Tag: finance

Back in the 13th century, Hungary was at the front lines of the Golden Horde’s invasion into Europe. It is widely believed that their transformative defensive tactics of building walled cities helped fend off the Mongolians — saving the rest of Europe from an eventual Mongolian occupation.

Fast forward to today, there is a similar invasion taking place, this time from the middle east. To defend the people of Hungary, the country has set up transit zones in order to properly vet migrants — before releasing them.

Hungary’s PM, Viktor Orban, is on record saying he didn’t want more muslim refugees in Hungary — explaining how the muslim invasion represented a tangible threat to Christian dominated Europe.

In a speech given a little more than a year ago, Orban laid out his grievances — calling the EU the ‘enemies of freedom.’

In a referendum vote in late 2016, 98% of Hungarians voted against EU migrant quotas. PM Orban said “Hungary voted to keep its freedom, its right to decide who we want to live together with, and we decided that we won’t give this right to Brussels. We can be proud that Hungarian people were the first to be given the right to express their opinion on Brussels politics.”

Establishing the fact that Orban and the EU were at an impasse, we’re now led to the European Court of Human Rights at Strasbourg, France — who just ruled that Hungary violated the human rights of two migrants who filed suit. Moreover, they ordered Hungary to pay them, mind you, 10,000 euros a piece PLUS another 8,705 euros to cover their fucking expenses.

What did the court say Hungary did?

The ‘unlawfully’ kept the two men in the transit zone — a place designated by Hungary to properly process and vet migrants entering their nation. In other words, the EU court found Hungary guilty of unlawfully defending their border from invaders.

Source: Reuters
Two Bangladeshi citizens, Ilias Ilias and Ali Ahmed, filed a suit against Hungary in September 2015, shortly after the government put up a fence on its southern borders and created two transit zones for asylum seekers in a bid to curb the number of migrants arriving via the Balkans.
 
The two men sought to be released from the transit zone and asked for their expulsion to Serbia be halted.
 
The court ruled that their detention in the transit zone was unlawful under the European Convention of Human Rights, but there was “no violation of the convention in respect of the conditions of detention at the transit zone.”
 
The Strasbourg court ruling is subject to appeal. The government was not immediately available for comment.

 
Going forward, some hope this decision will force Hungary into abandoning the idea of minding a border — freely permitting migrants to come to and fro Europe whenever they like.

“This judgment is particularly relevant now in Hungary because the Strasbourg court has found that detaining asylum seekers in the transit zone without any formal procedure and access to judicial remedy is unlawful,” Marta Pardavi, co-chair of the Hungarian Helsinki Committee, which represented the migrants’ case in the court.
 
“This already ongoing practice of unlawful detention in the transit zone is exactly what the Hungarian newly adopted law foresees for every asylum seeker, so it’s clear: the new law is against the European Convention on Human Rights.”

 
Earlier this month, the Hungarian parliament approved the automatic detainment of all migrants into the transit zone.
 
“Those readying for the journey do not want to live according to our ways and culture, but according to their own – only with a European quality of life,” said PM Orban.

Content originally generated at iBankCoin.com

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After yesterday’s disappointing CBO scoring of the republican Obamacare repeal bill, which prompted loud protests from both the White House on Tuesday said it is working with House leadership on changes to the Obamacare repeal bill in the form of a “manager’s amendment,” which could alter the bill before it hits the House floor.

According to Reuters, when asked at today’s regular briefing if the White House was in discussions with House leadership over “shaping a major or significant managers’ amendment,” spokesman Sean Spicer said: “Yes… We are obviously in talks with House leadership,” he said of the discussions.

“As we have noted multiple times from the podium, when people have ideas that are constructive or supportive, or ones we’ve heard about from different members we’ve engaged with … we’ve always stated a willingness,” Spicer said noting that “part of the reason we’re engaging with these individuals is to hear their ideas.”

“All of that is part of a comprehensive strategy to engage with members who support us, who have ideas, who want to be on board, who wanted to be constructive in the process.”

Spicer added that the White House is “in talks with House leadership about the content,” noting that President Trump will speak with both House Speaker Paul Ryan (R-Wis.) and Majority Leader Kevin McCarthy (R-Calif.) later Tuesday afternoon to talk “about some of these ideas and a path forward.” According to The Hill, a manager’s amendment is typically used after the traditional committee process to make changes to a bill to gain more support before a floor vote.

Speculation that one would be used increased as GOP members aired their opposition to the bill as it is. More conservative members of the House Freedom Caucus don’t believe the legislation goes far enough to repeal ObamaCare.  Spicer pitched the amendment as a way to help forge a greater consensus on the legislation. But asked whether its existence is an admission the bill can’t pass as is, Sean demurred, arguing that it’s about forging a consensus. 

“That’s not entirely true. I think it’s an admission of what we stated at the beginning of this entire process, which was the president was going to engage with members to hear their ideas,” Spicer said adding that “this has never been a ‘take it or leave it.’ … We want to get the strongest bill through the House with as many ideas and opinions and facts that will help strengthen this as possible.”

Some Republicans also fear that moving to meet some concerns of the more conservative members could cost support from more moderate lawmakers in both the House and the Senate.  Ryan spokesman Doug Andres said it was “too early to discuss” any manager’s amendment.

Meanwhile, earlier on Tuesday, the architect of Trumpcare, House Speaker Paul Ryan, said he doesn’t plan to make major changes to Republicans’ plan to replace Obamacare, even as the White House effectively contracited him. House leadership is “working on getting that consensus” with Republicans in both chambers, Ryan said on Fox News Monday evening. Ryan said he expected the score to show fewer people covered under a plan that doesn’t include a mandate to buy insurance, and he highlighted the deficit reduction and lower premiums in the long term.

“Actually I think if you read this entire report, I’m pretty encouraged by it, it actually exceeded my expectations,” Ryan told Fox’s Bret Baier Monday.

Representative Mark Meadows of North Carolina, chairman of the House Freedom Caucus and an opponent of Ryan’s plan, said, “I think we’re making real good progress with the White House and leadership, and I’m optimistic that we’ll see some good results in less than a week.” Ryan and House Majority Leader Kevin McCarthy are speaking with President Donald Trump by telephone Tuesday afternoon to discuss the next steps.

For now, however, what shape the bill will take next is anyone’s guess: Senator Roy Blunt said Tuesday that he thinks the House will alter the bill before it gets sent to Senate. “And the plan will be open to change here,” the Missouri Republican said as he headed into a lunch with Health and Human Services Secretary Tom Price

 

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Overheard in the Oval Office when Yellen unleashes her rate hike into dismal economic growth expectations tomorrow…

 

Since the last fed rate hike, bonds are lower, banks are best…

 

Trannies and Small Caps are in the red since the last Fed rate hike…

 

A down day for stocks…but the dip-buyers were active once again after Europe closed…

 

Goldman is down 10 days in a row…

 

SNAP is ugly…

 

VIX was chaotic into the close – gapping all over the place…

 

For the first time since prior to the election, HYG (the high yield corporate bond ETF) has broken below its 200-day moving average…

 

And for a change bonds rallied…

 

The first recoupling for stocks and bonds in 2 weeks…

 

The Dollar Index rose driven by EUR weakness…

 

March continues to be an ugly month for commodities (especially Crude and Silver)…

 

Crude tested to $47.09 intraday after Saudis admitted chwating onm the production cust (and then desperately jawboned thei way out)

 

Gold fell back below $1200 into the close and Bitcoin reached above $1250…

 

Here's 4 interesting charts as we head into The Fed decision…

"Probably Nothing" – give stocks the benefit of the doubt, right? When have they ever got it wrong?

Finally, as we noted earlier, as GDP growth expectations have plunged so April Fed Funds futures have tumbled – completely against the common sense that The Fed hikes into strength, not weakness…

If the current Atlanta Fed GDPNow forecast is correct and first-quarter growth is a mere 1.2%, that would tie as the second-weakest quarter since 1987 in which rates were raised, according to Julian Emanuel at UBS.

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Via ConvergEx's Nicholas Colas,

All the chatter about one recent IPO got us thinking about an underappreciated question: “How exactly should you value a money losing company?”  In a former life as an auto analyst, I covered a lot of loss-making companies, and there are basically 5 types of cash burners.  Four represent potentially good investments: cyclical firms at a trough, early stage companies, takeouts and breakups.  Only one is toxic for equity investors: the irredeemable loss maker with high debt levels, and even then it usually takes an external catalyst to bang the last nail in the coffin.  Today we review a checklist of fundamental questions to help readers categorize these opportunities.

Imagine an adorable golden retriever puppy, wide eyed and eager.  Now imagine a big stack of clean, crisp brand new $100 bills.  Both are attractive images, each in their own way.

Now put the puppy in a large box with the $100 bills and wait an hour.  What you will get is a soppy mound of shredded paper and a puppy with a possibly upset tummy.  Two good things become one unhappy outcome.

This is a lesson I learned covering the US auto industry from 1991 to well into the 2000s, and even now I still read Automotive News every week.  Manufacturing and selling cars and trucks is a tough business.  Demand varies by 50% or more across an economic cycle.  Pickup trucks and SUVs sold in America make excellent profits; small cars do not.  Financing the vehicles sold is a pretty good business as well.  But for all the stacks of $100s sitting around, there always seemed to be a puppy somewhere nearby ready to chew them up.

Vehicle manufacturers are a case study in how to analyze businesses that (at least sometimes) don’t make any money. At the economic trough of the early 1990s business cycle, I helped sell $140 million of Chrysler stock for $5/share.  The deal had two selling points.  First: Lee Iacocca – then CEO and Chairman – could sell ice to Icelanders.  Second: assuming an economic upturn and the success of the freshly launched Grand Cherokee, the company would be able to eventually earn $5/share. The deal got sold, the company survived, and when it sold to Daimler in 1998 for $48/share it was earning $5/share.

Unlike Chrysler, which was +70 years down the road when it sold in 1998, many companies print red ink because they are still in the initial investment phase of their growth.  Given investor interest in “Disruptive technologies”, there are plenty of popular equities investment stories at the moment that fit this bill.  Here’s how I evaluate their investment merits:

• Do they reliably hit their operational milestones, both in terms of sales and new product introductions?
• Do they have a core base of “True believer” shareholders ready to pony up more equity capital when it is needed?
• What permanent advantages does the company’s business model enjoy? These can be technological or first-mover or network effect related, but they need to be sticky.
• When the company does hit profitability, what are the operating margins and asset requirements? Do these equate to a return on capital higher than 10% (a notional cost of equity capital)?
• Is the company being built to operate profitably, or to be sold to a larger entity at some point? Both are viable strategies, but generally you have to choose one and run quickly to that goal.

Then there are unprofitable companies that still have value simply because another industry player wants to increase its scale and/or scope.  The old-school name for this strategy is a “Roll-up”: take a group of companies in similar businesses, buy them and eliminate duplicate costs like Finance, HR, and general management.  All those savings drop to the bottom line and revenue grows from cross selling.  Do it right, and it is a very attractive investment story for the acquirer.

Even if there are no industry players in Roll-Up mode, a money losing business can play the “Puppy and the $100 game” by simply shutting down money losing operations.  Now, if the business only has money losing operations this is obviously not a viable option.  But in the case where there are some money-spinning divisions, giving the puppy to your cousin and his 4 kids (closing or selling the money-loser) may be the only way to preserve the company.  This is, of course, is a favorite strategy of activists when they own a company with some sound businesses layered in with real losers.  

But for these myriad ways to “Win” with a money-losing business, there is one very bad way to lose: the business goes bust.  I covered one of those in the 1990s, the “Mr. Hyde” to the “Dr. Jekyll” Chrysler success story.  It was called Big A Auto Parts, and it is out of business now.  You’d have thought that a replacement auto parts company would be essentially unkillable, but you’d be wrong.  Here’s what I learned from that experience:

• Financial leverage truly cuts both ways. It improves return on equity on the way up, and kills you on the way down. Moreover, there are debt-like contingencies like leases that create fixed costs even if the “Long Term Debt” line on the balance sheet looks reasonable.
• It’s the grimy stuff that gets you in the end. The company had a visionary CEO that got along well with the Street.  He had a compelling story about being a viable #2 to industry leader NAPA by acquiring small parts distribution businesses around the country (classic Roll-Up).  What was missing was the operational playbook to consolidate those purchases and make 1 plus 1 equal 2.  In the end the actual math proved to be “0”.
• Secular trends matter. Cars and trucks have been getting more reliable and technologically advanced since the 1980s. The same goes for everything from tires (1970s bias plies lasted 20,000 miles but radials go +40,000 miles) to engine management (computer controlled, and solid state rather than mechanical).  Demand for many parts declined in the 1990s as a result and put real pressure on the company.  This headwind simply proved too much to bear for a company with iffy operational practices and excessive leverage.

In the end, the one thing all these scenarios have one thing in common: cash.  Unprofitable companies don’t make any, and that is the fulcrum issue that capital markets will always force to resolution.  Nature abhors a vacuum, especially when it is hoovering up $100 bills.  The trick to work out the best possible answer from an equity holder’s perspective and compare it to the current share price.

Easier said than done, of course, but the key lesson is that unprofitable companies are not necessarily worthless.

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As we first documented last week in “Mega-Bears Smell Blood As Mall REITs Tumble” and as Bloomberg followed up yesterday, looking at CMBS on the Mall REIT space, many have set their sights on mall REITs as the “next big short.” However, an obvious question that has emerged is whether it is too late to go all in on this particular short, or whether as some have suggested, the bottom is in.  “The short feels crowded to us,” said Matthew Weinstein, principal at Axonic Capital, a hedge fund that specializes in structured products. “If these defaults start happening soon, the short will work, but if the defaults do not occur quickly, the first guy out could drive the market meaningfully higher.”

On the other hand, one particular chart revealed in the latest monthly Bank of America debit and credit card spending report shows that things may be about to get a whole lot worse for America’s department stores, as well as malls where they are for the most part the anchor tenants. Of note: while official US retail sales data will be released tomorrow (BofA data always comes several days ahead of the official release), what is especially ominous is that the collapse in department store spending was the biggest on record.

The collapse in department store spending in February took place in the context of broad weakness across the entire retail universe, with BofA reported that retail sales ex auto declined 0.2% seasonally adjusted. Since that was not accepetable, BofA decided to smooth out large swings over the prior two months, leaving it with retail sales ex-autos running at an average 3 month pace of 0.1% mom SA. As the chart below shows, even that suggests a far weaker than expected retail sales report tomorrow, just hours before the Fed’s rate hike announcement: “Given that the BAC data trends closely with the Census Bureau, we think our data points to a soft report when it is released on Wednesday the 15th.”

Breaking down the headline number into components shows a notable decline across virtually all subsegments, with the exception of Cruise Ships (clearly not a concern for much of middle-class America), Home improvement stores and Home goods. Everything else was flat to down substantially.

 

To be sure, Bank of America tries to explain the sudden February weakness with the previously documented delay in tax refunds, although that hypothesis does not conform with last week’s Gallup survey according to which February Consumer spending was the highest since 2008. This is what BofA says: “We believe that a delay in tax refunds likely biased spending lower in February relative to prior years.

Comparing debit and credit card spend is a good indication since presumably usage of debit cards should be more sensitive to the tax refund (proxy for cash) than credit cards (leverage). Indeed, we found that retail sales ex-autos for debit cards declined 1.7% mom while credit card spending was up 1.8% mom. The second test we looked at was by income cohort — the tax changes are more likely to impact the lower income households given that the EITC and ACTC are aimed at assisting lower-income households. We see this clearly in our data where the lowest income quintile reduced spending by 3.4% while the highest income quintile actually increased spending by 0.9% mom. We combine these two factors in the Chart of the Month to show weaker debit card spending, particularly for lower income households.

Alas, even if one believes this explanation, the next charts below shows that no matter what happened in February, when it comes to secular trends across various key spending segments, there has been substantial deterioration in recent years.

First looking at restaurant sales, taking a longer-term perspective, there has been a decisive slowing in spending at restaurants over the past two years with weakness concentrated in the larger / chain restaurants.

The same is obvious in the chart showing spending on “food service and drinking places”…

… as well as spending at food and beverage stores, as well as luxury designer goods, all of which are plunging.

And while we await tomorrow’s government data, all appropriately seasonally adjusted to eliminate outlier data points, two things become clear from the charts above: the pervasive consumption weakness, which only accelerated recently, shows that the retail weakness is far more profound that can be merely explained with “everyone is shifting to Amazon“, and more importantly, the US consumer continues to retrench with every passing month, spending less on discretionary products as well as traditional pastimes as eating out, or aspirational purchases like luxury goods.

As for what it was that “snapped” in department stores, we may need a “bigger short” soon, should the recent trend be indicative of just how bad things truly are.

Source: Bank of America

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Authored by Irina Slav via OilPrice.com,

A problem for the U.S. shale oil and gas industry that analysts and observers have warned about for a long time has materialized: there is a shortage of workers.

According to one service provider for E&Ps, trucker jobs remain vacant even with an annual paycheck of $80,000, which is certainly a big change from a couple of years ago when layoffs were sweeping through the shale patch.

This shortage could dampen the prospects of not just shale producers, who are eager to ramp up production as quickly as possible and take advantage of higher international oil prices, but it will also seriously hamper the recovery of the oilfield services segment, which has been hit harder than E&Ps by the price crash.

We wrote earlier this year how oilfield service providers are starting to get back at producers with higher fees for their services, to make up for the hefty discounts they were forced to offer over the last two years to stay afloat. Drilling rates per well almost doubled in some cases as the market turned from buyer-dominated to supplier-dominated.

We also noted then that this could be problematic for producers as they, too, have yet to recover fully from the blow dealt them by the price crash, limiting their ability to regain profitability. Now, the workforce shortage is exacerbating the problem.

U.S. crude oil output has been rising at a faster rate than in the original shale revolution, according to Bloomberg, gaining 125,000 bpd on average since last September. Currently, it exceeds 9 million bpd and is widely seen as the main factor limiting the growth potential of oil prices.

What’s more, E&Ps are increasing their capital and exploration budgets for this year, despite the arrested growth of oil prices. Continental Resources will be investing $1.95 billion, aiming to accelerate production growth in the second half of 2017. Hess Corp is planning a budget of $2.25 billion, up from the 2016 actual spend of $1.9 billion. Chesapeake Energy Corporation plans total expenditures in the range of $1.9 billion–$2.5 billion this year, compared to total capital expenditures of $1.65 billion–$1.75 billion last year.

How they are going to realize these budgets if their contractors are unable to find drillers and people to drive the trucks with fracking sand—the use of which is hitting record-highs—remains an open question, amid rising prices for everything from drilling rights to fracking sand.

Continental resources’ Harold Hamm warned last week at CERAWeek that shale boomers better proceed with caution in raising their output. He claimed that the recovery is “going to have to be done in a measured way, or else we kill the market.”

Shale boomers have been running very fast to recoup their losses, repay their debts and resurface into profitable territory. But running too fast could trip them up, and there are enough signals that they would do better to slow down a bit. Rising prices and workforce shortages can very well offset part or all of what was gained over the last couple of years in terms of efficiency improvements and production cost reduction.

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While Fed Funds futures imply a 100% probability that The Fed hikes rate by 25bps tomorrow, it appears questions over Trump's policy timeline combined with the collapse in GDP expectations has dragged expectations for another rate hike in June back to its lowest since the election…

As GDP growth expectations have plunged so April Fed Funds futures have tumbled – completely against the common sense that The Fed hikes into strength, not weakness…

But the lower chart shows the July futures not following the collapse and fading that disappointment.

For some context, if the current Atlanta Fed GDPNow forecast is correct and first-quarter growth is a mere 1.2%, that would tie as the second-weakest quarter since 1987 in which rates were raised, according to Julian Emanuel at UBS,who added:

"When also considering the potential for retail fund flows to slow down as tax season (April 15) approaches, the realization that economically stimulative legislation in Washington DC may take longer and carry less "punch" than anticipated, and that political change in Europe (the French election is May 7) could prove disruptive, the expectation of a pullback consistent with past macro episodes is reasonable over the next several months."

This translates into a notable drop in the odds of an additional Fed rate hike in June…

 

Of course, with The Fed determined, we are sure they will manage to jawbone this up also – no matter how un-dependent on data they become.

It is abundantly clear that The Fed is more dependent on smoke and mirrors data than real economic growth…

 

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Authored by David Stockman via DailyReckoning.com,

As of October 24, the U.S. Treasury was flush with $435 billion of cash. That was because the department’s bureaucrats had been issuing debt hand-over-fist and piling up a cash hoard, apparently, for the period after March 15, 2017 when President Hillary Clinton would need to coax another debt ceiling increase out of Congress.

Needless to say, Hillary was unexpectedly (and thankfully) retired to Chappaqua, New York. But the less discussed surprise is that the U.S. Treasury’s cash hoard has virtually disappeared in the run-up to the March 15 expiration of the debt ceiling holiday.

That’s right. As of the Daily Treasury Statement (DTS) for March 7, the cash balance was down to just $88 billion — meaning that $347 billion of cash has flown out the door since October 24.

And I find that on March 8 alone the Treasury consumed another $22 billion of cash — bringing the balance down to $66 billion!

To be sure, there has been no heist at the Treasury Building — other than the normal larceny that is the stock-in-trade of the Imperial City.

What’s different this time around is that the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House.

To this end, they’ve been draining Trump’s bank account rather than borrowing the money to pay Uncle Sam’s monumental bills. This has especially been the case since the January 20 inauguration. The net Federal debt on March 7 was $19.802 trillion — up $237 billion since January 20th.

But that’s not the half of it. During that same 47 day period, the Treasury bureaucrats took the opportunity to pay-down $57 billion of maturing treasury bills and notes by tapping its cash hoard.

In all, they drained $294 billion from the Donald’s bank account during that brief period — or about $6.4 billion per day. You wouldn’t be entirely wrong to conclude that even Putin’s alleged world class hackers couldn’t have accomplished such a feat.

At this point I could don my tin foil hat because this massive cash drain was clearly deliberate.

Last year, for example, during the same 47 day period, the operating deficit was even slightly larger — $253 billion. But the Treasury funded that mainly by new borrowings of $157 billion, which covered 62% of the shortfall. Its cash balance was still $223 billion on March 7. Again, that cash balance is just $66 billion right now.

(the last time we saw this situation was 2011, when US debt was downgraded)

Moreover, the Trump Administration has only a few business days until its credit card expires on March 15 — so it’s also way too late for an eleventh hour borrowing spree to replenish its depleted cash account. (Besides that, I’m predicting a very dangerous market event will start on the 15th.)

The Treasury will likely be out of cash shortly after Memorial Day. That is, the White House will be in the mother of all debt ceiling battles before the Donald and his team even see it coming.

With just $66 billion on hand it is now going to run out of cash before even the bloody battle over Obamacare Lite now underway in the House has been completed. That means that there will not be even a glimmer of hope for the vaunted Trump tax cut stimulus and economic rebound on the horizon.

Needless to say, the punters and robo-traders on Wall Street do not see the coming disaster, either. But have they not noticed that the Donald is unpredictable, impulsive and reckless in the extreme; and that he might take next summer’s midnight debt ceiling showdown to the brink and beyond in a manner that the Boehner/Obama establishment would have never even contemplated?

Besides, where is Trump going to get the votes to solve it?

Trump’s already burned all bridges with the Democrats beyond repair by his immigration ban, deportation orders and Mexican Wall/border control campaign. But after his valid but slightly misstated tweet about Obama’s order to tap the wires at Trump Tower (actually either NSA or the Loretta Lynch did), there is not a Dem vote left on Capitol Hill for anything he wants to do.

At the same time, Speaker Ryan’s Obamacare Lite is already on life support on Capitol Hill, which also has big implications for the debt ceiling battle. The conservative backbenchers realize that Ryan’s plan amounts to another giant Republican-endorsed entitlement and will add upwards of $1 trillion to the nation’s already giant $10 trillion structural deficit over the next decade.

Accordingly, they are in open revolt and the coming campaign from the White House to force them to walk the plank in April will likely end in failure. That’s because the bill will be withdrawn once it becomes evident that the Rand Paul conservatives and the moderates in the Senate are both off the reservation.

Or in the alternative, the House fiscal hawks will be left seething about the blatant fiscal profligacy of the Ryan plan if the Speaker succeeds in ramming it through, Nancy Pelosi style. Either way, a long summer walk on the debt ceiling plank is about the last thing the so-called GOP “majorities” are likely to coalesce around.

But as they say on late night TV, there’s even more. Namely, when the deep state bureaucrats shelved Uncle Sam’s credit card a few months ago and actually paid back $57 billion of debt since the inauguration, they bestowed a huge favor on Wall Street.

Rather than draining cash from Wall Street by selling $157 billion of new debt between January 20 and March 7 as they did last year, they stopped the issuance entirely and actually pumped in $57 billion to pay-off maturing securities.

In a word, the Treasury took its boot off the neck of the bond dealers, thereby enabling the 15% frolic higher in the stock market that has become known as the Trump Reflation Trade.

In all, it amounted to a giant — but temporary — shot in the arm in the casino. It was a quarter trillion dollars freed-up to buy stocks rather than new Treasury issues.

Needless to say, those myths begin to die on March 15 and the screaming aberration of the past four months — that is, a broke Uncle Sam paying down his debt — goes into reverse.

To be sure, as the cash balance dwindles to the vanishing point in the next 90 days, the Treasury will resort to its normal trust fund divestment gimmicks — a maneuver that can only prolong the day of reckoning by a few months. But even then there will be a “surprise” on the other side of the debt ceiling battle that will be even more shocking to Wall Street.

Namely, when the debt ceiling is finally increased, the Treasury will need to borrow at least $500 billion in a matter of days to pay back the trust funds it borrowed from and replenish Uncle Sam’s operating cash.

In that event, the government bond dealers will be selling equities and other “risk assets” like junk bonds hand-over-fist in order to finance the tsunami of Treasury debt.

And as the man says, that’s the good news part of the story. The bad news is that not only is the Obamacare “repeal and replace” campaign opening up a legislative blood bath that will stall tax cuts and infrastructure stimulus indefinitely, but the Trump White House is now demonstrating that it will give the words erratic, incompetence and self-inflicted wounds a whole new definition.

I’ve been saying that the problem with the Wall Street robo-machines is that they can read the words in the financial news headlines, but not the political tea leaves in Washington. With each passing day that proposition is being proved in spades.

And with each new “unexpected” stumble in Washington, the case to get out of the casino with all deliberate speed becomes all the more urgent.

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One week after Gallup measured US economic confidence at the highest level on record, just days after Trump gave his now long-forgotten “conciliatory” address to Congress, the mood appears to be souring somewhat not only for regular Americans but also small businesses.  In Gallup’s latest weekly economic confidence reading, it found that Americans’ confidence in the economy returned to its recent levels last week after a record-setting post-recession high the week before. Gallup’s U.S. Economic Confidence Index was +9 for the week ending March 12. This is down from +16 the previous week, and in line with weekly scores recorded throughout February.

In the latest weekly survey, 48% of Americans say the economy is getting better, and 45% say it is getting worse. That compares with 54% and 39%, respectively, the prior week. As a result, the economic outlook component of Gallup’s index fell to +3 from +15. Meanwhile, Americans’ assessments of current economic conditions were largely unchanged. For the week ending March 12, 34% of Americans rated the economy as “excellent” or “good,” and 20% rated it as “poor,” resulting in a +14 current conditions score, roughly where it has been since late January.

Still, it is too early to say the disappointment phase has set in: since late November, Americans have expressed higher confidence in the U.S. economy than they have during any period since Gallup began tracking the index in 2008. Or rather, confidence among one supporters of one specific party: while economic confidence among Republicans has remained steadily high for the past three weeks, the fluctuation in the latest national figure resulted from movement among Democrats and independents, whose confidence returned this past week to previous lower levels.

In summary: Americans’ current level of economic confidence is about where it was before the stock market rally and Trump’s address to Congress,  and it is well above the mostly negative scores Gallup recorded from 2008 to late 2016, which is odd considering the polls reported elsewhere which gush in praise of the Obama regime yet find Trump has the lowest early approval rating of any president. Still, consumer confidence may have subsided last week after a slight decline in the Dow Jones industrial average after its massive gains in February, and may see further declines as Trump sees increasingly greater roadblocks in Congress for both the Obamacare repeal process and his tax reform plan.

It was not just Gallup: after soaring in January to just shy of all time highs, NFIB small business confidence missed expectations of a further rise, and instead posted a modest decline in February.

However one group continues to gush with optimism: CEOs.

According to the latest Business Roundtable CEO Economic Outlook, leaders of the largest U.S. companies are becoming increasingly optimistic about sales growth, hiring and capital investment, causing a measure of chief-executive sentiment to increase by the most in seven years. The headline Index rose 19.1 points in the first quarter from the fourth quarter, to reach 93.3, according to a survey released Tuesday. It was the largest one-quarter gain for the index since the fourth quarter of 2009, when the economy was just emerging from the recession. Readings above 50 indicate economic expansion.

“I am enthusiastic about the opportunity to enact a meaningful pro-growth agenda that will benefit all Americans,” said J.P. Morgan Chase CEO Jamie Dimon, chairman of Business Roundtable. “Business confidence and optimism have increased dramatically.”

Then again, those of a cynical bent may ask if this is just another case of CEOs speaking out of a corner of their mouth, while doing something else, because as we reported last week, in January corporate insiders and other executives bought their own stock at the slowest pace in at least 29 years. According to the Washington Service, there were a total of 279 insider buyers in January, the lowest since 1988.  Moreover, the number of executives selling their stock has also grown in recent months, pushing the ratio of buyers to sellers in February to its lowest since 1988 as well.

While it is too early to call the end of Trumpforia, should the market finally selloff, as Bank of America warned earlier could happen as soon as tomorrow if the Fed kills the “Buy The Dip trade”, then reflexively confidence will follow right behind, resulting in a feedback loop, and chase to the bottom. One thing that is certain however, is that the insider selling will only accelerate.

via http://ift.tt/2moT3sh Tyler Durden