In what is one of the busiest reporting days of the quarter, Microsoft, Intel, Google, Starbucks, and more all reported earnings after the close.Here is a quick recap:
S&P 2,300; Dow 20,100 early on but couldn't extend gains…
NOTE Dow was closed right at 20100…
Despite the best efforts to crush VIX once again, the S&P could not hold on to gains… (NOTE that VIX was extremely wild around the 10.8 area where it died yesterday as Dow 20k hit)
VIX dropped intraday to its 2nd lowest level in 10 years…
It looks like the Short-squeeze ammo just ran out…
What happens next?
The Peso was pounded all day…
And the Dollar rebounded modestly… (pushing the Dollar Index back above 100)
Yen was the biggest loser today but all the majors lost ground as the greenback strengthened (though remains down on the week)
Remember, tonight is the last trading day for China before they go away for Golden Week (which has historically meant a weaker dollar and stronger gold)…
Despite stock gains and VIX decline, bonds were bid today (accelerating after a solid 7Y auction)
Gold and Silver are now lower on the week as copper and crude catch the reflation bug…
Gold and silver both broke below key levels ($1200 and $17)…
Bonus Chart: S&P hit 2,300 Record Highs today… and the gap between hope and reality yawns ever wider…
Bonus Bonus Chart: Today was the worst day for US Macro data since August…
Regular readers will be accustomed to at least one post per day from me, so I wanted to write a brief note letting everyone know that I’m taking a little break to recharge and spend some quality time with my family ahead of the upcoming birth of our second child, a girl, in April.
We live in exhilarating and dangerous times, and I’m honored that so many people remain interested in my perspective on things. While I know you’ll disagree with me at times (this is healthy!), I will continue to always be honest and call things as I see them. I’m excited to reengage with my usual vigor after I unwind over the next week or so.
I’d also like to offer a special thank you to those who have gone the extra mile and supported the site financially over the past couple of months. To those who haven’t, please consider visiting the Liberty Blitzkrieg Support Page.
Finally, I’m going to offer a final treat in case you become afflicted with Liberty Blitzkrieg withdrawal syndrome. Below is a wide-ranging interview I gave last week to Andy Hoffman of Miles Franklin. He even convinced me to discuss financial markets.
Not one to mince words, Steve Bannon, Trump’s Chief White House strategist, eviscerated the mainstream media during an interview last night. Commenting on their coverage of the Trump campaign, Bannon lambasted the disconnect of the media from everyday Americans saying, “They don’t understand this country. They still do not understand why Donald Trump is the president of the United States.” Per Axios:
“The media should be embarrassed and humiliated and keep its mouth shut and just listen for awhile,” Mr. Bannon said during a telephone call. “I want you to quote this,” Mr. Bannon added. “The media here is the opposition party. They don’t understand this country. They still do not understand why Donald Trump is the president of the United States.”
“The elite media got it dead wrong, 100 percent dead wrong,” Mr. Bannon said of the election, calling it “a humiliating defeat that they will never wash away, that will always be there.”
But that attacks didn’t end there as Bannon went on describe the media as “the opposition party.”
“The mainstream media has not fired or terminated anyone associated with following our campaign,” Mr. Bannon said. “Look at the Twitter feeds of those people: they were outright activists of the Clinton campaign.” (He did not name specific reporters or editors.) “That’s why you have no power,” Mr. Bannon added. “You were humiliated.”
“You’re the opposition party,” Mr. Bannon said. “Not the Democratic Party. You’re the opposition party. The media’s the opposition party.”
Finally, asked whether he was concerned that Sean Spicer had lost credibility with the press after his debate over crowd sizes, Bannon had a similarly pointed answer:
“Are you kidding me?” he said. “We think that’s a badge of honor. ‘Questioning his integrity’ — are you kidding me? The media has zero integrity, zero intelligence, and no hard work.”
Any remaining questions on what Steve Bannon thinks of the mainstream media?
Speaking to reporters, White House press secretary Sean Spicer said that as part of its plans to make Mexico “pay for the wall”, the Trump administration is considering a 20% border tax on Mexican imports.
Spicer said the proposed border tax would be part of a broader tax reform proposal meant to pay for the wall along the US-Mexico border.
The highly sensitive subject of payment for the “wall” is the reason why president Pena Nieto cancelled a trip to the US on January 31 to discusses the renegotiation of NAFTA.
While Nieto has said Mexico will not pay for the wall, Trump has repeatedly said that Mexico will end up paying, even if the US makes the initial payment; as reproted earlier, Republicans have estimated the wall will cost between $12 billion to $15 billion.
Since roughly 80% of Mexican exports go to the US, Mexico finds itself in a very difficult negotiating position, in which Trump has all the leverage.
For the first time in 64 years, atomic scientists reset their symbolic “Doomsday Clock” to its closest time to midnight on Thursday, saying the world was closer to catastrophe due to threats such as nuclear weapons, climate change and Donald Trump’s election as U.S. president. The timepiece, devised by the Chicago-based Bulletin of the Atomic Scientists and displayed on its website, is widely viewed as an indicator of the world’s vulnerability to disaster.
The “clock’s” hands were moved to two minutes and 30 seconds to midnight, from three minutes.
“The Doomsday Clock is closer to midnight than it’s ever been in the lifetime of almost everyone in this room,” Lawrence Krauss, the bulletin’s chair and a theoretical physicist and cosmologist at Arizona State University, told a news conference in Washington. The last time the “clock” was set this close to midnight was 1953, marking the start of the nuclear arms race between the United States and the Soviet Union. While the clock was unchanged last January, the Clock was changed in 2015 from five to three minutes to midnight, the closest it had been since the arms race of the 1980s.
In its statement about the Doomsday Clock, the Bulletin’s Science and Security Board noted:
“Over the course of 2016, the global security landscape darkened as the international community failed to come effectively to grips with humanity’s most pressing existential threats, nuclear weapons and climate change … This already-threatening world situation was the backdrop for a rise in strident nationalism worldwide in 2016, including in a US presidential campaign during which the eventual victor, Donald Trump, made disturbing comments about the use and proliferation of nuclear weapons and expressed disbelief in the overwhelming scientific consensus on climate change …The board’s decision to move the clock less than a full minute — something it has never before done — reflects a simple reality: As this statement is issued, Donald Trump has been the US president only a matter of days …”
The statement continues:
“Just the same, words matter, and President Trump has had plenty to say over the last year. Both his statements and his actions as President-elect have broken with historical precedent in unsettling ways. He has made ill-considered comments about expanding the US nuclear arsenal. He has shown a troubling propensity to discount or outright reject expert advice related to international security, including the conclusions of intelligence experts. And his nominees to head the Energy Department, and the Environmental Protection Agency dispute the basics of climate science. In short, even though he has just now taken office, the president’s intemperate statements, lack of openness to expert advice, and questionable cabinet nominations have already made a bad international security situation worse.”
We get it: America’s atomic scientists do not like Trump.
Krauss, a theoretical physicist, said Trump and Russian counterpart Vladimir Putin carried a large share of the blame for the heightened threat. According to Reuters, the bulletin cited nuclear volatility, especially as the United States and Russia seek to modernize their atomic arsenals and remain at odds in war-torn countries such as Syria and Ukraine.
Trump has suggested South Korea and Japan could acquire nuclear weapons to compete with North Korea, which has conducted nuclear tests. Trump has also raised doubts about the future of a multilateral nuclear pact with Iran. Chinese aid to Pakistan in the nuclear weapons field, as well as the expansion of India and Pakistan’s nuclear arsenals, were also worrisome, the bulletin said in a statement.
The climate change outlook was somewhat less dismal, “but only somewhat.”
While nations had taken actions to combat climate change, the bulletin noted, there appeared to be little appetite for additional cuts to carbon dioxide emissions.
It said the Trump administration nominees raise the possibility the government will be “openly hostile to progress toward even the most modest efforts to avert catastrophic climate disruption.”
The world also faces cyber threats, the bulletin said. U.S. intelligence agencies’ conclusion that Russia intervened in the presidential election to help Trump raised the possibility of similar attacks on other democracies, it said.
The bulletin was founded by scientists who helped develop the United States’ first atomic weapons. Its Science and Security Board decides on the clock’s hands in consultation with its Board of Sponsors, which includes Nobel laureates.
With the VIX index crashing to levels last seen some 938 days ago in 2014, and prior to that 3624 days ago in 2007 just prior to the financial crisis…
… many traders have asked does the VIX plunging to near record lows below 11 – a place they have been only 1.6% of the time since 1990 – have any predictive value for stocks.
According to Citi’ Brent Donnelly, the answer is mixed.
Note that the VIX is now on a 10 handle which is a fairly rare occurrence. Out of 6,813 trading days since 1990, only 110 have been below 11 in VIX (1.6%). I looked to see if there is any forecasting value (i.e., does low VIX forecast future performance?) and the answer seems to be no. Sometimes, like 2006, VIX stays low for ages and stocks keep rocketing. Other times, like 2005, the low VIX precedes a stock market correction.
Unfortunately, since we now live in a world with $14 trillion in central bank liquidity, which means the current market is neither comparable to 2005 or 2007, the market will do whatever central banks decide it will do, regardless of where the VIX trades.
In 2004, eight years after he’d sold CNN to Time Warner, Ted Turner, the network’s founder, sounded an alarm about the dangers of corporate ownership of news organizations. Mr. Turner wrote that in his day, “we put journalism first, and that’s how we built CNN into something the world wanted to watch.” In his view, “quarterly earnings obsessed” corporate owners would not have the same priorities because “the emphasis instantly shifts from taking risks to taking profits.”
His warning is especially chilling today, when the integrity of the press matters more than ever. Unfortunately, in the past 20 months CNN’s management has let down its viewers and its journalists by sidelining the issues and real reporting in favor of pundits, prognostication and substance-free but entertaining TV “moments.”
Still, I believe the network can again play an essential role. At its best, CNN is a journalistic enterprise with unparalleled reach and resources, connecting its viewers with people and conflicts half a mile or half a world away.
That’s why I believe that as a condition of Time Warner’s bid to merge with AT&T, CNN should be sold to a new independent entity. This sale would also include CNN international, Headline News and its digital and related properties. Though AT&T has dismissed talk of a sale, one could be compelled by regulators. A consortium of concerned Americans — philanthropists, foundations, small-dollar donors — could fund a trust to operate an independent CNN dedicated to news in the public interest. Subscription fees from cable and other service providers, along with ad revenue, would allow the network to support itself.
I became a devoted viewer of CNN in 1989, during its coverage of the standoff in Tiananmen Square. I remember my father telling me that the only reason the Chinese government didn’t massacre those kids right away was because CNN had cameras on the scene.
From Tiananmen Square to the fall of the Berlin Wall, from the Exxon Valdez oil spill to Hurricane Katrina, CNN provided exhaustive live, on-the-ground reporting. Its saturation coverage has had such a profound impact that there’s even a term for it: “the CNN effect,” the power to shift policy and inspire empathy by keeping eyes on unfolding events.
Consider how far CNN departed from this model in the last election.Even though CNN has many able journalists prepared to report stories and talk to voters in communities across the country, its programs were dominated by pundits in Washington and New York squabbling over tweets and polls.
From a journalistic perspective, this model poses real problems. Surrogates are held to a different standard from reporters and often given airtime even when they’ve proven to be reckless with the truth. CNN’s expert input is often of questionable value, as evidenced by the panel last Saturday night, which at one point consisted of one woman and eight men discussing the Women’s March.
But from CNN’s perspective, a pundits-on-panels model offers several benefits. To start with, it’s cost effective. On-the-ground reporting requires expensive crews, satellite trucks and travel. With far less effort, news executives can present polarized, high-drama debates that spike viewers’ outrage and short-term ratings. Most of that recent drama was centered on Donald J. Trump, who, during the early months of the campaign, got coverage from CNN that dwarfed that of the other 16 Republican contenders.
All this was about one thing, and it’s not better journalism. It’s bigger profits. Insiders have reported that CNN made more than $1 billion gross profit in 2016, at least $100 million more than the company projected.
While CNN made its numbers, it missed the story. After the election, CNN’s own media critic, Brian Stelter, rightly told the audience, “Some of you watching right now are having a very hard time trusting this channel.” And yet Time Warner’s chief executive declared 2016 a “killer year” for CNN.
Is there any reason to believe the pressure to maximize profits will decrease after AT&T spends $85 billion to buy Time Warner?
Freed of the relentless pressure to drive up profits, an independent CNN could rededicate itself to “journalism first.” Reporters could focus on informing the audience and exposing wrongdoing. This would create opportunities for journalistic rigor, risk and innovation.
There are instructive comparisons. Nonprofits like PBS and NPR often cover issues with more complexity and nuance than corporate-owned networks. The Center for Public Integrity, ProPublica and the Center for Investigative Reporting are more fearless about holding power to account.
In my 15 years as a TV reporter, seven of them at CNN, almost every time I visited a newsroom, an office on Capitol Hill or an official in the White House, CNN was on. This hasn’t changed. The network still has an outsize impact on the world of politics and media, perhaps one reason President Trump has singled out CNN in his attacks on the press.
Thanks to CNN’s innovative technology, seasoned journalists and global reach, it can again be the world’s most trusted TV news brand. But only if the coming years are different than the last.
A healthy democracy needs trusted news sources to which all citizens can turn. Given the new administration’s hostility to dissenting voices and willingness to strong-arm corporations, we need independent and responsible media outlets more than ever before. I believe that CNN could once again be the place Ted Turner envisioned and built years ago. A strong independent CNN that answers to no one but the public would be a powerful force to safeguard our democracy.
Two days ago, we first pointed out that for the first time since the election, the dollar has notably decoupled from rates and other “Trump Trade”-linked asset classes.
Since then, it seems this divergence has become the key discussion point around Wall Street trading desks.
One note, which does a good job of explaining the decoupling, comes from Bank of America’s Adarsh Sinha who focusing on the “Trump trade divergence”, isolates the reason why equities – mostly cyclicals and commodities – have continued to push higher, while the dollar has sunk. The reason: a recent divergence between inflation breakevens and real rates. Here is BofA:
At the surface, the “Trump trade” unwind appears remarkably partial. While the higher dollar view has been challenged at the start of 2017, reflation trades including cyclical stocks and commodities have held up relatively well. The answer, as we have often argued, lies in the relative paths of US inflation breakevens and real rates: these moved higher in tandem post-election, but have since diverged. As is typically the case, stocks have tracked breakevens…
… while the US dollar has tracked real rates.
This raises the question of what is driving wider breakevens and lower real rates. We argue the current divergence partly reflects concerns around trade protectionism, which would be associated with lower growth and higher inflation over time, and to a lesser extent the view that central banks will be cautious in tightening monetary policy in the face of higher inflation. In our view, the dynamics of US real rates and breakevens will be crucial for global asset prices, especially exchange rates.
In other words, “hope” vs “reality.” And some other thoughts:
Higher real rates more likely to resolve divergence than lower breakevens
As argued above, it is plain that not all Trump trades have repriced: the US dollar and real rates have borne the brunt of the adjustment, driving a marked divergence relative to breakevens. While developments in the US have been the proximate drivers of this divergence, we believe China could be crucial in resolving the path of real rates and breakevens one way or the other:
Concerns around trade friction – protectionist policies would be a supply-side shock that would lead to lower growth but higher inflation over the long term, consistent with the divergence in real rates and breakevens. The new administration’s trade objectives would benefit from a weaker dollar, consistent with its recent commentary on FX. While trade friction is certainly a risk to the higher USD trade, we believe the rhetoric has actually softened in recent weeks. Moreover, China’s comfort with tighter policy suggests they are not especially concerned about near-term deflationary trade friction with the US and willing to sit at the table with the new administration.
Higher realized inflation – global inflation is surprising to the upside. Chart 4 shows positive inflation surprises are at their highest since 2011, despite the fact economists have built in positive base effects from the commodity price rally into their forecasts. Again, China will be crucial for global inflation. The clear preference for a stable RMB as well as gradual tightening by PBoC suggest China will continue to “export” inflation for now, even though that could change if investment slows later this year as our economists expect.
Cautious central banks – low real rates and steeper curves also reflect the view that central banks, particularly the Fed, will tighten only cautiously in response to higher inflation. We believe this assumption is most at risk if trade frictions do not intensify in the near term and inflation stays high. The low level of 5 year real rates across G4 countries is not consistent with tighter policy from both the US and China, and the risks skewed toward tighter rather than easier monetary policy in the rest of the world
What happens if this divergence continues or reverts: “The year-to-date experience has been one of lower real rates and higher breakevens: Chart 7 shows this is a broadly negative backdrop for the US dollar and positive for stocks and commodities, consistent with the observed price action. A reversal in these broad trends would most likely be associated with lower breakevens” which therefore would also lead to lower stocks and commodities.
So for those curious about the best market sell signal, look no further in the current environment, than a convergence in both real rates and breakevens; should they revert to moving lower at the same time, then it may be time to sell.
Following a new Trump directive mandating that all EPA research must undergo “political review” prior to release, a number of anonymous employees from more than a dozen U.S. government agencies have established a network of unofficial “rogue” Twitter feeds in defiance of what they see as attempts to censor federal climate change research and other science. Seizing on Trump’s favorite mode of discourse, scientists at the Environmental Protection Agency, NASA and other bureaus have privately launched Twitter accounts – borrowing names and logos of their agencies – to protest restrictions they view as censorship and provide unfettered platforms for information the new administration has curtailed.
The movement seems to be inspired by an incident we noted a couple of days ago in which a “rogue” employee of the Badlands National Park posted a series of tweets on climate change that were promptly removed. So, the handle of @AltNatParkSer was born and has picked up where the Badlands NPS employee left off.
Think about what happened for employees at #BadlandsNationalPark to actually DELETE factual tweets on climate change.
But there are many more “rogue” handles springing up as well. Ironically, @RogueNASA demands that you “RESIST FAKE NEWS” while reporting from a fake, anonymous twitter account.
We cannot allow Mr. Trump to silence the scientific community. We need peer-reviewed, evidence-based research MORE THAN EVER now.