Month: January 2022

Canadian-American 70s performer Neil Percival Young has taken a stand against free speech – demanding Spotify pull his entire music catalog from their platform unless they silence podcaster Joe Rogan for spreading “fake information” about vaccines.

In an email to Warner Records, Young said Spotify “has a responsibility to mitigate the spread of misinformation on its platform,” adding “I want you to let Spotify know immediately TODAY that I want all my music off their platform.”

“They can have Rogan or Young. Not both,” the raging liberal wrote.

who https://t.co/hVc5wf5ost

— zerohedge (@zerohedge) January 25, 2022

Young’s letter was a response to a December podcast in which Rogan interviewed Robert Malone, a controversial virologist who researched messenger RNA vaccines and is now sceptical of them. On the podcast, Malone told Rogan that US hospitals are financially incentivised to falsely report deaths as being caused by coronavirus. Rogan has also on his podcast encouraged “healthy” young people not to get a Covid-19 vaccine. –FT

Rogan notably inked a deal with Spotify in May of 2020 worth more than $100 million. Four months later, Spotify employees threatened to strike unless the company agreed to remove past Rogan podcast episodes with ‘controversial guests,’ and give employees direct editorial oversight over the Joe Rogan Experience podcast. This did not happen.

That would include the ability to directly edit or remove sections of upcoming interviews, or block the uploading of episodes deemed problematic.

The employees also demanded the ability to add trigger warnings, corrections, and references to fact-checked articles on topics discussed by Rogan in the course of his multi-hour discussions. –DigitalMusicNews

Hilariously, Spotify never brought it up with Rogan.

Neil Young is gonna regret this when his monthly Spotify checks for $1.37 stop rolling in https://t.co/nAyAJ8ayqv

— The Daily Show (@TheDailyShow) January 25, 2022

Authored by Bill Blain via MorningPorridge.com,

“Fair fa’ yer honest sonsie face, great chieftain o’ the puddin race .”

After yesterday’s dramatic market roller-coaster, traders are wondering if it’s a buy-the-dip moment. They probably will. But the narrative has reversed. The improbable tech stocks into substantial correction territory have a considerable way still to fall if history is any guide.

 

Yesterday, was an extraordinary day…. which we will all-to-soon forget.

 

As European markets closed last night it looked like markets had surrendered, down some 5%. More than a few chums were wondering if “this is it”. Apparently, the massive volumes in the morning were driven by retail investors who, after fretting about their loss-making positions for the whole weekend, decided to dump stock. In the afternoon, the selling reversed as brave buyers reckoned they were smarter, reckoned stocks looked cheap, and for all the usual reasons the market recovered – one of the biggest upside reversals in recent history…

Volatility is back with a vengeance. Yay! We love it… Don’t trust it.

This morning.. Lot’s of noise, but I am not hearing that many fact-based calls of a “buying window” or that stocks look suddenly cheap. The early morning vibe is its still “speculative” out there – and that markets will go up because that’s what they’d done on every dip since 2009.

I am definitely not about to pull on my size 12 Buying Boots. I am going to wait a while longer to see how this plays out. I have cash in the account – waiting, waiting, confident the right moment to pile-in is coming… but I am utterly unconvinced it has arrived… And when I do re-enter the market, it will be very selective.

Instead… this morning I confidently expect some market dither in earnest discussion of the Dead Cat Bounce theory of markets – a magnificent simile from crashing markets back in 1987 based upon the observation that if you throw a deceased feline from a high enough point it will bounce, but not a lot. Exactly who had time to do that experiment we shall never know, but it is scientific method and observation that moves us forward….

The problem is: the market has not really moved on. It is still thinking like it’s a random year between 2008-2021 when central banks were playing the “juice the markets” game. Wake up. Welcome to reality – its 2022.

This morning you are going to open your newspapers, scan through analyst reports and commentary like the Morning Porridge, and read earnest debates about where the market goes in the next hours, days, weeks and maybe months. Teenage scribblers and learned market sages will be variously telling you it’s the worst of times because:

• Tightening monetary policy, rising interest rates, the expected rise in bond yields, rising inflation, geopolitical tension, supply chain weakness, and looming recession spell further sell-offs to come,

Or, they might be raving about how positive the coming best of times look on;

• Post pandemic recovery, repressed demand, that stocks look better than bonds during inflationary growth phases, and long-term growth prospects are rising as the last 10-years of productivity inventiveness is innovated (phew, what a phrase!) will lead to long-term market upside.

The immediate tone will be set by this week’s Fed meeting, which will be gleaned for clues on rate timing, but is unlikely to do anything for the market in terms of convincing players the Fed stands ready to accommodate a market sell off.

Take yer pick… I shall stick with things are “never as bad as you fear, but seldom as good as you hope”, and hang back from the market waiting for real bargains.

CNBC’s populist Jim Cramer reckons the market is approaching an “investible bottom”, on the basis its negative headlines currently leading the narrative. These can quickly turnaround. He noted:

• There is “a sickening level of negativity” and a bear outlook indicator of surveyed investors climbed from 38% to 47% over a week.

• That’s reinforced by an increasing number of analyst downgrades.

• The divergence between strong and weak earnings highlights swimmers and sinkers.

Market’s always overreact on the downside… which is why they create opportunity! Positive signals in a tumbling market often attract speculative buy-the-dip bids. Occasionally, they look strong enough to generate a following, attracting the hot money element, and the algo buy programmes. That may be what happened on Monday afternoon when the signals suddenly flipped positive after the midday bottom.

But all these analysts and market talking heads arguing about when to pile in or out of the market are missing a FUNDAMENTAL POINT. Things have changed.

I am not a uber-bear. The outlook for the global economy will be long-term rosy. History tells us that.

To get there on the constantly rising wave of human wealth, the market has periodic phases of Euphoric Madness. These moments tend to auto-correct. The last 14 years since 2008 have seen one of the longest, most Eurphoric markets in history – with all financial assets (bonds and stocks) inflated and fuelled by easy money, cheap capital and monetary experimentation by central banks. The building head of speculation was led by a pied-piper promising unlimited market riches, spawning cryptos, memes, Spacs and whatever other unlikely get-rich schemes could be shown.

I would reckon at least 60% of current market participants have never seen any other kind of market.

Now we have entered a correction phase. The stage when speculation is itself swallowed…

What is clear is the market is not crashing as a single wave – there is significant divergence between Good, Bad, Ugly and Fugly stocks. Over a quarter of the S&P 500 are down more than 20% – the worst being Moderna (down 43%) and Netflix (down 40%). There is now clear differentiation between fundamentally strongly positioned, high margin dividend stocks and those with little to show except profitless scale in a market evolving past them. It’s happened before, and it will happen again.

We are maybe wrong to talk about stock market bubbles? The real issue is that they comprise lots of tiny little bubbles – the individual stocks that speculation and over-fervid belief has whipped up to frenzied levels. The sound of these mini-bubbles popping, leaving the market champagne flat, is what’s now occurring. There are plenty of stocks still to pop.

I’ve referenced this many times, looking back to how it took considerable time for prices to settle after the Dot.com crash in March 2000. The correction won’t be done overnight – it might take years for us to properly value the over-priced inflated expectations the last few years has attached to so many improbable tech stocks. If you buy-the-dip today in a long-term correction stock you will be holding a ticking bomb.

We will know it’s begun when the improbable tech stocks correct 20-30% – which has pretty much happened. And the next stage is not a buy-the-dip opportunity, but long-term decline down to fair value, which for many of these stocks will be default and bankruptcy. If you haven’t already dumped ARK, then get on the phone….

Meanwhile, how long does anyone give the relatively new President of El Salvador – Nayib buy-the-dip Bukele? He was on the wires saying Bitcoin is really cheap, and spent another $15 mm of his nation’s precious dollar reserves scooping up the “cheap” but tumbling cryptocon.

The U.S. Federal Aviation Administration (FAA) updated information Tuesday, indicating about 90% of the U.S. fleet is approved for flights as the rollout of 5G networks begins. 

*FAA ISSUES DIRECTIVES RESTRICTING FLIGHTS ON TWO BOEING MODELS
*BOEING 777S, 747S SUBJECT TO 5G INTERFERENCE, U.S. FAA SAYS

— zerohedge (@zerohedge) January 25, 2022

FAA announced large, long-range wide-body airliners, including Boeing 747S and Boeing 777S, are subjected to 5G interference. The agency has issued safety directives for both planes. 

The rollout of 5G has been a big mess in American skies. AT&T and Verizon began deploying the new high-speed cellular network on Jan. 19 while agreeing to create buffer zones around certain airports. 

The crux of the problem lies in the aircraft’s radar altimeter uses frequencies close to C-band. 5G towers also use C-band radio spectrum frequencies that have the potential to disrupt radar altimeters, an important device on aircraft that informs the pilot of the altitude. 

Here are the current aircraft models with radar altimeters cleared by the FAA (note the “S” variant of the 747 and 777 aren’t on the list). 

As for the Boeing 747S and 777S, the agency nor the airplane manufacturer has yet to release a workaround or radar altimeter replacement for the planes. Disruptions to passenger and or air freight flights are not yet known. 

Another day, and another stellar Treasury auction.

After yesterday’s blockbuster 2Y auction, moments ago the Treasury sold $55 billion in 5Y paper in what can again only be described as a stellar sale.

The high yield of 1.533% was well above last month’s 1.263% and the highest since Dec 2019, but it was also 1.4bps below the When Issued 1.547%, which followed two disappointing tailing auctions.

The Bid to Cover confirmed the buyside demand for today’s paper, coming at 2.50, well above last month’s 2.41 and the six-auction average of 2.40.

But like yesterday, it was the internals that were most notable, with Indirect, i.e., foreign, demand surging from an already elevated 65.7% in December to 68.72%, the highest since Sept 2017.

And unlike yesterday, Directs were also solid at 16.5%, up from 14.3% in December if below the recent average of 17.2%. This meant that Dealers got 14.8% of the final allotment, the lowest on record, and perhaps a sign that dealers are getting ready for QT – where they can’t flip any new issuance right back to the Fed – and are reducing their purchases at auction.

Overall, this was another stellar auction which saw near record foreign demand. Coming at a time when everyone is petrified that the Fed’s rate hikes will keep going up, up, up in the process hammering Treasury yields, it appears that at least someone is not freaking out and is buying up whatever the Treasury has to sell.

Furthermore, coming ahead of tomorrow’s FOMC meeting when many expect Powell to emerge as extra hawkish, today’s super strong auction was rather remarkable.

In response to the blockbuster auction, the 10Y yield barely budged perhaps due to the already sharp drop in yields due to today’s flight to safety.

By Bloomberg Markets Live commentator Jake Lloyd-Smith

Costly crude oil means runaway gasoline. With Brent now threatening to hit $90/bbl, pressure on the vital motor fuel remains to the upside. In this environment, look for governments trying to protect hard-pressed consumers — aka voters — from pain at the pump.

The latest salvo came in Asia this morning. Japan said it will give oil refiners subsidies that are designed to help processors maintain margins without passing on the rising costs to customers. The strategy also applies to diesel and kerosene oil, and may be followed by other measures.

The same dynamic is at play in the U.S., where gasoline futures have surged more than 50% over the past 12 months. A worried Joe Biden has already orchestrated a crude release from strategic reserves, an initiative joined by Japan among others. That bought some time, but didn’t turn the tide. Average retail prices are a few cents below the seven-year high hit in November.

The next focus will be the Feb. 2 OPEC+ meeting, when producers will review the market and decide on supply policy. The Biden administration will likely step up diplomatic efforts to get members that still have spare capacity to deliver more crude.

Whether they’ll listen is quite another matter.

Bank of America’s view that the Fed is way beyond the curve when it comes to suppressing inflation has led it to a ‘bear case’ outlook for stocks and bonds that’s almost apocalyptic.

Over the weekend, we shared (with premium subs) our thoughts on the latest “Flow Show” from BofA’s Michael Hartnett, one of the gloomiest strategists on Wall Street, who has repeatedly excoriated the Fed for its unwillingness to act more boldly (“they should hike 50 basis points…but won’t”). Hartnett has warned that untrammeled inflation will eventually lead to a growth-killing “rate shock” engineered by the Fed that will torpedoe valuations for stocks and bonds. Already, his team argues, rising Treasury yields contributed to the crashing ISM, which has turned out to be a “bad combo” for risk assets.

With the FOMC expected to lay the foundation for a 25 basis-point hike at its meeting this week, BofA’s economists have followed up with a series of similarly downcast FOMC previews warning that the Fed isn’t doing enough to stop inflationary pressures from unleashing stagflationary hell. Global Economist Ethan Harris noted in a note entitled “the Sum of all Fed Fears” that, even though markets have responded violently to a recent spike in Treasury yields, the rise isn’t all that much from a historical standpoint.

Harris continues: while “[t]here are plenty of risks in the global economy, including geo-political events related to Russia or China, a renewed trade war, another policy mistake by the ECB and so on. However, in our view, the biggest near-term risk is right in front of us: that the Fed is seriously behind the curve and has to get serious about fighting inflation.”

Of course, “getting serious” in BofA’s view is the last thing the Fed wants to do because it would threaten its ability to carry out that “other” Fed mandate: keeping asset prices elevated at all costs.

Harris then adds this insightful bit explaining why he feels the Fed’s outlook on rates, as expressed by its statements, minutes and forecasts, simply isn’t aggressive enough:

“It has been a long time since markets have had to deal with a serious inflation-fighting Fed. After the December FOMC meeting, the press was loaded with reference to the “Fed’s hawkish turn” and the “pivot to fighting inflation.” That tells us more about the state of thinking today, than about the reality. A central bank that signals that it will taper a bit faster and could exit zero rate six months from now is hardly fighting inflation. According to the Fed’s own forecast, inflation remains a remote problem. The median FOMC forecast assumes PCE inflation drops from 5.3% in 2021 to 2.1% by the end of 2024. Hence the Fed does not plan to return to its 2.5% estimate of the neutral rate any time in its forecast horizon.”

But what would a really aggressive inflation-fighting Fed look like, anyway? Well, Harris speculates that the first step would be for the central bank to target an end rate that truly takes the Fed funds rate “above neutral”.

What does a real inflation-fighting Fed look like? The first step is to abandon the idea of a slow motion return to neutral. As long as the funds rate is below neutral, Fed policy will only mean an even tighter labor market. The second step is to determine what degree of financial tightening is needed to slow growth below trend, pushing up the unemployment rate. It is possible that fading fiscal stimulus or some other headwind could do the trick; however, we are quite skeptical given the big tailwinds from massive accumulation of liquid savings and wealth.

As with past business cycles, they will likely need to push the funds rate above neutral. The only exception in the last cycle when inflation never showed up and COVID triggered a recession, obviating a need for a get-tough Fed.

Unfortunately for consumers, the most likely “get tough” scenario envisioned by BofA is one where the Fed raises rates 6 times this year starting in March, skipping May, then hiking again in June. Six rate-hikes in 2022 and a terminal rate of 3% or greater (higher than the FOMC’s present median long-term forecast, according to the Fed’s dot plot) would just about do it:

How Likely Is Such A Scenario?

We think it is very likely that inflation settles into a higher range than the Fed is assuming. A wide range of indicators points to persistent inflation, including labor cost measures, median and trimmed mean measures, surveys of inflation expectations (from real people, not economists) and a bunch of other metrics. Hence we have them hiking faster and further than both their forecast and the consensus. In our baseline, it is an “inflation skirmishing” Fed.

However, the most likely alternative, in our view, is that inflation settles at around 3% and the Fed has to get serious. The committee is quite dovish overall, and will get more dovish if the new nominees join the board. However, even from them, 3% should be unacceptable. The most likely get tough scenario would mean an initial slow start for the Fed—perhaps hiking 25bp in March, skipping May and then hiking in June. But if they were to get more serious, six hikes this year and a terminal funds rate of 3% seems plausible.

Writing in his official FOMC Preview, Harris said he expects the Fed’s tone at this week’s meeting to be more hawkish, pushing the markets’ expectation closer to Jamie Dimon’s view of more than 4 hikes in 2022 (right now, markets are only pricing in roughly 4 hikes this year).

A hawkish FOMC should create a “curve-flattening bias (both in nominal and real rates)” while also being a “key catalyst for another leg of US dollar appreciation against lower beta FX”.

In terms of developments in the US economy, things are moving fast right now. As a result, the sluggish Fed is still “pivoting” in an effort to keep up with the market’s preferred narrative. Here are a few ways in which BofA suspects the Fed might signal a more hawkish tilt:

• The Fed has already acknowledged that it has hit its inflation goal. With the unemployment rate plunging (2% in six months) and already below 4%, it could acknowledge it has hit maximum employment.
• It could signal that omicron is at least as much of a supply shock as a demand shock, adding tom imbalances in the near term.
• It may suggest continued optimism on the growth outlook. Omicron is a temporary shock and, as COVID constraints fade, the service sector should return to recovery. Financial conditions remain very supportive of growth.
• It could note that the price pressures have.

An for anybody interested, here are BofA’s views on a number of other “topics of interest” ahead of the January FOMC:

Cold turkey taper stop: we believe it’s unlikely the Fed ends its taper cold turkey, but see some possibility it concludes purchases after the Jan/ Feb calendar. The Fed has already announced its mid-Jan to mid-Feb purchase calendar and likely has a high bar to deviate from it. However, the Fed may not taper purchases from $40bn/ month to $20bn/ month and, instead end purchases after the Jan/ Feb calendar is completed. We believe this would surprise the market and likely signal an even more hawkish turn than already expected. Announced taper conclusion at this meeting would increase the odds we assign to a 50bp hike in March and another potentially 50bp hike in May.

50bp hike in March: we believe it’s unlikely the Fed hikes by 50bp in March, but can’t rule it out given elevated inflation. We believe a 50bp hike in March would essentially acknowledge a policy mistake-keeping policy too easy for too long. If the Fed is considering a 50bp hike in March, it should indeed end purchases next week. We believe Powell may have a difficult time convincing market that a 50bp hike is off the table.

Every meeting live: Powell will likely be asked and acknowledge that “every meeting is live”. The market likely already believes every meeting could be live, but Powell’s statement of it may further increase the odds of more than 100bp of hikes delivered this year (Exhibit 1). It is worth reminding the Fed only started pressers at each meeting in January 2019, after it finished hiking in the last cycle.

QT guidance: Powell will also likely update on Fed discussions around QT. We expect Fed staff will deliver various QT options to the FOMC, including a range of redemption caps for USTs and agency MBS. We do not expect Powell to relay any decisions on redemption caps but expect more details in the January FOMC minutes. We believe the Fed could be ready to update its policy normalization plans for QT as early as the March FOMC, which would then make a May or June QT announcement likely. Our base case is for a QT announcement at the June FOMC with risks to May.

Looking ahead, BofA expects markets and inflation to “bully” the Fed into more rate hikes. Of course, what the BofA team isn’t saying (at least not yet), is that even if these hikes don’t look so substantial in the context of history, any hawkish turn will likely stoke chaos in stocks and bonds, where valuations remain inflated based on “historical” comparisons.