Month: November 2023

Color us less than surprised; but a New York appeals court reinstated Thursday the gag order imposed on former President Donald Trump by the judge overseeing his civil fraud trial.

The gag order was initially imposed by Judge Engeron on Oct. 3 (after President Trump accused the judge’s top clerk of political bias in a post on social media).

An appeals court judge temporarily paused the gag order on Nov. 16 while the former president appealed the order.

But now, in an order issued on Nov. 30, a four-judge panel of the Supreme Court of the State of New York, Appellate Division, overturned the temporary suspension of the gag order:

“Now, upon reading and filing the papers with respect to the motion, and due deliberation having been had thereon…

…it is ordered that the motion is denied; the interim relief granted by order of a Justice of this Court, dated November 16, 2023, is hereby vacated,” the appeals court’s order states. 

Trump’s legal team filed a mistrial motion earlier this month purporting that Engoron and his clerk have “tainted” the trial with their bias against Trump.

Engoron denied the motion, calling it “utterly without merit.”

President Trump has not publicly commented on the latest development.

Trump also faces a gag order in his federal 2020 election subversion case. That order is currently on pause as a panel of federal judges weighs its merit.

Via SchiffGold.com,

Unrealized losses on securities held by US banks exploded by 22% in the third quarter.

Of course, unrealized losses don’t really matter — until they do.

This is yet more evidence that the financial crisis that kicked off last March continues to bubble under the surface.

Unrealized losses, primarily on US Treasuries and mortgage-backed securities rose by $126 billion in Q3 and now total $684 billion, according to the FDIC’s quarterly bank data release.

Current unrealized losses are only slightly below the record set in the third quarter of 2022. This reflects the fact that the FDIC took over three failed banks earlier his year and ate their unrealized losses when it sold the banks’ assets, thus wiping them from the books.

Unrealized looses on securities are divided between two accounting methods.

• Unrealized losses on held-to-maturity (HTM) securities jumped by $81 billion to $391 billion.

• Unrealized losses on available-for-sale (AFS) securities jumped by $45 billion to $293 billion.

It’s important to understand these are only paper losses. Ostensibly, the banks will hold these bonds until maturity and then will be paid their face value. If it plays out this way, there won’t be any real losses.

The problem is that these unrealized losses drastically decrease a bank’s liquidity. If it has to sell bonds in order to raise capital, the bank will experience significant losses. This is exactly what took down Silicon Valley Bank last March.

Here’s what happened.

SVB sold a large portion of its bond portfolio at a $1.8 billion loss. At the time, SVB CEO Greg Becke said the bank made the sale “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients.”

The bank bought the bonds when interest rates were low. As a result, the $21 billion available for sale (AVS) bond portfolio was not yielding above cash burn. Meanwhile, rising interest rates caused the value of the portfolio to fall significantly. The plan was to sell the longer-term, lower-interest-rate bonds and reinvest the money into shorter-duration bonds with a higher yield. Instead, the sale dented the bank’s balance sheet and caused worried depositors to pull funds out of the bank.

WolfStreet explained more generally how these “irrelevant” unrealized losses can suddenly become relevant.

Banks, via a quirk in bank regulations, don’t have to mark these securities to market value, but can carry them at purchase price. The difference between market value and purchase price is the ‘unrealized gain or loss’ that the bank must disclose in its quarterly financial filings, so that we the depositors can see them and get spooked by them and yank our money out, us billionaires and centimillionaires first, on the two fundamental principles of investing: 1, he who panics first, panics best; and 2, after us the deluge.”

The Federal Reserve set up a bailout program to allow banks to deal with this problem. Instead of selling bonds at a loss, cash-strapped banks can go to the Fed’s Bank Term Funding Program (BTFP) and borrow against them “at par” (face value). This allows banks to use these undervalued assets to raise cash (at least temporarily) without realizing big losses on their balance sheets.

As unrealized losses rise, banks continue to tap into this bailout program more than nine months after the crisis kicked off.

Total outstanding loans in the BTFP program jumped by just over $5 billion in November alone.

In effect, the Fed managed to paper over the financial crisis with this bailout program.

It basically slapped a bandaid on it. But it has not addressed the underlying issue – the impact of rising interest rates on an economy and financial system addicted to easy money.

MicroStrategy, a company that normally does business intelligence and software but in recent years has become a bitcoin repository and ETF proxy, continued its relentless commitment to Bitcoin by purchasing an additional 16,130 BTC at a total cost of $593.3 million, the company’s founder Michael Saylor announced today. The purchase came as Bitcoin’s price has been experiencing upward momentum, reaching a recent yearly high of over $38,300.

MicroStrategy has acquired an additional 16,130 BTC for ~$593.3 million at an average price of $36,785 per #bitcoin. As of 11/29/23, @MicroStrategy now hodls 174,530 $BTC acquired for ~$5.28 billion at an average price of $30,252 per bitcoin. $MSTR https://t.co/hSEZyzGBsr

— Michael Saylor⚡️ (@saylor) November 30, 2023

The company started accumulating Bitcoin in August 2020, making an initial investment of $250 million into BTC during the depths of the covid crisis. Since then, it has consistently added to its Bitcoin holdings, creating a treasury reserve strategy that has accumulated over 174,530 bitcoin worth more than $6.59 billion as of Nov 29.

“On November 30, 2023, MicroStrategy announced that, during the period between November 1, 2023 and November 29, 2023, MicroStrategy, together with its subsidiaries, acquired approximately 16,130 bitcoins for approximately $593.3 million in cash, at an average price of approximately $36,785 per bitcoin, inclusive of fees and expenses,” MicroStrategy stated.

“As of November 29, 2023, MicroStrategy, together with its subsidiaries, held an aggregate of approximately 174,530 bitcoins, which were acquired at an aggregate purchase price of approximately $5.280 billion and an average purchase price of approximately $30,252 per bitcoin, inclusive of fees and expenses.”

Separately, MicroStrategy filed for a $750 million At-the-market (ATM) offering of stock, the proceeds of which it will surely use to purchase even more bitcoin. MSTR registered class A shares for potential sale at $505.87 per share via Jefferies, Cowen, Canaccord Genuity, BTIG. MicroStrategy said that the proceeds of up to $750 million will be used for general corporate purposes, including the acquisition of bitcoin and working capital, and, subject to market conditions, for the repurchase or repayment of our indebtedness.

 

 

 

Weeks after settling labor negotiations with the UAW and hours after General Motors shares skyrocketed after the company hiked its dividend 33% and announced a $10 billion buyback, Ford is also reinstating its 2023 guidance.

In its revised guidance, Ford says it is aiming for adjusted EBIT in the range of $10 billion to $10.5 billion, along with adjusted free cash flow between $5 billion and $5.5 billion, according to CNBC. 

This guide is a shift from the company’s previous projections of adjusted EBIT between $11 billion and $12 billion and adjusted free cash flow of $6.5 billion to $7 billion.

Ford disclosed that its new labor agreement with the UAW is anticipated to have a financial impact of $8.8 billion throughout the contract’s duration, which concludes in April 2028. In comparison, General Motors, a rival in the industry, recently reported a $9.3 billion impact resulting from their own labor agreement. 

Before the conclusion of the approximately six-week-long UAW strikes, Ford had been on track to meet its financial projections, CFO John Lawler said during its late October earnings call. 

He had indicated that the UAW strike had already caused a $1.3 billion loss in earnings for the company, primarily due to the disruption in production, resulting in around 80,000 vehicles not being manufactured. Of this amount, approximately $100 million was attributed to the third quarter. Subsequently, the company has updated this figure to $1.7 billion. 

The CNBC report says that Ford also confirmed the UAW agreement is expected to increase costs by approximately $900 per assembled vehicle by 2028.

As a result, Ford “plans to cancel or postpone $12 billion in investments related to electric vehicles,” CNBC wrote. In other words, the Biden administration supports labor unions and wants to push for electric vehicles. But the UAW’s extortion contract negotiations with Ford have prompted the company to slash $12 billion in EV investments. 

“We’ve got a highly talented team that allocates capital with great discipline, so that we’re executing with consistency, generating strong growth and profitability, and are less cyclical,” Lawler said Thursday. 

Recall yesterday GM said it was launching a swift $10 billion share buyback, according to CNBC. “GM will immediately receive and retire $6.8 billion worth of its common stock,” the report said. 

In its 2023 projections, it has also reincorporated expectations, factoring in an anticipated impact of $1.1 billion in EBIT-adjusted earnings due to approximately six weeks of labor strikes by the United Auto Workers union in the U.S.

“The long-term plan we are executing includes reducing the capital intensity of the business, developing products even more efficiently, and further reducing our fixed and variable costs,” CEO Mary Barra said in a statement. 

By Charles Kennedy of Oilprice.com

The U.S. Department of Treasury has slapped sanctions on an additional 20 entities, including Iranian Sepehr Energy and individuals and companies globally, in connection to the facilitation of finances that support Iran’s military. 

Sepehr is targeted in the newest sanctions package for allegedly serving as a front company for Iranian government oil sales, which the Treasury department says is funding Iran’s “destabilizing regional activities” and supporting “multiple regional proxy groups”, including Hezbollah and Hamas. 

“The IRGC-QF and MODAFL continue to engage in illicit finance schemes to generate funds to fan conflict and spread terror throughout the region,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson.

“The United States remains committed to exposing elements of the Iranian military and its complicit partners abroad to disrupt this critical source of funds.”

While there is still no concrete evidence that Iran was directly or indirectly involved in the Hamas attack on Israel on October 7, the U.S. military has come under constant attack in Syria and Iran from Iran-backed proxy groups since then.

Even Israel has been very public about its theory that Iran was not involved in the Hamas attack. Earlier this month, the EU likewise said it was considering a new round of sanctions targeting Iran for its support of Hamas; however, this is a polarizing effort in the bloc. 

The new round of U.S. sanctions comes as Iran ramps up its crude oil output to 3.1 million barrels per day for October, putting it in the third-place ranking among OPEC producers.

According to the Energy Information Administration (EIA), Iran saw a 50,000-bpd month-on-month increase in production in October. Since the beginning of the year, Iran has increased oil output by more than 500,000 bpd. 

Investors have panic-bought Treasuries, agency, and mortgage debt, recording one of the best months since the 1980s. Stocks are also set to log the best month in a year, as the everything rally has been supported by easing financial conditions fueled by bets the Federal Reserve’s most aggressive interest rate hiking cycle in a generation is not just over but rate cuts are set for late spring next year. 

As the Fed pivot injects optimism into markets, sort of like a junkie shooting up heroin, there has been an increase in activity at the buyback desks of multiple banks. Additionally, corporate insiders are showing confidence in the future of their companies by purchasing shares. 

Bloomberg said the buyback desk at Goldman Sachs reported a “big tick up” in activity from its corporate customers repurchasing shares. At the buyback desk at Bank of America, the firm said it just had its busiest week of execution orders in history.

Recall last week, we cited a BofA client flows report that revealed two weeks of record buybacks:

“Corporate client buybacks accelerated the past two weeks and are tracking above seasonal levels for a second week in a row. YTD, corp. client buybacks as a percentage of S&P 500 mkt. cap (0.19%) are below ’22 highs (0.21%) at this time.”

And visually:

Insider data compiled by Washington Service shows corporate executives are also in the holiday buying mode of shares. These insiders have been purchasing shares of their own firms in November, with the ratio of buyers to sellers hitting six-month highs. 

“We could see insiders buying into the bull case of inflation down, rate hikes over, mission accomplished. Insiders want to take more ownership of that message, and they are willing to pony up real money to do so,” said Mike Bailey, director of research at FBB Capital Partners. 

Bailey continued, “That is a double-barreled sign of optimism, with companies and individual executives buying back their stock.”

Insider data shows 900 corporate execs purchased their own stock in November, more than double the number in October. However, the number of sellers did rise – but the increase was slight. As a result, the buy-sell ratio for insiders was .54, the highest level since May. 

For some context, the current buy-sell ratio pales in comparison with the 2-to-1 reading in March 2020 when stocks crashed in the early days of Covid, and insiders were gobbling up their own shares. Still, increasing buybacks and insider buying activity come as the S&P500 is only 5% off from record highs. 

Nomura’s cross-asset strategist Charlie McElligott pointed out earlier this week that the “everything ripper” rally seen through most of November is a product of financial conditions loosening due to a messaging shift from monetary authorities. 

Goldman’s Vickie Chang, GIR Macro Markets Strategy, describes this period as a financial conditions ‘loop’: 

“I think we are back in FCI loop where you have these periods of tightening and then easing and then back again that’s a result of the inherent difficulty of targeting financial conditions to set monetary policy…

…the market will tend to challenge the edges of some “acceptable” FCI range until something reins them in the other direction.

… it’s starting to look unsustainable this week particularly on the rate relief side.

The market moved fast after the FOMC to take the Fed out of the equation and even before the rally we saw this week it already felt like further yield declines would start to get into “taking it too far” territory with the market clearly pricing more cuts than our “scenario-weighted paths.

At some point those two pillars of this FCI easing will contradict each other and the market is going to have to worry more about the Fed and higher yields and I think that is the risk to hedge going forward.

Meanwhile, last week, Goldman’s Prime Brokerage data revealed that hedge funds were trapped in a massive short squeeze. 

Also, to those who follow fund flows, the outperformance of stocks will hardly come as a surprise. Recall, earlier this month, we revealed that hot on the heels of the biggest 10-day CTA (i.e., trend-following fund) buying frenzy on record…

The soft-landing and Fed-cutting narratives certainly have everyone in a Jim Cramer ‘buy buy buy’ panic. But if financial conditions ease too much, markets will have to worry about high rates and growth again. 

Authored by Mike Shedlock via MishTalk.com,

Don’t we have enough government meddling and useless bureaucracy already? I guess not. The list of agencies involved in Biden’s new announcement is stunning.

Supply chain data from New York Fed download, chart by Mish

Understanding the GSCPI

Have you heard of the GSCPI? Unless you are a real economic data geek you probably haven’t. I haven’t until Biden mentioned it today.

Here is the GSCPI Index Explanation from the New York Fed.

Our index integrates transportation cost data and manufacturing indicators to provide a gauge of global supply chain conditions.

Our goal in constructing the Global Supply Chain Pressure Index (GSCPI) was to develop a parsimonious measure of global supply chain pressures that could be used to gauge the importance of supply constraints with respect to economic outcomes.

Hoot of the Day

Please consider a new White House Fact Sheet emphasis mine.

President Biden Announces New Actions to Strengthen America’s Supply Chains, Lower Costs for Families, and Secure Key Sectors.

As part of his Bidenomics agenda to lower costs for American families, President Biden is announcing nearly 30 new actions to strengthen supply chains critical to America’s economic and national security. These actions will help Americans get the products they need when they need them, enable reliable deliveries for businesses, strengthen our agriculture and food systems, and support good-paying, union jobs here at home.

Today, President Biden will convene the inaugural meeting of the White House Council on Supply Chain Resilience, which will advance his long-term, government-wide strategy to build enduring supply chain resilience.

Who’s Involved?

I glad you asked because the list is small.

Co-Chairs to the White House Council on Supply Chain Resilience

• The National Security Advisor

• The National Economic Advisor

• The Secretaries of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Labor, State, Transportation, the Treasury, and Veterans Affairs

• The Attorney General

• The Administrators of the Environmental Protection Agency and the Small Business Administration

• The Directors of National Intelligence, the Office of Management and Budget, and the Office of Science and Technology Policy

• The Chair of the Council of Economic Advisers

• The U.S. Trade Representative

• Other senior officials from the Executive Office of the President and other agencies.

Perfect Timing!

What better time could there possibly be to create this task force adding over 20 individual agencies as co-chairs to an obviously critical mission than when supply chain pressures are at a record low of -1.74?

Clearly, Biden’s timing could not possibly be better.

What Else is Involved?

• Monitoring of climate impacts. The White House National Security Council, Office of Science and Technology Policy, and the Council of Economic Advisers will co-lead an interagency effort in partnership with the National Oceanic and Atmospheric Administration to monitor global developments related to El Niño, including this climate phenomenon’s impact on U.S. and global commodity prices, agriculture and fishery output, disruptions to global and trade supply chains, and resulting impacts on food security, human health, and social instabilities.

• New Resilience Center and tabletop exercises for supply chain disruptions.

• Launch of DOT Multimodal Freight Office. As part of the Bipartisan Infrastructure Law (“BIL”) implementation, DOT is launching its Office of Multimodal Freight Infrastructure and Policy (“Multimodal Freight Office”). This office is responsible for maintaining and improving the condition and performance of the nation’s multimodal freight network including through the development of the National Multimodal Freight Network, review of State Freight Plans, and the continued advancement of the FLOW initiative in partnership with the Bureau of Transportation Statistics.

• AI hackathons to strengthen critical mineral supply chains. USGS, the Defense Advanced Research Projects Agency (DARPA), and the Advanced Research Projects Agency-Energy (ARPA-E), building on their 2022 prize challenges announcement, will host a series of hackathons beginning in February 2024 to develop novel artificial intelligence approaches to assess domestic critical mineral resources.

• Risk mapping for labor rights abuses. The Department of Labor (DOL) updated its Comply Chain guidance for identifying and addressing labor rights violations in global supply chains.

• A $275 million in grant selections for its Advanced Energy Manufacturing and Recycling Grant Program, investments that will revitalize communities affected by coal mine or coal power plant closures through investment in clean energy supply chains.

• Use of the Defense Production Act to make more essential medicines in America and mitigate drug shortages.

• Global Labor Directive. On November 16, President Biden signed the Presidential Memorandum on Advancing Worker Empowerment, Rights, and High Labor Standards Globally. The President directed several departments to address labor rights abuses in global supply chains and identify innovative approaches to promote internationally recognized labor rights throughout the supply chain, including by collaborating with labor organizations, workers, and other labor stakeholders to consider efforts that support worker-led monitoring of labor rights compliance.

What the H is This Really About?

The answer is twofold. First, Biden will do anything and everything to force people into compliance with his idiotic energy and climate change policies.

Second, it’s a desperate and no doubt counterproductive attempt to shore up his polls.

Why Are Americans in Such a Rotten Mood?

On November 17, I discussed the rotten mood of consumers. Polls show people do not think the economy is humming.

For discussion, please see Why Are Americans in Such a Rotten Mood? Biden Blames the Media

Biden blames the media when people are struggling with Rent and Food. Rent of primary residence has gone up at least 0.4 percent for 27 consecutive months!

And  The Average Increase in the Price of Food Every Month for 32 Months is 0.6 Percent

This new program will add more inflationary bureaucracy to a system overflowing with inflation and ridiculous bureaucracy.

Mercy!