Zero Hedge

New Harvard Data (Accidentally) Reveal How Lockdowns Crushed The Working Class While Leaving Elites Unscathed

New Harvard Data (Accidentally) Reveal How Lockdowns Crushed The Working Class While Leaving Elites Unscathed

Authored by Brad Polumbo via The Foundation for Economic Education,

Founding father and the second president of the United States John Adams once said that “Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.” What he meant was that objective, raw numbers don’t lie—and this remains true hundreds of years later. 

We just got yet another example. A new data analysis from Harvard University, Brown University, and the Bill and Melinda Gates Foundation calculates how different employment levels have been impacted during the pandemic to date. The findings reveal that government lockdown orders devastated workers at the bottom of the financial food chain but left the upper-tier actually better off.

The analysis examined employment levels in January 2020, before the coronavirus spread widely and before lockdown orders and other restrictions on the economy were implemented. It compared them to employment figures from March 31, 2021.

The picture painted by this comparison is one of working-class destruction.

Employment for lower-wage workers, defined as earning less than $27,000 annually, declined by a whopping 23.6 percent over the time period. Employment for middle-wage workers, defined as earning from $27,000 to $60,000, declined by a modest 4.5 percent. However, employment for high-wage workers, defined as earning more than $60,000, actually increased 2.4 percent over the measured time period despite the country’s economic turmoil.

The data are damning. They offer yet another reminder that government lockdowns hurt most those who could least afford it. 

Image Credit:

Some critics argue that the pandemic, not government lockdowns, are the true source of this economic duress. While there’s no doubt the virus itself played some role, government lockdowns were undoubtedly the single biggest factor. It’s pretty intuitive that ordering people not to patronize businesses and criminalizing peoples’ livelihoods would hurt the economy. This intuition is confirmed by data and studies showing as much. And don’t forget the fact that heavy lockdown states have consistently had much higher unemployment rates than states that took a more laissez-faire approach.

Others might insist that the mitigation of the spread of COVID-19 accomplished by lockdowns justifies this economic fallout. But this argument fails to account for the many peer-reviewed studies showing lockdown orders did not effectively slow the pandemic’s spread, or the painfully inconvenient fact that most COVID-19 spread occurred not in workplaces, restaurants, or gyms but at home. (Making “stay-at-home orders” seem like an astonishing mistake in hindsight.)  

So, all lockdowns really seem to have accomplished is at best a mild delay in the pandemic’s trajectory in exchange for a host of lethal unintended consequences such as a mental health crisis and skyrocketing drug overdoses. And, as we now know, a highly regressive economic fallout for the working class.

Of course, Ivy League researchers almost certainly did not intend to expose the failings of big government pandemic policies when they set out to catalog employment data. But, as Adams said, facts are stubborn things.

Tyler Durden Tue, 06/22/2021 - 14:12

Watch Live: Fed Chair Powell Walk-Back 'Bullard Bomb' With Uber Dovish 'Spin'

Watch Live: Fed Chair Powell Walk-Back 'Bullard Bomb' With Uber Dovish 'Spin'

Fed chair Jerome Powell will speak to the Congressional Select Subcommittee on the Coronavirus Crisis today and after a rollercoaster ride across all asset-classes in the last few days (post-FOMC), we suspect traders will be hanging in his every word even more than ever.

As the Subcommittee explains, "The hearing will assess the Fed’s emergency lending programs established in the early months of the coronavirus crisis, examine current Fed policies as our economy continues to recover, and consider actions needed to ensure a strong, sustainable, and equitable economic future."

From his prepared remarks, it appears Powell will double-down on the uber-dovish narrative - offsetting the 'Bullard bomb' from Friday...

Powell on labor, joblessness and racial tiering: conditions in the labor market have continued to improve, although the pace has been uneven. The unemployment rate remained elevated in May at 5.8 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Job gains should pick up in coming months as vaccinations rise, easing some of the pandemic-related factors currently weighing them down. The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the hardest hit. In particular, despite progress, joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African Americans and Hispanics.

Powell on prices and why they are transitory: Inflation has increased notably in recent months. This reflects, in part, the very low readings from early in the pandemic falling out of the calculation; the pass-through of past increases in oil prices to consumer energy prices; the rebound in spending as the economy continues to reopen; and the exacerbating factor of supply bottlenecks, which have limited how quickly production in some sectors can respond in the near term. As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal.

On downside risks: However, the pace of vaccinations has slowed and new strains of the virus remain a risk. Continued progress on vaccinations will support a return to more normal economic conditions.

The market remains of the belief that the first rate-hike will occur before the end of 2022, (but, Powell, Clarida and Brainard are likely among the 0% dots until 2024... so forget any rate hikes).

Watch Live (due to start at 1400ET):

Tyler Durden Tue, 06/22/2021 - 13:59

Top Quant Strategy Just Suffered Its Biggest Ever Monthly Loss

Top Quant Strategy Just Suffered Its Biggest Ever Monthly Loss

With all the drama and focus on  the inflation story, especially after last week's transitory hawkish pivot by the Fed, SocGen's Andrew Lapthorne points out that there have been some even more dramatic moves in factor performance in recent weeks.

Take long/short Value-Momentum, arguably one of, if not the, most popular quant strategies, which had been in the ascendancy this year as both Value and Price Momentum factors converged around the cyclical recovery/inflation theme. But in recent weeks, and especially after last week's FOMC, the strategy suffered a historic reversal, posting its worst monthly decline since 2002 according to Lapthorne's calculations, with the 4.3% loss on Thursday ranking as the 14th worst day for our Value-Momentum factor since 1990.

And, as the next chart show, on a monthly basis, the monthly drawdown in long/short Value-Momentum has been the biggest on record.

Other quant factors have done better: earnings momentum (bottom-up upgrades and downgrades) remains strong, with 62% of all global estimate changes for 2021 coming through as upgrades and with a high percentage of those upgrades coming through in the reflation sectors (Industrials, Basic Materials, Financial and Energy).

So, while markets have cooled on the reflation theme in recent weeks, the profit momentum story is still aligned, and while the copper price has retracted back to mid-April levels, the oil price is now above pre-pandemic levels. At the same time, Lapthorne concludes, the rate of increase is slowing (it had to at some stage), base effects from last year’s slump will be behind us, and we are entering a period when company reporting is typically quieter. So macro noise looks set to dominate for some time.

Tyler Durden Tue, 06/22/2021 - 13:45

California Plans To Pay Off All Unpaid Rent Racked Up During Pandemic

California Plans To Pay Off All Unpaid Rent Racked Up During Pandemic

Authored by Tom Ozimek via The Epoch Times,

California authorities announced Monday the state plans to pay off 100 percent of unpaid rent accumulated during the pandemic, with the money to come from some $5.2 billion in federal COVID-19 relief funds.

California Gov. Gavin Newsom wrote in a tweet Monday that, “California is planning rent forgiveness on a scale never seen before in the United States,” attributing the post to a report by the New York Times, which noted that state lawmakers were putting the final touches on the program.

While eligibility criteria for the newly proposed program are still unclear, reports indicate that the measure would both give renters in arrears a clean slate and make landlords whole.

The state currently has about $5.2 billion on hand from multiple Congressional aid packages that is earmarked to pay off unpaid rent, Jason Elliott, senior counselor to Newsom on housing and homelessness, told the Associated Press. Elliott added that this amount should be sufficient to cover all unpaid rent in California.

“Nationwide this is certainly the largest rent relief there’s ever been,” said Russ Heimerich, a spokesman for the California Business, Consumer Services, and Housing Agency, a state organization that is overseeing the rent relief program, in remarks to The New York Times.

The proposed measure is separate from California’s existing COVID-19 Rent Relief program, which is designed to help lower-income Californians who are behind on rent. Under the existing program, eligible renters can apply for landlords to be reimbursed for 80 percent of each eligible renter’s unpaid rent between April 1, 2020, and March 31, 2021. The condition is that the landlord must agree to waive the remaining 20 percent of unpaid rent for that time period. If the landlord chooses not to participate in the program, eligible renters can apply to receive 25 percent of unpaid rent accumulated between April 1, 2020, and March 31, 2021.

Eligible renters for the existing rent relief program must have a household income that does not exceed 80 percent of the Area Median Income, must show that they have experienced financial hardship during the pandemic, and must demonstrate a risk of experiencing homelessness or housing instability.

Still unsettled is whether California will continue to ban evictions for unpaid rent beyond June 30, a pandemic-related order that was meant to be temporary but is proving difficult to undo.

Newsom and legislative leaders are meeting privately to decide what to do with respect to extending the eviction ban, part of the negotiations over the state’s roughly $260 billion operating budget.

Keith Becker, a Sonoma County property manager, told The Associated Press that 14 tenants are more than $100,000 behind in rent payments. Becker said it’s put financial pressure on the owners, who he said have “resigned themselves” to renter protections, which he noted were aimed at addressing a public health emergency and not meant to be permanent.

“We should do our best to get back to the starting point where we were in December of 2019. Anything other than that is taking advantage of a crisis,” Becker said.

Tyler Durden Tue, 06/22/2021 - 13:25

Disappointing 2Y Auction Tails As Yield Jumps To 15 Month High

Disappointing 2Y Auction Tails As Yield Jumps To 15 Month High

Short-term rates moved sharply higher after last week's technical tweak by the Fed which pushed the IOER and RRP by 5bps to 15 and 5bps respectively, which had a downstream effect on all short-term yields, and today's 2Y auction was a case in point printing at 0.249%, the highest yield since March 2020 and a 0.5bps tail to the When Issued 0.244%. This was the biggest tail on the 2Y since July 2020 when the auction tailed 0.9bps.

And yet today's 2Y auction wasn't all bad: the bid to cover dipped from 2.736 to 2.540 yet even so it was right on top of the 6-auction average.

The internals were also in line, with Indirects taking down 50.6%, below last month's 57.1% and just below the 52.4% recent average. And with Directs allotted 18.5%, slightly above the May 18.0% but below April's 18.5%, Dealers were left holding 30.9%, which was also right on top of the recent average of 31.1%.

And while the auction was superficially disappointing, it could have been worse amid expectations that the large move higher in 2yr yields post-Fed, both as a result of the more aggressive rate hike pricing by markets and the IOER/RRP hike, would entice investors due to the new and improved carry profile of the note. However, as Newsquawk notes, it's worth noting that 2s had been grinding higher earlier in the session, likely reducing the allure somewhat by the time of the auction.

Bottom line: not a pretty auction, but it could have been far worse all things considered.

Tyler Durden Tue, 06/22/2021 - 13:20

Daily Briefing: Bitcoin Crashes as Stocks Flirt with All-Time Highs

Daily Briefing: Bitcoin Crashes as Stocks Flirt with All-Time Highs

Real Vision senior editor Ash Bennington welcomes Tommy Thornton of Hedge Fund Telemetry and to the Daily Briefing to discuss Bitcoin’s crash, FED Chair Powell’s testimony, and market sentiment as stocks rebound. The pair will cover potential explanations for Bitcoin’s reversal as well as implications for companies in the space such as Coinbase. Additionally, they will dive into both commodity and stock market reactions to FED Chair Powell’s testimony on the state of the economy. Special Festival of Learning offer - 10% off with the code DAILYBRIEFING.

Tyler Durden Tue, 06/22/2021 - 13:20

Biden Set To Miss Vaccine Goal As "Delta" Strain Spreads Across Southern US

Biden Set To Miss Vaccine Goal As "Delta" Strain Spreads Across Southern US

President Joe Biden and his advisors are preparing to acknowledge that the US won't meet his goal of having 70% of American adults receive at least one dose of a COVID-19 vaccine before July 4. As we reported earlier this week, the US has surpassed 150MM "fully vaccinated" patients.

However, the pace of vaccinations has fallen substantially.

The CDC released a report yesterday arguing that it's particularly important to reduce "vaccine hesitancy" in 18 to 39-year-olds, who are among the demographics least likely to take the vaccine. Polling by the Kaiser Family Foundation has found that about 13% of Americans are planning to avoid the vaccine no matter what, while another 12% saying they are waiting before making a decision.

The US is missing this goal not for lack of supplies: rather, it's the demand side of the equation that's creating problems for Biden, Dr. Anthony Fauci and the other architects of the American COVID-19 response. And as Filipino President Rodrigo Duterte threatens to arrest citizens who refuse the vaccine, we can't help but wonder whether the US will eventually embrace more heavy-handed tactics, especially as vaccination rates in some southern states remain stubbornly low.

As the map below shows, Arkansas, Alabama, Louisiana and Mississippi (which has the lowest vaccination rate in the entire country) are lagging their fellow southern states and the rest of the country. Missouri, Oklahoma, Kansas and Utah have also lagged, along with the sparsely populated western states of Wyoming and Idaho.

Source: mSightly

As fears about the "Delta" strain have intensified, hospitalizations, particularly hospitalizations involving younger patients, have started to climb.

In Missouri, Arkansas and Utah, the 7-day average of hospital admissions linked to COVID has climbed by more than 30% in the past two weeks. In Mississippi, the hospitalization rate is up 5% during the same period, per Bloomberg. Health experts have recently argued that as COVID testing has fallen off, hospitalizations will be a more reliable indicator of COVID spread. As is the mainstream media's want, describing these trends in percentage terms makes them appear significantly scarier than they actually are, since the 'surge' in Mississippi translates to a total of still less than 1 patient per 100K.

Source: Bloomberg

An analysis by the genomics firm Helix showed that the 'more' contagious "Delta" strain is the main driver of new cases in these states.

So far, the US has given at least one jab to more than 53% of the population. But all the states with mounting transmission trail the national average, sometimes substantially. Mississippi has given a single jab to just 35%. Young people are less likely to be vaccinated than older groups.

In Arkansas, Missouri, MIssissippi and Utah, hospitalizations are surging while testing for COVID has dropped off significantly, with the 7-day average nationwide plummeting 55% in the past three months. This makes case counts a less reliable indicator, forcing officials to rely more on hospitalizations.

Some are worried that public health officials are getting too complacent, citing the seasonal nature of the virus. However, as last summer's surge across the Sun Belt showed, there's still a risk that the virus could come roaring back if a mutant strain gains enough of a foothold in a population that it can continue to mutate.

"Delta is driving surges around the world, and I suspect it’s going to be the same here," said William Lee, the vice president of science at Helix. Delta is growing more than twice as fast as gamma in under-vaccinated communities.

But Delta isn't the only threat: the gamma variant, which appears better at evading vaccines, was found to be more prevalent in counties with higher inoculation rates. The Helix research, which hasn’t yet been subject to peer review, is to be published in an upcoming pre-print online.

Tyler Durden Tue, 06/22/2021 - 13:06

Decade Of Chaos Could Send Oil To $130 Per Barrel

Decade Of Chaos Could Send Oil To $130 Per Barrel

Authored by Irina Slav via,

From $35 per barrel to $130 per barrel—this is the range for oil prices in the next few years that we could see, according to a commodity trading group. And it will all depend on what peaks first: demand or investment in new production. "You could see spikes to even higher than $100 a barrel, even $130, and you could also see it go down to $35 a barrel for periods of time going forward," William Reed II, chief executive of Castleton Commodities International, said at the FT Global Commodities Summit this week, as quoted by Reuters. "The question is what happens first. Peak demand or peak investment?"

This is a fascinating question that will likely remain open for quite some time; it seems as if forecasts are even more unreliable than usual in the post-pandemic world. For instance, last year, energy authorities and the industry itself predicted oil demand growth was over thanks to the pandemic that encouraged a doubling down on an energy shift away from fossil fuels. Now, these same forecasters, including the International Energy Agency and BP (3.22%), are talking about growing oil demand.

One thing that can hardly be disputed is that lower spending on exploration would inevitably lead to lower production. This is what we have seen: the pandemic forced virtually everyone in the oil industry to slash their spending plans. This is what normally happens during the trough phase of an industry cycle.

What doesn't normally happen in a usual cycle is long-term planning for smaller output. Yet this is the response of Big Oil to the push to go green. Most supermajors are planning changes that would effectively reduce their production of oil and gas. In Shell's (3.58%) case, it has been literally ordered by a Dutch court to shrink its production of oil and gas.

So, it's pretty clear that supply is tightening, and oil prices are reflecting this. In fact, supply has lately shrunk so much that even the International Energy Agency, which earlier this year called for a suspension of all new oil and gas exploration, is now calling for more supply. This is the perfect illustration of how difficult it has become to predict where oil prices would go even in the short term, let alone a period of several years.

According to Castleton's Reed, the recovery in oil prices was only to be expected. In that, he is the latest in the growing choir of voices predicting higher prices, even north of $100 per barrel, before too long. Yet, according to some, they might only stay there for a short while and then never reach the same levels.

Earlier this month, a Boston Consulting Group report titled The Last Oil Price Boom May Be in Sight suggested that what we are now witnessing may be not just the last oil price rally but the shortest one, too. The consultancy noted the fast rally in prices since the start of this year as an indication of the "compressed time span" of the boom.

"This quick rise will put pressure on suppliers, which will expand capex to meet rising demand, and end users, which will leverage efficiency as well as increasingly available new technologies to mitigate—or even avoid altogether—the price of oil and its attendant emissions," Boston Consulting Group's report authors wrote.

Things in oil prices are indeed moving faster than usual, but if we are being fair, the past year has been anything but usual. The biggest consequence of the pandemic was a boom in uncertainty, which has made forecasting anything much more difficult than before. As noted above, oil demand forecasts are a good example of this heightened uncertainty. There are also challenges that the energy transition push is facing that could derail it or at the very least postpone it. This contributes to the uncertain future of oil prices and the argument for supervolatility.

Solar panel prices are on the rise, for instance. The reason is supply chain disruptions caused by the pandemic. There is also emerging environmentalist opposition to utility-scale solar farms. Issues such s copper supply for windmills and EVs, and battery minerals are also dimming the outlook for the energy transition and implicitly work in favor of oil and gas.

So, it is easy to see how Brent crude could hit $100 per barrel before this year's end if demand continues recovering at the current rate. Even the additional OPEC+ supply coming to markets next month may not be enough to reverse the trend.

It is a little harder to see oil falling to $35 a barrel unless a lot more supply is added. This would be a perfectly realistic scenario in any other cycle. Now, producers both in OPEC and outside it are wary of the energy transition and its expected effect on their business, and are not in a rush to boost production. The question of what will come first, peak demand or peak investment, remains open.

Tyler Durden Tue, 06/22/2021 - 12:45

Biden Admin Offers To Meet North Korea "Anytime, Anywhere" For Nuclear Talks

Biden Admin Offers To Meet North Korea "Anytime, Anywhere" For Nuclear Talks

Amid renewed speculation over Kim Jong Un's health and especially the growing food crisis in his country, the US special envoy for North Korea on Monday made a rare diplomatic overture for the first time under the Biden administration, saying he hoped leaders in Pyongyang would be willing to meet for talks "anytime, anywhere"

"We continue to hope that the DPRK will respond positively to our outreach and our offer to meet anywhere, anytime, without preconditions," US Special Envoy Sung Kim said of nuclear talks which collapsed or at least were put on indefinite "pause" by the last year of the Trump administration. 

"We will also urge all UN member states, especially UN Security Council members, to do the same, to address the threat posed to the international community by the DPRK," he continued in the Monday comments.

The ambassador's words came days after Kim Jong Un ordered his government to get "prepared for confrontation" with the United States, according to state media last Friday

Kim "stressed the need to get prepared for both dialogue and confrontation, especially to get fully prepared for confrontation in order to protect the dignity of our state" and ensure national security, it said.

In Sunday news talk shows national security advisor Jake Sullivan reemphasized the Biden White House policy of denuclearization of the Korean peninsula, which Pyongyan has consistently rebuffed given there's no corresponding offer of sanctions relief. 

Sullivan told ABC News: "His comments this week we regard as an interesting signal and we will wait to see whether they are followed up with any kind of more direct communication to us about a potential path forward." He added: "The clear signal they could send is to say 'yes, let's do it. Let's sit down and begin negotiations.'"

However, it remains that without any sanctions relief incentives on the table, North Korea is likely to see such overtures for "dialogue" as a non-starter, as geopolitical commentator Dave DeCamp notes of the prior administration's approach, which at least got the two sides to the table: "A more realistic approach that was entertained by the Trump administration would be an offer to lift some sanctions in exchange for a freeze in Pyongyang’s nuclear weapons program."

Tyler Durden Tue, 06/22/2021 - 12:30

Chinese Crypto Miner Airlifts Bitcoin Mining Operation To Maryland Amid Crackdown

Chinese Crypto Miner Airlifts Bitcoin Mining Operation To Maryland Amid Crackdown

According to CNBC's Eunice Yoon, China's continued crackdown on cryptocurrency has resulted in some miners quickly packing up operations and heading for America. 

Yoon tweeted Monday, "Chinese Logistics Firm Airlifting Bitcoin Mining Machines to Maryland." A photo in the tweet appeared to show brown cardboard shipping boxes packed with mining machines ready to be airlifted from China to Baltimore, Maryland. 

Guangzhou-based Fenghua International told the CNBC reporter that the shipment was approximately 3,000kg (6,600lbs). 

Thomas Heller, the chief business officer at Compass Mining, told CoinDesk that the weight of the mining machines would equate to about "200 units of S19" units. 

The latest crackdown on crypto in China continued last Friday when China's vice-premier Liu He said the government would crack down on bitcoin mining and trading activities, which of course, is something we already knew. 

China's constant bombardment of headlines to crush bitcoin comes as the digital yuan reception has been a total disaster

Again, on Monday, authorities, this time in the Chinese city of Ya'an had promised to root out all bitcoin and ether mining operations in the area and followed by the PBOC, China's central bank, which formally requested a meeting with Alipay and several local banks over providing services to virtual currency trading. The banks included ICBC, Agricultural Bank of China, China Construction Bank, Postal Savings Bank of China, and Industrial Bank.

He said that "3,000 kg sounds huge, but compared to the number of miners that get shipped regularly, it's just a small batch." In terms of hash rate, 200 of the mining units equate to 19,000 TH/s.

Heller estimates about 526,000 S19 machines in China have been switched off, which means about 80,000 metric tons of mining equipment could be ready for shipment to more friendly crypto overseas regions. 

Miners might also find El Salvador another friendly area for crypto after President Nayib Bukele adopted bitcoin as legal tender earlier this month.

Tyler Durden Tue, 06/22/2021 - 11:50

Watch: Peter Schiff's Great Inflation Debate

Watch: Peter Schiff's Great Inflation Debate


Is inflation “transitory,” the result of a quickly recovering post-pandemic economy as Jerome Powell insists? Or is it a long-term phenomenon resulting from loose monetary policy that’s not about to abate anytime soon? Peter Schiff recently participated in the “great inflation debate” on RT’s Cross Talk with Peter Lavelle, along with American Institute for Economic Research economist Pete Earle and Renaissance Capital economist Sofia Donets.

Peter Schiff opened up the discussion emphasizing something Lavelle said in the introduction – inflation is a tax.

The source is government because that’s who taxes us. The only way to reduce inflation would be to dramatically cut government spending, because government spending is being paid for through inflation. We’re running record budget deficits. And so, instead of taking our money and spending it, the government is taking our purchasing power by printing new money and spending that. So, the increase in prices that we’re all experiencing is the tax that we’re all paying to finance government. In addition, the Federal Reserve is trying to prop up the stock market, prop up the real estate market and prop up the US government. It can only do that by keeping interest rates artificially low. But in order to do that, the Fed has to keep printing money to buy bonds. So, as long as the Fed is artificially suppressing interest rates, it is going to have to create inflation to do it. And because we have so much debt, the Fed is now forced to keep interest rates at zero. And so unfortunately, average Americans, the middle class, and the working poor are going to suffer the most severe bout of inflation in US history – far greater than anything experienced during the decade of the 1970s.”

Peter Earle said that he generally agrees with Peter, but he’s not so much concerned with the CPI numbers. He says the real problem is inflation showing up in the financial markets.

Donets said as former a central banker, she takes the other side of the argument, agreeing with Jerome Powell that inflation is transitory.

Lavelle noted that loose monetary policy has been going on for a long time. The pandemic super-charged it. Is the Fed being “responsible?” Schiff said the Fed is never being responsible.

One of the other things the Fed is never is honest. The Fed is all about spin.”

Schiff harkened back to the Fed’s response when it was becoming obvious that the mortgage market was in trouble. The central bankers came out and reassured everybody that there was nothing to worry about and the problems in subprime were “contained.” Why did they do that?

They were hoping that by denying the problem existed, maybe they could somehow will it out of existence and somehow get people to change their behavior in the face of what should have been an obvious crisis. And they were hoping to avert it. And I think they’re doing the same thing now. The Fed has absolutely no ability to fight inflation, so why even acknowledge it’s a threat when you can’t do anything about it? So, the only thing the Fed can do is deny. Lie to the markets. Tell everybody that it’s all temporary. And that explains their failure to act. But the real failure to act is because it’s impossible. Because the only way to fight inflation is to turn off the monetary spigots.”

Peter said the bottom line is we’re at the beginning of a long-overdue increase in the cost of living – not only due to the money creation during the pandemic, but also all of the money printed before COVID-19.

Ultimately, the issue is political. Governments have promised to solve all of our problems. But we still have to pay for it. As Peter Schiff put it, every member of Congress wants to give the voter something for nothing. But where is the money coming from?

They’re not raising taxes. They’re just spending the money. And so, the money is being created. It’s being conjured into existence by the Federal Reserve. But that is inflation. You see, every single dollar that the federal government spends, the American public has to cover the cost. So, if they’re not going to take out money through taxation, they’re going to take our purchasing power through inflation.”

We can’t have all of this stimulus for free.

There is no such thing as a free lunch. Spending is going to keep getting worse. And of course, as government spends more, it weakens the economy, which means even more spending — inflation is going to go through the roof.  We keep talking about the 1970s. What we’re going to experience is going to be far worse.”

The massive injection of liquidity has created a bubble in just about every asset class. As Peter Schiff put it, everything is dramatically overpriced. He singled out the bond market noting that yields don’t reflect reality.

It reflects fantasy. And everything is priced to fantasy.”

Peter Earle said at some point somebody will need to step up, be the adult in the room, and clamp down on this easy money policy. But Peter Schiff said there is no savior that’s going to do the right thing as Paul Volker did in the early 80s.

The consequences of doing the right thing are so horrific at this point that they’re never going to be tried. But of course, the consequences of continuing to do the wrong thing are even more horrific. But that’s what’s going to happen. Because politicians don’t give a damn about that. All they want to do is kick the can down the road as long as they can. They don’t care if they make the problem worse, just so long as it blows up later.”

Tyler Durden Tue, 06/22/2021 - 11:30

"I'm Not Going Back To Work": Indiana Residents Sue After Governor Nixes Unemployment Benefits

"I'm Not Going Back To Work": Indiana Residents Sue After Governor Nixes Unemployment Benefits

A group of Indiana residents have filed a lawsuit against state officials, challenging the state's decision to end federal unemployment benefits by the end of the week.

The lawsuit, filed last Monday, seeks to preserve what was supposed to be temporary pandemic safety net of $300 per week on top of other state or federal benefits, after indiana Gov. Eric Holcomb announced last month that the state would pull out of the federal program before it's official September end date in order to motivate unemployed people to help fill the state's more than 116,000 open jobs.

Holcomb is joined by around two dozen mostly red states.

"It's not black and white," said Sharon Singer-Mann in a statement to IndyStar. "Everybody's story is not the same. I'm not going back to work, not at the risk of my son's life."

"We'll have to decide which utility bill to pay, which household items to let go of," she added (despite the 116,000 open jobs), "... We'll have to change what kind of shampoo we use, what kind of toilet paper we use."

Without the federal pandemic unemployment benefits, many Indiana residents, like Singer-Mann, say they would have had to choose between finding a job and taking care of their children, face evictions, forgo medical care and grapple with devastating financial setbacks that could derail their lives. 

Those stories from residents are outlined in a lawsuit filed against Indiana state officials Monday in Marion County Superior Court challenging the state's decision to end federal benefits by the end of this week. -IndyStar

"Our community is dealing with enough stress and trauma," said Rev. David Greene, president of the Concerned Clergy of Indianapolis and a plaintiff in the lawsuit against the state along with residents represented by the Indiana Legal Services nonprofit law firm which represents low-income residents.

When asked about the lawsuit, Holcomb's office responded: "DWD has timely notified impacted claimants about the state’s withdrawal from the federal programs and continues to connect impacted people with the resources they need to gain skills and be matched with employment."

Staffing shortages persist

While the enhanced unemployment benefits have clearly kept some people from the job scene, some workers have come back to work - or have continued to work through the pandemic.

It wasn't by any means easy. When customers began returning to restaurants with the warmer weather and loosening restrictions, it meant longer hours for Ryan Isenor at his job at a local pizza shop.

In addition to serving, he was pouring drinks and bussing tables to make up for the thin staff, cutting into time he typically makes for himself to decompress.

However, he doesn't resent anyone who decided to change careers or taking their time to figure out their next jobs. It's a personal choice, he thinks. 

"It's pervasive: this hustle attitude. But I don't believe in that," he said.

The restaurant has since hired more people, making his life less hectic, but many service industry businesses are struggling to hire as they scale back to their pre-pandemic levels. -IndyStar

Workers advocates, however, say there aren't enough jobs available for people relying on federal benefits - noting that while 116,000 jobs may be available, there are nearly 200,000 people who have been receiving federal unemployment benefits. 

Progressive think tank Century Foundation thinks it's more - and says Indiana is set to lose out on $1.5 billion in federal funding that would have helped some 286,000 residents.

Seasonal trends will undoubtedly take up some of that slack, as summer hiring is expected to pick up amid loosening pandemic restrictions.

"June will have pickups in hiring," said Kyle Anderson, an economist at Indiana University Kelley School of Business, adding "That's true regardless of what the extended benefits are going to be."

Rev. Greene, meanwhile, is worried that the elimination of federal benefits will lead to a spike in evictions.

"There's a difference between going back to work and working 20 hours a week, with rent, car payments, food, etc.," he said. "We need to get organizations to get back up to 40 hours a week."

Greene also says crime will spike because of poverty and evictions.

"People dealing with stress and not making enough money, well they resort to crime," he said, adding "...Finances is always key in any relationship. When finances dwindle, there's an increase in domestic violence."

In the first week of June, there were 600 evictions filed in Indiana - making for more than 46,000 since the start of the pandemic, according to data from the Princeton Eviction Lab.

"Without his unemployment benefits, J.C. will be unable to pay for rent and will likely face eviction in July 2021," the lawsuit reads. "Eviction is both expensive, time consuming and creates a record that can hinder his ability to rent or buy affordable housing in the future and limit his future employment prospects."

Tyler Durden Tue, 06/22/2021 - 11:11

Google Accused Of "Force-Installing" COVID Tracking App On Phones

Google Accused Of "Force-Installing" COVID Tracking App On Phones

Authored by Steve Watson via Summit News,

Americans in the state of Massachusetts with Android phones have accused Google of installing a COVID tracking app automatically without user consent.

People reported that the ‘MassNotify’ app appeared on their phones mysteriously without them opting in to the feature.

The app tracks people’s movements and issues notification alerts if a possible exposure to COVID-19 happens.

Writing in the review section of the Google Play app store, one user noted that the app “Automatically installed without consent. It has no icon, no way to open this and see what it even does, which is a huge red flag… I think it’s spyware, phishing as the DPH (Department of Public Health).”

Another wrote “Force-installed with no authorization or approval. App is hidden on the device to prevent uninstallation. Government overreach and corporate complicity should never be tolerated.” 

Another person described the app as an “unethical breach of privacy and a forceful misappropriation of personal property,” adding, “The degree to which my data is collected or distributed through it has not been disclosed neither in active nor inactive form… I can only conclude and caution others that it is disclosing your whereabouts and social contacts without permission.”

Many complained that the app had ‘force installed’ on their phones

Google issued a statement to 9to5Google, which does not addressing the claims that the app stealth installed on phones.

The statement reads:

We have been working with the Massachusetts Department of Public Health to allow users to activate the Exposure Notifications System directly from their Android phone settings. This functionality is built into the device settings and is automatically distributed by the Google Play Store, so users don’t have to download a separate app. COVID-19 Exposure Notifications are enabled only if a user proactively turns it on. Users decide whether to enable this functionality and whether to share information through the system to help warn others of possible exposure.

ARS Technica notes that there are two different versions of the Mass Notify app on the Play store, and that one only has around 1000 installs and no complaints that it auto-installed, where as the other has been slammed by people claiming they didn’t ask for it to appear on their phones and has over a MILLION installs. That is odd because only 6.8 million live in the State, and if 50% of them have Android phones (which they don’t) then around a third have supposedly downloaded the app themselves.

“Did they roll this out to every device in Massachusetts?” ARS Technica questions.

The report notes “Both apps are listed under the ‘MA Department of Public Health’ developer account, which—uh—does not exist? The link for the developer just 404s, which really does not inspire confidence in the app’s legitimacy.”

Others reported that the auto-installed version of MassNotify does not actually have app icon or a public health statistics UI, and only appears in the phone’s system settings under the title “Massachusetts Department of Heath.”

At best the rollout can be described as odd, and at worst a creepy attempt to stealthily track the movements of everyday Americans.

As we have previously noted, COVID tracking apps have been used by the State in China as an excuse to ramp up surveillance, in combination with the onerous social credit score system. There are signs that this system is being adopted by Western governments as a method of further controlling their populations.

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Tyler Durden Tue, 06/22/2021 - 10:49

Russian Warships Practice Sinking Aircraft Carrier 35 Miles Off Hawaii Coast As US Places F22s On Standby

Russian Warships Practice Sinking Aircraft Carrier 35 Miles Off Hawaii Coast As US Places F22s On Standby

For weeks Russia has mustered a large fleet and aerial assets in the Pacific Ocean near Hawaii in what's been widely recognized as Russia's largest Pacific military drills since the end of the Cold War. The Pentagon has closely monitored the somewhat unprecedented exercises which have seen at least 20 warships, submarines, fighter jets, and long-range bombers operating a mere 300 miles off Hawaii's coast.

But in a new alarming statement the US Navy is confirming that at one point Russian vessels and aircraft came a mere 35 miles off Hawaii's coast as the massive war games were underway. While stressing that the foreign military assets stayed within international waters, spokesman for US Indo-Pacific Command Navy Capt. Mike Kafka, said, "At the closest point, some ships operated approximately 20 to 30 nautical miles (23 to 34 statute miles) off the coast of Hawaii," he said. "We closely tracked all vessels."

New details of Russian maneuvers during the course of the exercises suggest there were multiple "close calls" - also as days ago the Pentagon scrambled F-22 stealth fighters, which remain on standby.

The Russian side is now divulging that its military undertook mock attacks on a simulated aircraft carrier strike group.

First, as the Honolulu Star Advertiser has detailed, armed US fighters twice responded to the area amid a heightened state of alert over the Russian war games:

The deployment of Russian "Bear" bombers as part of the exercise twice resulted in missile-armed Hawaii Air National Guard F-22 fighters scrambling to possibly intercept the turboprop planes — which headed in the direction of Hawaii but never came close, officials said.

The report continues: "The Hawaii Air Guard stealth jets launched June 13 and again on Friday, but no intercepts were conducted with the Russian planes likely turning away from the path toward the state, according to an account of the launch."

Russian military, Varyag cruiser

And the hugely provocative details of the simulated carrier sinking put out by Russia's defense ministry were detailed in The Drive as follows:

The Russian Ministry of Defense today published an account about the Pacific Fleet maneuvers, which are described as having practiced "the tasks of destroying an aircraft carrier strike group of a mock enemy." 

A simulated cruise missile strike was carried out by the Pacific Fleet flagship, the Slava class cruiser Varyag (pictured above), as well as the Udaloy class destroyer Marshal Shaposhnikov, and the Steregushchiy class corvettes Hero of the Russian Federation Aldar Tsydenzhapov, Gromky, and Sovershenniy.

Russia's defense ministry has lately issued multiple short official videos of its large force in action near Hawaii...

Again, since the formal end of the exercises it's emerging based on independent satellite image analysis that some of the Russian military assets were engaged in operations much closer to the United States' sovereign territory than previously thought. 

"Russia says that they are 300 miles off the coast of Hawaii, yet unconfirmed satellite images from June 19 appear to show them much closer - within 35 miles of the U.S. state," The Daily Mail observes. The newest US Pacific-Command statement has since confirmed this proximity of at least some of the Russian assets.

Russian MoD

A number of Western pundits underscored that the large-scale Russian games were meant as a serious muscle-flexing "message" to President Biden just as he met with Vladimir Putin in Geneva last Wednesday. 

Despite the US fighters being scrambled off Hawaii's coast and remaining on stanby, Biden never publicly addressed the threat, though it's unknown if he broached the issue with Putin directly in the closed-door talks.

What's more is that a Russian spy ship has remained in the regional waters near the US islands, according to Hawaiian news sources which detailed its presence Monday. 

No doubt, US Pacific-Command forces are still on a high state of alert, monitoring for any remaining Russian military maneuvers in the area.

Tyler Durden Tue, 06/22/2021 - 10:35

Someone At The Fed Needs To Speak Up To Avoid Committing A Major Policy Error

Someone At The Fed Needs To Speak Up To Avoid Committing A Major Policy Error

By Joseph Carson, former chief economist at Alliance Bernstein

Someone At The Fed Needs To Speak Up To Save Itself From Committing A Major Policy Blunder

Monetary policy in 2021 is actively promoting the fast cyclical growth bounce and even welcoming the uptick in inflation. That's in sharp contrast to how the old generation of policymakers confronted a similar cyclical bounce in 1994. Back then, policymakers worked quickly and aggressively to restrain the cyclical expansion, particularly the uptick in inflation.

Someone at the Fed needs to speak up to save itself from committing a major policy blunder. Institutional rigidities of transparency and predictability are keeping a policy of easy money for longer than is needed. The current approach puts the economy on a course for a hard landing compared to the soft landing the old generation of policymakers engineered in 1995 when faced with a similar scenario in 1994.

2021 vs. 1994

The economy in 2021 has a lot of the same features as in 1994. Both years saw rapid growth and price pressures emerge as headwinds faded. In 2021, the strong rebound reflects the re-opening of the economy helped along with easy money and fiscal stimulus. The catalyst for the rebound in 1994 came from an extended span of easy money and the end of household deleveraging, corporate restructuring, and defense cutbacks.

2021 rapid growth is faster and broader as it followed a record decline in the prior year. Consensus estimates put Real GDP growth in 2021 in the 6% to 7% range, whereas the increase in 1994 came in at 4%. But the big difference between the two years is inflation.

Core consumer inflation runs at a 5% annualized rate through the first five months of 2021, whereas inflation peaked at 3% in 1994. Pipeline inflation is more than three times as fast. Core prices for intermediate materials have increased 17% in the past year versus a peak of 5% in 1994.

The current generation of policymakers thinks that the supply and demand in the product markets will at some point "autocorrect." That implies pipeline inflation pressures will disappear as companies raise production levels to meet the higher level of demand without causing any disturbances in the economy. Of course, in reality, a single or two product markets can readjust. But, it is naive to think of multiple product markets, and housing and many parts of the service economy can do so simultaneously.

Institutional rigidities of transparency and predictability stop policymakers from ending the asset purchase program for housing that everyone agrees is no longer needed. Is that the proper way to conduct monetary policy? Just because policymakers did not tell or inform the financial markets it planned to curtail its asset purchase program, it cannot do so until complete transparency. That makes zero sense. A policy that fuels an unsustainable surge in demand and a rise in house prices that is wrong today will be even more so tomorrow.

In 1994, the old generation of policymakers saw strong ordering and material price increases as evidence that companies needed more inventories to protect production schedules. There have already been examples in 2021 in which companies had to curtail production because of a shortage of parts. Subduing final demand was seen as a necessary condition to break and shorten the cyclical uptick in inflation. Thus, in 1994 policymakers lifted official rates for twelve consecutive months, doubling official rates from 3% to 6%. That ratcheting up of official rates brought about a soft landing in 1995.

The current policy stance of zero official rates and asset purchases puts the economy on a different course, with a hard landing a much likelier outcome. Someone at the Fed needs to speak up soon as record monetary accommodation is no longer necessary against a backdrop of fast growth and rising price pressure and, in the process, puts the economy on an unsustainable course that will end badly.

Tyler Durden Tue, 06/22/2021 - 10:15

Existing Home Sales Tumble For 4th Straight Month To Lowest In A Year

Existing Home Sales Tumble For 4th Straight Month To Lowest In A Year

After April's ugliness, today's Existing Home Sales data for May is the first chance to see signs of recovery in the housing market as state reopenings accelerate. Analysts, however, were not buying it, expecting a 2.1% MoM drop in the key data point, but the data did better than expected, dropping 'only' 0.9% MoM. That is the 4th straight month of existing home sales declines...

Source: Bloomberg

That is the weakest sales print since June 2020...

Source: Bloomberg

Home prices will likely remain elevated for some time as builders struggle to replace the deficit in existing homes with new builds. They cite high materials prices, supply shortages and a limited number of skilled workers as ongoing challenges.

The median selling price rose 23.6% from a year ago to a record $350,300 in May.

And the biggest jump in sales is occurring in the most expensive homes...

“Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market,” Lawrence Yun, NAR’s chief economist, said in a statement.

On average, properties remained on the market for a 17 days in May, matching an all-time low. Eighty-nine percent of the homes sold last month were on the market for less than a month, the NAR said.

“If prices were to decline, there’s an army of potential homebuyers seeing it as a second-chance opportunity,” Yun said on a call with reporters.

None of this should come as a surprise given the total collapse in homebuyer sentiment (and when did homebuilder sentiment actually count for anything?)...

Source: Bloomberg

With The Fed 'talking about, talking about' tapering and raising rates (at some point in the future), mortgage rates are already starting to rise...

Source: Bloomberg

Get back to work Mr.Powell.

Tyler Durden Tue, 06/22/2021 - 10:05

CoT Report Shows Stage Set For Volatility

CoT Report Shows Stage Set For Volatility

Authored by Lance Roberts via,

A couple of weeks ago, in “Warning Signs A Correction Is Ahead,” we said quite a few indicators set the stage for a pick-up in volatility. A review of the latest Commitment Of Traders (COT) report suggests the same.

“During a ‘bullish advance,’ investors become incredibly complacent. That ‘complacency’ leads to excessive speculative risk-taking. We see clear evidence of that activity in various ‘risk-on’ asset classes from Cryptocurrencies, to SPAC’s, to ‘Meme Stocks.’”

Last week, the market broke down as our “sell signals” triggered. As noted in this past weekend’s newsletter, “Fed Signals Taper,” I stated:

“Well, not only did the highs not stick, but the 50-dma failed during Friday’s sell-off. The market closing at its lows suggests we could see some more selling early next week. The ‘good news,’ if you want to call it that, is the ‘sell signal’ is moving quickly through its cycle. Such suggests that selling pressure may remain limited and may resolve itself by the end of June.”

“The ‘not-so-good’ news is on the weekly chart. Our previous discussions warned that if the daily and weekly ‘sell signals’ align, such has often coincided with more ‘corrective’ rather than  “consolidative” actions. Importantly, weekly signals are only valid at the close of the week. On Friday, the weekly ‘sell signal’ triggered suggests a period of correction/consolidation is probable.”

The more critical point in the newsletter concerns the massive spread between the Producer Price Index  (PPI) and the Consumer Price Index (CPI).

Please pay attention to this spread as it shows producers cannot pass along inflation to their customers. Therefore, the retained inflation, and by this measure, a lot of it, will erode profit margins and earnings in the future.”

Such is severely problematic given current valuations.

Positioning Review

The COT (Commitment Of Traders) data, which is exceptionally important, is the sole source of the actual holdings of the three critical commodity-trading groups, namely:

  • Commercial Traders: this group consists of traders that use futures contracts for hedging purposes. Their positions exceed the reporting levels of the CFTC. These traders are usually involved with the production and processing of the underlying commodity.

  • Non-Commercial Traders: this group consists of traders that don’t use futures contracts for hedging and whose positions exceed the CFTC reporting levels. They are typically large traders such as clearinghouses, futures commission merchants, foreign brokers, etc.

  • Small Traders: the positions of these traders do not exceed the CFTC reporting levels, and as the name implies, these are usually small traders.

The data we are interested in is the second group of Non-Commercial Traders (NCTs.)

NCT’s are the group that speculates on where they believe the market will head. While you would expect these individuals to be “smarter” than retail investors, we find they are just as subject to “human fallacy” and “herd mentality” as everyone else.

Therefore, as shown in the charts below, we can look at their current net positioning (long contracts minus short contracts) to gauge excessive bullishness or bearishness. 


Since 2012, the favorite trade of bullish speculators has been to “short the VIX.” Shorting the volatility index (VIX) remains an extraordinarily bullish and profitable trade due to the inherent leverage in options. Leverage is one of those things that works great until it doesn’t.

One of the more astonishing data points is that retail investors have increased risk markedly since the March lows. (Chart courtesy of Sentiment Trader)

Furthermore, while investors took on record levels of risk via speculative call buying, they also increased margin debt to record levels.

Currently, net shorts on the VIX are still very elevated. However, they have begun to reverse this past week which has typically preceded more significant volatility swings in the short term. While current levels are not as significant as seen in January 2018 or February 2020, the positioning is large enough to fuel a more substantial correction.

The only question is the catalyst.

Crude Oil Extreme

Crude oil has gotten a lot more interesting as of late. After a brutal 2020, the price of oil futures going negative at one point, oil is now pushing $70/bbl. Given current expectations for a surge in “inflation” from the massive liquidity infusions, the focus on highly speculative positions is not surprising.

Despite the massive surge in oil prices since March 2020, “energy” stocks, as noted by the correlation of crude to XLE, have underperformed. Such is because the leverage in options increases speculative returns. It is worth noting that “expectations” of economic recovery are likely well ahead of reality. As such, the extreme overbought, extended, and deviated positioning in crude will likely lead to a rather sharp correction. (The boxes denote previous periods of exceptional deviations from long-term trends.)

The speculative long-positioning is driving the dichotomy in crude oil by NCTs. While levels fell from previous 2018 highs during a series of oil price crashes, they remain more extreme at 510,499 net-long contracts. While not the highest level on record, it is definitely on the “extremely bullish” side.

The good news is that oil did finally break above the long-term downtrend. However, it is too soon to know if these prices will “stick,” or as the economy decelerates towards the end of the year, oil prices will decline.

The supply of oil, and lack of global demand, remain a longer-term problem for oil prices. Furthermore, due to a deflationary push, a dollar rally will likely derail the oil prices later in the year. 

U.S. Dollar Rally Likely

There are two significant risks to the entire “bull market” thesis: interest rates and the dollar. For the bulls, the underlying rationalization for high valuations has been low inflation and rates. In February, we stated:

“Given an economy that is pushing $87 trillion in debt, higher rates and inflation will have immediate and adverse effects:

  1. The Federal Reserve gets forced to begin talking tapering QE, and reducing accommodation; and,

  2. The consumer will begin to contract consumption as higher costs pass through from producers. 

Given that personal consumption expenditures comprise roughly 70% of economic growth, higher inflation and rates will quickly curtail the “reflation” story.”

A few months later, the Fed started to talk about tapering their balance sheet purchases.

With the market currently priced for perfection, a disappointment of economic growth caused by a rising dollar, rates, or a contraction in consumer spending will lead to a repricing of risk. The weakness in the U.S. dollar contributes to the inflationary push in the economy as it increases the costs of imported goods.

The one thing that always trips the market is what no one is paying attention to. For me, that risk lies with the US Dollar. As noted previously, everyone expects the dollar to continue to decline, and the falling dollar has been the tailwind for the emerging market, commodity, and equity ‘risk-on trade. Whatever causes the dollar to reverse will likely bring the equity market down with it.

Very quietly, the dollar has been rising and recently broke above both the 50- and 200-dma. The short-covering in the dollar has fueled that riseSuch also suggests there is still significant room to rise.

Interest Rate Conundrum

Over the latest several years, I have repeatedly addressed why financial market “experts” have been confounded by why interest rates fail to rise. In March 2019, I wrote: “The Bond Bull Market,” which followed up our earlier calls for a sharp drop in rates as the economy slowed.

At that time, the call was a function of the extreme “net-short positioning” in bonds, which suggested a counter-trend rally was likely. Then, in March 2020, unsurprisingly, rates fell to the lowest levels in history as economic growth collapsed. Notably, while the Federal Reserve turned back on the “liquidity pumps,” juicing markets to all-time highs, bonds continue to attract money for “safety” over “risk.” 

Despite the repeated calls by “bond bears” this year, rates have remained range-bound below 2%. Such is interesting given the calls for explosive economic growth. However, as noted above, such is unlikely as higher inflation, a rising dollar, and rates all harm a debt-laden economy.

Such remains the case currently as rates continue to predict much slower economic growth later this year as the stimulus, and not potentially liquidity, leaves the system.

As we said in February:

“The number of contracts ‘net-long’ the 10-year Treasury already suggests the recent uptick in rates, while barely noticeable, maybe near its peak.”

Such remains the case currently.

We also noted in that same report the reason rates failed to rise was due to increasing levels of Eurodollar positioning as foreign banks push reserves into U.S. Treasuries for “safety” and “yield.”. 

With the number of bonds with “negative yields” rising globally, the U.S. Treasury bond’s positive yield and liquidity will likely keep it a preference for storage of reserves for now. Such will increase further if economic growth fails to appear as expected.


In today’s market, the majority of investors are simply chasing performance.

The biggest problem is that technical indicators do not distinguish between a consolidation, a correction, or an outright bear market. As such, if you ignore the signals as they occur, by the time you realize it’s a deep correction, it is too late to do much about it.

Therefore, we must treat each signal with the same respect and adjust risk accordingly. The opportunity costs of doing so are minimal.

If we reduce risk and the market continues to rise, we can quickly increase our exposures. Yes, we sacrifice some short-term performance. However, if we reduce risk and the market declines sharply, we not only protect our capital during the decline but have the cash to deploy at lower price levels.

Such is the biggest problem with “buy and hold” strategies. Yes, you will perform in line with the market, but given that you didn’t “sell high,” there is no cash available with which to “buy low” in the future.

I suggest that with our “sell signals” triggered, taking some action could be beneficial. 

  • Trim back winning positions to original portfolio weights: Investment Rule: Let Winners Run

  • Sell positions that simply are not working (if the position was not working in a rising market, it likely won’t in a declining market.) Investment Rule: Cut Losers Short

  • Hold the cash raised from these activities until the next buying opportunity occurs. Investment Rule: Buy Low

There is minimal risk in “risk management.” In the long term, the results of avoiding periods of severe capital loss will outweigh missed short-term gains.

Tyler Durden Tue, 06/22/2021 - 09:50

SocGen's Top Trader Quits As Another European Megabank Shifts Away From Markets

SocGen's Top Trader Quits As Another European Megabank Shifts Away From Markets

As a reminder, Credit Suisse isn't the only European megabank that's shifting away from the volatile trading business despite the boom in trading revenue seen across the industry over the last year. And it's also not the only major European bank that's seeing top traders head for the exits.

Societe Generale just saw its top trading executive quit as CEO Frederic Oudea continues to shift the bank's focus away from the trading business in the wake of steep losses that SocGen booked during last year's market upheaval.

Global markets head Jean-François Grégoire is leaving the job, to be replacd by Sylvain Cartier and Alexandre Fleury, who will jointly run the unit, SocGen said in a statement on Tuesday. Cartier will keep his current responsibilities overseeing credit, fixed income and currencies trading, while Fleury will continue to run the bank's most important trading franchises: equities and equity derivatives.

Oudea, one of the longest-serving megabank CEOs in Europe, said last month that he plans to rely less on trading following losses last year from complex derivatives that didn’t perform as expected when the pandemic upended markets. Oudea was a staunch defender of the trading business until recently. This isn't the first executive shakeup in recent months at the bank. Oudea has already reshuffled top management in response to the trading losses, including ousting deputy CEO Severin Cabannes and promoting Slawomir Krupa to run the investment bank.

"This new management structure of the market division, tighter and under my direct supervision, will allow us to strengthen day-to-day cooperation, alignment and agility within Global Markets," Krupa said in the statement.

Like Deutsche Bank, SocGen is being led to focus more on corporate banking and "transactional" banking. SocGen’s revenue from the global markets business has steadily declined in recent years, falling from €5.9 billion in 2017 ($7 billion) to €5.2 billion ($6.2 billion) in 2019. Trading losses booked during the first half of last year caused revenue to slump to €4.2 billion in the wake of the trading losses.

But DB might also have some important lessons for SocGen: Although Deutsche Bank’s CEO Christian Sewing has made transaction banking a key pillar of his four-year turnaround plan, DB remains dependent on fixed-income trading, forcing Sewing to adjust his original plan.

As for SocGen's new top traders, Cartier joined the bank originally as a trader in 1993 and took the helm of the fixed income business in 2019, just as the unit was undergoing a deep restructuring after a slump in sales.

Prior to that, he was head of global markets in the Americas and worked across Asia in a variety of roles, including as regional head of the fixed income business in Hong Kong and head of emerging markets trading in Singapore. Fleury spent a decade working for SocGen in the early 2000s, where he was based in Tokyo, New York and Paris. He rejoined the bank back in 2018 to lead its equities trading unit after working at Credit Suisse, Morgan Stanley and Bank of America Merrill Lynch.

SocGen suffered its first annual loss in more than three decades last year, prompting a cost-cutting drive that will eventually cull 640 positions from its investment bank.

Tyler Durden Tue, 06/22/2021 - 09:35

Rabobank: There We Have It - A Reflated Reflation Trade

Rabobank: There We Have It - A Reflated Reflation Trade

By Michael Every of Rabobank

Merrie Melodies

Just like that, all was well with the world again: bond yields up; equities up; commodities mainly up; and the dollar mainly down. What a merry market melody! This was despite a confusing barrage of Fed-speak which, as the headlines initially came in, had me thinking of ‘Elmer Fed’, and a silly little man in a deerstalker hat with a shotgun saying: “Be vewy, vewy quiet. I’m hunting 2% infwation and wo unempwoyment with high asset pwices and wo ineqwality. Huh-uh-uh-uh-uh-uh-uh-uh.

What else is one to make of headlines such as:


“If you wait too long to taper and your imbalances worsen, you may find yourself needing to take extra steps down the line.”; “It’s unrealistic to expect the US dollar to be the world’s reserve currency permanently.”; “It would be significantly healthier to make a change to asset purchases sooner rather than later”; and “The Fed’s overnight repo rate adjustment is mostly a technical problem.” (As it jumped to $765bn overnight.)


“This is a volatile environment, and there is upside risk to inflation.”; “We’re in a scenario where bubbles could form, which is part of a larger debate”; “The Fed should set up a taper that may be altered if necessary.”; “Markets are assuming the Fed won’t lift rates with tapering.”; “I don’t see how interest rates in the US could get substantially higher than they are in Europe and Japan”;  and “I am not concerned about fiscal dominance, the Fed will continue to be independent.” (As Powell, Yellen, and Gensler all get called to a meeting at the White House.)


“The Fed reverse repo rate facility is operating perfectly.”; “It wouldn’t be a problem if reverse repo usage grew much more.”; “Following the FOMC meeting, there was no minor taper tantrum.”; “The average inflation target is not based on any methodology.”; “The economy has not sufficiently recovered for stimulus to be removed.”; “The economy is improving at a rapid pace and has rebounded faster than expected, with a very positive medium-term outlook.”; “Inflation is still struggling with disinflationary factors that have existed for a long time.”; and “The Fed has the tools to not just raise the balance sheet when required, but also to get it back down to appropriate levels when the Fed doesn’t need to support the economy as much.”

But why quibble over calls for tapering; support for a reverse-repo spike that has many worrying about another potential Fed policy error; questioning the dollar’s hegemonic status(!); the implied threat that US rates may rise while QE is still ongoing(!); that US rates cannot rise above those of the Eurozone and Japan, where they are negative; the conflicting messages on how good this recovery is with how disinflation is still entrenched; and the idea that the Fed’s balance sheet could ever actually decline again, let alone stop growing. Just listen to this merry melody -  


The Fed will do everything possible to help the economy recover for as long as it takes.”

There we have it – a reflated reflation trade. Until the next time reality, the Fed’s own errors, and/or the markets escalate matters, requiring more Fed-speak to micromanage it. (Notably, Powell testifies to Congress today on the Covid-19 response and the economy.)

Yet in the end poor old Elmer Fed is going to take a beating. Recall the 1951 classic “Rabbit Fire”, where after arguing over whether it is rabbit or duck season, we find out it is actually Elmer season; and Bugs and Daffy are stalking in the deerstalkers with shotguns, turn to the screen and say: “Be vewy, vewy quiet. We’re hunting Elmers. Huh-uh-uh-uh-uh-uh-uh-uh."?

Or think of 1950’s “Rabbit of Seville” from the 5.30 mark onwards, where Elmer runs towards a fleeing Bugs with an axe; Bugs returns with a larger axe, sending Elmer fleeing; Elmer returns with a pistol; Bugs with a shotgun; Elmer with a cannon; Bugs with a larger cannon; Elmer with one that belongs on a battleship;…then Bugs brings a bunch of flowers; then an engagement ring; and Elmer returns in a wedding dress, and the couple marry; Bugs pulls his new bride up flights of stairs by the hand; opens a door leading nowhere….and drops Elmer from a great height.  

Meanwhile, in the weal world things are not so merry, and there is more disharmony than melody:

  • Progress on a bipartisan infrastructure bill now perhaps just 1/10 the size of what the White House proposed in its twin-stimulus proposals is perhaps closer to emerging – to what fate remains unclear;
  • The US National Security Advisor says the Nord Stream 2 pipeline represents a danger to Europe’s energy security, and that the Russian firms building it are still going to be sanctioned, after having widely been seen to earlier give it a de facto green light to avoid a row with Germany. Some whispers are that this is a response to yesterday’s FT interview with possible next CDU leader (and Chancellor?) Laschet, which reiterated he has zero interest in recognising geopolitical realities and still wants ‘Wandel durch handel’;
  • The US is apparently considering a ban on all polysilicon coming from China, which is required to make solar panels. Such is the scale of Chinese production (50% of the global total) it is unclear how any other source could replace it, which is problematic with huge green fiscal stimulus still being floated – until one joins the dots that this implies a major supply-chain shift towards Made in America;
  • The EU is going to sharply reduce the amount of British TV that can be shown now the UK is no longer “European”. This is of course pure services and cultural protectionism, and while British TV isn’t what it used to be, one wishes the EU well with its local substitutes: Doctor Who > Médecin Quoi?; The Crown > A recreation of the criminal trial of Nicolas Sarkozy?; Downton Abbey > A dramatization of Yanis Varoufakis’ memoir, ‘Adults in the Room’? But not to worry, says the UK government. Lots more viewers can be found in Asia, as it aims to join the CPTPP; and in that part of the world
  • China has banned its banks from any transactions related to crypto activity. Who next and when?

That’s not all folks, by any means, but it will have to do for today.   

Tyler Durden Tue, 06/22/2021 - 09:15

Hedge Fund That Bet Against GameStop Shuts Down As Backers Pull Money

Hedge Fund That Bet Against GameStop Shuts Down As Backers Pull Money

Despite incurring massive losses, Melvin Capital managed to limp away from its brush with GameStop's army of retail traders back in January. While Melvin only survived thanks to an emergency bailout from Mets owner Steve Cohen, the FT reports that one London-based fund may not have been so lucky.

White Square Capital, run by a former Paulson trader, has announced that it will return capital to shareholders. Some of the FT's sources said the decision was likely due to heavy losses stemming from the firm's GME short.

Here's more from the FT:

White Square Capital, run by former Paulson & Co trader Florian Kronawitter, told investors that it would shut its main fund and return capital this month after a review of its business model, according to people familiar with the fund and a letter to investors.

White Square, which at its peak managed about $440m in assets, had bet against GameStop, say people familiar with its positioning, and suffered double-digit per cent losses in January.

While White Square didn't have much public profile, the FT's Laurence Fletcher pointed out that it just might be the first hedge fund to close up shop over its wayward bets against surprisingly resilient meme stocks. GME shares soared from less than $20 in January to a peak of nearly $500/share a few weeks later. And although they've shed roughly half their value since then, they're still well above their lows from early this year. 

Melvin Capital and Light Street Capital (run by Glen Kacher, a former Tiger cub who worked for Julian Robertson's Tiger Management) have suffered serious losses from their meme stock shorts. However, both funds managed to survive the ordeal.

To be sure, at least one source close to White Square told the FT that the decision to shut down wasn't related to the GME short (according to the source, the fund allegedly made back some of those losses). In his letter, Florian Kronawitter, the fund's CEO, said that he is closing down the main fund because of perceived flaws in the "long-short" model.

"The decision to close down is related to thinking the equity long-short model is challenged,” said Kronawitter. "There are way too many fish in the pond with the same strategy of long-short,” he added. "The traditional edge is being arbed away [eroded by other investors], there’s an oversupply of capital."

Despite strong double-digit gains in 2015 and 2016, some of the fund's biggest backers have withdrawn their capital, Kronawitter said.

"We experienced first-hand the shift in trend away from hedge fund investing to cheaper alternatives," it added. According to the letter, White Square had been due to receive investor inflows again in May this year, but instead decided to shut the fund. "The arbitrage opportunities have diminished with both the onslaught of capital caused by central bank monetary interventions, as well as much improved dissemination of information, bringing up the question to what degree the same fees can be justified," it said.

Underscoring GME's newfound reputation as a window-making trade, the company's shares surged 11% on Tuesday after the company announced that it had completed yet another equity offering as management follows in the footsteps of AMC by trying to cash in on the retail trading mania. Here's more from Bloomberg. The company completed an offering of 5MM shares for a total of $1.13 billion (an average of $225.20). The offering was managed by Jefferies.

Shares of the video-game retailer rallied as the offering matched the full capacity of GME's ATM authorization. The company says it will use the proceeds from the offering for investing in growth initiatives and maintaining a strong balance sheet.

Tyler Durden Tue, 06/22/2021 - 09:00