Month: April 2022

Thanks to a lucky confluence of circumstances, President Joe Biden has so far been able to delude the American people into believing that his latest feeble attempt to drive energy prices lower (without abandoning the green agenda that has led to structural deficiencies in the American oil and gas industry that will require concentrated investment over time to correct) has actually helped to drive prices lower at the pump.

Unfortunately for him, a growing chorus of energy-market analysts are warning the public that the SPR release is essentially a band-aid on a bullet wound. Just the other day, Goldman Sachs warned that the unprecedented SPR release of 180 mb over the next six months to fight the “Putin price hike at the pump” has, in reality, done nothing to resolve structural issues, prompting the bank’s energy analysts to raise their near-term forecast for 2H22 Brent to $115/bbl from $110/bbl.

Fresh off making a record $4 billion profit in 2021 (per Reuters), analysts at Vitol, the world’s largest energy trader, are warning of more imminent upside ahead in oil prices.

Their reasoning? Lockdowns in Shanghai and Washington’s efforts to lead a ‘Marshall plan for energy’ to try and wean Europe off their dependence on Russian oil doesn’t change the fact that flows of Russian crude and oil products may be down by between 1 and 3 million barrels a day through the third quarter, while OPEC+ has refused to bolster its output.

“Oil feels cheaper than most would’ve predicted,” Mike Muller, Vitol Group’s head of Asia, said Sunday on a podcast produced by Dubai-based consultant and publisher Gulf Intelligence. “Oil prices could be higher given the risk of disruption of supplies from Russia. But people are still lost figuring out those numbers.”

Other factors that have weighed on energy prices this past month include (according to Bloomberg)…

The Lockdown in Shanghai

Muller suspects the CCP will double down on its repressive strategy for quashing the latest COVID outbreak, even as locals become increasingly outraged and accuse the Party of violating its compact with the Chinese public, as the NYT recently pointed out.

“I happen to be in the camp that thinks China will continue to suppress this,” Muller said. “The Chinese are certainly making a good fist of arresting it.”

Beijing will probably announce more economic stimulus measures before the Communist Party Congress later this year, Muller said. Such a move would likely bolster demand for oil in the world’s biggest importer.

“China will throw the kitchen sink at making sure the economy delivers,” he said. “We are going to see China put a massive effort into infrastructure spending and propping up the economy. You’re going to see a big outlay.”

The Iran Deal

Another bullish risk factor for oil prices is the unraveling talks with Iran about reviving the JCPOA. Muller believes the market is overestimating the odds of a deal, noting that vast differences in the two sides’ negotiating positions remains.

American officials said late last month that a pact wasn’t “imminent,” while Iran has made similar comments. Envoys are yet to say when they’ll return to Vienna for negotiations and many U.S. allies in the Middle East – including Israel and Saudi Arabia – are wary that a revival of the deal would hand Iran an oil windfall and allow it to continue arming proxy groups in the region.

“Everyone was expecting a return of Iranian supplies,” Muller said. Now “nobody believes that’s going to happen in the second quarter. It looks much less likely than it did a few weeks back.”

Of course, commodity traders like Vitol have plenty of incentive to brace for higher energy prices. As we pointed out last month, many commodity traders have just endured a brutal series of market ructions that some likened to a “doom loop”.

In fact, just last month, the CFO of Vitol rival and commodity trading giant Trafigura predicted that that chaotic moves in global energy and commodity markets would likely trigger a wave of “consolidation” as smaller players are driven into insolvency.

With this in mind, it’s worth asking: how much longer until the “doom loop” is finally triggered and the price of energy (and other commodities) surges to levels beyond the forecasts of even the most bullish investment banks/commodity traders?

Submitted by Jon Wolfenbarger, Founder and CEO of Bull And Bear Profits, an investment website.

The Federal Reserve states that it “conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy.”

Let’s look at how well the Fed has done that job since its founding in 1913.

Economy And Long-Term Interest Rates

Since 1913, the US unemployment rate has ranged from 2.5% in the early 1950s to 25% during the Great Depression. Inflation has ranged from positive 24% to negative 16%. Inflation is currently 7.9%, well above the Fed’s 2% target. While the Fed has some influence over money supply, they have no control over money demand or how money is spent, which has a significant impact on employment and inflation.

The Fed’s goal to “moderate long-term interest rates” below free market levels is a form of price fixing. Since price fixing never works for long, it is no wonder the Fed has been unsuccessful in this goal. Since 1913, 10-Year Treasury rates have ranged from 0.5% in 2020 to 16% in 1981. Interest rates have been much more volatile than before the Fed, as shown below.

Money Supply And Short-Term Interest Rates

Maybe the Fed can’t control the economy, but at least they can control the money supply and short-term interest rates, right? Wrong.

The Fed controls the Monetary Base, which is currency plus bank deposits at the Fed. But the popular M2 money supply measure is 3.6 times larger than the Monetary Base. The broader money supply is driven by the desire of commercial banks to lend and people to borrow from them. The Fed has no control over that.

The Fed also controls the Federal Funds Rate, which is the interest rate at which commercial banks borrow and lend to each other overnight. But as shown below, the Fed follows market driven interest rates, such as the 2-Year Treasury rate (red line), when setting the Federal Funds Rate (black line), since they have no way of knowing where rates should be.

The Fed’s Real Purpose

The Fed’s real purpose is to enable banks to make loans by creating money out of thin air and then bail them out when their loans go bad. It has been successful in that goal, as we saw with the bank bailouts during the Great Recession.

As Murray N. Rothbard explained: “Banks can only expand comfortably in unison when a Central Bank exists, essentially a governmental bank, enjoying a monopoly of government business, and a privileged position imposed by government over the entire banking system.”

The Fed’s other main purpose is to help the US government borrow. They have been very successful at this, as the government debt to GDP ratio has more than tripled in the past 40 years to over 120%.

The Fed Succeeds In Lowering Living Standards

Two of the main negative consequences of Fed money creation is inflation and the boom and bust business cycle, both of which lower living standards significantly. Inflation raises living costs and erodes savings, while the business cycle wastes  scarce resources allocated to bad investments.

Since the Fed’s founding in 1913, the US dollar has lots 97% of its purchasing power.

The Fed helped engineer the Great Depression of the 1930s and the Great Recession of 2008-2009. Austrian Business Cycle Theory explains how the business cycle is caused by banks creating money out of thin air, which leads to an unsustainable boom that eventually turns into a bust, since newly created money does not create the scarce resources (land, labor and capital) needed to complete all the projects businesses have undertaken with the newly created money.

As Ludwig von Mises explained: “The wavelike movement effecting the economic system, the recurrence of periods of boom which are followed by periods of depression is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.”

Fed Predictions

Now that we’ve reviewed the Fed’s failures, let’s see how successful Fed leaders have been at predicting the economy.

Alan Greenspan was Fed Chairman from 1987 to 2006. He presided over the 1987 stock market crash, the S&L crisis, the early 1990s recession, the late 1990s tech bubble, the early 2000s recession and the early/mid 2000s housing bubble. Naturally, the press called him “maestro” for his work at the Fed.

Near the peak of the tech bubble in January 2000, Greenspan bragged about engineering a long economic expansion that he saw no signs of ending. As he said shortly before the NASDAQ stock index collapsed 80% and the early 2000s recession started: “[T]here remain few evident signs of geriatric strain that typically presage an imminent economic downturn.”

In response to the recession he did not see coming, Greenspan slashed the Fed Funds rate from 6.5% in 2000 to 1% in 2003, which helped fuel the housing bubble. Then Greenspan encouraged homeowners to take out adjustable-rate mortgages in early 2004, just before he raised the Fed Funds rate to 5.25% over the next two years, which triggered the housing bust.

In 2007, Greenspan said this about banks lending to subprime borrowers: “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late…I really didn’t get it until very late in 2005 and 2006.”

At least Greenspan has been honest about the Fed’s inability to forecast the economy: “People don’t realize that we cannot forecast the future. The number of mistakes I have made are just awesome.” Greenspan also admitted that the market is much larger and more powerful than the Fed: “[T]he market value of global long-term securities is approaching $100 trillion [so these markets] now swamp the resources of central banks.”

Ben Bernanke was Fed Chairman from 2006 to 2014, so he presided over the Great Recession, the worst economic downturn since the 1930s up to that time.

In 2002, in a speech titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here”, Bernanke bragged that the Fed’s legal right to create money out of thin air would prevent deflation: “The US government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost…under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation.” Naturally, given the Fed’s ability to control the economy, “it” did happen in 2009, with prices falling 2% in the wake of the Great Recession.

In 2006, Bernanke dismissed the inverted yield curve, which is known by virtually all economists to be one of the best predictors of a recession: “I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come.” In June 2008, seven months into the Great Recession, Bernanke said: “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

Janet Yellen was Fed Chair from 2014 to 2018, so she had less time to cause major damage. But true to form, she stated she had no idea the housing bust would lead to a major recession: “I didn’t see any of that coming until it happened.”

Jerome “Jay” Powell has been Fed Chairman since 2018. He helped invert the yield curve in 2019 and has presided over the Covid crash and recession, as well as the highest inflation rates in 40 years.

In early November 2021, when inflation was over 6%, Powell and the Fed were still calling inflation “transitory” and caused by Covid and not the 40% increase in the money supply.

By March 2022, with inflation rising 7.9%, Powell finally raised the Fed Funds rate by 0.25%, with plans to raise rates up to 2.75% by the end of 2023. Ominously, given his forecasting track record, Powell thinks he can raise rates that aggressively and achieve the elusive “soft landing” of slowing inflation without driving the economy into a recession, despite the already flattening yield curve.

Conclusion

The Federal Reserve cannot control the economy or even the money supply and interest rates. And Fed leaders clearly cannot predict the economy, even though the media and Wall Street hang on their every word. But the Fed can lower living standards by destroying the value of the dollar and causing the boom and business cycle. Economic theory and history has proven that government central planning does not work in creating stability or prosperity. That includes centrally planned monetary policy.

Tensions between Russia and the US on Earth have had broader implications for the two nations’ partnership in low Earth orbit aboard the International Space Station (ISS). 

Dmitry Rogozin, head of Russian space agency Roscosmos, tweeted Saturday morning that he would suspend cooperation on the ISS and partnerships with NASA, the European Space Agency (ESA), and the Canadian Space Agency (CSA) as he criticized Western sanctions designed to severely damage the Russian economy (already appear to be working as recession imminent). 

“The purpose of the sanctions is to kill the Russian economy, plunge our people into despair and hunger, and bring our country to its knees. It is clear that they will not be able to do this, but the intentions are clear,” Rogozin said.

“That’s why I believe that the restoration of normal relations between the partners at the International Space Station (ISS) and other projects is possible only with full and unconditional removal of illegal sanctions,” he continued.

Rogozin added “specific proposals” on when to end the “cooperation within the framework of the ISS with the space agencies of the United States, Canada, the European Union, and Japan” will be discussed with Moscow “in the near future.” 

Rogozin sent letters to NASA, the ESA, and the CSA to lift sanctions on Russian space and rocket companies. He posted the responses of all major agencies, which gave generic answers and appeared not to budge on sanctions. 

NASA’s response 

Глава НАСА сенатор Нельсон, руководитель Европейского космического агентства Йозеф Ашбахер и глава Канадского космического агентства Лиза Кэмпбелл ответили на моё к ним обращение с требованием отмены санкций против ряда предприятий российской ракетно-космической отрасли. pic.twitter.com/rnMYiK9wal

— РОГОЗИН (@Rogozin) April 2, 2022

ESA’s response 

Что касается ответа Европейского космического агентства, то Йозеф Ашбахер выступил в роли почтальона, подтвердив, что он такие вопросы не решает, а потому перенаправил моё обращение странам-членам ЕС. То есть нам предлагается подождать, пока бюрократии всех 28 стран Евросоюза pic.twitter.com/D3uzV6vVO9

— РОГОЗИН (@Rogozin) April 2, 2022

CSA’s response

Американский и канадский ответ написаны практически под копирку. В частности, в письме Билла Нельсона говорится, что “НАСА продолжит взаимодействовать с соответствующими федеральными ведомствами и агентствами США в целях содействия дальнейшему сотрудничеству в рамках МКС и ее pic.twitter.com/db7IZIAsZx

— РОГОЗИН (@Rogozin) April 2, 2022

Rogozin is known for provocative statements and threatened to end Russian cooperation on the ISS last month. He also said one disastrous result of Russia pulling out of the ISS would be an “uncontrolled de-orbit” of the 500-ton space station. That’s because Russia is responsible for ISS’ propulsion systems. 

Last week, Rogozin suspended all European launches of satellites. Meanwhile, British satellite venture OneWeb has contracted Elon Musk’s SpaceX to launch satellites instead of Russia. 

Russia has already said it will pull out of the ISS by 2025, though Moscow’s special military operation” in Ukraine and following sanctions by Western countries has expedited their departure. Roscosmos has already begun work on a new space station. 

Even in space, global superpowers who once worked together for decades are quickly unwinding relations as here on Earth, a new world order is emerging, one that is multi-polar. BlackRock CEO Larry Fink’s annual shareholder recently warned about that. 

By Macro Ops

The “greatest money making machine in history”, a man with “Jim Roger’s analytical ability, George Soros’ trading ability, and the stomach of a riverboat gambler” is how fund manager Scott Bessent describes Stanley Druckenmiller. That’s high praise, but if you look at Druckenmiller’s track record, you’ll find it’s well deserved.

Druck averaged over 30% returns the last three decades — impressive. But what’s even more astonishing is the lack of volatility… the guy almost never loses.

He never had a single down year and only had five losing quarters out of 120 altogether! That’s absolutely unheard of. And he did all of this in size. At his peak, Druck was running more than $20 billion and he was still managing to knock it out the park.

When you study Druckenmiller you get the sense that he was built in a laboratory, deep in a jungle somewhere, where he was put together piece by piece to create the perfect trader. Every character trait that makes up a good speculator, Druck possesses in spades… things like:

• Mental flexibility

• Independent thinking

• Extreme competitiveness

• Tireless inquisitiveness

• Deep self-awareness

Maybe he’s a freak of nature or perhaps a secret Jesse Livermore / George Soros lovechild… or maybe he’s just a relentlessly determined trader who’s been on a lifelong path of mastery. Either way, it behooves us to study the thoughts and actions of one of the game’s greatest. And with that, let’s begin.

On what moves stocks

In Jack Schwager’s book The New Market Wizards, Druckenmiller said this in response to the question of how he evaluates stocks (emphasis is mine):

When I first started out, I did very thorough papers covering every aspect of a stock or industry. Before I could make the presentation to the stock selection committee, I first had to submit the paper to the research director. I particularly remember the time I gave him my paper on the banking industry. I felt very proud of my work. However, he read through it and said, “This is useless. What makes the stock go up and down?” That comment acted as a spur. Thereafter, I focused my analysis on seeking to identify the factors that were strongly correlated to a stock’s price movement as opposed to looking at all the fundamentals. Frankly, even today, many analysts still don’t know what makes their particular stocks go up and down.

The financial world is chock full of noise and nonsense. It’s filled with smart people who don’t know a damn thing about how the world really works. The financial system’s incentive structure is set up so that as long as analysts sound smart and pretend like they know why stock xyz is going up, they get rewarded. This holds true for all the talking heads and “experts” except for those who actually trade real money. They either learn the game or get competed out.

Being one of those who compete in the arena, Druckenmiller was forced to learn early on what actually drives prices. This is what he found:

Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.

Liquidity is the expansion and contraction of money, specifically credit. It’s the biggest variable that drives demand in an economy. It’s something our team at Macro Ops follows closely.

The federal reserve has the biggest lever on liquidity. This is why a trader needs to keep a constant eye on what the Fed is doing.

This is not to say that things like sales and earning don’t matter. They are still very important at the singular stock level. Here’s Druckenmiller again (emphasis mine):

Very often the key factor is related to earnings. This is particularly true of the bank stocks. Chemical stocks, however, behave quite differently. In this industry, the key factor seems to be capacity. The ideal time to buy the chemical stocks is after a lot of capacity has left the industry and there’s a catalyst that you believe will trigger an increase in demand. Conversely, the ideal time to sell these stocks is when there are lots of announcements for new plants, not when the earnings turn down. The reason for this behavioral pattern is that expansion plans mean that earnings will go down in two to three years, and the stock market tends to anticipate such developments.

The market is a future discounting machine; meaning earnings matter for a stock, but more so in the future than in the past.

Most market participants take recent earnings and just extrapolate them into the future. They fail to really look at the mechanism that drives the bottom line for a particular company or sector. The key to being a good trader is to identify the factor(s) that will drive earnings going forward, not what drove them in the past.  

Druckenmiller said in a recent interview that his “job for 30 years was to anticipate changes in the economic trends that were not expected by others, and, therefore not yet reflected in security prices.” Focus on the future, not the past.

Another thing that sets Druck apart is his willingness to use anything that works; as in any style or tool to find good trades and manage them.

Another discipline I learned that helped me determine whether a stock would go up or down is technical analysis. Drelles was very technically oriented, and I was probably more receptive to technical analysis than anyone else in the department. Even though Drelles was the boss, a lot of people thought he was a kook because of all the chart books he kept. However, I found that technical analysis could be very effective.

I never use valuation to time the market. I use liquidity considerations and technical analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction.

Druckenmiller employs a confluence of approaches (fundamental, macro, technical and sentiment) to broaden his view of the battlefield. This is a practice we follow at Macro Ops. It doesn’t make sense to pigeonhole yourself into a single rigid scope of analysis… simply use what works and discard what doesn’t.

How to make outsized returns

Druckenmiller throws conventional wisdom out the window. Instead of placing a lot of small diversified bets, he practices what we call the “Big Bet” philosophy, which consists of deploying a few large concentrated bets.

Here’s Druckenmiller on using the big bet philosophy (emphasis mine):

The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. And if you look at all the great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved, which was if you see – only maybe one or two times a year do you see something that really, really excites you… The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully.

A lot of wisdom in that paragraph. To earn superior long-term returns you have to be willing to bet big when your conviction is high. And the corollary is that you need to protect your capital by not wasting it on a “bunch of stuff” you don’t have much conviction on.

This reminds me of what Seth Klarman wrote in his book Margin of Safety:

Avoiding loss should be the primary goal of every investor. This does not mean that investors should never incur the risk of any loss at all. Rather “don’t lose money” means that over several years an investment portfolio should not be exposed to appreciable loss of capital. While no one wishes to incur losses, you couldn’t prove it from an examination of the behavior of most investors and speculators. The speculative urge that lies within most of us is strong; the prospect of free lunch can be compelling, especially when others have already seemingly partaken. It can be hard to concentrate on losses when others are greedily reaching for gains and your broker is on the phone offering shares in the latest “hot” initial public offering. Yet the avoidance of loss is the surest way to ensure a profitable outcome.

You need to keep your powder dry so that when the stars align you can go for the jugular and turkey neck that son of a gun.

The importance of striking when the iron is hot is something Druckenmiller learned while trading for George Soros.

I’ve learned many things from [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong. The few times that Soros has ever criticized me was when I was really right on a market and didn’t maximize the opportunity.

An intense focus on capital preservation coupled with a big bet approach is the barbell philosophy used by many of the greats.

Keeping your losses small and pushing your winners hard is the name of the game in profitable speculation.

The fund washout we’re seeing today is not just because of the glut of mediocrity in the money management space, but also because even decent managers are scared to take the necessary risks to have big return years. They manage too much to the benchmark and are too short-term focused. That’s a recipe for average performance. Here’s Druck on how it should be done:

Many managers, once they’re up 30 or 40 percent, will book their year [i.e., trade very cautiously for the remainder of the year so as not to jeopardize the very good return that has already been realized]. The way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then if you have the conviction, go for a 100 percent year. If you can put together a few near-100 percent years and avoid down years, then you can achieve really outstanding long-term returns.

Once you’ve earned the right to be aggressive and can bet with the house’s money (profits), you should plunge hard when that high conviction trade arises and push for outsized returns.

The trader’s mindset and handling losses

According to Druck, to be a winning trader you need to be “decisive, open-minded, flexible and competitive”.

The day before the crash in 1987, Druckenmiller switched from net short to 130% long because he thought the selloff was done. He saw the market bumping up against significant support. But through the course of the day he realized that he made a terrible mistake. The next day he flipped his book and got short the market and actually made money. You see this type of mental flexibility in all the greatest traders. And Druckenmiller is one trader that epitomizes it perhaps better than anybody else.

The practice of having “strong opinions, weakly held” is difficult but paramount to success.

In order to attain that level of mental flexibility, you need to learn to detach ego from your immediate trade outcomes. If you allow losses to affect your judgement, you’ll inevitably make bigger mistakes. Druckenmiller learned this lesson early on from Soros.

Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position. There are a lot of shoes on the shelf; wear only the ones that fit. If you’re extremely confident, taking a loss doesn’t bother you.

One of the best parts about this game is that as long as you stay alive (protect your capital) you can always make another trade. Druckenmiller said the “wonderful thing about our business is that it’s liquid, and you can wipe the slate clean on any day. As long as I’m in control of the situation — that is, as long as I can cover my positions — there’s no reason to be nervous.”

I remember watching Charlie Rose interview Druckenmiller a few years ago. Charlie asked him why, after all these years, and with all the money he’s made, does he still put in 60-hour weeks trading? Druck responded (and I’m paraphrasing here) “because I have to… I love the game and I love winning, the money isn’t even important.”

To get to Druck’s level, you have to trade because that’s just what you do. It’s what you live for.

The mainstream media’s decision to admit – more than a year after the fact – that the Hunter Biden laptop story was, in fact, legitimate (and not the product of ‘Russian disinformation, as a procession of high-ranking Democrat spies insisted at the time) has once again shaken the public’s trust in the media, and prompting accusations of ‘election interference’ and even inspiring a House inquiry into collusion to bury the story involving Big Tech and the MSM on behalf of Joe Biden and the Democrats.

Joe Rogan perhaps put it best when he speculated that there was “some f**kery afoot” when he slammed the media coverage of the laptop as “crazy”. Just this past week, WaPo, CNN and the NYT have gone “scorched earth” over the laptop story now that it’s become clear that the son of the president is potentially heading toward an indictment in a major tax fraud case.

But when it comes to the cover-up that may have swayed the outcome of the 2020 election, nobody has been held accountable.

“It looks like the left wing media just buried the story because it wasn’t part of their narrative and that’s why people don’t trust the media” – @BillMaher on suppression of Hunter Biden laptop story. #RealTime pic.twitter.com/XXbMKJUnix

— Brent Baker 🇺🇦 (@BrentHBaker) April 2, 2022

Which is all the more reason for HBO host Bill Maher, the liberal maverick who has never been afraid to break with leftist orthodoxy, to go all-in. During Friday night’s show, he accused the “left-wing media” of burying the story because it didn’t fit with their “orthodoxy”.

“It looks like the left-wing media just buried the story because it wasn’t part of their narrative and that’s why people don’t trust the media,” Maher said.

He elaborated, calling Hunter Biden a “ne’er-do-well” who was taking money from well-connected foreigners solely because “he was the president’s son”.

“I remember reading about this a couple of years ago, the New York Post came across… Hunter Biden’s computer, which he apparently left at a computer repair store. I didn’t even know they existed. And if anyone should not leave his computer with other people, it would be Hunter Biden just for the personal stuff,” Maher said. “But it also had stuff about how, you know, c’mon, he’s a ne’er-do-well. I’m sorry, Hunter Biden, but you are… You made a living being ne’er-do-well who was taking money just because you were the vice president’s son and you had influence.”

“He got, I think $4.8, yes, million from Chinese energy companies to sit on the board and consult. Yeah, that was his passion in life,” Maher quipped. His exploration, hooker exploration, was his passion.”

Even more galling than the media blackout is the fact that Twitter froze the account of the New York Post in retaliation for its reporting.

“So the New York Post got a hold of what was in the computer. And, you know, because the New York Post is a Republican paper, and The New York Times and The Washington Post are the Democratic paper[s]…And the Republican paper, Twitter…canceled their account! They can’t even report on this story. And now two years later, The New York Times and The Washington Post have come around and say, ‘Okay, there was something there.'”

And while Maher acknowledged that reporters had reason to take the initial leak with “a giant grain of salt” given its provenance (it was leaked to the NYPost via Rudy Giuliani and the Trump camp), that should not have been an excuse to dismiss the story in its entirety.

The result is that the world of the American media has, in Maher’s telling, reverted to the model from the 19th century, when there were Republican papers and Democrat papers (and Whig papers), and the echo chamber model has become so pervasive that nobody stops to question it.

We look forward to watching the left once again try to cancel Maher for speaking truth to power.

By Andrew Sheets, Morgan Stanley Chief Cross-Asset Strategist

Most of my meetings this week focused on yield curve inversion, a sign that the topic is either top-of-mind or is so widely discussed that everyone is tired of talking about it. Or maybe both. (As one investor put it this week, “We’re very focused on curve inversion and very tired of talking about it.)

What follows will discuss the yield curve, but I promise it won’t be the sole focus.

Indeed, what I’d really like to cover today is the cacophony of story lines that are all crashing together at the same time:

• Growth is good, but it’s slowing.
• Policy is easy, but it’s tightening.
• Inflation is high, but it’s set to moderate.
• Commodities are surging (or not, depending on the day).

Markets are often overdramatic about current conditions, but these developments really are striking. US nominal GDP grew by 14% (annualized) in 4Q21. US government bond yields just had their worst quarter since 1980. US inflation is the highest since 1982 and French inflation is the highest since 1985. Realized volatility in the oil market is at the 98th percentile.

So if you’re feeling a little worn out by the first quarter, a little lost and wondering how three months could feel like a year, well…there are pretty good reasons.

Yet dig a little deeper, and some of the uniqueness of the present moment fades away. A period where growth is good (but slowing), inflation is elevated and policy is tightening isn’t some ‘macro unicorn’ but rather a common pattern that tends to appear late in an economic expansion. Good growth pushes the economy above potential and unemployment toward cycle lows. This pushes up inflation, which pushes up policy rates, which flattens (and then inverts) the yield curve. Weaker parts of the market suffer, and breadth narrows as the tide of liquidity starts to roll out.

Investors saw that pattern in 1998 and 2000. They saw it in 2005-06 and again in 2019.

Each of these periods was a different flavor of ‘late cycle’. Quantitatively, each maps as being well into the ‘expansion’ phase of our Cross-Asset Cycle Indicator.

If one sees similarities between these periods and today (we do), implications emerge from the otherwise chaotic backdrop.

One is that curve inversion is not (in itself) a sell signal for equities, but does support moving up in quality, within both equity sectors and credit.

• Global stocks have gained about 8% in the 12 months following the last four inversions of the US 2s10s curve.
• Yet in those same periods, US high yield underperformed investment grade credit by about 5%, and US Utilities and Healthcare outperformed the S&P 500 by 6-8%, signs of late-cycle defensiveness working.

This ‘up in quality’ theme extends regionally. Following curve inversion, DM ex US equities (especially the FTSE 100) outperform EM stocks, and EM credit outperforms EM stocks. Our expected returns support these preferences today, especially after an additional downgrade of our price target for MSCI Emerging Market equities.

Finally, late-cycle periods can be good for commodities, especially oil. The ‘up in quality’ theme may be a function of investors demanding a higher discount rate for cyclicality as the cycle matures. But physical commodities can struggle to achieve similar foresight. Spot prices are set by the economy today, not where it may be 12-18 months from now. Brent rallied into November 2000 and July 2008, well past the start of equity market trouble. More broadly, oil, copper and gold have all averaged positive total returns in the 12 months following inversion of the US 2s10s curve.

These are unusual times. But we don’t think they are entirely without precedent. Whatever the ultimate path of growth over the next two years, embracing a late-cycle playbook makes sense today.

Update (1535ET): Bloomberg reports that Sri Lanka’s cabinet has submitted its resignation, a ruling party member said, amid rising public anger about the government’s economic policies that have led to soaring living costs and a foreign exchange crisis.

“We gave resignations to the Prime Minister saying we are willing to leave at any time,” Education Minister Dinesh Gunawardena told reporters in Colombo late Sunday.

“After discussing with the President the steps to be taken will be decided.”

*  *  *

As we detailed earlier, the tiny island nation of Sri Lanka is experiencing worsening shortages of food, fuel, and medicine amid a foreign exchange crisis. A 36-hour curfew went into effect this weekend as mass anti-government protests over soaring living costs are underway. 

Bloomberg reports that President Gotabaya Rajapaksa imposed a state of emergency on Friday after soaring inflation and widespread rolling blackouts for up to 13 hours a day resulted in protests in the capital and at the president’s private home. The emergency order gives authorities sweeping powers to detain and quell protests to restore public order. 

Several area residents in Colombo have stepped out of their homes to protest against the recent developments in the country. Srilanka economic crisis.#SriLanka. pic.twitter.com/g4U9Lh4R70

— Shobana (@Shobana_29) April 3, 2022

Public protest in Rajagiriya braving the rain.#srilanka #lka pic.twitter.com/B97bzRJkzU

— NewsRadio – TNLRN (@newsradiolk) April 3, 2022

People of Panadura thanking the Panadura police for the support in today’s protest! Gotas curfew turned out to be just like Gota. INEFFECTIVE! Power to the People! #GoHomeGota #GoHomeGota2022 #GoHomeRajapaksas #wakeupsrilanka #SriLanka #SriLankaEconomicCrisis pic.twitter.com/HdzxDG2sCe

— Siraj Noorani (@sirajnoorani) April 3, 2022

Days ago, the Washington, D.C.-based International Monetary Fund (IMF) swooped in and initiated talks with Sri Lankan authorities on a rescue loan. Rajapaksa will fly to Washington for additional discussions with IMF officials. 

A confluence of factors drained the South Asian island nation’s foreign exchange reserves by more than 70% since the virus pandemic began, including the collapse in tourism and poorly timed tax cuts. 

Bloomberg explains more about the socio-economic crisis unfolding on the island nation of 22 million people. 

The island nation is undergoing a severe shortage of food and fuel as it runs out of dollars to pay for imports. Inflation has accelerated to almost 19%, the highest in Asia and has played a major part in people taking to the streets to call for Rajapaksa and his family to resign from government.

Rajapaksa’s elder brother Mahinda serves as prime minister and Basil, the youngest, holds the finance portfolio, while the eldest Chamal controls the agriculture ministry and nephew Namal is the sports minister. In a possible sign of friction within the clan, Namal openly criticized the latest curbs involving social media.

The Rajapaksa family still enjoys two-thirds majority support in parliament. National elections will be held in 2023 at the earliest. 

Rajapaksa’s administration in recent weeks has devalued the rupee, raised interest rates, placed curbs on non-essential imports, and reduced stock-trading hours to preserve electricity and foreign currency. He has also dropped resistance to seeking a bailout from the International Monetary Fund and is simultaneously in talks with nations including India and China for bilateral aid. -Bloomberg

Sri Lanka’s economic troubles are metastasizing into social unrest as households crushed by inflation can’t afford essential items like food and energy. We’ve explained before (read: here & here) that some weak emerging market economies are set for ‘Arab-Spring 2.0’-style unrest. 

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

Today Hungarians went to the polls to decide their future.

What they may not have realized is that they also are deciding on the future of most of the European continent in the process.

Sitting Prime Minister Viktor Orban is vying for his fourth term in office, having been in power for 12 years and he is under intense opposition from within and without. It’s an open secret that Orban is reviled in Brussels.

And because of his basic sense of common decency and nationalism that means he must be removed from office in order to ensure the full consolidation of power with the European Commission and European Council.

That only happens with his removal and a Brussels-centric puppet controlled by George Soros and the Davos Crowd put in his place. There is a real sense of desperation surrounding this bid to remove Orban.

The formation of a ridiculous Not-Orban coalition of no less than six parties, none of whom would piss in each other’s mouths if their throats were on fire, is pure desperation. It is the apotheosis of the Davos strategy to put in power weak coalitions that can be torn apart at the seams but whose members are also so enamored with being in power they won’t collapse the government as popular opinion turns against them.

This is how Davos engineered Mario Draghi’s takeover in Italy. Five Star Movement cut a deal with the Democrats to oust Lega despite the polls being completely against the idea of such a government after Matteo Salvini pulled out of his coalition with Five Star back in 2019.

Germany’s ‘Traffic Light’ coalition members have almost nothing in common but in no way will you see the FDP, for example, pull out of it with their sinking poll numbers, now just 8%, even though they could. Instead, we see Finance Minister and FDP leader Christian Lindner doing exactly what he was put in power to do, gum up the financial works and prep the stage for the transference of Germany’s power within the EU to the EU.

But all of that unravels if Orban is free for another four years to veto every stupid and belligerent idea that comes out of the European Council. Hungary is already under financing sanctions from the EU over their anti-LGBT laws, threatening to block distributions from the EU budget.

The EU have already gotten the Poles to knuckle under because the Poles are dependent on Germany for gas flows thanks to their own intransigence in cutting deals with Russia for energy.

Hungary, on the other hand, has energy independence from Brussels by having contracted directly with Gazprom for natural gas via Turkstream’s train that goes into Serbia and Hungary. This should give you some context as to why the EU is trying to sanction Serbia and cut off the flows of that pipeline where it crosses EU territory in Bulgaria.

With a fiscally, monetarily (they are not on the euro) and energy independent Hungary there is little argument for them staying in the EU if Brussels is going to treat them as second class members. Orban and his government have been resolute in their refusal to get involved in the Russia/Ukraine conflict even though there has been serious pressure applied by NATO.

This helped Orban in recent polls along with the war itself. The natural tendency is to not change leadership during a time of crisis. So, I don’t anticipate Orban having much trouble winning the election, if the election is anything close to ‘fair.’

And that’s the crux of the conflict.

To ask why the election wouldn’t be ‘fair,’ let’s think through the consequences of an Orban victory.

Hungarians would have a strong incentive to reverse their support of EU membership. It is the one thing that really hamstrings Orban politically within the EU’s power structures.

Orban needs to get past this election to begin making the case that Hungary is not better off in the EU rather than outside it. Then he can then fully express his power within the EU to slow down, if not grind to a halt, any further expansion of EU aggression against Russia.

What Davos has tried to do in response is ratchet up the fear of Russia expanding west and stir up memories of life under the Warsaw Pact, which is the main source of basic support for the EU among many Europeans in the first place.

Putin has made his intentions very clear. The dividing line for him are the republics of the former USSR, not the Warsaw Pact countries. In fact, as Dexter White has pointed out in multiple podcasts (this one in particular), which I and others like The Saker agree with, Russia doesn’t have the force projection capability or desire to do so even if they wanted to much past the Dnieper River in Ukraine no less Poland or Hungary.

So, that narrative is pure fear porn for electioneering purposes.

It reeks of existential fear over what an Orban administration looks like free for four years from further meddling by external forces. And since the EU is already refusing to give Hungary the money they are owed under EU rules, this is an easy argument for Orban to make to the people, post-election.

Hungary standing tall against further European integration while Russia holds serve on its territorial gains in Ukraine would make a powerful argument to most of the Visegrads that there’s an opportunity for life without either Russia or the EU controlling their futures.

The opportunity exists here for a new bloc to emerge which frees many of these landlocked countries to gain access to the Baltic, Black and Mediterranean seas if they overcome their fear of Russia and look West to the threats coming from Brussels.

That would also mark the limit of their war against populism and sets up the possibility of a political earthquake in France later this month when Emmanuel Macron faces off against a surging Marine LePen in the second round of Presidential elections there.

Look for a lot of post-election shenanigans in Hungary if Orban wins the initial vote. The OSCE will use their typical game of using biased ‘exit polls’ to throw shade on the results citing differences between their polls and the official results to gin up anti-Orban sentiment on the ground in Budapest.

We should see a replay of 2020’s riots in Minsk over the results in Belarus. Now, I’m not suggesting that Orban is going to stuff the ballot box like Lukashenko likely did (who didn’t need to), but that will be the narrative constructed all across the western press.

We will be subjected to the worst kind of disinformation campaign against Orban. It will be an order of magnitude worse than anything he’s experienced in the past. I hope for his part that he’s aware of these threats and has contingency plans in place.

We’ll find out this week.

Because the future of the EU hangs in the balance here against a backdrop of forces pulling at it on which the whole of Davos’ grand plans to make the world safe for Eurotrash technocrats possible.

And if that’s not enough of an incentive for everyone to cheat, lie and steal this election I don’t know what is.

*  *  *

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In a Sunday TV interview Kremlin spokesman Dmitry Peskov said that a direct meeting between presidents Putin and Zelensky has “never been ruled out” and that it’s possible. Yet he said that the delegations that are still negotiating must agree to a firm ceasefire document, which hasn’t been achieved yet.

“No, Putin has never rejected (a possible meeting with Zelensky). Putin has never ruled out such a meeting and this meeting, yes, hypothetically it is possible,” the Kremlin official told Russia-1 TV channel. “Yet on order for it (the meeting) to happen, it is necessary for a certain document to be generated by the two delegations. Not a set of ideas but a specific written document. Then the time will come for such a meeting,” he added. But he blamed the Ukrainians for not fulfilling obligations thus far. This as fresh US intelligence statements have emerged saying Russia wants to declare victory over the Donbas region by May 9th.

At a moment US Secretary of State Antony Blinken has said Russian troops have already experienced “strategic defeat” in Ukraine, Peskov explained he still believes the goals of the “special operation” will be “achieved in full”. It was confirmed over the weekend by the Russian side’s chief negotiator Medinsky that Moscow-Kiev talks are to resume Monday.

Also on Sunday remarks from NATO Secretary General voiced the alliance’s view that despite a previously announced Russian ‘draw down’ from near Kiev and around Chernihiv, there’s been no true change in posture.

“What we see is not a real withdrawal, what we see that Russia is re-positioning its troops and they are taking some of them back to rearm them, to reinforce them, to resupply them, but we should not in a way be too optimistic because the attacks will continue,” Stoltenberg told CNN.

“And we are also concerned about potential increased attacks especially in the south and in the east. So this is not a real withdrawal but more a shift in the strategy, focusing more on the south and the east,” he added.

Meanwhile, in a hugely significant bit of weekend reporting (assuming there’s any truth to it), CNN has cited anonymous US and European intelligence officials to say that Putin is aiming to achieve victory in Ukraine by May 9th, or a little over a month away. But ‘victory’ – as we’ve seen – appears to now be limited in scope to the East and South.

The report says Putin is under increased pressure to demonstrate battlefield victory after multiple weeks of stalled momentum: “More than a month into the war, Russian ground forces have been unable to keep control of areas where they have been fighting. Russian President Vladimir Putin is under pressure to demonstrate he can show a victory, and eastern Ukraine is the place where he is most likely to be able to quickly do that, officials say.”

Putin 🇷🇺 is highly likely to concentrate forces on an offensive that can produce some sort of ”win” by May 9 – the traditional Victory Day. Extended area of Donbas is the likely focus, and certainly Odessa if that’s reachable by his forces. pic.twitter.com/dpXqOwthNp

— Carl Bildt (@carlbildt) April 3, 2022

The CNN report says: 

US intelligence intercepts suggest Putin is focused on May 9, Russia’s “Victory Day,” according to one of the officials.

May 9 is a prominent holiday on the Russian calendar, a day the country marks the Nazi surrender in World War II with a huge parade of troops and weaponry across Red Square in front of the Kremlin. The officials say Putin wants to be able to celebrate a victory — of some kind — in his war on that day.

But other officials note even if there is a Russian celebration, an actual victory may be further off.

An unnamed European defense official was cited further as saying that “Putin will have a victory parade on 9th May regardless the status of the war or peace talks.” The source qualified, “On the other hand: a victory parade with what troops and vehicles?”

Over the weekend Ukrainian and Western accusations of a “massacre” in the town of Bucha have emerged, based on widely circulating videos and photos. Russia’s Defense Ministry has called many of these images “staged” and rejected the accusations. 

Appalled by atrocities in Bucha and other towns in Ukraine. Reports of Russian forces targeting innocent civilians are abhorrent.

The UK is working with others to collect evidence and support @IntlCrimCourt war crimes investigation. Those responsible will be held to account.

— Liz Truss (@trussliz) April 2, 2022

Lately Russia’s Ministry of Defense has issued statements greatly narrowing the scope of military operations to the Donbas region. This also as it’s become clear that there’s currently no intent to attack Kiev, despite recent heavy fighting in a handful of suburbs. At this point, local residents have even deemed Kiev to be relatively “safe”.