The following article by David Haggith was published first on The Great Recession Blog: 

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Even a so-called "constitutional crisis" can't derail this market…

 

An extremely mixed day in stocks today – Small Caps soared, Dow dropped, Trannies tumbled, and Nasdaq and S&P clung green…

 

Dow suffered from Boeing and Apple…

 

The Dow remained below 21k… and S&P below 2400 – S&P 500 closes for the last 10 days (rounded to the big figure)… 2388, 2387, 2389, 2384, 2388, 2391, 2388, 2390, 2399, 2399, 2397, and 2399 today – and VIX below 10…

 

This is another record for VIX – the 13th day in a row closing below 11…

 

A dismal 10Y Treasury auction (almost a 2bp tail) sparked notable weakness after 1300ET…

 

 

Despite the crappy auction, The MOVE Index – or Treasury "VIX"  – plunged to near its lowest since the Taper-Tantrum lows…

 

But there's an odd 'vol' out…

 

Notably, European macro data surprises are soaring relative to the collapse in US macro data… which implies DAX will continue to outperform S&P…

 

*  *  *

Another day, another Treasury selling panic during the US day session…

 

Weak 10Y auction sent yields higher with 30Y once again closing above 3.00%…

 

The Dollar Index fell early on after comments from Wilbur Ross and on Comey…

 

JPY and EUR are the weakest on the week…

 

Gold and Silver clung top gains from an overnight spike on Comey headlines…

 

Bitcoin tumbled late yesterday but that was bid back up to record highs oince again (at $1798)…

 

WTI and RBOB popped after big inventory draws…

 

Humpday Humor…

 

Finally, we did notice one thing – probably nothing for now – but volume sare shifting to out months in ED futures (as prices rise) suggesting – perhaps – some loss of faith in the June rate hike (but odds remain above 90%)

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Via The Conversation,

 

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China recently tested a new, advanced type of guided missile in the sea near the Korean peninsula, the Chinese defense ministry said Tuesday cited by the Times of India, just as South Korea concluded its presidential elections amid rising regional tensions. The test in the Bohai Sea was conducted to “raise the operational capability of the armed forces and effectively respond to threats to national security,” the ministry said in a brief statement. The statement did not say when the launch took place, only that it happened “recently”, nor did it give any details about the missile nor the type of platform from which it was launched.

The test came as China, the United States and the Koreas are locked in a diplomatic spat over Pyongyang’s missile launches and potential new nuclear tests. To deter any future launches, the US military recently deployed an anti-missile defesce system in South Korea to deter the North, which China sees as a threat to the regional security balance and its own ballistic missile capabilities. As reported previously, Washington and Seoul agreed to the Terminal High Altitude Area Defense (THAAD) battery deployment in July in the wake of North Korean missile tests, the installation of which prompted vigorous complaints by local South Koreans.

Last week, US Forces Korea said THAAD was now operational, with the ability to intercept North Korean missiles, prompting Beijing to demand the immediate suspension of the system’s deployment. A US defense official said, however, that the system had only “reached initial intercept capability”. This initial capability will be augmented later this year as additional hardware and components arrive to complete the system, officials said.

THAAD missile launcher

In any case, China’s rising displeasure at the growing military ties between South Korea and the US manifested itself in the recent missile launches, because as China’s Global Times stated all too clearly in an article overnight, “China’s latest missile test shows country can respond to aircraft carriers, THAAD.” In other words, in addition to North Korea jawboning and threatening to blow up any strategic US asset in vicinity, as the NK ambassador told Sky News yesterday, now there’s China too.

In an oped by Glbal Times’ Deng Ziaoci, the author writes that China’s successful test of a new type of guided missile in the Bohai Sea “killed two birds with one stone, experts told the Global Times, as the launch shows China can attack both aircraft carriers and the US Terminal High Altitude Area Defense (THAAD) missile defense system deployed in South Korea.”

“To judge from the missile remains disclosed by media, it was a DF-26 that was tested recently, also known as the ‘aircraft carrier killer‘ missile,” Song Zhongping, a military expert who used to serve in the PLA Rocket Force, told the Global Times. “Considering the type of missile and the test location it is evident that we conducted a firing experiment targeting aircraft carriers, and the warhead possibly featured an electromagnetic pulse that could destroy a carrier’s command system, as well as the THAAD system,” Song noted.

When asked if the test’s location in the Bohai Sea, close to the Korean Peninsula, could show that the test was specifically aimed at Seoul’s THAAD deployment, Song said that this is unlikely as Bohai is China’s usual weapons testing ground, unlike the South and East China Seas where experiments could be difficult as the waters contain various nations’ Exclusive Economic Zones and international waters.

A statement from the Information Bureau of China’s Ministry of National Defense on Tuesday confirmed that Chinese rocket forces tested a new type of missile in the Bohai Sea. The statement said the test was conducted in accordance with the annual training plan to “raise the operational capability of the armed forces and effectively respond to threats to national security,” the statement said.

Translation: China just issued a stark warning to both the US and South Korea with one missile launch: bring your aircraft carriers too close, or launch the THAAD, and Beijing is ready.

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It seems the way to expose the true rage lurking just below the surface of an increasingly disavowed American public is 1) hold a general election, or 2) jam them into a metal tube traveling at 30,000 feet.

*  *  *

For the umpteenth time in recent weeks, video has surfaced of a brawl on a plane. The fistfight, between two men aboard a Southwest Airlines flight on Sunday, took place as the aircraft was taxiing to a terminal at Hollywood Burbank Airport for a layover.

As The LA Times reports, the two men can be seen grappling with one another on the plane with one man repeatedly throwing punches at the other. A woman can be heard yelling, “What is wrong with you? Get off!”

The video ends just as other passengers pull the two men apart.

Southwest Airline fight @ Burbank Airport http://pic.twitter.com/FvQcgExKyR

— Nick Krause (@nickkrause08) May 7, 2017

According to Sgt. Derek Green with the Burbank Police Department, one man was arrested as a result of the incident. Officers booked Chaz Cable, a 37-year-old Lancaster man, on suspicion of misdemeanor battery.

A statement from Southwest notes that the flight 2530 had come in from Dallas, Texas, in the middle of a trip to Oakland when it landed in Burbank for a layover. The airline said three people were involved in the fight rather than two.

“We’re grateful to our employees who quickly reacted to break up a fight involving three customers,” according to the statement. “One customer had minor injuries, but was able to travel onward. We have no other reports of injuries.”

It’s unknown who the other two people involved with the fight are or how it started. Cable is currently being held in lieu of $50,000 bail.

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This is just becoming farcical…

After confirming Rod Rosenstein as deputy attorney general by a Senate vote fo 94 to 6 on April 25th, Senate Minority Leader Charles Schumer (D-N.Y.) said that:

Rosenstein told him during a private meeting that “he would appoint a special counsel to conduct that investigation if one is required.”

 

“He has promised to give this careful consideration. I believe if he studies the department regulations, he will come to the same conclusion many of us have, that a special counsel is merited,” he added.

Sen. Dick Durbin (D-Ill.) also chimed in that the best way for Rosenstein to oversee the Russia-Trump investigation with “independence, diligence and integrity” would be to appoint a special prosecutor.

“If Mr. Rosenstein does not appoint a special counsel, the spotlight will be on him personally to make sure the investigation is conducted properly no matter where it leads. I hope he exercises good judgment,”

And now, just 2 weeks later, Schumer addresses The Senate…

Schumer says he believes Deputy AG Rosenstein shouldn’t be the one to appoint special prosecutor to Russia investigation. http://pic.twitter.com/MR4NWdJhk5

— This Week (@ThisWeekABC) May 10, 2017

• *SCHUMER: ROSENSTEIN SHOULDN'T APPOINT SPECIAL PROSECUTOR
• *SCHUMER: `SERIOUS DOUBTS' CAST ON ROSENSTEIN IMPARTIALITY
• *SCHUMER: ROSENSTEIN SIGNED HIS NAME TO 'HIGHLY POLITICAL MEMO'

Presumably our great and unbiased media will call him on this utter charade!!

 

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According to the just released Monthly Treasury Statement, in April the US Treasury collected $456 billion and spent $273 billion, resulting in a budget surplus of $182 billion, higher than the $179 billion expected, and well above last year’s $106.5 billion surplus. In a surprising jump in government revenues, receipts rose 3.9% y/y in April while outlays plunged a whopping 17.7% y/y, likely the result of debt ceiling considerations.

For the 7 months in the fiscal Year To Date through April 2017, the Treasury collected $1.929 trillion in tax revenues, up $14 billion from the $1.915 trillion collected fir the same period in 2016.

As the chart below shows, on a YTD basis, after lagging for the past 4 months, as of April the amount of taxes collected YTD has set a new record at just under $2 trillion.

Despite the record tax collections, for the YTD period, the toal deficit was $344.4BN, down modestly from $352.9BN last year, thanks again to the recent jump in receipts which were up 0.7% YTD while outlays rose 0.2%. We expect the deficit to grow again next month once the artificial spending considerations associated with last month’s debt ceiling worries are no longer an issue, at least until September.

The largest portion of the tax revenue collected YTD came from individual income tax, which was $945 billion. This was followed by Social Security and other payroll taxes, equal to $870 billion. Income taxes collected from US corporations amounted to only $160 billion and was just over the $154 billion in other taxes and duties collected. 

With some 153.2 million people employed in the United States in April, this means that the $1.929 trillion in taxes collected equaled approximately $12,600 taxes collected per worker for the first 7 months of the year, on aveerage.

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The Dow just suddenly plunged as Boeing stock crashed following headlines that the aircraft manufacturer will temporarily suspend 737 Max flight due to engine issues…

• *BOEING TEMPORARILY SUSPENDS 737 MAX FLIGHTS ON ENGINE ISSUE
• *BA: POTENTIAL MFG QUALITY ESCAPE W/LPT DISCS IN LEAP 1B ENGINES
• *BOEING SAYS IT’S WORKING WITH CFM TO INSPECT DISCS IN QUESTION
• *BOEING SAYS MAX PRODUCTION WILL CONTINUE
• *BOEING SAYS PLAN REMAINS TO BEGIN MAX DELIVERIES IN MAY

As Bloomberg reports, Boeing said it would temporarily suspend flights of its new 737 Max jetliner as engine issues came to light days before deliveries were to begin to airline customers.

Engine supplier CFM, a venture of General Electric Co. and Safran SA, notified Boeing of a manufacturing issue with low-pressure turbine discs, according to a statement Wednesday by the planemaker.

And that is smacking The Dow…

Boeing is not alone…

• *ROCKWELL COLLLINS, SPIRIT AERO, TEXTRON, UTX DROP TO LOWS

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The Greek stock market is up 12 days in a row – the longest streak since 1999 – with its 25% gains amon the world's best in 2017 following the bailout decision.

 

The last time Greek stocks were this overbought was September 1999 – which was followed by a 77% decline…

 

Furthermore, Greek bond yields have collapsed to post-crisis lows in the last weeks as everyone and their pet rabbit is sure the bailout is a done deal..

 

There's just one thing… Greece's highest court just decided that the pension cuts demanded by the creditors to secure the bailout are unconstitutional! As KeepTalkingGreece reports,

The Plenary of the State Audit Council has ruled that the cuts to main and supplementary pensions to be implemented in 2019 are against the Constitution and contravene the European Convention of Human Rights. Pension cuts are creditors’ top favorite austerity measure.

 

The pension cuts the government and its creditors have agreed on in the Supplementary Memorandum of Understanding on May 2 2017 will affect more than one million Greek pensioners who will see further cuts up to 18% in their main and the supplementary pensions respectively. The pensioners will suffer losses from 45 to 350 euros per month.The total annual loss could reach 3,000 euros, that is a loss of up to 2.5 to 3 monthly pensions per year.

 

Exempted from the cuts are neither low-pensions nor widow or invalidity pensions.

 

It will be the fourth or fifth cut in pensions since 2010 when the International Monetary Fund arrived in the country together with the first bailout.

 

The State Audit Council council also decided that the fiscal bill containing the pension cuts contravenes the Greek legislation as it has been tabled to the audit council without a relevant actuarial study.

 

Government sources told media that the decision of the State Audit Council is not binding and they refereed to a decision that the Council of State should take on the issue.

The Supplementary Memorandum of Understanding, a mixture of outstanding prior actions the government signed in the third bailout of 2015 and additional austerity measures for 2019-2020 is due to be voted in the Parliament on May 18.

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Authored by John Rubino via DollarCollapse.com,

One of the interesting things about the Great Recession was how Canada’s financial system sailed through it largely unscathed. Its banks were regulated wisely and behaved prudently, its citizens avoided the extreme stupidity of their credit-addicted neighbors to the south, and its government refrained from doubling its debt every eight years. It certainly looked like Canadians were smarter – or at least more emotionally mature – than we were.

But instead of Americans learning from Canada, Canadians appear to have concluded that we had it right after all. In the decade since the global financial system’s last near-death experience, Canadians have started to behave like turbo-charged Americans. A few recent examples:

Canadians Are Buying A Record Number Of New Cars, With A Record Amount Of Financing

(Better Dwelling) – Sales of new motor vehicles across Canada rose to an all-time record for February.

 

 

Average Sale Price For New Vehicles Rises

 

Consumers are purchasing more expensive vehicles too. Over $5 billion was spent on new vehicles for the month, bringing the average to $40,100 – up 3.4% from the same time last year.

 

 

Consumers Are Buying “More Car Than They Can Afford”

 

The uptick in average sale price is due to longer financing terms for buyers. According to the Financial Consumer Agency of Canada (FCAC), Canadians are “increasingly purchasing more car that they can afford,” due to longer financing becoming fashionable. The agency notes that average leases have crept up 2 months, every year since 2010. According to the Bank of Canada (BoC), the average loan was 74 months as of 2015. Longer terms bring down monthly payments, but increases the total cost of the loan.

 

The Rise Of Non-Prime Lending In The Auto Industry

 

The right to debt seems to be a topic all Canadians are embracing, and the auto sector is no different. The BoC has estimated that 25% of borrowers are non-prime, which in case you didn’t know is Canadian-English for “sub-prime.” These buyers generally have a FICO score below 670, and face predatory loans with up to 25% interest. This makes it difficult to build positive equity on car loans.

————————–

Over half of Canadians are $200 or less away from not being able to pay bills

(Global News) – More than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations, according to a recent Ipsos survey conducted on behalf of accounting firm MNP.

“With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice, which is one of the largest in Canada.

 

For 10 per cent of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less.

 

But those with anything at all left at the end of the month were in better shape than many: A whopping 31 per cent of respondents said they already don’t make enough to meet all their financial obligations.

Many Canadians don’t understand how interest rates work

 

Another hair-raising finding from the survey: Roughly 60 per cent said they don’t have a firm grasp of how interest rates affect debt repayments.

————————–

Toronto Real Estate Speed-Dating Event Helps Strangers Buy Houses Together

(Huffington Post) – The Toronto real estate scene is nothing short of nuts, as prospective homebuyers with jobs and tens of thousands of dollars in the bank are still getting shut out the red-hot market.

 

Many buyers are pooling their financial resources to enter the market, and co-ownership is becoming increasingly popular.

 

Toronto realtor Lesli Gaynor, who has a background in social work, has launched GoCo, a service dedicated to helping people find homes they can afford in Toronto through co-ownership.

 

“I sort of came to it through watching people be shut out of this market for all kinds of reasons — but mostly financial,” she told HuffPost Canada in an interview.

 

She primarily works on helping people find others to purchase property they actually want to share and live in, though not necessarily as roommates (i.e., not sharing a bathroom and kitchen).

 

To connect potential co-homebuyers, Gaynor held a “speed-dating” event called “C-Harmony: Creating Co-operative Connections” at a Toronto pub on Thursday. About two dozen people attended, according to the Toronto Star.

 

Matt Michaels, who attended the event, told Global News he would love to own a home in the High Park or Roncesvalles areas, and is “open to the idea of owning a home with like-minded people.”

 

“As a 35 year-old who doesn’t have $400,000 for a down payment right now, it’s increasingly unlikely I would be able to do that on my own,” he said.

 

Buying with strangers is a feasible idea, but it just “needs to be normalized,” says Gaynor. She pointed to Meridian Credit Union’s recent creation of a friends and family mortgage, and said many lawyers are adapting to write covenants that protect both parties.

 

“It’s going to catch on, it’s just a matter of normalizing it.”

Some thoughts

Yep, this is both crazy and familiar.

In one sense Canada is just the latest victim of global hot money flows. Rich people in unstable countries like China or Russia are always looking for safe places to stash what they’ve earned or stolen. And their wealth in the aggregate dwarfs the capacity of a Brazil or a Switzerland to absorb it. So when it really starts flowing it distorts the target market in ways that seem like fun for the recipients at first but eventually turn into a nightmare.

Now it’s Canada’s turn, as the fortunes created during China’s post-2008 credit binge flee in anticipation of the inevitable bust. Much of that cash is flowing into Vancouver and Toronto real estate, leading to the insanity chronicled above and much, much more.

Canadian homeowners find themselves becoming rich beyond their wildest dreams and spend accordingly while renters find themselves priced out of the market for shelter, devoting an ever-larger share of their income to rent and sinking deeper into financial insecurity. Those are the people who are one emergency away from bankruptcy.

This divergence between the haves and have-nots begets all kinds of societal ills, from financial speculation to political upheaval. And – so far at least – the targets of hot money flows have yet to figure out a solution. The money pours in, screws everything up, then pours out, causing a crisis.

If anyone deserves better, it’s our likable northern neighbors. But hot money, like the rest of life, is not fair.

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