Month: March 2022

Part of the increasing and closer Gulf state-Israel alliance, which blossomed during the covert war to oust Assad in Syria over the past decade and became formalized with the Abraham Accords of 2020, apparently involves media coordination when it comes to enemy #1 in the region of both sides. 

An almost unprecedented op-ed in The Jerusalem Post lashed out at both America and Iran, while implicitly praising Israel’s steadfastness against Tehran, and it was authored by a Saudi… more precisely the former editor of the kingdom’s Al Arabiya English, Mohammed Alyahya. The op-ed blasts Washington efforts to restore the Iran nuclear deal by the Biden administration, questioning: If the Americans won’t side with Israel against Iran, what’s the chance they will side with us?

In the scathing critique perhaps signaling just how close the Vienna talks are to restoring the JCPOA, the author writes in the Israeli newspaper, “Sold disingenuously to the American public as an arms control agreement, the deal is an assault on the regional order that the United States established in the aftermath of World War II. Explicitly hostile to Saudi Arabia, to say nothing of America’s other greatest ally in the region, Israel, the deal replaces the former American-led regional security structure with a concert system in which Iran, backed by Russia and China, becomes America’s new subcontractor while America’s former allies—the Gulf States and Israel— are demoted to second-tier status.”

Further it points out that the Iranians have actually ramped up terror attacks in the region, even as great progress has been reported on the nuclear deal front…

“Last Friday, as Blinken prepared for his trip to David Ben Gurion’s old kibbutz of Sde Boker, the Iranian-backed Houthi militia launched a rocket attack against Aramco in Jeddah. This attack was only the latest in a long series of brazen attacks that Iran has conducted, either directly from its own soil or indirectly through proxies,” the op-ed states.

And more selections from the Saudi authored op-ed as follows…

“Human shields for Iran”

“Instead of friendship, America seems more inclined to use its old friends as human shields for Iran. Earlier this month, when Iran conducted a ballistic missile strike near the US consulate in Erbil, Iraq, it falsely claimed to be targeting an Israeli facility. A senior Biden official then confirmed the Iranian claim. While other officials later denied it, the damage was done. An American official had assisted Iran in getting the most out of its propaganda by action.”

“Seemingly nothing will deflect the White House from its goal. During the negotiations in Vienna, attacks from Iran have grown ever more brazen. Not even an attack by Iranian proxies on American forces in the Tanf region of Syria and repeated attacks on the American embassy in Iraq have deflected Biden from his goal of delivering hundreds of billions of dollars to the IRGC.”

Absent? What are these people talking about?

US is occupying a third of Syria, has troops in Iraq, has surrounded Iran with military bases, sells/gives Saudi/UAE/Israel all the arms they want & has maintained support Yemen invasion despite talking pts. https://t.co/cubufFvoi7

— Ali Ahmadi (@AliAhmadi_Iran) March 23, 2022

Obama & Russia’s rise in Middle East to the benefit of Iran

“In Riyadh, it is not forgotten that the Russian invasion of Ukraine in 2014 was followed swiftly by the rise of a Russian-Iranian alliance in Syria that leveled most of the major cities of that country and awarded Moscow with a military base on the Eastern Mediterranean – cementing Russia’s first foothold in the Middle East since the collapse of the Soviet Union.”

“When the Saudis protested  Obama’s passivity, he told them they must learn to share the region with Iran. And it is not lost on America’s regional allies now that, even as Biden asks Saudi Arabia to raise oil production to help support the campaign against Russia over Ukraine, he is granting sanctions waivers to Russia so that it can continue to guarantee the nuclear deal with Iran that it helped broker — in part by husbanding Iran’s uranium reserves and protecting its underground nuclear facilities filled with illegal centrifuges spinning material for weapons.”

The State of Israel expresses its sorrow to the Kingdom of Saudi Arabia after the horrific attack by the Iranian-backed Houthis.

This attack is further proof that Iran’s regional aggression knows no bounds & reinforces the concern of Iran’s IRGC being removed from the FTO list.

— Naftali Bennett בנט (@naftalibennett) March 26, 2022

“Chinese policy is simple & straightforward”

“While American policy is beset by baffling contradictions, Chinese policy is simple and straightforward. Beijing is offering Riyadh a simple deal: Sell us your oil and choose whatever military equipment you want from our catalogue; in return, help us to stabilize global energy markets. In other words, the Chinese are offering what increasingly appears modeled on the American-Saudi deal that stabilized the Middle East for 70 years.”

“What is not yet clear is whether the Chinese can be helpful in deterring Iran, or whether they share the American belief in ‘balance.’ But Xi Jinping will visit Riyadh in May. It is a certainty that Saudi leaders will ask him if Iran’s rocketing of the oil facilities of the world’s most reliable oil producer is in the interest of China and, if not, can Beijing make it stop?”

Authored by Thomas McArdle via The Epoch Times,

When you pull aside the curtain of its moral pretensions, the green movement of global warming fanatics is just another socialist scheme to replace the free enterprise’s real-world judgment of how to navigate the economic long term with coerced, illegitimately law-enforced faith in government control.

There is one preeminent tool that players in the economy—meaning all of us—use to transact honestly and productively with one another: price. And today we face a price crisis.

The global price of oil has skyrocketed thanks to the massive government spending of one-party rule by Democrats for more than a year now, cowardice on the part of the Federal Reserve, and all of this exacerbated in recent weeks by Russian aggression in the Ukraine induced by President Joe Biden’s weakness in failing to project American power, especially the debacle of the Afghanistan pullout.

But oil equals transportation, and the fact that everything else that is bought and sold—whether consumed, worn, slept or sat on, washed with, worked with, played with, or used as a means of transportation itself—must be delivered from producer to seller to buyer, means no escaping a widely dispersed ripple effect. When the cost of moving people and things rises, ineludibly the price of everything rises.

“There’s nowhere to hide,” Bankrate chief financial analyst Greg McBride told CNBC regarding the 7.9 percent, worst-in-40-years inflation hurting Americans today. “This is hitting everybody.”

Rents are currently rising at nearly 5 percent, the worst in over 30 years. Meat, appliances, furniture, buying or renting cars, and staying at a hotel were all up by double digits over 12 months toward the close of last year, months before the oil shock from the war on Ukraine. That 12-month period saw gas go up by over 50 percent.

The higher gas prices reach, the better, according to the left. Clinton administration economist Jeffrey Frankel wrote last year, “On one hand, the effect of high oil, gas, and coal prices on consumers is good for the environment, because they discourage demand for fossil fuels.” He added that, on the other hand, high fossil fuel prices also encourage fossil fuel supply—though he noted that the consequent private investment in the sector has proved to be weaker than expected.

In 2019, energy research firm Wood Mackenzie analyzed the objectives of the left’s war on oil. The various high-minded schemes for weaning America off fossil fuels have been estimated to cost between $1.7 trillion for the Biden plan seeking zero emissions, $5 trillion for Texas Democrat gubernatorial candidate Beto O’Rourke’s proposal, and $10 trillion for Rep. Alexandria Ocasio-Cortez’s Green New Deal.

This extreme political agenda is a war on the freedom to set prices. It is the equivalent of stormtroopers marching into your supermarket and removing from the shelves the offerings they don’t want you to be free to buy, based on ideological criteria. Maybe it’s Bayer aspirin they hate, or Tropicana orange juice. That less choice will mean higher prices because consumers are captive to a reduction of competitive alternatives.

Energy is the same. When the market is deprived of the full range of competitive options, sellers can get more than they rightfully should. It amounts to government-sanctioned price gouging. Optimum competition, on the other hand, reduces price. Domestic oil from the Permian Basin or Alaska, which has fewer miles to travel to the refinery and pump and thus ends up costing much less, can compete seriously with oil originating in the Middle East; the purchaser of a car today is likely to choose a gasoline-powered Toyota RAV-4 or Honda CR-V for under $30,000 rather than an electric Tesla costing over $60,000. But when the government abolishes fossil fuel vehicles altogether, cars themselves may no longer be within reach, which is what the left has long desired: a populace forced to use and love communal public transport, happy sardines stuffed into buses and subways.

As grossly underappreciated as it is by all too many consumers, price is the indispensable means through which a free economy operates. In a sense, the freedom to set prices is economic freedom. It is the manner in which shortages of essential commodities are averted. It is the way that the value of resources is communicated accurately to the public at large. It is how buyers differentiate between what they need versus the purchases that can wait, depending on changing economic conditions. Anything less than freedom in pricing attaches artificial, inaccurate value to goods and services.

Prices freely agreed upon by buyer and seller is the only way that resources can be allocated efficiently, a task beyond the ability of any central planner. And far from merely being the difference between comfort and hardship, price in the course of history has meant the difference between life and death, on a massive scale.

Remember the famine in Ethiopia that saw the world force fed with the moral outrage of our leading rock stars? Was that the world’s rich starving the world’s poor? Far from it. As Oklahoma State University political science professor Theodore M. Vestal wrote in July, 1985—the month of the Live Aid concert to raise money for relief of the Ethiopian famine—Ethiopia’s government under its military junta “made farmers accept artificially low prices for the main grains: teff, sorghum, barley, millet, wheat and maize.” Coffee was “so heavily taxed that peasants do not bother to expand its production. These policies destroyed the incentive of millions of peasants to grow surplus food, and productivity has declined notably.”

How about Stalin’s engineered famine of the early 1930s in Ukraine, one of Europe’s most fertile agricultural regions? As documented by Anne Applebaum in her 2017 book “Red Famine,” that genocide—a precursor to Russia’s current deliberate slaughter of innocent Ukrainian civilians—came after coerced collectivization in which Ukrainian farmers were forced to sell to the Soviet government at non-negotiable, extremely low artificial prices. In other words, stealing.

No doubt voters will hold Democrats responsible for today’s sky-high inflation in the November midterm elections this year. What too few realize, however, is that dramatically higher prices are not the unintentional result of mismanagement and incompetence; they are the expected, desired results of the Democrats’ game plan. And if they get the green revolution they want, the inflation of today will be dwarfed by what is to come in the years ahead.

Russian Foreign Minister Sergei Lavrov met with his Chinese counterpart on Wednesday, where he said the two are carving a path towards a ‘fairer world order.’

The meeting between Lavrov and Chinese Foreign Minister Wang Yi, marks the first visit to a key ally since Russia launched its invasion of Ukraine on February 24, according to The Economic Times.

The two countries will work to achieve “a multipolar, fair, and democratic world order,” Lavrov said, speaking from the Chinese city of Tunxi located in the eastern inland Anhui Province.

In a video released by the Russian foreign ministry ahead of a meeting with Chinese Foreign Minister Wang Yi, Lavrov said the world was “living through a very serious stage in the history of international relations”.

At the end of this reshaping of global relations “we, together with you, and with our sympathisers will move towards a multipolar, just, democratic world order“, Lavrov said. -Economic Times

Lavrov and Yi were seen on Chinese state TV in face masks bumping elbows in front of their national flags shortly before the meetings – which Lavrov will attend – to discuss ways to help Afghanistan.

It is a good thing that China-Russia ties are so close. Russia adopted an attitude of proactively negotiating with Ukraine, and clearly said that it would not resort to nuclear weapons, how can Washington think that there is no China’s friendly influence in it? https://t.co/z4RhJ0VNHz

— Hu Xijin 胡锡进 (@HuXijin_GT) March 30, 2022

Both the US and the Taliban are expected to be in attendance.

US officials have grown frustrated with Beijing’s refusal to condemn the invasion of Ukraine, and have accused China of signalling a “willingness” to provide both economic and military aid to Russia.

According to Russia’s state-owned TASS news agency, Wang said that despite “new challenges” to relations between China and Russia, “the will of both sides to develop bilateral relations has become even stronger.”

Earlier this month Wang said that China’s relationship with Russia is “one of the most crucial bilateral relationships in the world,” and is “ironclad.”

Op-ed authored by Joe Wang via The Epoch Times,

The Centers for Disease Control and Prevention (CDC) is one of the U.S. government’s major operating components, an agency under the Department of Health and Human Services.

The CDC’s mission statement reads, “CDC increases the health security of our nation. … CDC saves lives and protects people from health threats.”

The agency also pledges to the American people that it will “base all public health decisions on the highest quality scientific data that is derived openly and objectively.”

Well, COVID-19 has been the nation’s largest health threat for the past two years. It has had a huge impact on the lives of every American. During those two years, thousands of scientists and health-care researchers have studied COVID and accumulated a huge amount of information on the disease.

We’ve now gradually come to realize that the most effective force that would eventually end the pandemic is natural immunity. Even Bill Gates has admitted that “the virus itself, particularly the variant called Omicron, is a type of vaccine.” With the rapid spread of Omicron and with many asymptomatic infections, millions of people have developed natural immunity, which is driving COVID-19 out of its pandemic stage and into endemicity.

With its $15.4 billion annual budget, one would think the CDC would have done a good job providing taxpayers with data on COVID-19. If cutting edge research is too challenging for the CDC, they at least should have provided the public with basic surveillance data, such as:

• Who was infected with SARS-CoV-2, when, which variant, and what were the symptoms?

• Who was vaccinated, with which vaccine, when, and were there any side effects?

• Who was vaccinated, got infected, when, and recovered?

• Who was never vaccinated, and never infected (never tested, or never tested positive)?

The CDC’s Morbidity and Mortality Weekly Report (MMWR) published on Jan. 28 presented some very interesting information from California and New York comparing immunity against COVID-19 from four groups of people, indicating natural immunity alone provides the best protection.

Since then, I have been anxiously waiting for more data, as there are 48 other states, and even for California and New York, important data like this should be updated monthly, if not weekly.

To my surprise and disappointment, I have not been able to find any more data on natural immunity from the MMWR since Jan. 28. I am sure they have the data—they just don’t want to share it with us.

I’m beginning to wonder if CDC stands for Center for Data Control.

Those Recovered From COVID Are Best Protected

On March 1, the scientific journal Clinical Infectious Diseases published a peer-reviewed article titled “Risk of reinfection after seroconversion to SARS-CoV-2: A population-based propensity-score matched cohort study.” This Swiss study “observed a 94% reduction in the hazard of being infected among SARS-CoV-2 seropositive participants, when compared to seronegative controls, >8 months after serology assessment.”

This level of protection (natural immunity) from SARS-CoV-2 infection (94 percent) is comparable to that of the Pfizer vaccine but lasts longer (eight months and counting).

In a peer-reviewed article published in the journal Science Immunology on Jan. 25, scientists from Oregon Health & Science University showed in raw data that antibodies derived from previous COVID-19 infection are at least 10 times more potent than that generated by vaccination alone. They still concluded, however, that “Vaccination is highly effective at preventing the most severe outcomes from COVID-19 and should be provided regardless of previous infection status and age.” I’m confused by their conclusion, but happy to see the raw data.

Similarly, in my Feb. 5 article “Pandemic Lessons Learned: Scientific Debate Silenced, With Deadly Consequences,” I wrote: “Now, the U.S. Centers for Disease Control admits in a report released on Jan. 28 that natural immunity against COVID-19 is superior to any of the available vaccine regimens.”

A reader commented that she “looked all over the CDC site and could find no such info. … Now who’s being ‘subjective’?”

The reader was right. I should have explained in my article that the conclusion I drew was not a direct quote but rather my own summary based on the CDC’s raw data.

The CDC’s Jan. 28 report included the following chart but neglected to provide a summary comparing protection between vaccinated people without natural immunity and unvaccinated people who recovered from COVID and now have natural immunity.

It seems that it’s necessary to dive a little deeper into the data to elaborate my point, as the authors of the report did not conclude the very obvious. Please bear with me.

The above CDC chart shows data from California on protection against COVID-19 collected from four groups of people between May 30, 2021, and Nov. 20, 2021:

1) The unvaccinated, with no previous COVID-19 diagnosis (top solid line)
2) The vaccinated, with no previous COVID-19 diagnosis (broken line below the solid line)
3) The unvaccinated, with previous diagnosis
4) The vaccinated, with previous diagnosis

It is obvious that the lines representing 3) and 4) are superimposing on one another, indicating that vaccination had virtually no impact on protection when a person has recovered from COVID-19 infection, meaning natural immunity dominates protection over vaccination to a level that made vaccination irrelevant.

Although the biggest difference lies between the unvaccinated with no previous infection and everyone else, the second biggest difference, however, is between the “Vaccinated, no previous COVID-19 diagnosis” line (vaccine immunity) and the “Unvaccinated, previous COVID-19 diagnosis” line (natural immunity), with the natural immunity line having a much lower “hazard rate,” meaning better protection.

The report also revealed similar findings for New York state.

Is CDC Censoring Data on Natural Immunity?

The CDC’s MMWR is a weekly report. The chart above is part of the report for the last week of January, and it was for only two of the 50 states, California and New York. When I was writing my Feb. 5 article, I thought that maybe it was a benign omission that the CDC did not conclude the obvious. For sure, more data would be coming from the CDC in February and March, I thought, as it would teach us so much more about natural immunity.

However, it hasn’t materialized. Since Jan. 28, there have been 10 MMWR reports published on the CDC website, totaling 29 articles in all. They cover topics ranging from vaccination by geographic locations, to vaccine confidence by sexual orientation, to isolation strategy for fully vaccinated NFL players, and so on. So far, the Jan. 28 report was the only one that included “unvaccinated, with previous diagnosis” in the data, and that’s unfortunate. All the other reports were to re-enforce the conclusion that vaccines are effective, with almost nothing about natural immunity. Here is a screenshot of the MMWR website:

For example, one of CDC’s latest reports, published on March 18, includes the following chart:

Here, hospitalization data was plotted against 1) unvaccinated people, 2) vaccinated without a booster, 3) vaccinated with a booster. There is no information about people who had recovered from COVID-19. In other words, information on natural immunity is censored.

According to the CDC’s own information, the United States has had about 80 million COVID-19 cases. The vast majority of patients recovered from the disease. This huge part of the U.S. population now enjoys natural immunity. This is also true for Canada and many other parts of the world.

It seems that the CDC is avoiding anything and everything related to natural immunity. But why?

Maybe the CDC is like Bill Gates, who said at the Munich Security Conference last month: “Sadly, the virus itself, particularly the variant called Omicron, is a type of vaccine. That is, it creates both B-cell and T-cell immunity.” What he meant was it would be a sad thing if it is natural immunity, not Big Pharma’s vaccines, that defeat COVID-19.

Let the CDC and Mr. Gates feel sad. The rest of us are ready to move on with our lives.

Read Dr. Joe Wang’s series on Pandemic Lessons Learned here. 

Today in “reasons to get out of U.S. cities” news…

A robber who was after a $450,000 Richard Mille watch shot a 33-year-old French cryptocurrency expert at point blank range in Manhattan this month. The victim told the Daily Mail that he believed he was followed “for hours or days” prior to the attack.

The victim, Pierrick Jamaux, was ambushed outside of his Manhattan hotel. He said that he was “shocked” by how dangerous New York City had become and said he “would never have visited” if he knew how much it had changed in the last 10 years, since he lived there.

He was visiting from Hong Kong and was getting out of an Uber at the Fifty Hotel and Suites in Midtown when the incident took place. 

“Given the fact he was waiting there when we arrived and also the violence of the crime, I believe he followed me,” Jamaux said. “I believe they found me somewhere, then they tracked me for a few hours or days to figure out what I do, where I go. I think it was organized.”

He continued, telling the Daily Mail: “It cannot be a coincidence because it happened between the Uber and the door of the hotel – there is two meters of distance. The guy was waiting for me there is no doubt about it.”

“He started shooting me even before I understood he wanted my watch and from then I was just pushing the gun down and he kept shooting my legs, it was crazy,” he said. “I know he shot five times but I think some of them went through both legs. Three of them are point-blank shooting. I have a lot of bullet holes.”

Jamaux was helped when a female friend of him and his wife jumped on the robber’s back and began to choke him. 

“She is one of my really good friends, she is fiery. She jumped on his back and she did a triangle-like choke like in MMA,” Jamaux said.   

Jamaux quickly passed out after being shot and started to bleed out on the street, the report says. Meanwhile, the robber was unable to get his watch off because of a “bracelet security mechanism” it had. The robber escaped in a black four door BMW. 

Jamaux has had six surgeries so far. “They hit my femoral artery – it’s something where you usually die in 5 minutes – it was a major surgery to save my life.”

“I was surprised when I talked to one of the doctors here. I said ‘does it happen often?’ and he was like ‘yes’ without hesitation,” Jamaux concluded. “If I knew New York had changed like that, I would never have come here. I probably would have diverted my business trip and stayed in Europe. You don’t need to be a genius to realize New York is very very dangerous right now. I don’t think it’s safe for anyone. There are too many people who have nothing to lose.”

Three weeks ago, roughly around the time we would point out that equity market liquidity was at all time lows…

Liquidity pic.twitter.com/FNdKJ4uR6k

— zerohedge (@zerohedge) March 3, 2022

… a much more ominous liquidity problem was gripping the $23 trillion world of US Treasury debt.

As BofA’s resident bond plumbing expert and former NY Fed staffer Mark Cabana wrote on March 8 in a report whose title couldn’t be clearer (and which is available to pro subs in the usual place)… 

… the recent elevated market volatility driven by the Russian invasion and ongoing conflict in Ukraine caused many to de-risk simultaneously, prompting a surge in market fragility in not only equities but also bonds. As a result, traders observed a wash out of popular rates trades: short front-end duration, flatteners, richer TU-OIS, and short belly TIPS.

This de-risking behavior – which comes just as the Fed ends its QE and is set to announce the launch of even more liquidity draining balance sheet reduction in just a few weeks – “leaves behind a market highly susceptible to liquidity issues” according to Cabana who warns that without a ceasefire or sharp moderation in tensions we expect UST illiquidity will persist, and more problematically, “Fed or Treasury actions may be needed to sustain UST market functioning.”

While most traders have already experienced it on their own, the degree of near-term uncertainty is clearly reflected in rates volatility by higher implied vols, exceeding levels reached at the peak of the covid uncertainty in 1Q20  and a deep inversion of the term structure of volatility.

The latter is particularly significant as fading these inversions (selling rich gamma vs buying intermediate vol) is quite attractive from a carry perspective (short theta), and indeed the right chart above shows that these inversions generally dissipate relatively quickly. The magnitude of the current inversion (35bp currently between 1m10y and 1y10y) as well as its length (the inversion has persisted and exacerbated since 10 Feb) expresses a significant degree of uncertainty in the market, of a similar degree to that seen over 1Q20.

It’s not just chaos over the Ukraine war however: the dynamic of TSYs in the recent risk-off context also reflects uncertainty around the utility of Treasuries for portfolios (a recent Bloomberg article was titled “Strategy With Crypto Beats 60/40 Portfolio During Russian War“). As a risk-off asset, USTs generally tend to overweight the tail scenarios relative to other assets, but recently we have seen some stickiness in the recent risk-off dynamic.

One of the likely drivers for this increased uncertainty relates to the current inflation context. The risk off dynamic has led to the pricing out of more aggressive 50bp hike scenarios for the Fed, but liftoff is likely to stay on track near-term. The first 100bp are justified & almost mechanical in the current inflation context but beyond that, the policy path may be more contingent on geopolitical scenarios, reflecting a Fed reaction function that may start to show concern for slower growth scenarios versus an inflation backdrop that is expected to ease over the year. It’s also why the rates market is now pricing in 3 rate cuts in 2023 and 2024 following the burst of rate hikes this year and next.

The Fed, however, is hell bent on raising rates until the low/mid 3’s, which creates scope for higher structural inflation and constrains the potential response of the nominal UST curve in a risk-off dynamic.

One would expect this change in Treasury utility (driven by a higher inflation context) to be more significant at the backend of the UST curve (which also matters more for tail-risk hedging). However, it does extend also to the front-end of the curve, likely compounded by liquidity concerns. Contrary to the historical pattern, we have seen a collapse of 2y spreads (2yT cheapening) as Libor/OIS spreads spiked wider in the geopolitical crisis.

Whatever the reason behind the shrinking liquidity, evidence of poor market functioning can be observed everywhere across the treasury curve, and is most thorny in sectors that typically demonstrate a liquidity discount.

Twenty-year notes have cheapened on the fly to some of their weakest levels since their reintroduction in May 2020.

TIPS have seen some of the largest intraday swings over the last 5-years and off-the-run issues have cheapened versus on-the runs.

At the same time, elevated volatility has also led to a decline in liquidity measures, including through wider bid-ask spreads & spline error. There are also signs of thinning market depth as seen through the CME Liquidity Tool, which now shows some of the thinnest book depth (i.e., number of buy & sell orders at each price level) since 2020 across Treasury futures contracts

bid ask spreads have widened out and spline pricing error is also elevated.

Realized & implied UST vol have both spiked. The UST intraday range is the highest since Mar ’20 & registers at the 90th+ percentile for realized volatility over the past 5Y. Implied vol has also spiked as 1y10y now exceeds March 2020 levels and are at levels last seen in 2013. The surface is also deeply inverted with 1m10y vs 1y10y implied vols seeing the deepest inversion since March 2020.

Besides growing fears of a secular shift in inflation, the very shifts in UST market structure are now amplifying volatility and illiquiduity. In a near and dear topic to this website which first cracked the scam that is High Frequency Trading back in 2009 long before Michael Lewis wrote FlashBoys, over recent years, high-frequency trading firms (aka principal trading firms or PTFs) have become larger not only in equities but also in the Treasury market while dealer activity has not grown with the UST market. The official sector defines PTFs as principals who trade for their own account, almost exclusively use automated trading strategies, and end each day with little to no directional exposure thus making them thinly capitalized. Dealers, by contrast, have historically been able to buy and sell from customers in large amounts, hold a portion of these positions across days, and maintain a large balance sheet to support positions.

Over recent years, PTF activity has increased in the Treasury market while dealer balances sheets & trading volume have been relatively stable. PTFs comprise the majority of electronic activity on interdealer broker platforms while dealers are still most active in voice & cash market activity.

Dealer trading volume & UST holdings have remained relatively stable but dealer balance sheets have materially declined as a percentage of total Treasury market size.

The increased role of HFTs and smaller relative dealer role vs UST market size can and will result in more limited UST liquidity during times of elevated volatility or stress. The official sector Interagency Working Group (UST, Fed, SEC, CFTC) has noted the risk of market making can be particularly relevant for PTFs “whose lower capitalization relative to dealers may leave them with less capacity to absorb adverse shocks.” This was true in March 2020 and we suspect it may be a factor with increased volatility today. The SEC has also recently announced greater PTF oversight by requiring them to become dealers.

Meanwhile, in another feedback loop, elevated UST volatility and thin market liquidity have likely caused a number of end investors to de-risk or reduce risk appetite,  exacerbating current moves.

* * *

So what does all this mean going forward? Well, all else equal, treasury market functioning is expected to return as realized volatility declines… but all else is not equal, and a huge problem facing the Fed is that according to Cabana – who along with Pozsar was in charge of the Fed’s POMO/QE implementation – treasury functioning will be increasingly challenged by an accumulation of Treasury supply held in private hands, i.e., Quantitative Tightening.

To wit, BofA projects that Treasury supply will increase around US$3 trillion in the next 2Y due to large government deficits and aggressive Fed balance-sheet reduction. UST supply normalized for GDP is projected to increase back to mid ’20 levels by end ’23.

This means that already fragile TSY liquidity today may be exacerbated by the supply shift in coming months, especially after the Fed starts quantitative tightening (QT). And although short-dated USTs are rich today, Cabana thinks that investors should position for a cheapening starting mid-year with the supply shift and potential challenging liquidity: “Cheapening USTs are likely to
support tighter financial conditions that may ultimately require official action to contain.”

* * *

Putting it all together, in case it was not obvious yet, Cabana warns that Treasury liquidity is a concern ahead of supply shift”, i.e., the upcoming $3 trillion in Quantitative Tightening.

Some math: BofA projects that Treasury supply will increase around US$3tn in the next 2Y due to government deficits & aggressive Fed balance-sheet reduction. At the same time, Fed QT is expected to add nearly US$550-700BN to UST debt outstanding in each of next thee years. UST supply normalized for GDP is projected to increase back to mid ’20 levels by end ’23. Even assuming lower deficits in coming years as modeled by the CBO – which we truly doubt – these will at best limit coupon financing need but total UST supply growth vs GDP will still accumulate in private hands.

The bottom line: the already Fragile Treasury market functioning will only exacerbate the coming UST supply shift, especially given concerns about end-user demand. According to Cabana, bank buying has slowed with uncertainty around deposit & balance sheet growth, pension / insurance demand has been moderate despite their strong funded status, and  hedged pickup of USTs to foreign
equivalents is set to decline.

To be sure, modest Japanese demand may pick up in April with the new fiscal year and that asset managers will find USTs increasingly attractive as a risk-off hedge (at some point). However, end-user demand is needed.

During the last QT episode, a similar supply accumulation increased cheapening pressure on USTs, especially at the front-end, leading to increased UST-leveraged demand. BofA’s measure of marketable debt ex Fed-to-GDP increased 6ppt during the prior QT episode, while 2Y USTs to FF OIS cheapened around 30bp. Treasury cheapening incentivized hedge funds to materially increase their UST holdings by US$585bn from QT start (4Q ’17) to finish (3Q ’19). 

Cabana expects hedge funds to provide a similar source of demand but only if USTs are sufficiently cheap (read – yields are high enough) to encourage their leveraged participation.

The BofA strategist also expects a similar cheapening of Treasuries at the front-end during this QT episode, which could be exacerbated by thin UST liquidity. In other words, the official launch of QT in less than two month, could lead to a rapid bond market liquidity vacuum and subsequent crash, forcing the Fed to quickly find a justification to reverse its balance sheet shrinkage as the alternative is a complete lockup in the world’s most important market.

While this could be viewed as an exaggerated take, Cabana himself concedes that cheapening TSYs would support a broader tightening of financial conditions that could require official action to contain, and “The Fed, Treasury, and regulators could all act to support UST liquidity but debt managers are likely best positioned to act today.” Detail below:

Fed action: UST market functioning support over recent years has largely been done by the Fed. The Fed now has limited flexibility due to its inflation problem. “The Fed could delay QT in hopes of limiting UST market functioning challenges” Cabana writes, adding that “Powell said the Fed will be mindful of financial stability & the Fed wants to avoid adding uncertainty to an already very uncertain geopolitical backdrop.” However, the Fed likely wants to get moving on QT to tightening financial conditions & restrain inflation. And worst case, the Fed can just halt QT early on if it sees that the lock up across the bond market is too severe.

UST debt management: Treasury can play a more meaningful role in the support of market functioning after years of abdicating this responsibility to the Fed. There are a number of actions Treasury could take:

• (1) Large & decisive cuts at troubled parts of the UST curve. This would signal help to improve market functioning, especially in the troubled 20Y. Large cuts will not fix oversupplied parts of the market but it would support deeper liquidity in current issues.
• (2) Buybacks for liquidity management purposes. UST could start liquidity providing buyback operations across the curve, which would help unclog dealer balance sheets & limit RV dislocations. Treasury could fund buybacks by issuing in the most liquid (2, 5, 10, 30Y) points or target the richest points (bills) if willing to tolerate WAM reduction.
• (3) Improved communication. Treasury only sporadically communicates with the market via the quarterly refunding meetings. Improved communication could help guide expectations on key areas of market concern such as oversupply & challenging liquidity.

The bottom line, according to Cabana is that Treasury market functioning has deteriorated with elevated realized volatility stemming from Fed re-pricing & geopolitical tensions. Decreased liquidity has likely been exacerbated by market structure shifts and regulatory changes that have reduced UST resilience: the BofA strategist is “concerned about the accumulation of increased Treasury supply into a fragile market place, which will likely support a cheapening of USTs & tightening of financial conditions. The official sector can still act to smooth this process though the US Treasury may need to take a more active role to promote Treasury market resilience.”

TL/DR: QT will lead to unintended bond market freezes/lockdowns and only “official sector” intervention will prevent QT from leading to a bond market crash. So far, neither the Fed nor the Treasury are even contemplating this possibility. Meanwhile the clock until the launch of Quantitative Tightening is ticking…

There is much more in the full notes, available to pro subscribers.

CNN’s ill-fated attempt to launch its own ‘Fox Nation’-style streaming service (which it christened – rather unoriginally – CNN+) is already hitting the skids.

According to a Fox Business report, the streaming service, which recently hired former Fox News Sunday host Chris Wallace to host his own show, and only just launched on Tuesday, is already bracing for layoffs as soon as May due to “lackluster” sales projections.

Breaking: @CNNplus employees bracing for layoffs possibly as soon as May amid projections of lackluster sales of new streaming channel; CNN employees say new streaming channel could be merged into larger @discoveryplus as early as May unless subscriptions pick up 130 @FoxBusiness

— Charles Gasparino (@CGasparino) March 30, 2022

The streaming service was supposed to be the flailing cable news channel’s answer to declining ratings. And according to the Washington Post, it represented the largest investment in new programming since Ted Turner launched CNN in 1980.

The network has been working on the launch since the summer of 2021 and has invested nearly $100 million in the venture. CNN owner WarnerMedia is asking viewers to fork over $5.99 a month for the service.

In addition to Wallace, who will host an interview show entitled “Who’s Talking To Chris Wallace?” four days a week, the network also poached several other big names, including Kasie Hunt from MSNBC, author and chef Alison Roman, and actress Eva Longoria, who will host a travel show dedicated to Mexican cuisine. Former “All Things Considered” co-host Audie Cornish, a veteran of NPR, will also host a weekly interview show.

As WaPo explained, the streaming platform was intended to compensate for the fact that most cable-news superfans are in their 60s, which isn’t a particularly attractive age bracket or advertisers (who typically prefer to market to younger consumers who can build product loyalties that can persist over a lifetime). As of May 2021, the median age of a CNN viewer was 64 (which is still lower than the average age for Fox, at 68). 

CNN’s ratings have continued their dramatic descent recently, prompting upheaval in the channel’s upper ranks, most notably the firing of former network President Jeff Zucker, who conceived of the network.

With CNN is also about to change owners, and Fox Business reports that its new owner, Discovery, might opt to “consolidate” its streaming services, essentially folding CNN+ into its own streaming service.

Authored by Frank Fang via The Epoch Times,

For many living in Shanghai, the city’s tough quarantine measures are proving to be unbearable as they struggle to cope with life without enough basic necessities such as food and medication.

Wan Wenying, 56, a resident of Shanghai’s Baoshan district, told The Epoch Times on March 29 that she was short on food after local officials refused to help her.

“Our building was sealed off yesterday but our residential compound has been sealed off for four days,” Wan said, adding that residents in her building had been required to take nucleic acid tests to see if they were infected with COVID-19.

She said she sought out local community officials to help her get some food, but was told that she had to deal with the problem on her own.

One official told Wan to have cooked meals delivered to her house, but she said she couldn’t afford the cost since she doesn’t have any income and is not entitled to social benefits.

“The government doesn’t care if its people are alive or dead. I don’t have any money and I am stuck at home,” Wan said.

According to China’s state-run media, Chinese authorities placed Baoshan under “seal-off management” from March 26 to 28.

Transit officers, wearing protective gear, control access to a bridge in the direction of the Pudong district in lockdown as a measure against COVID-19, in Shanghai on March 29, 2022. (Hector Retamal/AFP via Getty Images)

Outbreak

Baoshan is one of many areas in Shanghai hit hard by the spread of the Omicron variant of the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus. Shanghai has a population of about 26 million people.

Shanghai reported 4,477 new infection cases on March 28, before reporting 5,982 new cases the next day. However, the actual number of inflection cases in the city could be much higher, considering that experts have said that China’s actual COVID-19 death toll should be higher than the Chinese official figures.

The escalating Omicron outbreak prompted the municipal government in Shanghai to announce a two-stage lockdown on March 27. Under the measure, the city is divided into two halves—one east of the city’s Huangpu River and the other to its west—for health workers to carry out mass testing of local residents.

Those living east of the river, in areas including districts of Punan and Pudong, would be prevented from leaving their homes from March 28 to April 1. Residents in the Puxi area, located west of the river, would be barred from going out from April 1 until April 5. Baoshan is located north of Puxi.

The Chinese regime is implementing a “zero-COVID” policy, using mass tests to go after every virus case regardless of economic or psychological costs.

On Wednesday, Shanghai authorities said they had conducted 9.1 million nucleic acid tests since the lockdown began on March 28.

However, Shanghai authorities began imposing tight measures on residents living west of the river on March 30, ahead of the scheduled April 1 starting date.

For example, some residents received notice from their housing committees on Tuesday, saying that they would be prevented from leaving their compounds for the next seven days.

“We will resume normal life soon, but in the next period of time we ask everyone to adhere closely to pandemic control measures, do not gather, and reduce movements,” according to one housing committee notice seen by Reuters.

The outbreak has forced U.S. automaker Tesla, Irish automotive supplier Aptiv, and German auto component maker Thyssenkrupp to shut down their plants in Shanghai. Japanese apparel giant Uniqlo has also closed many of its stores in the city.

Shoppers rummage through empty shelves in a supermarket before a lockdown as a measure against COVID-19 in Shanghai on March 29, 2022. (Hector Retamal/AFP via Getty Images)

Residents

Some Shanghai residents are struggling to receive proper medical care amid the outbreak in their city.

Lin Mei, a local resident living in Shanghai’s Pudong district who asked to use a pseudonym, told The Epoch Times on March 28 that the lockdown came as a surprise, and said the city’s authorities should have warned them ahead of time so they could stock up.

Lin, who is nearly 60 years old, said local authorities should be considerate to seniors like her, since many of them need nonstop medical attention. As for her, she said she has been suffering from kidney stone pain for over 10 years.

“Last week, my kidney stone disease acted up again. I wanted to go see urologists at major hospitals but their services were suspended,” she said. “I went to a small clinic but the doctor’s prescription drugs were not powerful enough to subdue my pain.”

“So the pain persisted and I ended up having a fever,” Lin said, before adding that all she could do now was drink plenty of water since she couldn’t go out.

Yang Lei, who also asked to use a pseudonym, complained that local food prices have dramatically increased, in an interview with The Epoch Times on March 28. Yang lives in Jing’an, a district located west of Huangpu River.

She said she could still go out but some of her neighbors couldn’t. She explained that two buildings in her neighborhood have been sealed off after one resident in each building tested positive for COVID-19.

Some food, like eggs, meat, and vegetables, have become expensive at her local markets, Yang said, while others like instant noodles were out of stock.

In her view, Yang said that outbreaks in China wouldn’t be as bad if the Chinese officials cared more about the people.

“The Chinese [regime’s] governing principle is not about ensuring people’s livelihood at all,” she said. “In the name of serving the people, it actually works for money.”

Facebook has a new target for the public smear campaigns that the company has used to target its rivals and detractors (including, most infamously, George Soros): but this time, the target is TikTok, which recently supplanted Google and FB as the world’s most popular website.

Facebook parent company Meta has paid one of the country’s largest GOP-linked consulting firms to orchestrate a nation-wide campaign to try and ‘turn public opinion against TikTok’. The company’s strategy has included deflecting blame to TikTok for certain ‘problematic’ trends that actually began on Facebook, while generating op-eds and letters to the editor from “concerned parents” (who were actually just fronts for the company’s campaign). Here’s the Washington Post – which cited internal emails between Meta and Targeted Victory, the aforementioned opposition-research and public opinion firm, with more:

The campaign includes placing op-eds and letters to the editor in major regional news outlets, promoting dubious stories about alleged TikTok trends that actually originated on Facebook, and pushing to draw political reporters and local politicians into helping take down its biggest competitor. These bare-knuckle tactics, long commonplace in the world of politics, have become increasingly noticeable within a tech industry where companies vie for cultural relevance and come at a time when Facebook is under pressure to win back young users.

Targeted Victory eventually ended up leading a nationwide media and lobbying campaign portraying TikTok as a danger to American children and society, while using their criticism of TikTok to “deflect” from criticisms about Meta’s privacy concerns, with the aim of inspiring Congress to shift its focus away from Meta and toward TikTok.

Targeted Victory needs to “get the message out that while Meta is the current punching bag, TikTok is the real threat especially as a foreign owned app that is #1 in sharing data that young teens are using,” a director for the firm wrote in a February email.

Campaign operatives were also encouraged to use TikTok’s prominence as a way to deflect from Meta’s own privacy and antitrust concerns.

“Bonus point if we can fit this into a broader message that the current bills/proposals aren’t where [state attorneys general] or members of Congress should be focused,” a Targeted Victory staffer wrote.

Ultimately, the emails are the latest testament to Facebook’s willingness to resort to “opposition research tactics” to take out business rivals (the company was reportedly frustrated by the fact that teens, seen as its most important demographic, were spending “2x-3x” more time on TikTok than Facebook-owned Instagram).

The effort was ultimately successful, prompting CT Sen. Richard Blumenthal to demand that ByteDance executives testify to a Senate subcommittee about TikTok’s role in certain “dangerous” (and largely overhyped) TikTok trends like the “devious licks” and “slap a teacher” challenges. The company also subcontracted with a number of PR firms across the US to get “letters to the editor” from “concerned parents” into newspapers around the country, including one that ran in the Denver Post and the Des Moines Register. One email showed the firm asking its ‘partners’ to share details of anti-TikTok op-eds that they were supposed to be working on.

As if these underhanded efforts weren’t enough, Facebook also spends a small fortune on lobbying. It spent more than $20 million last year, more than all but six firms.

Of course, Facebook isn’t alone in trying to raise concerns about TikTok. The app has faced justifiable criticism for the proliferation of highly sexualized content, as well as content glorifying violence and drug abuse – with small doses of pro-Chinese propaganda thrown in for good measure.