Tag: finance

Following comments by Treasury Secretary Mnuch this morning that ultra-long bonds could "absolutely" make sense for America, the Treasury curve has jumped and steepened dramatically…

With 30Y yields back above the 3.00% Maginot Line.

Following the biggest short-squeeze in history… In fact the stunning swing in sentiment in the last 8 weeks (with almost $62 billion in 10Y Treasury shorts dumped) is shocking to see, smashing Speculative Positioning from its shortest ever to its longest in over 9 years…

It is perhaps not entirely surprising that sell-offs are a little more aggressive than normal.

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Why were Democrats unable to hide their enthusiasm for the latest Omnibus spending bill proposed by House Republicans? Simple: because, as the Washington Examiner’s Philip Klein writes, “Dems basically got everything. It’s like they control House, Senate, & WH rather than the other way around.“

Dems basically got everything. It’s like they control House, Senate, & WH rather than the other way around. https://t.co/BFv540l2Da

— Philip Klein (@philipaklein) May 1, 2017

Some big picture details:

• Deal totals just over $1 trillion

• Deal allows for an increase of $12.5bn in defense spending, which is 18bn less than Trump requested. However, if Trump makes strides with Isis, an addition 2.5bn will be made available.
• Includes permanent fix to fund coal miners’ health care instead of a temporary extension.
• Democrats win: There will be no wall funding; instead Trump will get $1.5bn in border security funds, which is half the original request; it will be used to support existing infrastructure.
• Democrats win again: Puerto Rico will receive an emergency injection for Medicaid health insurance supports
• Democrats win again²: Planned Parenthood, a key issue for Democrats, will be saved from cuts, while the National Institute of Health will see a $2bn hike in funding.
• Democrats win again³: Cuts in the Environmental Protection Agency appear avoided for the remainder of the year.
• Democrats win again⁴: The omnibus funds California high speed rail

Additionally as Bloomberg adds, “Republicans failed to get a number of conservative provisions in the bill, including one that would have blocked the Labor Department’s fiduciary rule limiting financial advice to retirees.”

Also snuck inbetween the cracks there’s also a new $100 million fund to counter Russian influence in Europe.

The deal also includes a 2% increase for national parks, including nearly $40 million in new funding to address deferred maintenance and construction needs. More than 70 anti-environmental policy riders in the bill were defeated.

Amusingly, the package would provide $68 million extra in local law enforcement funds to reimburse New York City and other localities for protecting Trump.

Democrats, predictably, loved the spending bill which is sure to add hundreds of billions to the US deficit: “This agreement is a good agreement for the American people, and takes the threat of a government shutdown off the table,” Senate Minority Leader Chuck Schumer said Sunday night in a statement. “The bill ensures taxpayer dollars aren’t used to fund an ineffective border wall, excludes poison pill riders, and increases investments in programs that the middle-class relies on, like medical research, education, and infrastructure.”

House Minority Leader Nancy Pelosi also praised the deal, saying that Democrats won the removal of about 160 partisan riders. “The bill also increases funding for wildfire and federal highway emergency relief, and for Puerto Rico’s underfunded Medicaid program,” she said in a statement. Under the tentative deal, the island would get some relief with $295 million in unspent money for territories for a limited time, said a congressional aide.

As expected, Republicans were just as eager to cover up the fact that they rolled over:  “We couldn’t be more pleased,” Vice President Mike Pence said in an interview on CBS “This Morning.” He called the deal “a bipartisan win for the American people” that included funding for a significant increase in military spending and a down payment on border security.

“We have boosted resources for our defense needs without corresponding increases in non-defense spending,” House Speaker Paul Ryan said in a statement. He said the measure will make the U.S. “stronger and safer.”

But not all: Republican Representative Jim Jordan, chairman of the House Freedom Caucus, was quoted by Reuters saying he and other conservatives likely would not back the measure because it does not fulfill their promises to voters. “I’m disappointed,” Jordan told CNN. “We’ll see how it plays out this week but I think you’re going to see conservatives have some real concerns with this legislation.”

Bloomberg’s summary:

Overall, the compromise resembles more of an Obama administration-era budget than a Trump one. The National Institutes of Health, for example, would see a $2 billion boost, reflecting the popularity of medical research among lawmakers. The deal includes $990 million for famine aid, along with a $1.1 billion boost for disaster recovery funds.

The House Rules Committee has scheduled a hearing for 3 p.m. Tuesday to consider advancing the bill, including setting procedures for a floor vote. That said, there does remain a chance for a government shutdown in October. Trump has sought $54 billion in defense increases paired with $54 billion in domestic cuts. Republican leaders may be less willing to bow to Democrats without the excuse of being more than halfway through the fiscal year.

Finally, as Bloomberg adds, Congress and the president will also need to agree on a debt ceiling increase in the fall, and White House budget director Mick Mulvaney has said he wants to use the debt ceiling to impose new spending restraints.

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June 2017 gasoline futures are traded at the biggest discount ever to the July contract this morning…

As the front-month futures tumbles to its lowest since September.

As Bloomberg reports, Mizuho Securities' Bob Yawger warns its "not a good sign that gasoline is so weak, so close to Memorial Day and driving season… gasoline in danger of breakdown today."

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Thanks to a sudden billion-dollar-notional plus purge,

gold futures just snapped below their 200-day moving-average to $1255…

Is it a great rotation?

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The markets are speaking, but no one is listening.

The single driver of the stock market since election night is the hype of a Trump-policy driven economic boom. The economy is booming, but based on expectations NOT actual policy changes.

This is a critical distinction.

Stocks are MOST susceptible to violent drops (or even Crashes) when illusions are shattered. The illusion of major changes to the US economy is about to be shattered.

The markets are already telegraphing this.

The single most important stock market index for assessing “risk on” vs. “risk off” is the Russell 2000. What the Russell 2000 does… the rest of the market soon follows.

On that note, the Russell 2000 has just staged a final blow off push to the upside. And. It. Failed. The momentum here has shifted and we could drop to that red box (a 5% drop) in a matter of days.

Put simply, this chart is telling us that the market has just entered “risk off” mode.

Then there’s the Dow Jones Transportation Index.

This is THE most economically sensitive index for the markets. Transports “get” the economy better than any other group of stocks.

On that note, Transports are telling us that the economy is not in fact booming… it’s basically just treading water, no matter sentiment says. In fact, we’ve got a very nasty Head and Shoulders pattern forming here.

If the economy was really roaring, Transports would be soaring. They’re not. If anything, they’re getting ready to drop 1,000 points in the next 30 days.

Finally, and most importantly, there is High Yield Credit or Junk Bonds. These represent the credit cycle. When credit growth is strong here, financial conditions are strengthening in the financial system and risk does well.

When credit growth is weakening, or worse, contracting here, financial conditions are worsening in the financial system and “look out below.”

On that note, Junk Bonds are rolling over and preparing to break out of a textbook perfect bearish rising wedge pattern. This is telling us that the entire move from the February 2016 bottom is about to come unraveled. We could easily see stocks drop 10% from current levels if this pattern is confirmed.

These three charts, taken together, suggest the markets are about to experience an “event” in which risk comes unhinged. When this happens, the markets will adjust VIOLENTLY to the downside.

To pick up a FREE investment report outlining three investments that you could make you a ton of money when the markets collapse… 

CLICK HERE NOW

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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Call it deja vu all over again.

Four months after the Atlanta Fed started off its Q1 GDP nowcast at 2.5%, then raised it just shy of 3.5% before eventually closing the books at 0.2%, slightly below where the BEA reported Q1 GDP, moments ago the Atlanta Fed released its initial GDP forecast for Q2, and it will probably not come as a surprise to anyone that it just happens to be a tad optimistic.

According to the regional Fed, best known for its initial euphoria, and subsequent tapering and accuracy, “the initial GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 4.3 percent on May 1. The advance estimate of first-quarter real GDP growth released by the U.S. Bureau of Economic Analysis on April 28 was 0.7 percent, 0.5 percentage points above the final GDPNow model nowcast released on the previous day.”

And this is how the Fed sees the breakdown in various components:

• PCE contribution est. at 2.22%
• Nonresidential equipment investment contribution est. at 0.58%
• Nonresidential intellectual property products investment contribution est. at 0.17%
• Nonresidential structures investment contribution est. at 0.15%
• Residential investment contribution est. at 0.32%
• Government contribution est. at -0.01%
• Net exports contribution est. at -0.15%
• Change in inventory investment contribution est. at 0.98%

Well, if the cheerful Fed hopes to be accurate this time around with its initial estimate, US consumers better start spending fast. Then again, if past is prologue, expect this number to end roughly 50% lower in three months when the first advance Q1 GDP report is released.

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John Paulson’s relentless slide into P&L mediocrity was on highlight today courtesy of an extended profile by the NYT, which reports on the hedge fund manager’s “fall from stardom”, and details his surprisingly poor performance. Here are the highlights:

Paulson & Company, has recorded nearly double-digit losses in several of its larger funds as of the end of March… Mr. Paulson’s struggles come after a gut-wrenching 2016, when he recorded even steeper losses in those funds, partly because of several wrong-footed bets on drug makers, including the troubled Valeant Pharmaceuticals. That followed a painful 2015, when investors first balked and began pulling their money from his firm.

 

“While we are disappointed in performance in 2016, we believe we have a path to a recovery,” Mr. Paulson told investors in one letter.

 

But it has not been smooth sailing. In another letter to investors of a merger arbitrage fund that declined by 49 percent last year, Mr. Paulson called 2016 “the most challenging year since inception.” In May, Mr. Paulson will address his investors at a meeting in London at Claridge’s Hotel in London.

 

[Paulson’s] his assets under management continue shrinking. Paulson & Company manages just under $10 billion today, down from $36 billion in 2011. Nearly two years ago, some Wall Street banks began to recommend that investors redeem some of their money from the firm.

 

In another letter to investors of a merger arbitrage fund that declined by 49 percent last year, Mr. Paulson called 2016 “the most challenging year since inception.”

 

2017 is shaping up as another rough one for Mr. Paulson. The Advantage fund was down 9.7 percent as of the end of March and the Partners Enhanced fund continues to sink — falling just over 8 percent after last year’s 49 percent plunge.

Observing what we wrote last April, NYT repeats that over the last three years, Paulson’s Advantage has consecutively recorded double-digit losses. That follows earlier losses of 36% in 2011, 14% 2012, a modest 26% gain 2013, according to an HSBC industry report and people with knowledge of the firm’s performance. The losses were amplified in the levered Advantage Plus fund.

While Paulson suffered huge losses last year due to several concentrated bets on just a handful of pharma companies – Valeant alone cost Paulson $2 billion – and then there was Shire, Allergan, Mylan and Teva, his losses extended beyond those four names, and in a more troubling development investors pulled substantial amount of capital from the fund. As Forbes wrote recently,  in addition to P&L losses, Paulson suffered at least $2.5 billion in redemptions in 2016. As a result, according to the NYT Paulson’s AUM has continued shrinking, and today Paulson & Company manages just under $10 billion, down from $36 billion in 2011. “Nearly two years ago, some Wall Street banks began to recommend that investors redeem some of their money from the firm.”

Still, don’t cry for John:

Even after several years of losing money for his investors, Mr. Paulson remains one of the richest men in the world — with a net worth of about $7.9 billion, according to Forbes. But, as the financial magazine recently noted, he is now $2 billion poorer.

So it’s been a bad year for Paulson, but how is everyone else doing? As it turns out, not that well either. The following table breaks down the marquee hedge fund names’ performance YTD, and shows that merely beating the S&P500 continues to remain an elusive goal for more than half of the “smart money” out there

Finally, courtesy of HSBC, here are the top 20 best and worst hedge funds through the last week of April.

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Presented with little comment…

Live Feed:

Treasury Secretary Steven Mnuchin told an audience of Wall Street managers that they could thank him for financial deregulation.

“You should all thank me for your bank stocks doing better,” Mnuchin said at the Milken Institute Global Conference held at the Beverly Hilton, drawing laughs.

Who should “we” thank for this?

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Federal prosecutors have subpoenaed several (foreign) banks as part of a criminal investigation into possible manipulation of the U.S. Treasuries market, according to people familiar with the matter.

U.S. authorities have been examining the U.S. Treasuries market for roughly two years. As Bloomberg reports, in November 2015, Goldman Sachs disclosed that U.S. authorities had sought information related to its trading of when-issued securities, which are among the least transparent instruments in the world’s largest debt market.

And now, the Justice Department issued subpoenas last month to banks including UBS, BNP Paribas, and the Royal Bank of Scotland seeking information on the $14 trillion market, said two people, who asked not to be named because the investigation is confidential. Read more here…

As a reminder, 'When-issued' securities have been a government-debt market fixture since the U.S. Treasury Department effectively authorized their use in 1975. Investors can buy them from a Wall Street bond dealer to guarantee they will be able to get their hands on a bond, bill or note once it’s auctioned by the government. When-issued securities act as placeholders for bills, notes or bonds before they’re auctioned. The instruments change hands over the counter, with lifespans of just days. There’s scant public information on trading volumes or the market’s biggest players.

When debt sells for less than when-issued prices indicate, traders say the auction “tailed.” Auctions tailed more than half the time in every type of security except for the 10-year note between 2010 and 2014, a Cleveland pension fund alleged in one of the lawsuits against the primary dealers.

 

The chances that a supposedly predictive market would be so consistently off, in a direction that favors the people selling the security, is lower than 1 percent, the fund alleged.

 

The banks selling when-issued securities are often the same ones that receive billions of dollars’ worth of client bids for those same auctions. That raises the concern — taken as a given in several of the recent suits — that information is being shared within and between banks.

Traders working at some primary dealers had the opportunity to learn about client auction bids ahead of time and in some cases talked online to counterparts at other banks, people familiar with these operations told Bloomberg News in June 2015. That report is cited in several of the lawsuits alleging collusion related to when-issued securities.

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