Month: November 2023

Initial leaks from the OPEC+ meeting suggested that the voluntary nature of additional output cuts is likely contributing to the negative market sentiment.

The producers are going to have to come up with some hard numbers to convince the market that the cuts are real, but as the communique below shows, there appears to be none.

The full OPEC+ communique has just been released:

The 36th OPEC and non-OPEC Ministerial Meeting (ONOMM), was held via videoconference, on Thursday November 30, 2023.

The Meeting welcomed HE Alexandre Silveira de Oliveira, Minister of Mines and Energy of the Federative Republic of Brazil, which will join the OPEC+ Charter of Cooperation starting January 2024.

The meeting reaffirmed the continued commitment of the Participating Countries in the Declaration of Cooperation (DoC) to ensure a stable and balanced oil market.

In view of current oil market fundamentals, the Meeting:

1. Reaffirmed the Framework of the Declaration of Cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings including the 35th OPEC and Non-OPEC Ministerial Meeting on 4 June 2023; as well as the Charter of Cooperation, signed on 2 July 2019.

2.  Noted that, in accordance with the decision of the 35th OPEC and non-OPEC Ministerial Meeting, the completion of the assessment by the three independent sources (IHS, Wood Mackenzie and Rystad Energy) for production level that can be achieved in 2024 by Angola, Congo and Nigeria as follows: Angola at 1,110 t/bd, Congo at 277 t/bd and Nigeria at 1,500 t/bd.

3. The 37th OPEC and non-OPEC Ministerial Meeting will be held on 1 June 2024 in Vienna.

The reaction is clear – oil prices are falling rapidly as the market had been led to expect 1 million barrels a day of extra cuts, but there’s no mention of them at all in the communique…

Here’s what Wall Street thinks about OPEC+’s actions (or lack of them)…

Alex Longley, Bloomberg

So why are we lower? Drowning in detail is how one trader put it to me. The additional cuts will be announced by OPEC+ members themselves. Others argue this is a repackaging of previously agreed measures, with some uncertain extras. Throw in a decent rally over the last few days (and not to mention month end and expiry day for Brent contracts!), and that’s why we are where we are. Our latest oil futures take is here:

Julian Lee, Bloomberg:

What appears to be the voluntary nature of additional output cuts is likely contributing to the negative market sentiment. There’s a real worry that this might be little more than the repackaging of cuts that were already extended to the end of 2024 back in June. The producers are going to have to come up with some hard numbers to convince the market that the cuts are real. I agree with Arne Lohmann, the communication has been poor. Perhaps that’s a reflection of the difficulty of getting everyone to agree, but that in itself raises concerns about how much of any extra cut will be real.

It’s looking increasingly like the additional 1 million barrels a day of cuts won’t be formalized in new official output targets. Instead members will individually announce their contributions, just as they did in April for the voluntary reductions that came into effect in May. Those also amounted to a shade over 1 million barrels a day.

Giovanni Staunovo, UBS

“It seems the OPEC+ production cuts are “voluntary” cuts, not part of an OPEC+ agreement. Hence the concern is that a large fraction of it could be a pledge on paper and effectively less barrels being removed from the market.”

Arne Lohmann Rasmussen, A/S Global Risk Management

“They did the right thing and reacted to the looming 2024 surplus. But the performance/execution has been really poor. Quotas being announced individually was not good communication. However, the risk probability of oil going significantly lower should now be small.”

Dominic Ellis, UBS

Potential Reasons Why Oil Is Fading Post Announcement Of OPEC+ Cut. Trying to understand the fade in oil since the news earlier of the ~2mb/d OPEC+ cut for Q1. Potential causes for concern: 1.3mb/d of the total is an extension of the existing Saudi and Russian cuts which, are either already in most assumptions for 1Q24 (in the case of the Saudi 1mb/d) or can’t fully be trusted (in the case of the Russian 300kb/d). Then there’s the incremental 200kb/d cut from Russia, which would be new versus current expectations, but is probably heavily discounted by markets given historic weak Russian compliance. Finally, on the remaining 500kb/d, it isn’t clear how much of this will actually result in barrels coming out of the market, rather than “paper” cuts against higher quotas, or cuts versus quotas that are already not being hit. I still find the drop in oil puzzling, particularly given news that Brazil will be joining the OPEC+ group from January 2024, but this is a good example of OPEC’s opacity being counterproductive.

There will be no press conference after today’s virtual meeting.

By Benjamin Picton, senior strategist at Rabobank

Gift Wrapped

Today is the big day. I’m not talking about the release of the US PCE deflator or the OPEC+ meeting (though both are on the calendar and will be a big deal), but the annual event that is the Spotify Wrapped summary and associated ubiquitous social media posts. Consequently, we can look forward to learning that we spent the whole year listening to the same 3 artists as last year, which might just be the definitive symptom of the cruel descent into middle age.

While millennials are poised to again discover that TayTay was number 1, central bankers are equally surprised to learn that the imminent trajectory for policy rates is down (as it largely has been since Volcker). We had more Fed speak overnight from Raphael Bostic (a dove), who said that he is increasingly confident that inflation’s downward trajectory will continue. Conversely, Thomas Barkin adopted Bowman’s wrongthink of the day before by saying that the Fed needs to keep the option of further hikes on the table, and noted hawk Loretta Mester hedged her bets by suggesting the Fed has the luxury of waiting for more data.

Predictably, markets chose to accentuate the positive. The jubilation over Chris Waller’s dovishness on Tuesday carried into yesterday’s price action for bonds. The US 10-year yield fell another 6.5bps to 4.25% and 2-year yields fell almost 9bps to 4.65%. This was despite a substantial upgrade to Q3 GDP that saw real annualized growth revised up to 5.2% from the originally reported 5%. The core PCE index that accompanied the national accounts ticked a little lower to 2.3%, which perhaps helps to explain the move in yields.

Another likely influence was the deflationary CPI prints out of Spain and Germany yesterday. Spanish CPI fell to -0.4% m-o-m from 0.1% in October, while the German figure also fell to -0.4% from -0.1%, prompting bull-steepening in the Bund curve. That takes year-on-year headline CPI to 3.2% for both countries and follows on from the lower than expected October inflation figures out of Australia yesterday that confirmed deflation for some goods categories. Markets don’t need too much prodding to adopt a rates down narrative at the moment, so these European numbers look like they were just the ticket and there will probably be more to come today when France and Italy report their own CPI numbers for November.

So, inflation is lower and growth is higher. That sounds like the promised soft landing is imminent! Rate cuts soon then? The OECD says no, at least for Europe. In its Economic Outlook released yesterday the organisation said that European rates would remain elevated all the way through 2024 with the first cuts to come in 2025. On the bright side, they DID support our own forecast of a 4.35% peak in the Aussie cash rate and suggested that market pricing on a Fed rate cut by the middle of next year is on the money.

That’s our view too. We have a cut to Fed funds penciled in for June, with another two cuts expected to arrive in the final quarter of the year owing to the three consecutive quarters of negative GDP growth we are forecasting in the USA from Q4 ’23 onwards.

The Austrians among us should be encouraged by that forecast, tracking as it does the developments in the Fed balance sheet and broader measures of money supply. Suspiciously, the peak in inflation came shortly after the peak in the balance sheet, and the disinflationary trend has also followed balance sheet reduction.

Weirdly (for Keynesians), very low rates of unemployment seem to have been no impediment to disinflation occurring in the USA and elsewhere. It’s almost as if enlisting more people to produce goods and services (rather than paying them to sit at home and not produce) is actually helpful for fighting inflation rather than a hindrance. That’s particularly the case if the wages paid to those workers are an accurate reflection of the marginal product of labor (and therefore not inflationary).

We’re in the weeds here though, so it might be best to get back to the job at hand of analysing Spotify habits. Mine are humdrum, and heavily weighted to audiobooks and comedy shows like the ECB podcast. A highlight for me has been the excellent audiobook of Edward Chancellor’s ‘The Price of Time’ which revealed to me that the Emperor Augustus caused a general inflation and pump-primed the market for villas by repatriating the treasure of Egypt into Rome (we might call that an exogenous increase in the money supply).

Tiberius then raised interest rates and got prices under control by hoarding the treasure for his own purposes, before proceeding to cause a general inflation and accidentally inventing quantitative easing by lending the treasure out at zero to Roman patricians. This is the Cantillon Effect in action, and apparently it proved to be politically destabilising after the plebeians realised that the rich were getting richer and food was becoming a luxury. Sound familiar? Truly, there is nothing new under the sun.

Around the same time that this was all going on a Jewish carpenter in Jerusalem struck an early blow against financialization by flipping the tables of the money changers in the temple forecourt. Fast-forwarding to the modern day, discontented citizens in a number of countries are losing patience with monetary frameworks that enrich those closest to the spigot while debasing the coinage of the realm and repeatedly failing in their one main job of preventing economic calamity. Indeed, some would argue that they are more adept at seeding financial calamity. Perhaps that’s why Javier Milei has adopted Andrew Jackson’s views on central banking by seeking to abolish it?

Internal documents from Google, which owns YouTube, reveal that the Biden White House pressured the company to censor Americans spreading alleged “misinformation” related to COVID-19 and vaccinations, according to House Judiciary Chairman Rep. Jim Jordan (R-OH) – who’s holding a live hearing on social media censorship today.

The revelation comes nearly one year after Elon Musk released the “Twitter Files” via several journalists, which showed that the DOJ and White House had effectively captured Twitter, which frequently censored upon request.

Then, the Facebook Files emerged, showing similar top-down, big-brother censorship which led Facebook to change internal policies due to pressure from the Biden administration.

“Facebook removed content related to Covid-19 in response to pressure from the Biden administration, including posts claiming the virus was man-made, according to internal company communications viewed by The Wall Street Journal.” https://t.co/vOgRkBNFmW

— Rep. Jim Jordan (@Jim_Jordan) November 30, 2023

And now, YouTube…

The documents, acquired through a source close to the House Judiciary Committee, reveal that the Biden White House sought to quash vaccine skeptics.

The campaign was led by former White House Director of Digital Strategy Rob Flaherty, who has since left the administration to help run Biden’s 2024 re-election campaign as a Deputy Campaign Manager.

Flaherty emailed Google team members in April 2021 to “connect […] about the work you’re doing to combat vaccine hesitancy, but also crack down on vaccine misinformation,” according to the documents.

Flaherty continued, asking for trends surrounding vaccine misinformation on the website, while offering government assistance in the form of COVID experts at the White House to partner in product work with YouTube. –Fox News

On April 12, 2021, Rob Flaherty—Biden’s Director of Digital Strategy—emailed Google wanting to know how Google could better “crack down on vaccine misinformation” and to discuss “ways the White House (and our COVID experts) can partner in your product work.” pic.twitter.com/rpQyE6mQOU

— Rep. Jim Jordan (@Jim_Jordan) November 30, 2023

One week later, an internal email from Google noted that Flaherty “particularly dug in on our decision making for borderline content,” referring to content which doesn’t violate their Community Guidelines, but instead brushes up against it. One week later, Google acknowledged that they sent the White House a list of videos removed for COVID vaccine misinformation.

“Really [Flaherty’s] interested in what we’re seeing that is NOT coming down,” read an internal email between employees.

“…there is a very high degree of interest now coming from the White House now regarding vaccine misinfo/vaccine hesitancy and our work around borderline content,” reads an April 2021 internal email from YouTube.

“Unfortunately, the role of tech in addressing vaccine hesitancy is about to come under a massive spotlight particularly as the supply of the vaccine is soon to outpace demand,” the email continues. “Over the last several weeks, the Google & YT GAAP team have had conversations with the White House staff on YouTube’s policies and all the great work that is being done to raise authoritative information and fight harmful misinformation related to COVID-19 misinformation.“

A week later, on April 21, 2021, one of the Google Gov’t Affairs team members, who had been on recent calls with the Biden White House, specifically Rob Flaherty, explained plainly what Flaherty wanted:

“Really he’s interested in what we’re seeing that is NOT coming down.” pic.twitter.com/FGcWGX0rLH

— Rep. Jim Jordan (@Jim_Jordan) November 30, 2023

The next day, YouTube’s Government Affairs team shot an internal email to the company’s Product team to flag the interactions with the White House.

“We were hoping to get something on the books in the next two weeks or so to prevent anything from potentially spiraling out of control,” reads an email.

The Government Affairs team then asked if the YouTube product team would meet directly with Biden White House staff to show how much censorship they’ve conducted on their behalf, because “[White House] staff continue[d] to have questions on the raise/reduce efforts” to reduce ‘misinformation.’

The email also said that the meeting would be beneficial for their ongoing working relationship with the White House.

“…we believe having the opportunity for you both to share more background would be hugely beneficial as we seek to work closely with this administration on multiple policy fronts.”

The company needed this meeting ASAP because:

1) there was “significant attention coming from the [White House] staff on this issue”; and

2) Google was seeking “to work closely with [the Biden] administration on multiple policy fronts” and needed to appease them. pic.twitter.com/8FD2D6jkTz

— Rep. Jim Jordan (@Jim_Jordan) November 30, 2023

So, the government had totally captured basically every major platform, through which they imposed active suppression of ‘misinformation’ – which included Hydroxychloroquine, Ivermectin, and anyone skeptical of vaccines, lockdowns, or masks.

Authored by Jonathan Turley,

We have previously discussed the growing anti-free speech movement in Ireland. As discussed in The Indispensable Right: Free Speech in the Age of Rage, these crackdowns on free speech tend to come with periods of public  panic or anger.

Anti-free speech advocates use such periods as opportunities to get the public to surrender this core right to government censors or prosecutors.

Right on schedule, Ireland is now pushing one of the most chilling crackdowns to date.

The excuse for the latest rollback of free speech was a riot in Dublin leading to the arrest of 34 people and extensive property damage in anti-immigration protests. 

The protests have challenged the government policies on handling undocumented migrants.

The bill criminalizes any “preparing or possessing material likely to incite violence or hatred against persons on account of their protected characteristics.” 

That includes any material concerning national or ethnic origin, as well as protected characteristics including “transgender and a gender other than those of male and female.”

The bill includes crimes relating to “xenophobia” and can be committed merely by the”public dissemination or distribution of tracts, pictures or other material.”

Elon Musk has flagged the law as have other free speech advocates.

Irish Prime Minister (Taoiseach) Leo Varadkar has rushed to ride the political wave after the recent Dublin riot to announce that he would fight hatred by taking away rights.  He declared his intent to “modernize laws against hatred” by criminalizing speech that his government decides is “incitement.” He insisted that the existing legislation is “not up to date for the social media age” and needs to have a broad reach of criminalized speech. He wants to crackdown not just on violence but on those who say things that might “stir up” others.

What was particularly chilling was a speech by the Irish Green Party Sen. Pauline O’Reilly who admitted that  “We are restricting freedom, but we’re doing it for the common good.”

That is all it takes to get citizens to surrender core rights, a declaration that fewer rights is better for the common good. It has become a Siren Call on the left not just abroad but in the United States.

I have previously written columns about the rising generation of censors in our country. After years of being told that free speech is harmful and dangerous, many young people are virtual speech phobics — demanding that opposing views be silenced as “triggering” or even forms of violence. A recent Pew poll showed just how much ground we have lost, including the emergence of the Democratic Party as a virulent anti-free speech party. Pew found that “Democrats and Democratic-leaning independents are much more likely than Republicans and Republican leaners to support the U.S. government taking steps to restrict false information online (70% vs. 39%).”

Ireland shows how public disorder can play into the hands of government officials in further limiting the right of free speech.

As O’Reilly explained, free speech is simply too dangerous and denying the right is now viewed as a public good.

Of course, some have more direct measures.

Dublin Councilman Abul Kalam Azad Talukder has reportedly called for protesters to be “shot in the head or bring the public in and beat them until they die.”

‘Soft’ survey data has been serially disappointing in recent weeks, catching down to the reality of ‘hard’ data…

Source: Bloomberg

So, it was not surprising that analysts forecast for this morning’s Chicago PMI to remain in contraction at 46 (up very modestly from 44 in October).

However, when the actual print hit – many traders double-take’d as the 55.8 print was a 13 standard deviation beat to expectations…

Source: Bloomberg

It is one of the biggest beats in the series history…

Source: Bloomberg

And one of the biggest MoM increases in the economic series’ history.

Source: Bloomberg

This is the first reading above 50 (manufacturing economic expansion) since August 2022.

Under the hood, 6 of the components increased MoM…

• Prices paid rose at a slower pace; signaling expansion

• New orders rose and the direction reversed; signaling expansion

• Employment rose at a faster pace; signaling expansion

• Inventories rose and the direction reversed; signaling expansion

• Supplier deliveries rose and the direction reversed; signaling expansion

• Production rose and the direction reversed; signaling expansion

• Order backlogs fell at a slower pace; signaling contraction

Finally, we note some have suggested this ‘beat’ is due to the return of autoworkers after the lengthy strikes.

Could be.

But we ask, were the analysts – who consensus expectations were for contraction to continue – unaware that the strike was over?

After a small bounce last month – following the puke in August – pending home sales dropped 1.5% MoM in October (better than the 2.0% MoM decline expected). This left YoY sales down 6.6% (negative for the 23rd straight month)…

Source: Bloomberg

The Pending Home Sales Index dropped back to a new record low…

Source: Bloomberg

By region, only the Northeast saw an increase in pending sales last month.

Sales fell the most in the West, down 6%, while contract signings in the South and Midwest slipped 1.9% and 0.4%, respectively.

Home sales are rising in places with more inventory, Lawrence Yun, NAR’s chief economist said, noting that purchases of new houses are up so far this year because of builders’ ability to create inventory.

“During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” Yun said in a statement.

“Recent weeks’ successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied.”

The trend in pending home sales is following the mortgage rate (with a one month lag) and is set to fall further still…

Source: Bloomberg

The pending-home sales report is a leading indicator of existing-home sales given houses typically go under contract a month or two before they’re sold.

How long with Powell and his pals be able to keep this ‘higher for longer’ stress up as Americans’ largest source of wealth evaporates?

As previewed repeatedly in recent days, and as Reuters once again leaked overnight, moments ago the delayed OPEC+ meeting concluded with the expanded cartel agreeing on an additional 1 million barrels in production cuts, alongside an extension of Saudi Arabia’s 1 million bpd in voluntary “lollipop” cuts.

While we wait for further details, there is speculation is that of the 1 million “additional” barrels, some 300kb/d is an extension of existing Russian cuts, which means an incremental 700kb/d in cuts are coming from the group. Furthermore, of the balance, 500kb/d may be from those overproducing on their existing quotas. Which would mean new cuts are really just 200kb/d.

In any case while we wait for details, Bloomberg’s Julian Lee calculates that if the extra 1 million barrels a day cut is applied to the existing 2024 targets, with the various voluntary reductions applied on top of that, the new target for Saudi Arabia will be about 8.7 million barrels a day which is just over 200,000 barrels a day above the level to which it’s target was cut in the depths of the Covid-19 pandemic.

In other words, the oil market is about to get very, very tight especially if any of the multiple stimulus packages China is throwing around actually works and China’s economy rebounds.

In response Crude rose just over 2% in New York, peaking around $79.5 before reversing some gains.

Via SchiffGold.com,

During a recent interview at the 2023 Precious Metals Summit Zurich event, Doom, Boom & Doom Report publisher Marc Faber says now is the time to buy gold, silver and platinum because inflation is here to stay.

We are in an uptrend in inflation and uptrend in interest rates that will be interrupted from time to time by countertrend moves, such as we had in the 1970s, but the long-term trend in the next 20 to 30 years is for inflation to accelerate and for interest rates to move up.”

Faber said it’s important to understand that we have long-term cycles. He said we hit an interest rate peak, along with a peak in commodity prices in the early 1980s.

Thereafter we had a declining structure of both inflation and interest rates, partly artificially steered by central banks. But we made a major low in say May-August of 2000 where the 10-year Treasury yielded less than 0.6%.”

Financial analyst Jim Grant has made a similar observation about long-term trends, particularly for interest rates.

So what characterizes interest rate movements is their generation length phasing, not necessarily cycles, but there are phases. Interest rates fell for the last quarter of the 19th century, rose for the first 20 years of the 20th, fell from 1920, ‘46 rose in ‘46 to ‘81, fell from ‘81 to, call it, 2021. So at each juncture there was some mark of excess, some mark of speculative excess blow-off. Certainly in 1981, you know, a 20%+ funds rate seemed excessive. A 14% yield in 1984 in long bond when the CPI was printing at four or five, that seemed excessive. 10 percentage points of real yield — that seemed a lot.

“So I speculate that we are embarked on a long cycle of rising rates. And I say that first of all, for reasons of pattern recognition, there’s no theory behind it.”

Faber said in the short-term, perhaps the next six months, he expects interest rates to fall.

So, we have to distinguish between the short-term trend and the long-term trend.”

Faber pointed out that while interest rates have gone up significantly over the last year, financial conditions aren’t actually tight. In fact, the Fed and central banks globally are still running somewhat inflationary monetary policy.

You can have an increase in interest rates in the US and the money doesn’t become tight. If money was tight, the spread between junk bonds and Treasuries would be much wider. It hasn’t widened much. The VIX index volatility would shoot up. It hasn’t shot up. So, I think the monetary policies are still inflationary at the present time.”

The Chicago Fed’s Financial Conditions Index confirms this. As of the end of Nov. 24, the index stood at -0.5. Any negative number indicates loose financial conditions.

Faber said he has about 25% of his portfolio in gold and other precious metals. He pointed out that gold was $35 an ounce in the 1970s.

So, gold has actually been a good store of value for what it is. … I think in consideration of central banks whose function in the long-run is to print money – we never forget that a central bank exists to print money – in view of that, I think gold and other precious metals are still a good investment from a long-term perspective and also from a safety aspect.”

Faber does not buy into the “soft landing” narrative, and he thinks the dollar will weaken.

I think the conditions in America are not as rosy as government statistics suggest. I think the economy is going into recession, or is in a recession already. For most people, the economic recession is a reality already because their wages have gone up less than the cost of living increases.”

From a broad investment standpoint, Faber said people should “get out of the dollar.”