhere Rahim goes, there are rumors, legal mandates, cultural codes that cannot be broken, personal histories that must be accounted for. A Hero is, on the surface, a tale of one man, but really it’s the story of a complete society trying to work itself out.

It also acts, I suspect, as a subtle critique of that society—not of the people within it, but of the legal and cultural systems that maintain an invisible control over their lives. This is not a movie of Big Speeches or Lessons Learned; on the contrary, part of what makes the film so powerful is that everyone simply accepts the social reality around them as a given, then tries to work things out for themselves, their friends, and their family as best they can. But the story pivots on multiple instances of women whose roles, for various reasons, must be kept in the background, and a legal system that allows complex familial disputes to result in prison time, so long as there are financial debts involved. (Indeed, the movie suggests that in a complex society, most debts are not financial, but social and familial, and impossible to reduce to a simple figure.) If nothing else, it sometimes plays, perhaps unintentionally, like an extended advertisement for the U.S. bankruptcy system, which allows for the orderly discharge of most interpersonal financial debts without the prospect of prison time. 

What’s remarkable about the movie is how finely balanced its motivations are; almost everyone in the movie manages to be both selfish and self-sacrificing, sensible and stubborn, decent and callous in some way. A Hero is a movie of fractal moral complexity; no matter how closely you look at it, it does not resolve into a simple lesson, except that all people have seemingly infinite capacity for both generosity and self-interest, and separating the two is often much harder than it seems.

The post <i>A Hero</i> Is a Movie in Which Everyone Both Is and Isn't a Hero appeared first on Reason.com.

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