Month: April 2023

Authored by Eric Lendrum via American Greatness,

A researcher claims to have found a tool allowing for government intervention in Twitter’s algorithm, upon Elon Musk’s decision to allow the algorithm to become open sourced to the public.

Breitbart reports that Musk honored his promise on Friday by releasing a portion of Twitter’s recommendation algorithm on the website GitHub, where computer programmers often go to share and collaborate on work dealing with open-source code.

Web developer Steven Tey then claimed to have discovered a particular mechanism within the code that allows the U.S. government to make changes to the website’s algorithm.

“When needed, the government can intervene with the Twitter algorithm. In fact, @TwitterEng (Twitter Engineering) even has a class for it – ‘GovernmentRequested,” Tey tweeted, including a link to the code on GitHub.

7. When needed, the government can intervene with the Twitter algorithm.

In fact, @TwitterEng even has a class for it – “GovernmentRequested”

Source → https://t.co/R1rpNHMDuO pic.twitter.com/YmavVJ8szi

— Steven Tey (@steventey) March 31, 2023

Upon purchasing Twitter for $44 billion in October, Musk vowed to increase transparency and loosen restrictions on certain speech and accounts that had been imposed by previous leadership. One of his goals was to make the algorithm open source for public viewing; he later said that “our ‘algorithm’ is overly complex & not fully understood internally,” and that “people will discover many silly things, but we’ll patch issues as soon as they’re found!”

In addition, Tey discovered that the algorithm takes such factors into account as following-to-follower ratio when determining which users to promote; users with a low number of followers but a high amount of followed accounts would be negatively affected.

1. Your following-to-follower ratio matters.

Twitter’s “Tweepcred” PageRank algorithm reduces the page rank of users who have a low number of followers but a high number of followings.

Source ↓https://t.co/CRXVOhYdE9

— Steven Tey (@steventey) March 31, 2023

The algorithm also promotes those who are subscribed to the “Twitter Blue” program, where users must pay $8 a month for a blue checkmark signaling that their account is “verified.” These users are subsequently put into different categories, including “power users,” “Democrats,” and “Republicans.”

The discovery of the government intervention tool is just the latest example of controversy surrounding Twitter’s relationship with the federal government prior to Musk’s takeover. In his signature transparency effort, Musk has been periodically releasing information about Twitter’s past leadership, in the form of screenshots of emails and other forms of correspondence, revealing the levels of collusion between Twitter executives and government officials, often for the purpose of targeting conservative users. The information would be given to independent journalists and shared in extensive Twitter threads, becoming known as “The Twitter Files.”

Over the weekend, and ahead of the OPEC+ output cut shocker, we first reported that short WTI bets had already collapsed by the most in 7 years following last week’s sharp spike in oil prices.

Now, it’s energy guru John Kemp’s turn to report that investors started to pair back short positions in petroleum even before Saudi Arabia and its OPEC+ allies surprised the market by announcing production cuts totalling more than 1 million barrels per day.

As Kemp notes, “the scale of the cuts and the element of surprise is likely to have been intended to intensify the rush of short-covering as well as boost confidence and draw more bullish investors back into the market.“

Hedge funds and other money managers purchased the equivalent of 61 million barrels in the six most important petroleum futures and options contracts over the seven days ending March 28.

This marked a sharp turnaround after fund managers sold a total of 281 million barrels over the two preceding weeks, the fastest rate of selling for almost six years. 

Most of the buying came from the closure of previous bearish short positions (-48 million barrels) rather than initiation of new bullish longs (+13 million).

Buying was concentrated in NYMEX and ICE WTI (+49 million barrels), U.S. gasoline (+14 million), U.S. diesel (+5 million) and European gas oil (+1 million) with sales of Brent (-9 million).

As we also noted over the weekend, while short positions in NYMEX and ICE WTI were slashed (-51 million barrels), no new bullish positions were established and in fact long positions were trimmed marginally (-2 million).

Fund managers seem to have concluded WTI prices had found a floor after touching a 15-month low of less than $67 per barrel on March 17 and were unlikely to fall further in the short term.

Positions were all reported at the close of business on March 28, ahead of the decision by Saudi Arabia and its allies in the OPEC⁺ producer group to cut their output targets by more than 1 million barrels per day on April 2.

WTI Rally Primed

Prior to the most recent week, positioning in WTI had become especially bearish, leaving the market primed for a sharp short-covering rally. Hedge funds had reduced their net position in WTI to just 56 million barrels by March 21, the lowest since February 2016 and in only the 1st percentile for all weeks since 2013.

Funds’ bullish long positions outnumbered bearish short ones by a ratio of just 1.39:1 on March 21…

… the lowest since August 2016 and in only the 2nd percentile.

Positions had become so stretched towards the downside creating conditions for a sharp rebound if and when the news flow become more bullish or at least less bearish.

Even before the OPEC+ announcement, the concentration of bearish shorts and absence of bullish longs seems to have encouraged at least some fund managers to realise profits ahead of the expected recoil.

The announcement will likely fuel even more short covering in the near future, which was probably one of the motivations for the decision, announced on a Sunday to maximise its impact when trading resumed on Monday.

US Gas Positions

Fund managers are becoming less bearish about the outlook for U.S. gas prices following the full re-opening of Freeport LNG’s export terminal.

Hedge funds and other money managers increased their net position in Henry Hub futures and options for the seventh time in eight weeks.

Funds purchased the equivalent of 237 billion cubic feet of gas over the seven days ending March 28 taking total purchases to 1,011 billion cubic feet since January 31.

Portfolio managers still have a small overall short position of 50 billion cubic feet (30th percentile since 2010) but it has been sharply pared back from 1,061 billion cubic feet (7th percentile) at the end of January.

Authored by Daniel Lacalle,

Federal Reserve data shows $98 billion of deposits left the banking system in the week after the Silicon Valley Bank collapse. Most of the money went to money-market funds, as the Bloomberg data shows that assets in this class rose by $121 billion in the same period.

The data shows the challenges of the banking system in the middle of a confidence crisis.

However, as many analysts point out, this is not necessarily the main factor that dictates the risk of a credit crunch. Deposit flight is certainly an important risk. Many regional banks will have to cut lending to families and businesses as deposits shrink, but in the United States bank loans are less than 19% of corporate credit according to the IMF, while in the euro area it is more than 80%. What will generate a credit crunch is the destruction of capital in the asset base of most lenders.

The slump in mark-to-market valuations of all asset classes from loans to investments is what will ultimately drive an inevitable credit contraction.

Credit standards have tightened significantly already, and the credit impulse of the economy, both in the US and euro area, has deteriorated rapidly, according to the respective Bloomberg indices.

Both are below the March 2021 low.

We must remember that credit standards’ tightening was already a reality before the Silicon Valley Bank demise. But the reality check of capital destruction in the financial system’s asset base is far from done.

Start-ups will most likely see the most severe crunch in financing as the tech bubble burst adds to the asset base capital destruction in private equity and venture capital firms, who have delayed all they could the required write-downs and face a sobering reality check. Our internal estimate of capital destruction in the asset base of banks and private equity firms is between a 15% to 25% wipe-out, which is consistent with the average decline in market value over the October 2021- March 2023 period.

Real estate investments all over the US and Europe require a significant re-evaluation now that real estate has underperformed the market for eighteen months, according to Morgan Stanley. The optimistic valuations of real estate and corporate investments in banks’ balance sheets will require a significant analysis and subsequent write-off that leads to much tighter credit standards and stringent investment conditions.

Capital destruction tends to be forgotten in a world used to constant central bank easing, but it is likely to be the main source of strangling of credit to families and businesses as banks and private equity firms deal with the loss of value and weakening earnings and cash flow of investments made at elevated valuations and unreasonable prices. The main challenge this time is that capital destruction is happening in almost every part of the lenders’ asset base, from the allegedly low-risk part, sovereign bond portfolios, to the aggressively priced investments in volatile businesses and bull-market valuations of corporate and venture capital investments. The profitable asset part of banks will likely require important provisions for non-performing loans, a subject that was raised by the Federal Reserve and the ECB months before the banking crisis. Furthermore, as governments will blame the recent collapses on lack of regulation again, it is extremely likely that new rules will be imposed demanding banks to book large provisions recognising losses on the loan book ahead of time.

Even if we assume a modest impact on banks’ balance sheets, the combination of higher rates, declining optimism about the economy and the slump in equity, private investments and bond valuations is going to inevitably lead to a massive crunch in access to credit and financing. It is more than banks. The crunch will come from private direct middle market loans, a decline in high-yield bond demand, while institutional leveraged loans may fall as access to leverage is more expensive and challenging and investment grade bonds may likely continue to see strong demand but at higher costs. The question is not when there will be a credit crunch, but how large and for how long. Considering the size of the famous “bubble of everything “and its slow implosion, it may last for a couple of years even with a central bank pivot, because by now a reverse in monetary policy may only zombify the financial system.

With the beginning of a credit event triggered by the Federal Reserve’s aggressive rate hike cycle, which has already claimed at least three smaller US banks and initiated an unprecedented surge in deposit bank runs, the commercial real estate market might be the next shoe to drop. 

For the fifth consecutive month, Blackstone’s $71 billion real estate income trust (BREIT) has restricted redemption withdrawal requests in March, according to Bloomberg, citing a letter from the PE firm.

Last month investment advisors of high-net-worth individuals asked Blackstone to redeem $4.5 billion from BREIT, but the PE firm only allowed $666 million to be withdrawn, or about 15% of what was requested. In February, advisors tried to pull out $3.9 billion. 

Blackstone limits withdrawals to approximately 5% per quarter. Having already reached 2% monthly caps in January and February, investors were left with a much narrow exit route in March. 

However, should rates keep rising, it is likely that the April redemption flood will continue. 

BREIT is a huge player in the real estate industry, acquiring properties from student housing to apartment complexes and warehouses. The trust was first hit with redemptions limits last December. 

The letter also noted BREIT reserved the right to limit redemptions to prevent massive outflows:

“This structure was designed to both prevent a liquidity mismatch and maximize long-term shareholder value, and is working as planned,” the letter to investors said. “In fact, BREIT has paid out nearly $5 billion to redeeming shareholders since November 30.”

A reason for the concern and stampede to the exit is the prospect of commercial real estate being the next area of turmoil following the regional banking crisis. 

Professional subs have been well aware of these rumblings in two latest pieces, “Hartnett: Commercial Real Estate Is The Next Shoe To Drop” and “State Of Commercial Real Estate: Goldman Expects Sharp Spike In Office Delinquency Rates.” 

Since the Federal Reserve initiated its interest rate hiking cycle, US office REITs have been battered.

And recall last month, Blackstone defaulted on a €531 million ($562 million) bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018. 

Authored by Brayden Lindrea via CoinTelegraph.com,

A new daily all-time high has been recorded for the number of Ordinals inscribed on the Bitcoin network due to a recently launched “token standard” for the blockchain.

Bitcoin Ordinals reached 58,179 inscriptions on April 2, smashing the previous all-time high of 31,692 on March 9 by 83.5%, according to Dune Analytics data.

The surge is believed to be driven by the recent creation of “Bitcoin Request for Comment” (BRC-20) tokens on the Ordinals protocol by a pseudonymous on-chain analyst named Domo in early March.

Daily count of Ordinals inscriptions shown in green. Source: Dune Analytics

While Ordinals are nonfungible token (NFT)-like “digital artifacts” which carry data in the form of text, JPEG images, PDFs, video and audio formats on the Bitcoin network, the BRC-20 token standard utilizes Ordinal inscriptions to deploy token contracts, mint tokens, and transfer tokens — similar to Ethereum’s ERC-20 token standard.

Yes. The spike has been primarily caused by the uptick in interest around BRC-20.

— Leonidas.og (@LeonidasNFT) April 2, 2023

The arrival of Ordinals and BRC-20 tokens on Bitcoin were enabled by the Taproot soft fork, which took effect on Nov. 14, 2021.

Over 55,000 of the inscriptions on April 2 came in the form of text-based Ordinals, many of which were represented by BRC-20 tokens, according to “Leonidis.og,” the host of an Ordinals-focused podcast.

BRC-20 tokens — which are categorized as text-based Ordinals — are the most commonly inscribed Ordinal on Bitcoin. Source: Dune Analytics.

Leonidis explained in a tweet that the spike on April 2 came on the back of new tools used to interact with BRC-20 tokens launched in the last few days.

“There was a lot of excitement around BRC-20 when it launched a month ago but eventually the hyped died down. During the lull, devs built tools to make interacting with BRC-20 much easier and now we’re seeing ATH interest. I’ve said it before and I will say it again. UX matters!”

Among those new tools include Ord.io, UniSat Wallet and BRC-20.io. According to BRC-20.io, 1,600 tokens have been created since the BRC-20 standard was created.

Among the most popular BRC-20 tokens include “pepe,” “ordi,” and “punk,” currently boasting respective market caps of $2.5 million, $2.1 million and $900,000.

Over 42,700 BRC–20 tokens have been minted in the last 24 hours, mostly coming from the tokens wzrd, domo, BAYC, meme and pups.

Bitcoin tokens, through the BRC-20 standard, can now be bought and sold on marketplaces, similar to Ethereum ERC-20 tokens. Source: BRC-20.io

While the market cap of BRC-20 tokens currently sits at less than $10 million, digital asset investment firm Galaxy Digital believes the “Bitcoin NFT” market may reach $4.5 billion by 2025.

Members of the Bitcoin community are still split on whether Ordinals is a good fit for the Bitcoin ecosystem. Proponents such as Dan Held suggest it offers more financial use cases on Bitcoin, while others say it’s straying away from Satoshi Nakamoto’s vision of Bitcoin as a peer-to-peer cash system.

“This was a surprise,” said St. Louis Fed President James Bullard when asked about the impact of OPEC+’s sudden and unexpected decision to cut crude production dramatically (prompting a spike in oil prices).

A nasty surprise too, as we detailed previously, because while the US central bank is already trapped, and is desperately looking for any excuse to halt its tightening campaign now that inflation is accelerating to the downside not just because regional banks desperately need a lower Fed Funds rate to short-circuit the relentless deposit drain which won’t stop (and will lead to even more bank failures and resolutions) until their deposit rates can at least match those of the Fed, but also because various liberal rags have already thrown Powell, pardon, the “Trump-era holdover” under the bus for the coming recession…

The bus now is headed straight for Jay pic.twitter.com/cfa4GYHKFL

— zerohedge (@zerohedge) March 26, 2023

… OPEC’s shocking shot across the Fed and Biden bow revealed in its intention to keep oil prices high even as central banks push the world into a recession, just made life for the central planners very difficult, as the sordid stench of stagflation is suddenly all over the place.

pic.twitter.com/Uoi7RHJkGT

— zerohedge (@zerohedge) April 2, 2023

But while much will be said about the monetary consequences of OPEC’s action, Bullard is aware of the potential for the trap above:

“Oil prices fluctuate around. It’s hard to track exactly. Some of that might feed into inflation and make our job a little bit more difficult,” he said.

Bullard did hedge a little, noting that “whether it will have a lasting impact I think is an open question.”

As a reminder, Bullard said last month that his own forecast was for rates to peak at 5.625% this year. Officials next meet May 2-3.

While acknowledging the potential importance of the shift, Bullard noted that an increase in oil prices this year was consistent with his economic outlook for more demand for energy.

“I would’ve expected somewhat higher oil prices anyway with China coming back sooner than expected during the first half of 2023 and with Europe skirting recession,” he said.

“And strong data in the US, all of those are are pretty bullish factors for the oil market.”

While we know that Bullard is a non-voting member of the committee this year, it is clear he represents the more hawkish members’ thinking.

The outspoken hawk played down fears of the banking crisis escalating (and thus the odds of a more dovish Fed):

“The problem with Wall Street is they’ve got too much probability on that branch,” Bullard said about the turmoil translating into a worsening economy.

Markets should “listen to me” Bullard chides..

But with oil prices spiking alongside China’s PMI miss overnight combined with US Manufacturing’s weakness this morning, stagflationary fears are really started to build… Central bankers’ greatest nemesis.

Elon Musk has stripped the New York Times‘ main Twitter account of its gold-check-mark “verified” badge, after the paper said that it wouldn’t start paying for the privilege under the social media platform’s new approach. 

According to Bloomberg, “Twitter responded to a request for comment with a poop emoji, its now-automated response to press queries.”

Previously, Musk had announced that, on April 1, Twitter would start pulling previously free check marks from “legacy” accounts that hadn’t started paying for them under the company’s new approach, where check marks will only be provided to paying “Twitter Blue” subscribers.    

Under the new regime, organizations like the Times would have to pay $1,000 a month for a gold check mark. Individual reporters and others can get the blue check mark and a variety of other Twitter Blue perks starting at $8 a month. Over time, those perks are to include prioritized placements in tweet replies, a higher character limit on tweets, and the ability to vote in tweeted polls. 

As Saturday, April 1 approached, a variety of major media outlets — including the Times, CNN, Los Angeles Times, Washington Post and Politico — said they wouldn’t pay for the checkmarks. 

When Saturday arrived, there was no indication of any check marks being withdrawn. However, on Saturday evening, after the Twitter account @DogeDesigner reminded Musk about the Times stance against paying, Musk replied, “Oh ok, we’ll take it off then.”

Oh ok, we’ll take it off then

— Elon Musk (@elonmusk) April 2, 2023

Hours later, in a since-deleted Tweet, Musk said, “We’ll give [legacy verified accounts] a few weeks grace, unless they tell they won’t pay now, in which we will remove it.”

Sometime over the same night, the check mark on the main Times account vanished. Marks associated with accounts for other Times sections, such as arts and opinion, remained. Reiterating its stance, a Times spokesperson told Reuters, “We also will not reimburse reporters for Twitter Blue for personal accounts, except in rare instances where this status would be essential for reporting purposes.”

On Sunday, Musk called the Times position hypocritical: 

NY Times is being incredible hypocritical here, as they are super aggressive about forcing everyone to pay *their* subscription

— Elon Musk (@elonmusk) April 2, 2023

He also shared some other candid characterizations:

Also, their feed is the Twitter equivalent of diarrhea. It’s unreadable.

They would have far more real followers if they only posted their top articles.

Same applies to all publications.

— Elon Musk (@elonmusk) April 2, 2023

The Times has 55 million Twitter followers, a number that can serve as an organic, de facto verification that the tweets are indeed coming from the outlet that trafficked Dick Cheney’s lies and paved the way for the disastrous and immoral U.S. invasion of Iraq.  

Based on interviews of two former Twitter employees, the Washington Post reported that the platform is ill-equipped for en masse retractions of the legacy verification marks, which were awarded on the basis of case-by-case evaluations of an individual’s or organization’s worthiness as being “notable.” The employees suggested that trying to do it simultaneously for the no-longer-eligible could cause problems on the platform. 

Credit to Tim Sweeney for realizing this before me https://t.co/92LUkaOEFz

— Elon Musk (@elonmusk) April 2, 2023

Authored by Steve Watson via Summit News,

House Judiciary Chairman Jim Jordan threatened Sunday to defund any government agencies that engage in election interference, charging that both the FBI and the DOJ have done exactly that in their constant attempts to go after President Trump.

Appearing on Fox News, Jordan stated “The key is to get the facts on the table. We’re doing that with all kinds of issues where we think agencies have been turned against the very American people they’re supposed to serve.”

“So you get the facts on the table, and then you look at legislation,” Jordan continued, adding “Our job is we’re legislators. Our job is to pass legislation, write laws and pass legislation. So we’ll look at that.”

“We control the power of the purse, and that’s — we’re going to have to look at the appropriations process and limit funds going to some of these agencies, particularly the ones engaged in the most egregious behavior,” Jordan asserted.

“So the DOJ and the FBI?” host Maria Bartiromo interjected.

“Yeah. And what I’d really like, frankly, I’d really like for the government just to stay out of the election process,” Jordan responded, going on to document how those agencies have targeted Trump.

“2016, they spied on his campaign. 2018, the Mueller investigation. 2020 they suppressed the hunter Biden story. 2022, they raid his home 91 days before an election, and now 2024 election, the leading candidate for the presidential nomination, they indict the former president and top candidate who’s leading in every poll,” the Congressman pointed out.

“Just let ‘We, The People’ decide who we want to elect and stay out of the election process, for goodness sake,” Jordan urged.

Jordan emphasised that this is bigger than Trump, noting “This involves all of us. I don’t think it’s an accident that the same week we learned that the IRS knocked on Matt Taibbi’s door while he’s testifying in Congress. That same week is when we learned a district attorney, a left-wing district attorney, a Soros-backed district attorney is going to go after the former President of the United States.”

Jordan continued, “I mean, that is a scary thing, that they paid a foreigner. Think about this. They paid a foreigner to put together a fake dossier to spy on President Trump’s campaign. The FTC sends letters to Twitter demanding who are the journalists you’re talking to.  And then, of course, when Matt Taibbi is testifying, the IRS is knocking on his door and now an indictment of a former president, the guy who happens to be leading in every single poll.”

“This is about all of us. This is about going after anyone who opposes the left’s agenda, the establishment’s agenda. And that’s maybe the most scary thing of all.”

Watch:

Also appearing on Fox News later, Trump’s lawyer James Trusty stated that the former President is “worried that he is literally the first person subjected to this new model of upside-down justice, of political persecution.”

“And you know if you let the genie out of the bottle with this new mode of prosecution, it’s not going to go back by itself,” Trusty continued, adding “It’s going to be a problem for generations, and I think he’s very aware of that very concerned and certainly has a strong voice opposing it.”

“At the end of the day, he’s frustrated for the country,” Trusty said of Trump, adding “I think that’s starting to kind of creep out and resonate.”

Watch:

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US ‘hard’ macro data has continued to surprise to the upside in the last month (despite ‘soft’ regional Fed survey data fading), and consensus expected both ISM and PMI Manufacturing surveys for March to show another month of contraction.

• S&P Global US Manufacturing PMI Final March 49.2, down from flash print at 49.3, but up from the 47.3 in Feb – that is the 5th straight month of contraction (sub-50)

• ISM Manufacturing March dropped to 46.3, from 47.7, and below 47.5 expectations – that is the 5th straight monthly contraction to the lowest since May 2020

Source: Bloomberg

Twelve industries reported contraction in March, led by furniture, nonmetallic mineral products and textiles. Six sectors expanded.

“New order rates remain sluggish as panelists become more concerned about when manufacturing growth will resume,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in a statement.

“Price instability remains, but future demand is uncertain as companies continue to work down overdue deliveries and backlogs.”

Under the hood, ISM is ugly with all the factors weighing negatively on the headline for the second month in a row…

Source: Bloomberg

ISM employment weakest since July 2020…

Source: Bloomberg

New Orders/Inventories has stopped improving as the signal remains deeply in recession-signaling territory…

Source: Bloomberg

Siân Jones, Senior Economist at S&P Global Market Intelligence, said:

“The US manufacturing sector continued to signal concerning trends during March. Although output rose for the first time since last October, growth was fractional, and largely supported by ramping up production following an unprecedented reduction in supply chain pressures. “

“The timely delivery of inputs allowed firms to work through backlogs, but sparse demand amid pressure on customer spending due to higher interest rates and inflation spoke to challenges ahead for goods producers if there is little change in domestic and international client appetite. “

“Weak demand for inputs resulted in some relief for manufacturers as input cost inflation slowed again. A paucity of new orders sparked efforts to entice customers, however, as selling price inflation eased notably to the weakest since October 2020. Nonetheless, inflationary concerns weighed on business confidence once again amid pressure on margins.

“Encouragingly, firms were able to expand factory workforce capacity again, albeit at only a marginal pace, as skilled candidates for long-held vacancies were found.”

Finally, here’s how S&P Global describes the way forward:

Goods producers remained strongly upbeat in their outlook for output over the coming year in March. Hopes of greater client demand drove optimism. Confidence slipped to the lowest level in three months amid inflation concerns, however.

Confused?