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Peter Schiff: The Fed Is Running A "No Stick" Monetary Policy

Peter Schiff: The Fed Is Running A "No Stick" Monetary Policy


The markets reacted to last week’s Federal Reserve meeting as if the central bank was about to embark on a major monetary policy tightening spree. But as Peter Schiff discussed in his podcast, the Fed is all talk. It can’t possibly do what the markets think it might do. In effect, the central bank is running a “no stick” monetary policy. The Fed talking but it’s not carrying any kind of stick to back it up.

After the FOMC meeting, Chairman Jerome Powell did his best to set a dovish tone, even though the markets considered the messaging coming out of the central bank to be hawkish. But on Friday, St. Louis Fed President Jim Bullard undid Powell’s damage control saying he sees the first rate hike coming down the pike in 2022. Stocks sold off, gold continued to fall, the dollar strengthened, and stocks tanked on Friday after Bullard’s comments.

Powell said it was too early to talk about tightening. “You can think of this meeting that we had as the ‘talking about talking about’ meeting,” he said.

As Peter put it, “The FOMC members went from not thinking about raising interest rates to thinking about raising interest rates. Of course, they haven’t raised interest rates. They’re simply thinking about something that in the past they weren’t thinking about at all.”

In effect, even Bullard only conceded that the Fed is now talking about talking about raising rates.

He’s slightly more hawkish sounding than Powell, but he’s not signaling any substantive change in policy.

All this is a bunch of nonsense because the Federal Reserve has not actually done anything. But the markets are responding to this rhetoric as if they’ve actually done something substantive when they’ve done nothing at all. It is all much ado about nothing.”

At some point, the Fed may shift to actually talking about raising rates. The markets will almost certainly act like it’s tightening more. But what’s next?

How do they tighten monetary policy further once they’re talking about raising interest rates but without actually raising them?”

Peter said this is all a bunch of talk because the Fed really can’t tighten at all.

It could do it in theory if it didn’t mind crashing the stock market, crashing the economy, maybe forcing the US government to default on its debts creating a much worse financial crisis than 2008, except with no bailouts. Maybe if the Fed is willing to do all that, then sure, it can actually do what it’s thinking about and talking about. But since it’s not willing to do that, this is all a bunch of nonsense.”

It’s like the difference between thinking about going on a diet, talking about going on a diet, and actually dieting.

You can talk about going on a diet all you want. But you’re not going to lose any weight, especially if while you’re thinking about dieting, and telling your friends about your diet, you continue to overeat. You continue to stuff your face with junk food, and between bites, you tell everybody about this diet that you’re going to go on in the future. You are not only not going to lose weight, you’re going to keep gaining weight.”

Look at what the Fed is actually doing. On Thursday, we got the weekly Federal Reserve balance sheet data. It surged by $111.9 billion, after topping $8 trillion for the first time ever the week before.

So, while the Fed is talking about talking about tapering its asset purchases … it’s actually purchasing much more. So, it’s expanding its asset purchase program as it’s talking about contracting it. Again, it’s like your fat friend talking about going on a diet as he’s stuffing his face with more food.”

Don’t believe what the Fed says. Look at what it actually does.

Understand that the Fed has absolutely no ability to do what it’s claiming it’s thinking about and talking about doing.”

This is essentially what the Fed did after the 2008 financial crisis. It talked about tightening for years before raising rates the first time in December 2015. It was able to create the illusion of tightening without actually tightening. But even when the Fed actually started raising rates and shrinking its balance sheet, it never finished the journey. The central bankers likely think they can get away with this maneuver again.

Peter said the markets still don’t get it.

Even after the Fed tried and failed to shrink a four-and-a-half trillion-dollar balance sheet, somehow now they believe that at some point in the future, they will be able to succeed in shrinking a balance sheet that’s already in excess of eight trillion.”

The last time around, the Fed had to abort the rate hike process at 2.5%.

That was the most the overly indebted US economy could handle before the wheels started coming off the bus. Given the fact that we have so much more debt now than we did back then, we’re so much further levered up that we probably couldn’t even handle 1%. I’m not even sure we could handle 50 basis points That’s how screwed up the economy is now. So, if the Fed ever embarks on this journey, we’re not even going to come as close to completing it as we did last time.”

Teddy Roosevelt said, “Talk softly and carry a big stick.” The Fed is doing the exact opposite. It’s talking loudly but it doesn’t have any stick at all.

When you’ve got interest rates at zero and all you’re doing is discussing whether or not you should slightly increase them from zero in a year, or in two years, or in three years, yet stay at zero the entire time, you are not talking about a hawkish Fed. The fact that this type of minimal increase in rates is hawkish – this shows you how low that hawkish bar has been lowered.”

Tyler Durden Mon, 06/21/2021 - 14:05

Meet The One Chipmaker The Entire World Is Now Depending On

Meet The One Chipmaker The Entire World Is Now Depending On

There is no doubt about it: Taiwan Semiconductor has emerged as the world's most important chipmaker.

And now, in the midst of a global semiconductor shortage, it is becoming clear exactly how important the company's dominance has been. 

Not only has TSMC made headlines for proposing to expand production into the United States, as we have documented numerous times, but now it is making headlines for how it has become the center of the semiconductor world - and how that can leave the world vulnerable. 

TSMC's chips are in "billion of products", including iPhones, computers and cars, the Wall Street Journal writes in a new profile of the company. The company has slowly become the world's 11th most valuable company, with a market cap of about $550 billion. The company reported $17.6 billion in profits last year on revenues of about $45.5 billion. TSMC makes "around 92% of the world's most sophisticated chips," the report says. 

This has led to the U.S., Europe and China looking to cut their reliance on chips out of the Taiwanese company. But that's a tough task given its contribution globally. The U.S., for example, only accounts for 12% of the world's chip manufacturing, down from 37% in 1990. 

Analysts aren't confident of there being a more diversified semiconductor supply chain "anytime soon". They attribute this to TSMC's "hard driving culture" and "deep pockets". The industry has become so complex that once one producer falls behind, it becomes tough to catch up. 

And it's going to be even tougher for competition to catch up if TSMC starts to expand in the U.S. After years of investing in R&D since the company's founding in 1987, TSMC finally "broke through" when it started to mass produce chips for mobile phones for Apple:

"A pivotal moment came in 2013, when TSMC began work on mass-producing mobile phone chips for Apple, now its biggest customer. Before that, Samsung—which had its own smartphones—had been the exclusive microprocessor supplier for iPhones.

To fulfill Apple’s first order, TSMC spent $9 billion, with 6,000 people working around the clock to build a fab in Taiwan in a record 11 months. TSMC is now the exclusive supplier for the main processors in iPhones."

Less than a decade later, and barely 30 years after its founding, TSMC is the dominant force in the global semiconductor world. 

At the beginning of May, we noted that Taiwan Semiconductor was considering bolstering its production in the U.S., and that President Biden's Commerce Secretary was urging more domestic production. Now, it looks like TSMC could be within striking distance of a serious U.S. expansion. 

We also reported last month that TSMC is "weighing plans to pump tens of billions of dollars more into cutting-edge chip factories in the U.S. state of Arizona than it had previously disclosed", a Reuters exclusive revealed.

The company had already said it was going to invest $10 billion to $12 billion in Arizona. Now, the company is mulling a more advanced 3 nanometer plant that could cost between $23 billion and $25 billion, sources said. The changes would come over the next 10 to 15 years, as the company builds out its Phoenix campus, the report notes.

The move would put TSMC in direct competition with Intel and Samsung for subsidies from the U.S. government. President Joe Biden has proposed $50 billion in funding for domestic chip manufacturing - a proposal the Senate could act on as soon as this week. Intel has also committed to two new fabs in Arizona and Samsung is planning a $17 billion factory in Austin, Texas. 

TSMC CEO C.C. Wei said on a call last month: "But in fact, we have acquired a large piece of land in Arizona to provide flexibility. So further expansion is possible, but we will ramp up to Phase 1 first, then based on the operation efficiency and cost economics and also the customers' demand, to decide what the next steps we are going to do."

TSMC has also said that talks in Europe regarding expansion have gone "very poorly", increasing the likelihood that the chip giant will be focused more on the U.S.

There are no plans for a plant in Europe, a TSMC spokesperson said. 

Tyler Durden Mon, 06/21/2021 - 13:49

Our Current "Fiancial Culture" Has Evolved In A Way That "Simply No Longer Works"

Our Current "Fiancial Culture" Has Evolved In A Way That "Simply No Longer Works"

Authored by Bruce Wilds via Advancing Time blog,

Economic Evolution Turns Many Comparisons Obsolete

The financial system has entered uncharted waters and it would be wise to take nothing for granted. To assume the economy will move forward without a glitch in such an environment is  extremely optimistic. With time, things change and evolve, this transformation can be seen in both society and the economy. We are constantly bombarded with charts showing where things are going based on historical references but a question we must ask is just how relevant today's comparisons are with prior economic cycles?

Over the decades we have moved from an agricultural-based society to an industrial-centered economy where manufacturing and services have become the dominant way of making a living. Now, we are rapidly moving in the direction of technology becoming the main driver of the economy and it is creating a huge cultural change. The economy is again undergoing a metamorphosis. Over time, we tend to forget or minimize in our minds that throughout history the growing pains flowing from such a change tend to batter society from every direction. These transformations also create a great deal of noise making it difficult to understand what is happening.

Please consider the possibility the important adjustments the economy must make are lagging far behind our current "financial culture" or that the economy has evolved in a way that simply no longer works. Much of this has yet to become apparent to the masses and is masked by institutions papering over problems. A tradition of optimism has served mankind well, however, it has become clear something seems to be broken or out of kilter. It does not help that things like stock buybacks and outright fraud are creating a situation that could at any minute spin out of control. Making matters worse is that the general population is oblivious to this, and conditioned to accept whatever they are told. To many people, this is the new normal.

The Titanic Was Herald As "Unsinkable"

When we look behind the curtain it is difficult to ignore the numbers simply do not work going forward. Ignoring the warning signs on the horizon can only delay the inevitable for so long. Many of the comments I read concerning the current stock market and companies such as Tesla and Amazon remind me of the following statement, "Not even God himself could sink this ship," that an employee of the White Star Line made during the launch of the Titanic on May 31, 1911. The truth is as we move forward we are in uncharted waters and at any time a surprise event might shock us into reality.

Much of the economic distortions we are experiencing today harken back to President Richard Nixon's decision on August 15, 1971, to close the gold window. It is a factor that changed everything. While US citizens had been forbidden from owning gold or from redeeming their gold certificates for gold coins since the early 1930s, foreign governments still had the privilege of redeeming their dollars for gold. Nixon's decision untethering the dollar from gold and releasing it from the promise dollars could be redeemed in gold, this resulted in opening the floodgates and allowed credit to explode from $1.7 trillion to $65.5 trillion at the end of 2015.

Exploding Credit Will Have Massive Ramifications

More recently due to Covid-19, we have built on breaking the financial system's ties with the past by casting away all budgetary and money supply restraints. A question we must ask is just how relevant today's comparisons are with prior economic cycles? The situation today is in many ways "historically unique" due to the rampant expansion of credit in recent decades. How do you even begin to compare or factor in the amount of stimulus America's "trillion-dollar-plus" deficits have added to the economy? These amounts boggle the mind and are hundreds of times larger than what we were seeing before 2008.

It could be argued that much of what we are witnessing today is rooted in Nixon's decision to close the gold window. That move unleashed many forces that are greatly responsible for the rising income inequality that has occurred in recent decades. After inflation soared in the late 70s America found the cost inflation in goods could be reduced by buying these things from low-cost producers located in other countries. This means imports soared. IT has not helped that America has adopted a de facto policy of placing no restraints on trade deficits. 

Nixon's actions coupled with America's decision decades ago to make China into a formidable ally that would act as a  counterbalance against Russia and the Kremlin have shaped the world. Back then, we offered economic incentives to help China's economy, looking back this was a watershed event that changed the way American companies conducted business. It has resulted in American companies outsourcing production and the mass exodus of manufacturing jobs from America to distant lands where labor was both cheap and abundant. 

Our free trade policy was sold to America's middle-class as a "win-win situation" and we were told the American worker would move up the economic food chain towards better-paying jobs that would be more fulfilling and require less toil. This did not happen, the large companies that shape legislation have indeed benefited to a great extent while the average American has not.

Many Comparisons With The Past Now Obsolete

Returning to the main theme of this article, the massive expansion of the financial system has rendered many comparisons with the past obsolete. It has also resulted in the economy embarking on a roller-coaster-like experience where it encountered a series of events such as the dot-com bubble, which burst in 2001. In reaction, the Greenspan Fed stepped on the gas blowing the biggest housing bubble on record. In response to that asset bubble popping, we saw the Fed bail out the banks, the asset holders, and the wealthy. 

The sorry fact is that in the end, this chain of events left the average American worse off than before. During all this time debt has grown, and to service that growing pile of debt the Fed had to keep slashing interest rates. This means that instead of allowing consumers to benefit from technological advances that tend to be inherently deflationary, the Fed has sought to increase inflation by declaring inflation in the range of  2% to be in our best interest. This has benefited the banks and those already wealthy while at the same time massively increased inequality.

Today Is "Historically Unique"

The situation today is in many ways "historically unique" due to the rampant expansion of credit in recent decades and just over the last 16 months due to the pandemic. Recently  I found myself pondering the line, "outwit and outlast" that is often used during the popular hit television show Survivor. It occurred to me the winners in both life and investing often reflect these qualities and that this game is far from over. 

While investors are often urged to be cautious the excesses of today are in many ways not as "sector" oriented as those experienced during certain periods we have seen in the past and this makes staying anchored more difficult. It seems everything is encouraging and causing both savers and investors to take far more risk than they should in the quest for higher returns and yields. The "fear of missing" out is again running rampant and with the strategy of buying the dip having proven successful over almost a decade investors have become complacent to the risk they face.

Tyler Durden Mon, 06/21/2021 - 13:28

"Oil About The Benjamin": Oil Hits 3 Year High As BofA Now Sees Spike To $100

"Oil About The Benjamin": Oil Hits 3 Year High As BofA Now Sees Spike To $100

If last week the broader market was hammered with one big question mark over the viability of the reflation trade, someone forgot to tell oil with Brent today surging just shy of $75/bbl, the highest level since 2018...

... facilitated by the ongoing failure of the Iran nuclear talks to reach a deal (which is widely expected to boost global oil output), although bullish sentiment was also lifted by a series of sellside analyst calls for oil to rise anywhere from $80 to as high as $100 or more.

The first bullish call came from Citigroup, which said that Brent will touch $85/bbl before Q4 2021, with the bank's oil analyst and one-time OPEC advisor, Ed Morse, writing that "we now see Brent oil prices averaging in the high $70s for the rest of the year, with a high probability of touching $85 before subsiding with markets rebalancing." As a result, the bank raised its 2021 Brent price forecast by $4 to $72/bbl and its 2022 estimate by $8 to $67, while the London benchmark is seen averaging $77 in 3Q and $78 in 4Q this year, higher by $4 and $9 versus its previous forecast, respectively.

But a far more notable, and outlier call, came overnight from BofA which in a report titled "Oil's ALl About The Benjamin"..

... analyst Francisco Blanch laid down the strongest call yet among major forecasters for an oil price return to triple digits, writing that oil may surge to $100 a barrel next year as travel demand rebounds, and as global oil consumption continues to outstrip supply in 2022 as the economic recovery from the pandemic boosts fuel consumption, while investment in new production is crimped by environmental concerns, the bank said in a report.

Summarizing this super bullish thesis, Blanch writes that "a combo of factors could push oil to $100/bbl (a “Benjamin”) next year, mostly on three key demand and three key supply factors."

  1. First, there is plenty of pent up mobility demand after an 18 month lockdown.
  2. Second, mass transit will lag, boosting private car usage for a prolonged period of time.
  3. Third, pre-pandemic studies show more remote work could result in more miles driven, as work-from-home turns into work-from-car.

At the same time, on the supply side BofA expects...

  1. government policy pressure in the US and around the world to curb capex over coming quarters to meet Paris goals.
  2. Secondly, investors have become more vocal against energy sector spending for both financial and ESG reasons.
  3. Third, judicial pressures are rising to limit CO2 emissions.

In short, demand is poised to bounce back and supply may not fully keep up, placing OPEC in control of the oil market in 2022.

“We believe that the robust global oil demand recovery will outpace supply growth over the next 18 months, further draining inventories and setting the stage for higher oil prices,” Blanch wrote in the note, in which he also significantly raised his price forecasts for average Brent Crude prices next year. "There is plenty of pent-up oil demand ready to be unleashed," he added.

While other market-watchers, from trading house Trafigura to Goldman Sachs have previously hinted that oil could reach $100 again in the right conditions, the prediction from Bank of America has been the firmest to date. If crude does return to triple digits, it will be the first time since 2014, before a flood of North American shale oil sent the market into a slump from which it has never fully recovered.

According to Bank of America, the immediate prospects for the oil prices are bright: Oil consumption will be bolstered next year as mass transit struggles to keep pace with extra travel demand, prompting passengers to make greater use of private cars. Even the ongoing popularity of remote working won't dent fuel consumption as much as expected, as home-workers use cars during the day to run personal errands, the bank said.

Even so, Blanch sees "ample spare capacity" setting a cap on oil prices in 2021: "It is no secret that the future direction of oil prices over the next 6 to 12 months very much relies on OPEC+ policy. After all, OPEC still has 8mn b/d of spare capacity (May) after multiple downward output adjustments. With OPEC crude production sitting at 25mn b/d (Exhibit 10) at present and the market poised to face a 1.1mn b/d deficit over the next 12 months, it would just take a Saudi or Russian change of heart to sink oil prices down from the current levels. Precisely because of this ample spare capacity, long dated crude oil prices have only climbed back up to $60/bbl or so, essentially the center of our long-term crude oil price band of $50 to $70/bbl (Exhibit 11)."

However, looking forward, Blanch concludes that a "combo of factors could push oil to $100/bbl next year":

The swift recovery in near-dated prices, coupled with a more measured upward drift in longer-dated oil prices, has pushed the crude oil market into a relatively steep state of backwardation. As deficits persist this year and next, we do not see any changes to this curve shape. If anything, OPEC+ could be tempted to test the limits of its supply policies in 2022. After all, the average OPEC+ fiscal breakeven sits over $70/bbl (Exhibit 12) and many of these oil producing nations could do with $80 or $90/bbl on the screen, even if just for a little while. If OPEC+ agrees to maintain the relatively tight supply policies of 2021 and 1H22 into 2H22 (Exhibit 13), we believe Brent crude oil prices could hit triple digits next year."

Of course, as oil bears know all too well, the best cure for soaring oil prices is soaring oil prices, which lead to a burst of new supply, and as Bloomberg notes the increasingly bullish outlook for oil is adding to pressure on the OPEC+ coalition led by Saudi Arabia and Russia, which meets next week to consider reviving some more of the production it cut during the pandemic. While Riyadh has signaled it prefers to move cautiously, an ever-tighter world market could compel the alliance to open the taps a little, especially with Russia increasingly voicing disagreement with the Saudi strategy.

Additionally, BofA warns that US shale supply "is likely to respond eventually to the more constructive oil price backdrop. Looking at US oil rigs and front-month contract oil prices, we note that there is a strong linear relationship that carries roughly a 3 month lag between prices and drilling activity (Exhibit 38). We have explained in our prior work (see All things thrive at thrice) that the price elasticity of shale supply has likely come down in recent years. Yet we also note that US tight oil breakevens have been falling for a long time (Exhibit 39). Lower breakevens have partly offset the reduced price elasticity of supply resulting for a string of negative price shocks in 2016, 2018, and 2020."

Put differently, BofA expects US shale to ramp up eventually in response to the crude oil higher prices... assuming the Biden Administration allows it. Should that happen, BofA expects the oil market to tilt from a deficit of 1.35mn b/d in 2021 into a surplus of 400 thousand b/d or more in 2023, but before that happens - assuming nothing else changes - first we need to hit triple digit prices, and it is this sweet spot that oil traders will be focusing on.

And while BofA's forecast may seem a little extreme, others expect even higher prices. David Tawil, president of Maglan Capital, told Fox Business last week that “incredible demand,” inflation, and shareholder pressure on oil supermajors to drastically cut emissions could lead to an oil crisis within three years, with very high oil and gasoline prices. Oil prices are set to rise “consistently and considerably now into the end of the year,” Tawil said.

Meanwhile, speaking at the FT Commodities Global Summit last week, top executives at Trafigura, Vitol, and Glencore said that although oil may not be headed to a new supercycle (Goldman and JPM disagree), prices still have room to rise from current levels because of a strong demand rebound and expected tightness in supply.

Tyler Durden Mon, 06/21/2021 - 13:12

Joe Biden DOJ Nominee Worked Alongside Hunter Biden At Law Firm Representing Burisma

Joe Biden DOJ Nominee Worked Alongside Hunter Biden At Law Firm Representing Burisma

The Bidens are the gift that keep on giving.

According to the Washington Free Beacon's Chuck Ross, a top Justice Department nominee worked alongside Hunter Biden at Boies Schiller Flexner - which represented Ukrainian energy giant Burisma Holdings, emails from Hunter's laptop reveal.

Hampton Dellinger, who President Biden nominated on Friday to lead the Justice Department’s Office of Legal Policy, worked on the Crisis Management and Government Response team at Boies Schiller Flexner, an international law firm where Biden served as counsel. Emails from Biden’s laptop show he worked closely with lawyers on Boies Schiller Flexner’s crisis management team. He referred Burisma Holdings to the crisis unit as a client in April 2014. Biden’s laptop emails also indicate he attended a private dinner party with Dellinger and several other Boies Schiller Flexner lawyers in March 2014. -Free Beacon

The highly successful law firm (which sought up to $20 million in PPP loans) will likely have to produce answers regarding Dellinger's work during his Senate confirmation process, according to a former chief investigative counsel for the Senate Judiciary Committee.

"Senators should want to learn more about Mr. Dellinger’s interactions with Hunter Biden," Jason Foster told the Free Beacon, adding: "Senators are likely to question Mr. Dellinger on what he knew about his firm’s dealings with Biden and Burisma at the time."

As Ross notes, Dellinger's past could pose a potential conflict of interest while the DOJ investigates Hunter over his tax affairs and foreign business dealings.

Federal prosecutors are also reportedly investigating whether a Democratic consulting firm that worked closely with Biden illegally lobbied for Burisma. While Dellinger would likely not oversee the criminal investigations if confirmed as chief of the Office of Legal Policy, previous leaders of the policy office have moved on to other jobs at the agency that perform criminal oversight. -Free Beacon

Hunter makes an introduction

According to emails from Hunter's laptop, Boies Schiller Flexner partner William Isaacson arranged a dinner at his home for members of the firm's Crisis Management and Government Relations team in March 2014 - to which Biden, Dellinger and several others had confirmed their attendance. In one email, Hunter asked if the dinner was still on. The next day, partner Heather King asked Hunter whether he would be available to meet with the Crisis Management team.

The following month, in April 2014, Hunter introduced Burisma Holdings as a possible client for Boies Schiller Flexner. Weeks later, Hunter was appointed to the board of Burisma to the tune of $80,000 per month.

Biden, who joined Boies Schiller Flexner in 2010 as an adviser, tapped the law firm to provide public relations and business consulting for Burisma. Boies Schiller Flexner partners also helped secure a lobbying firm and private investigative firm to work for Burisma.

It is unclear whether Dellinger did any work on the Burisma account, but an archive of the Boies Schiller Flexner website shows him listed as an attorney with the 12-person Crisis Management and Government Response team as of June 2014. Dellinger left Boies Schiller Flexner last year to form his own private practice. -Free Beacon

Nothing to see here, move along folks...

Tyler Durden Mon, 06/21/2021 - 13:04

The Euphoria Behind Stimulus Plans Is Unwarranted

The Euphoria Behind Stimulus Plans Is Unwarranted

Authored by Daniel Lacalle,

The United States retail sales and jobless claims weakness, significantly below estimates, coincides with the largest fiscal and monetary stimulus in history. Something is not right when these figures come significantly below estimates in an environment of massive upgrades to Gross Domestic Product (GDP). Why?

The diminishing returns of stimulus plans are very evident. Artificially boosting GDP with large government spending and monetized debt generates a short-term sugar-high that is rapidly followed by a sugar-low. The alleged positive effects of a $1 trillion stimulus plan fade shortly after three months. I recently had a conversation with Judy Shelton where she mentioned that the recovery would be stronger without this latest massive stimulus package. The economic debacle happened due to lockdowns and the recovery comes from the re-opening. We need to let the economy breathe and strengthen, not bloat it.

The diminishing returns of stimulus plans are evident. A $20 trillion fiscal and monetary boost is expected to deliver just a $4 trillion real GDP recovery followed by a rapid return to the historical trend of GDP growth this will likely lead to new record levels of debt, weaker productivity growth and slower job recovery. The pace of global recoveries since 1975, according to the OECD shows a weaker trend.

Deficit spending is mostly devoted to current spending, which leads to an almost negligible potential growth improvement. If any, evidence suggests fiscal multipliers are poor, even negative, in highly indebted and open economies.

We must be cautious of the excess of euphoria that emerges from many statements about the so-called European “Next Generation” funds. Many of the optimistic estimates seem to forget the negligible effect of previous similar plans.

The sharp increase in contributions to the European Union Budget and the tax increases announced by some countries like Spain will likely diminish the net effect of these funds. All the success or failure of the European Recovery Plan rests on the estimates of the multiplier effect of the investments made. And the prospects are not good if we look at history.

The average impact of the last programs such as the 2009 Employment and Growth Plan, the Juncker Plan or the Green Directives to support investment in renewables has been extremely low. The empirical evidence from the last fifteen years shows a range that, when positive, moves between 0.5 and 1 at most… And in most of the peripheral countries, they have been negative.

According to the European Union’s own estimates, the Juncker Plan generated between 2014 and 2019 a total impact +0.9% in GDP and added 1.1 million jobs from 439 billion euros invested. The return on invested capital of this massive plan was beyond poor. And let us remember that the Juncker Plan was used entirely for investment projects with expected real economic return and without the amount of current spending and political intervention of the 2021 Recovery Plan.

Can we really believe in an impact of 4% on GDP in three years from these European funds as the average consensus estimates when the Juncker Plan generated – if we believe it – 0.9% in five years?

The Government of Spain, in its Recovery, Transformation and Resilience Plan states that “in aggregate terms, the employment generated by the Plan will represent 12 jobs for every million euros invested.” Twelve jobs per million spent!

The multiplier effect and its structural impact depend on execution and efficiency factors that are more than questionable. The likelihood that these funds will be malinvested or squandered is enormous.

The idea that hundreds of magnificent and profitable projects will suddenly appear is also questionable. It is very difficult to believe that, suddenly, thousands of profitable and job-creating projects will appear when they were not carried out in recent years with interest rates at historic lows, unlimited liquidity and growing investment appetite.

These so-called stimulus plans have a huge risk: that they involve a huge transfer of wealth from the middle classes and taxpayers destined for political spending without real economic return and investments of doubtful profitability.

There has never been capital available for technology, digitization, and sustainability investment. These investments do not need political direction or funding.

Cheap money, increased public intervention, and massive stimulus plans have not worked as drivers of productivity and potential growth. The path to stagnation and zombification was already a problem in 2018. We need private investment and free trade to boost productivity. We need open economies with a thriving entrepreneurial spirit, not an economy based on spending and debt. The problems created by the chain of the stimulus of the past years are clear: Elevated debt and weak growth. More spending and debt will not solve them.

Tyler Durden Mon, 06/21/2021 - 12:45

"We Can't Let It Get The Upper Hand" - 'Delta' Variant Threatens To Derail Europe's COVID Recovery

"We Can't Let It Get The Upper Hand" - 'Delta' Variant Threatens To Derail Europe's COVID Recovery

The FT reported in today's edition of the paper that the Delta COVID mutant first identified in India has swept across the UK while also becoming the dominant strain in Portugal and Germany, with the strain threatening other countries as well, just as Europe is suffering multiple setbacks to its vaccine rollout.

According to an FT analysis of European infection data, the new strain is gaining ground, though it's not quite the dominant strain in the EU. Delta accounts for 96% of sequenced COVID infections in Portugal, more than 20% in Italy and about 16% in Belgium.

The small but rising number of cases have raised concerns that the Delta variant could halt the progress the EU has made over past the two months in bringing new infections and deaths down to their lowest level since the fall.

"We are in the process of crushing the virus and crushing the pandemic, and we must in no way let the Delta variant get the upper hand," said French Health Minister Olivier Véran, who told reporters at a Paris vaccination center on Tuesday. 

Véran said only 2%-4% of virus samples being analyzed in France were showing as the Delta variant, "you might say this is still low but it is similar to the situation in the UK a few weeks ago." The FT's analysis suggested that the percentage of Delta cases being identified in France might be higher.

Speaking on Monday in Germany, Health Minister Jens Spahn warned that the Delta variant could spark Germany's "Fourth Wave". To combat this, Germany must find "the right balance" as it prepares for cases to climb into the fall and winter months.

In Portugal, community transmission of the Delta mutant has been detected in the greater Lisbon area, where more than 60% of the country’s new coronavirus cases in the past week have been located. Non-essential travel to and from the city has been banned in an effort to prevent a spread in cases to the rest of the country.

Now, scientists are looking to the UK (where Delta accounts for 98% of new infections) for clues about what might be in store for the Continent.

PM Boris Johnson said Monday that England is "looking good" when it comes to further relaxation of coronavirus restrictions, but warned that the country could face a "rough winter" ahead. Earlier this month, BoJo announced plans to extend England's lockdown by another 4 weeks due to the resurgence of new cases and hospitalizations caused by Delta.

Europe isn't the only region seeing a surge in new cases. Colombia has seen caseloads rising following a regional outbreak. Mongolia, once viewed as a success story thanks to the generous allotments of vaccine doses it received from neighboring China and Russia, has seen case numbers bounce back.

Could the EU be in for a similar rebound?

Tyler Durden Mon, 06/21/2021 - 12:24

Watch: Biden Security Advisor Refuses To Say How China Will Be Punished For Non-Cooperation With COVID Investigations

Watch: Biden Security Advisor Refuses To Say How China Will Be Punished For Non-Cooperation With COVID Investigations

Authored by Steve Watson via Summit News,

Likely expecting a softball interview on CNN Sunday, Joe Biden’s national security advisor surprisingly found himself having to dodge questions about what action will be taken to pressure China to co-operate with investigations into the origins of the coronavirus pandemic.

CNN host Dana Bash asked Jake Sullivan to explain what will be done to force the communist government in China to fall into line.

“China is stonewalling an investigation and you said we just can’t take this lying down,” Bash stated, adding “What does that mean in practical terms? If China won’t allow access, will the U.S. consider action against China to increase the pressure?”

While admitting that China needs to be made to cooperate, Sullivan had little in the way of solutions, stating “We are not, at this point, going to issue threats or ultimatums.”

He then gave a generic dodge answer, blathering about ‘rallying support in the international community’.

“If it turns out that China refuses to live up to its international obligations, we will have to consider our responses at that point and we will do so in concert with allies and partners,” Sullivan proclaimed.

“Does that sound like not taking it lying down?” Bash shot back, adding “Sounds like giving them a lot of time.”

Sullivan again gave a non-answer, basically repeating the mantra about “diplomatic ties with allies and partners.”

“We are not going to simply accept China saying no,” Sullivan declared, but again provided zero substance in terms of what potential actions will be taken, even suggesting that the U.S. will again rely solely on the World Health Organisation to conduct the investigation.

“We will work between now and when this second phase of the WHO investigation is fully underway to have as strong a consensus in the international community as possible because it is from that position of strength that we will best be able to deal with China,” he stated.

As we reported last week, former State Department official David Asher, who was investigating the coronavirus outbreak under President Trump, noted that China already knows the origin of the virus and will continue to refuse to co-operate with fresh probes.

“Unless we adopt a much more coercive strategy, unless we put on sanctions economically, civil litigation and other special measures against the Chinese government’s intransigence, I don’t expect them to offer any cooperation,” Asher further urged.

The Biden administration has not signalled that it is willing to do anything to pressure China on the matter at all, instead again intimating that it will lay down and allow the WHO to conduct another white wash.

Former CDC head Robert Redfield, and others including Senator Rand Paul and WHO advisor Jamie Metzl have all suggested that the WHO is too ‘compromised’ to be leading the new investigation, and that there needs to be a Congressional probe bolstered by a U.S. intelligence investigation.

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Tyler Durden Mon, 06/21/2021 - 12:05

China Expands Lockdowns, Mass Testing To Manufacturing Hub Of Dongguan

China Expands Lockdowns, Mass Testing To Manufacturing Hub Of Dongguan

Despite China's success in reining in COVID-19 cases, a recent outbreak in Guangdong, China's most populous province, has apparently spread even further despite lockdown measures that were first imposed in late May, before being tightened earlier this month. And on Monday, Reuters reported that despite these restrictions, the outbreak has spread to the manufacturing hub of Dongguan, which is also situated in Guangdong Province.

The city launched mass testing on Monday and even blocked off certain communities after detecting the first infections tied to the current outbreak. Officials have said that the "Delta" mutant strain - first discovered in India - has been driving the latest outbreak.

According to Reuters, Dongguan reported two cases since Friday. City authorities have told residents not to leave, except for "essential" reasons. Those who wish to leave must show negative test results from within the last 48 hours before departure.

Entrances to highways that would lead drivers to other cities were closed, while shuttle buses between airports in Guangzhou and Shenzhen, and a check-in terminal in Dongguan, were also closed. Some museums and libraries in the city were also closed to visitors. Factories were still running, however.

"(Workers) need to do COVID tests, but it's not a prerequisite for them to be able to enter factories," said King Lau, who helps manage a metal coating factory.

"My staff will do (their COVID tests) after work, although there will be long queues."

In total, Guangdong has reported 168 confirmed infections since May 21, with nearly 90% of the cases tied to its capital, Guangzhou.

The outbreak is smaller than earlier clusters found elsewhere in China. A prior outbreak centered around Hebei, a region in northeastern China, recorded more than 1,150 infections between late December and early February. It marked the worst domestic outbreak in the central city of Wuhan, where the virus emerged in late 2019.

Chinese officials said Guangzhou's battle against the Delta variant was a warning to other cities not to get complacent. Meanwhile, strict disinfection and quarantine measures implemented on May 21 have led to congestion of vessels waiting to berth in one of China's busiest container ports, Yantian International Container Terminal in Shenzhen.

If these delays continue, "the impact would be bigger than the Suez Canal incident," said Patrik Berglund, chief executive of Xeneta, an ocean freight rate benchmarking firm headquartered in Oslo.

As of Monday, 50 vessels were waiting outside the port, and more than 160 were being affected.

"We've seen exporters who cannot wait for the port congestion to ease turning to trucks to send the cargoes from China to Europe."

Right now, it's expected that normal operations will resume by end-June. Even as congestion at Yantian eases, traffic at the Shezhen port of Shekou and the main Guangzhou port of Nansha remains high.

Tyler Durden Mon, 06/21/2021 - 11:45

The Zero To Negative Multiplier Of Debt On Growth

The Zero To Negative Multiplier Of Debt On Growth

Authored by Lance Roberts via,

There is a zero to a negative multiplier of debt on economic growth. The recent spending spree of the Government to facilitate a transition to a socialistic economy is problematic.

“The scale and scope of government spending expansion in the last year are unprecedented. Because Uncle Sam doesn’t have the money, lots of it went on the government’s credit card. The deficit and debt skyrocketed. But this is only the beginning. The Biden administration recently proposed a $6 trillion budget for fiscal 2022, two-thirds of which would be borrowed.” – Reason

The CBO (Congressional Budget Office) recently produced its long-term debt projection through 2050, ensuring poor economic returns. I reconstructed a chart from Deutsche Bank showing the US Federal Debt and Federal Reserve balance sheet. The chart uses the CBO projections through 2050.

At the current growth rate, the Federal debt load will climb from $28 trillion to roughly $140 trillion by 2050. Concurrently, assuming the Fed continues monetizing 30% of debt issuance, its balance sheet will swell to more than $40 trillion.

Let than sink in for a minute.

More Debt = Less Growth.

What should not surprise you is that non-productive debt does not create economic growth. As Stuart Sparks of Deutsche Bank noted previously:

“History teaches us that although investments in productive capacity can in principle raise potential growth and r* in such a way that the debt incurred to finance fiscal stimulus is paid down over time (r-g<0), it turns out that there is little evidence that it has ever been achieved in the past.

The chart below illustrates that a rising federal debt as a percentage of GDP has historically been associated with declines in estimates of r* – the need to save to service debt depresses potential growth. The broad point is that aggressive spending is necessary, but not sufficient. Spending must be designed to raise productive capacity, potential growth, and r*. Absent true investment, public spending can lower r*, passively tightening for a fixed monetary stance.”

A long-term historical look confirms the same. Since 1977, the 10-year average GDP growth rate steadily declined as debt increased. Using the historical growth trend of GDP, the increase of debt will lead to slower economic growth rates in the future.

Given the historical correlation of debt to GDP growth, such suggest future outcomes will be no different.

Dollars Of Growth 

We can view this differently by looking at the dollars of debt required to create a dollar of economic growth. Since 1980, the increase in debt currently usurps the entirety of economic growth. The growth in debt diverts tax dollars away from productive investments into debt service and social welfare.

Another way to view this is to look at what “debt-free” economic growth would be. In other words, without debt, there has been no organic economic growth.

The economic deficit has never been more significant. From 1952 to 1982, the economic surplus fostered ab economic growth rate averaging roughly 8% during that period. Today that is no longer the case as the debt detracts from growth. Such is why the Federal Reserve has found itself in a “liquidity trap.”

Interest rates MUST remain low, and debt MUST grow faster than the economy, just to keep the economy from stalling out.

Following In Japan’s Footsteps

Years of low rates, economic growth, inflation, and ongoing monetary interventions have led to a massive surge in debt. Both in the U.S. and globally. While many want to suggest “debt” isn’t a problem, we don’t have to go far to see what ultimately happens.

Since 2008, Japan ran a massive “quantitative easing” program. That program, on a relative basis, is 3-times larger than in the U.S. Not surprisingly, economic prosperity is no higher than it was before the turn of the century.

Furthermore, even though the BOJ’s balance sheet owns a majority of the ETF, corporate, and government debt markets, Japan has been plagued by rolling recessions, low inflation, and low interest rates. (Japan’s 10-year Treasury rate fell into negative territory for the second time in recent years.) 

While many argue the U.S. economy will eventually “grow” its way out of debt, there is no evidence such a capability exists. We know that interest rates in the U.S. and globally are telling us economic growth will remain weak in the future.

A Negative Multiplier

Excess “debt” has a zero to a negative multiplier effect. Such was shown in a study by the Mercatus Center at George Mason University by economists Jones and De Rugy.

“The multiplier looks at the return in economic output when the government spends a dollar. If the multiplier is above one, it means that government spending draws in the private sector and generates more private consumer spending, private investment, and exports to foreign countries. If the multiplier is below one, the government spending crowds out the private sector, hence reducing it all.

The evidence suggests that government purchases probably reduce the size of the private sector as they increase the size of the government sector. On net, incomes grow, but privately produced incomes shrink.”

Personal consumption expenditures and business investment are vital inputs into the economic equation. As such, we should not ignore the reduction of privately produced incomes. Furthermore, according to the best available evidence, the study found:

“There are no realistic scenarios where the short-term benefit of stimulus is so large that the government spending pays for itself. In fact, the positive impact is small, and much smaller than economic textbooks suggest.”

Notably, politicians spend money based on political ideologies rather than sound economic policy. Therefore, the findings should not surprise you. The conclusion of the study is most telling.

“If you think that the Federal Reserve’s current monetary policy is reasonably competent, then you actually shouldn’t expect the fiscal boost from all that spending to be large. In fact, it could be close to zero.

This is, of course, all before taking future taxes into account. When economists like Robert Barro and Charles Redlick studied the multiplier, they found once you account for future taxes required to pay for the spending, the multiplier could be negative.”

A Lot Of Things Can Happen

I want to conclude by stating the obvious. Projecting anything 30-years into the future is highly problematic. Many things could happen that could change the trajectory of growth in the future. However, unfortunately, given the rise in the calls for socialism, demand for increased Government interventions, and lack of fiscal or monetary discipline in Washington, there are reasons to worry.

As is now evident, as global growth slows, the negative impact of debt expands economic instability and wealth inequality. Likewise, the hope that Central Bank’s monetary ammunition can foster economic growth or inflation is sorely misplaced.

“The fact is that financial engineering does not help an economy, it probably hurts it. If it helped, after mega-doses of the stuff in every imaginable form, the Japanese economy would be humming. But the Japanese economy is doing the opposite. Japan tried to substitute monetary policy for sound fiscal and economic policy. And the result is terrible.” – Doug Kass

Japan is a microcosm of what the U.S. will face in coming years as the “3-D’s” of debt, deflation, and the inevitability of demographics continue to widen the wealth gap.

What Japan has shown us is that financial engineering doesn’t create prosperity, and over the medium to longer-term, it has negative consequences.

Such is a crucial point.

What is missed by those promoting the use of more debt is the underlying flawed logic of using debt to solve a debt problem.

At some point, you have to stop digging.

Tyler Durden Mon, 06/21/2021 - 11:27

Biden Has Responded To Maduro's Call For Ending "Demonization Of Venezuela"

Biden Has Responded To Maduro's Call For Ending "Demonization Of Venezuela"

We've noted from the start of the Biden presidency that despite his best efforts to cast himself as somehow radically different from Trump on foreign policy, there's an increasing number of fronts where he's clearly opted to continue on with the prior Republican administration's policies. 

Nicolas Maduro for one was among those embattled leaders hoping for a new Washington trajectory in Latin America. In an interview last week he urged Biden to lift all Trump-era sanctions and to immediately normalize relations with Venezuela

While there's no longer currently talk of a US Navy-imposed blockade on Venezuela's coast to prevent all oil and fuel exports and imports (a plan floated by Trump to his admirals during his last year in office), the US-led oil embargo is still in place, keeping the Venezuelan economy crushed on top of an already collapsed system and persisting widespread corruption. 

Washington's economic war which it should be recalled during Trump's time saw a couple of failed and very short-lived military coup attempts, has also come in the midst of the COVID-19 pandemic, resulting in accusations from Caracas that the US is actively thwarting access to the vaccine

Maduro during the Bloomberg interview urged the Democratic administration for an end to the "demonization of Venezuela"

But on Sunday a US State Department statement was firm in rejecting Maduro's call for normalization:

Responding to Maduro’s comments, a State Department spokesman said a U.S. policy shift would require major changes by the Venezuelan president. They’d have to include engaging with opposition leader Juan Guaido to resolve the country’s political crisis and pave the way for free and fair elections, as well as restoring economic and political freedoms.

As long as "repression and corrupt practices" by Maduro and his supporters continue, the U.S. will work with its partners and allies to keep up the pressure, including sanctions against those who undermine democracy, the spokesman said by email.

So there it is: the Biden administration has now adopted the language of Trump's "pressure campaign" on Venezuela, albeit stopping short of keeping up the mythology of calling Juan Guaido 'Interim President'. 

Complicating matters is that America's 'official enemies' have continued to assist the Maduro government, particularly Russia and Iran - the latter which is increasing efforts of military cooperation as well as fuel imports.

China has also over the past year or so appeared willing to defy the US stance on Venezuela, reportedly in the form of limited military assistance. 

Tyler Durden Mon, 06/21/2021 - 11:10

California May Extend Eviction Moratorium Past June, Make Landlords Whole

California May Extend Eviction Moratorium Past June, Make Landlords Whole

California Gov. Gavin Newsom (D) says the state will make landlords whole whose tenants have accumulated past-due rent amid the pandemic - despite the fact that the state has only distributed just $32 million of the $490 million in requests for rental assistance through May 31 in what appears to be typical bureaucratic malarkey.

The state is also weighing whether to extend the eviction moratorium for unpaid rent beyond June 30, a pandemic-related order which was supposed to be temporary, according to the Associated Press. Federal eviction protections are set to expire on the same date, however California's protections expanded the number of tenants covered by the moratorium.

Newsom and legislative leaders are meeting privately to decide what to do, part of the negotiations over the state’s roughly $260 billion operating budget. An extension of the eviction ban seems likely to give California more time to spend all the money to cover unpaid rent. But landlords and tenants’ rights groups are arguing over how long that extension should last. -AP

"The expectation for people to be up and at ’em and ready to pay rent on July 1 is wholeheartedly unfair," said Kelli Lloyd, a 43-year-old single mother who hasn't worked consistently since the pandemic began in March 2020.

Lloyd owes $30,000 in back rent for her $1,924 per month two-bedroom, two-bathroom rent-controlled apartment in the Crenshaw district of south Los Angeles. She says she had to forego work for most of last year to take care of her two children due to closed daycare centers and schools halting in-person learning.

Lloyd, a member of the advocacy group Alliance of Californians for Community Empowerment, says she recently lost a job at a real estate brokerage and has yet to find another one.

"Simply because the state has opened back up doesn’t mean people have access to their jobs," she said.

Meanwhile, in the wine country area of Sonoma County, property manager Keith Becker says 14 tenants are more than $100,000 behind in rent payments. It’s put financial pressure on the owners, who Becker says have “resigned themselves to it.”

But they have grown weary of the seemingly endless 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,” he said.

California has $5.2 billion to pay off people’s rent, money from multiple aid packages approved by Congress. That appears to be more than enough to cover all of the unpaid rent in the state, according to Jason Elliott, senior counselor to Newsom on housing and homelessness. -AP

According to the report, California has been slow to distribute federal funds allocated to pay off rents, and is unlikely to spend it all by June 30. According to a report by the CA Department of Housing and Community Development, $490 million in rental assistance requests have been made through May 31, and just $32 million has been paid - which doesn't include 12 cities and 10 counties running their own rental assistance programs.

"It’s challenging to set up a new, big program overnight," said Democratic assemblyman David Chiu (SF), chair of the Assembly Housing and Community Development Committee. "It has been challenging to educate millions of struggling tenants and landlords on what the law is."

Landlords, meanwhile, have been pushing the state to end the eviction moratorium - pointing to the state's rapid economic recovery from the pandemic which has seen 495,000 new jobs added since February. April alone accounted for 38% of all new jobs in the country, while Newsom lifted all restrictions on businesses amid the state's "grand reopening."

Tyler Durden Mon, 06/21/2021 - 10:49

Claudette Regains Tropical Strength After 13 Killed In Alabama 

Claudette Regains Tropical Strength After 13 Killed In Alabama 

Claudette regained strength early Monday and is expected to return to tropical storm status later today in eastern North Carolina after it wreaked havoc in the Southeast - resulting in the deaths of 13 people.  

Claudette is expected to produce torrential rains and flash flooding risks from southeastern Georgia into the Carolinas during the morning, according to the National Hurricane Center (NHC). Tornadoes are possible across parts of the coastal Carolinas. Tropical Storm Warnings are in effect for the Carolinas today as the storm is expected to head up the East Coast and make its way towards Nova Scotia by mid-week. 

The bulk of the deaths over the weekend occurred when eight children died in a multi-vehicle crash. A van carrying the children hydroplaned on Interstate 65 about 35 miles south of Montgomery, Alabama when it crashed and erupted in flames. 

The 2021 Atlantic hurricane season is three weeks in as Claudette is the third named storm. It dumped up to 15 inches of rain on Saturday in southeastern Louisiana, southern Mississippi, southern Alabama, and western Florida Panhandle. 

Readers may recall our past note on the increasing possibilities the 2021 hurricane season would be active. 

Tyler Durden Mon, 06/21/2021 - 10:45

Stocks & Bonds Have Completely Erased Friday's "Bullard Bomb"

Stocks & Bonds Have Completely Erased Friday's "Bullard Bomb"

As The PPT heads to The White House, Friday's plunge in stocks and bond yields is magnificently erased ahead of a smorgasbord of FedSpeak this week...

Nasdaq is lagging but Dow and Russell 2000 are roaring higher this morning...

...and along with the S&P have erased Friday's 'Bullard Bomb' drop...

S&P found support at its 50DMA... again...

And yields are surging off overnight lows, erasing Friday's plunge also...

"Financial Stability" restored!

Tyler Durden Mon, 06/21/2021 - 10:37

Rand Paul: Coronavirus "In All Likelihood, Came From The Lab"

Rand Paul: Coronavirus "In All Likelihood, Came From The Lab"

Authored by Steve Watson via Summit News,

Senator Rand Paul warned this past weekend that scientists dismissing the Wuhan lab leak theory have extensive conflicts of interest and that all the evidence points to this hypothesis being the most likely.

Appearing on Fox News, Paul said “When you look at COVID-19, it doesn’t even seem to infect bats very well. It doesn’t infect an intermediate animal. They checked 80,000 animals at the wet markets in Wuhan. None of the animals at the wet market would accept COVID-19 or were positive for it.”

“It looks like it’s most well-adapted for humans. So this is worrisome, and yet more evidence that this, in all likelihood, came from the lab,” Paul added.

“I think if you look back at the last year and you look at the people who are discounting the theory that it originated in a lab, they are precisely the same scientists that were sending the funding to the lab. So, there is a real possibility that they have a conflict of interest,” Paul further noted.

The Senator has continually pushed back on anti-scientific statements regarding the pandemic made by Anthony Fauci and others including Peter Daszak, who not only funded gain of function research, but has continually pushed for the lab leak theory to be dismissed by the scientific community while being appointed by both the World Health Organisation and The Lancet journal to investigate the origins of the outbreak.

“This may be the biggest scientific error that Dr. Fauci has made so far and continues to make. He’s completely discounting natural immunity – the immunity you get after you’ve had an infection. All of the scientific studies, and I emphasize that ‘all,’ hundreds of studies now show that you do have immunity,” Paul, who has demanded “all records” be released from the NIH, urged.

The Senator continued, “If you discount that and you don’t count it, then Dr. Fauci says ‘Oh no, we don’t have enough people vaccinated, we’re not at herd immunity.’ Now we have to have mandates on the children, and we must force children of all ages to have the vaccine even though they don’t get sick from COVID very often and they almost never die from it.”

“He wants to force the vaccine on them because he makes a scientific error and doesn’t count natural immunity,” Paul emphasised.


Watch the latest video at

Paul’s comments come as Joe Biden’s security adviser Jake Sullivan stated that China must allow another investigation of the pandemic origins to be conducted or “face isolation in the international community.”

Sullivan intimated, however, that the Biden administration wants the World Health Organisation to once again lead the investigation, despite the fact that it absolved the Wuhan lab’s possible involvement in a leak after just three hours during its first ‘investigation’.


Watch the latest video at

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Tyler Durden Mon, 06/21/2021 - 10:20

Oil Rises Above $73 As Iran Talks Again Fail To Reach Deal

Oil Rises Above $73 As Iran Talks Again Fail To Reach Deal

Iranian negotiators in Vienna confirm that they plan to continue pressing toward a deal after Iran's presidential election weekend, which saw ultraconservative judiciary chief Ebrahim Raisi emerge victorious: "we’ve reached a clear text on all the issues and what remains requires the decision of all parties. It’s not unlikely that the next round of talks will be the last," the foreign ministry optimistically stated. But this has been the constant refrain for weeks - still with no firm end in sight.

But with a more pessimistic tone, the West is warning there's nothing 'open ended' about the talks: "Western officials warned Tehran on Sunday that negotiations to revive its nuclear deal could not continue indefinitely, after the sides announced a break following the election of a new hardline president in Iran," according to Reuters. For the past month there's been intensifying prediction-making over just what the impact a "done deal" - if things in Vienna finally get there - will be on global oil prices, which would immediately see at least 2.5 million barrels of Iranian crude per day come flooding back to the market. 

On Sunday at a moment negotiators adjourned a sixth round of meetings yet still with no deal reached, Bloomberg observed, "Oil held near $72 a barrel as inconclusive nuclear talks between world powers and Iran -- which has elected a new hardline president -- allayed prospects for a swift revival of the Islamic Republic’s crude exports." Into Monday morning it's still climbing, with Brent Crude hovering just under $73.5 a barrel.

Brent crude starting a week ago has held at its highest price level in nearly 3 years, pushing up gas prices in the United States, also amid continued projections of the distinct possibility of $100 oil - especially should US-Iran indirect talks in Vienna drag on with no clear culmination on the horizon.

Bloomberg comments on this uncertain point as follows by noting "The failure to clinch an agreement puts additional pressure on other members of the OPEC+ coalition, which meets next week to consider restoring more oil output." Further the report observes:

Crude is up almost 50% this year as major economies emerge from restrictions and lockdowns after the rollout of Covid-19 vaccinations worldwide. Demand has rebounded, especially in the U.S., Europe and parts of Asia. Consumption in China has exceeded pre-pandemic levels and India is showing signs of recovering from a deadly second virus wave that decimated its economy.

Recall that earlier in June oil rapidly dumped then jumped again on the mere hint of official news that the US had relieved sanctions on Iran - which it turned out was a US Treasury move only impacting one lone Iranian oil official. 

As we noted at that time, Iran has previously said it intends to raise oil output by at least 3.3mln barrels within a month after the lifting of US sanctions, and as much as 4mln BPD within three months. Naturally, should that happen, the oil market will see a surge in new supply but even with millions of new barrels coming online, Goldman last month said that Iran would not have a major impact on the price of oil and wrote that "with growing evidence of the demand rebound, and imminent clarification on the likelihood of an Iranian return, we now see a clearer path for the next leg higher in oil prices, with the sell-off offering opportunities to position for the rally to $80/bbl."

But adding yet further to the unpredictability that the Iran factor will have on oil markets this summer, the Islamic Republic's sanctions busting "ghost armada" is still going strong apparently, with a little help from China:

A 'ghost armada' of sanctions-busting tankers carrying black-market oil to China is bankrolling Iran’s secret nuclear programme, The Mail on Sunday can reveal.

The rogue state has almost doubled its fleet sailing under other countries’ flags to 123 in the past year, letting China smuggle in up to a million barrels of oil per day – or two-thirds of the UK’s daily use.

The Daily Mail further cites intelligence officials who "warn that the expanded fleet shows Iran, which announced hardliner Ebrahim Raisi as its president yesterday, is boosting development of its nuclear capability despite international curbs."

While such tactics including tankers switching of their transponders or even deceptively sailing under other countries' flags are nothing new, what is new is the likely hesitancy of the Biden administration to crack down on the practice - as was attempted under Trump.

However, as of March the Biden administration was quietly telling Beijing "There will be no tacit green light," according to reporting in FT at the time; however it remained that enforcement would only utilize "secondary sanctions" targeting Chinese companies caught transferring Iranian oil. It's as yet unclear the degree to which the Biden White House has followed through with its threat of "no green light". 

"China was reportedly buying an average of 700,000 barrels of illegal Iranian oil a day up to April, peaking at a million barrels, making it Tehran’s main customer," the report continues. "Ghost armada ships carrying 18 million barrels are currently thought to be in the South China Sea." 

Closer to home, Iran has meanwhile been actively prepping to get its global exports flowing once again via official means following years of Trump-imposed biting sanctions which particularly targeted Iran's oil exports, and with in some cases Iranian tankers even being seized.

Tyler Durden Mon, 06/21/2021 - 10:05

Nomura Warns Of Market "Reversal Risk" As FedSpeak Walks Back 'Bullard Bomb'

Nomura Warns Of Market "Reversal Risk" As FedSpeak Walks Back 'Bullard Bomb'

After last week’s market fireworks on the Fed's "hawkish surprise" and Jim Bullard's "you think that's hawkish, hold my beer" moment on Friday morning, which has many market participants screaming “policy error", Nomura's Charlie McElligott warns traders now need to be ready for some potential “reversal of the rhetoric” this week - especially as we are looking at an astounding sixteen (!) Fed speakers on the calendar ahead...

...which is notable in that both Treasury Yields and Equities are already substantially higher versus Asian reopening lows...

Which McElligott warns, risks creating a counter-trend reversal which could catch many flat-footed again as tactically, any semblance of walking-back from the Fed could then elicit an optic of “Reflation,” particularly if USD were to weaken further from here, Real Yields were to again tilt more negative and UST curves then again “bear-steepen” after their eye-water liquidations / stop-out last week—which too would then likely trigger a concurrent bounceback of the prior “Cyclical Value over Secular Growth” trend in US Equities, after said expressions were powerfully de-grossed last week (Nasdaq +0.4% last wk vs Russell -4.1%)

  • Equities “Reflation” last week: Nomura 10 Yr Yield Sensitive Factor -4.6%; Cyclical Value Factor -3.5%; Growth Nowcast -3.1%; LT Momentum -3.1%; Wolfe AVID Value -2.7%; Defensive Value -2.4%

  • Equities “Duration” last week: IG Credit Sensitive Factor +2.7%; HF Crowding +2.2%; Low Risk +2.0%; Size (Big-Small) +1.3%; Dividend +1.0%

This is what the unspoken “third Fed mandate” of maintaining “easy financial conditions at all costs” hath wrought - an absurd cycle where Fed policy and the US economy actually works to a point where in “old” central banking, the Fed would accordingly pivot “hawkish” and begin tightening policy; but in the “Fed Put” world order, market forces now pull-ahead the negative economic slowdown implications of said “tightening” and have “taper tantrums” creating market volatility, ultimately forcing the Fed to walk-back hawkish tone shifts if the market.

In this case, the risk this week then becomes that some portion of the very active calendar of Fed speakers will now voice a “concern” that last week’s dot plot and SEP will work against their previously stated FAIT desire and impede future growth- and inflation- expectations, and could then message on just how “conditional” those forecasts are - i.e. downplaying their forecasting ability, in an attempt to reverse some of the market’s pull-forward of “tighter financial conditions” due to perceived “hawkish pivot” from Fed which nullifies their own prior efforts to reset future inflation expectations!

And as we have now seen countless times before, if the Fed then again “bends the knee” to market forces, the vol spike and forced deleveraging / hedging of risk-assets is then reversed with “rich vols” then sold into, which in standard lagging-fashion will mean that as trailing rVol then resets lower following the expected “Fed back-track,” a large covering of dynamic hedges (shorts) and / or mechancial re-leveraging of risk-asset exposure from “Target Volatility / Vol Control” universe will then see markets resume their rise, as vols are smashed - “Crash-down, then crash-up” rinse / repeat.

To further contribute to these potential “sling-shot” (crash-down, then crash-up) optics, we now inherently see much “cleaner” options positioning (current ES at 4167, which is the “Delta Neutral vs Spot” level) post last week’s abnormally outsized Op-Ex (although worth-noting that we are now in “short Gamma vs spot” territory at 4167 last vs 4237 “Gamma neutral” line).

And in the case that the incremental “hawkish Fed surprise” vol spike is sold into Dealers by the VRP crowd (particular with any semblance of “Fed walk-back” this wk), this impulse supply of Volatility- and Gamma- will again then perpetuate a more stable, insulated market thereafter, as Dealer “long Gamma” means hedging flows will further squelch the potential for market moves - hence, the virtuous cycle phase of the “vol selling” feedback loop.

Tyler Durden Mon, 06/21/2021 - 09:59

Key Events This Week: A Tidal Wave Of Fed Speakers

Key Events This Week: A Tidal Wave Of Fed Speakers

Given last week's extreme moves in the market, one of the most important things this week will be Fed speakers responding to the meeting and subsequent market according to DB's Jim Ried, who adds that the big highlight - at least on paper - will be Fed chair Powell’s testimony tomorrow before the House select subcommittee on the Covid-19 crisis. However, Powell's discussion is expected to center on the Fed's policy response and we may not get too much FOMC insight.

Before that Bullard (non-voter, dove) who sparked Friday's selloff with his uber-hawkish comments, and Kaplan (non-voter, hawk) discuss the economic outlook today. They both have expressed a preference for liftoff in 2022, though for somewhat different reasons. As noted above, Bullard rocked markets on Friday by suggesting his 2022 core PCE inflation forecast of 2.5% as justifying a hike in late 2022, whereas Kaplan has recently focused on financial stability concerns. So there might not be much more for these guys to say today but New York President Williams (voter, dove) later this afternoon might have fresh views especially on the taper given the responsibility for the Fed’s balance sheet that his region has.

Before Powell tomorrow, San Francisco's Daly (voter, dove) and Cleveland's Mester (non-voter, hawk) will be speaking at separate events while on Wednesday, we will hear from Fed Governor Bowman (neutral), Atlanta President Bostic (voter, neutral) and Boston's Rosengren (non-voter, hawk). Bostic will appear again on Thursday alongside Philadelphia's Harker (non-voter, hawk), the latter of which has also been a proponent of tapering asset purchases sooner rather than later. We’ll also have repeat performances from Williams, Bullard, Kaplan and Mester over the week.

So, as Reid wraps up, plenty of potential market moving jawboning: the Fed were very coordinated in playing down inflation risks after the first mega CPI print six weeks ago so it’ll be interesting if they all sing from the same song sheet this week. I can’t help thinking that the debate is starting to liven up at the Fed now but will the last few days of market moves scare them?

Moving onto the data the biggest highlight will be the release of the June flash PMIs on Wednesday from around the world, which will give us an initial indication of how the global economy has performed into the end of Q2. The final May PMIs showed that growth was still maintaining decent momentum, with the Euro Area composite PMI coming in at 57.1, the strongest in over 3 years, while the US composite PMI was at 68.7, which is the strongest since the data goes back to in October 2009. Another release of note will be the German Ifo’s business climate indicator for June (Thursday), which rose to a 2-year high last month of 99.2.

Friday will be a key day with inflation being dissected within the US personal income and University of Michigan releases. Clues to Core PCE will be the key in the former with the 5-10 year inflation expectations important on the latter. On this, May’s number dipped 0.2% from April’s 3%. So all eyes on this.

The main monetary policy decision this week comes from the Bank of England on Thursday, where economists generally expect the MPC to remain cautiously optimistic around the recovery, keeping the policy rate on hold at 0.1% and maintaining the target stock of QE at £895bn - stronger growth, labor market and inflation data thus far should tilt the policy statement in a slightly more hawkish direction than in May. Nevertheless, something else to watch out for in the UK will be the latest data on Covid-19, as the spread of the delta variant has led to a noticeable rise in cases and hospitalizations over recent weeks, albeit still at relatively low levels compared to earlier in the year. Russia, Germany and Portugal have now also reported an increasing spread of Delta with a big story in the FT today about the variants small but growing footholds across Europe. This will capture some attention. The rest of the week’s main events will be in the day by day list at the end.

Turning to politics, French President Macron and far-right leader Marine Le Pen both are likely to have fared poorly in a regional election in France where the turnout was at an all-time low of c. 33% (vs. c. 50% in last election). According to an Ifop poll, Le Pen’s National Rally got 19%, c. 10 points behind her performance in the last election while, Macron’s party took only 11% and is not expected to win any regions. Better performances came from the Conservative party that likely received 27% of votes while the Greens are likely to be at 12%. To know more on how the outcome of regional elections can have an impact on the French Presidential election in 2022 read this note from our European economists (link here).

Day-by-day calendar of events for the coming week courtesy of Deutsche Bank

Monday June 21

  • Data: US May Chicago Fed national activity index
  • Central Banks: ECB President Lagarde, ECB’s Centeno and Fed’s Bullard and Williams speak

Tuesday June 22

  • Data: UK May public sector net borrowing, Euro Area advance June consumer confidence, US May existing home sales, June Richmond Fed manufacturing index
  • Central Banks: Fed Chair Powell, Fed’s Daly, Mester and ECB’s Rehn speak

Wednesday June 23

  • Data: Flash manufacturing, services and composite PMIs for June from Australia, Japan, France, Germany, Euro Area, UK and US, Japan final April leading index, US Q1 current account balance, May new home sales
  • Central Banks: ECB Vice President de Guindos, Fed’s Bowman, Bostic and Rosengren speak

Thursday June 24

  • Data: Germany June Ifo business climate, US third reading Q1 GDP, preliminary May durable goods orders, weekly initial jobless claims, June Kansas City Fed manufacturing activity
  • Central Banks: Bank of England monetary policy decision, ECB publishes Economic Bulletin, Fed’s Bostic, Harker, Bullard and ECB’s Panetta and Schnabel speak
  • Politics: EU leaders meet in Brussels for European Council

Friday June 25

  • Data: UK June GfK consumer confidence, Germany July GfK consumer confidence, Euro Area May M3 money supply, Italy June consumer confidence, US May personal income, personal spending, final University of Michigan consumer sentiment index
  • Central Banks: Fed’s Mester and Rosengren speak
  • Politics: European Council meeting concludes

Finally, focusing on just the US, The key economic data releases this week are the durable goods report and Q1 GDP revision on Thursday, and core PCE inflation on Friday. There are many speaking engagements from Fed officials this week, including New York Fed President Williams on Monday and Chair Powell’s testimony to Congress on Tuesday.

Monday, June 21

  • 09:45 AM St. Louis Fed President Bullard (FOMC non-voter) and Dallas Fed President Kaplan (FOMC non-voter) speak: St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan will discuss the economic outlook in a virtual event hosted by the Official Monetary and Financial Institutions Forum. Q&A is expected.
  • 03:00 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will speak at a virtual event hosted by the Midsize Banking Coalition of America. Prepared text and Q&A are expected.

Tuesday, June 22

  • 10:00 AM Existing home sales, May (GS -4.0%, consensus -2.4%, last -2.7%): We estimate that existing home sales declined by 4.0% in May after declining by 2.7% in April. Existing home sales are an input into the brokers' commissions component of residential investment in the GDP report.
  • 10:00 AM Richmond Fed manufacturing index, June (consensus +18, last +18): 10:30 AM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will discuss monetary policy and financial stability during a virtual workshop hosted by the Norges Bank. Prepared text and Q&A are expected.
  • 11:00 AM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will speak at a virtual event hosted by the Peterson Institute for International Economics. Prepared text and Q&A are expected.
  • 02:00 PM Fed Chair Powell (FOMC voter) speaks: Fed Chair Jerome Powell will appear before a House select subcommittee hearing on the Covid-19 crisis to discuss pandemic emergency lending and the economy. Prepared text is expected.

Wednesday, June 23

  • 8:30 AM Current Account Balance, Q1 (consensus -$206.5bn, last $-188.5bn)
  • 09:00 AM Fed Governor Bowman (FOMC voter) speaks: Fed Governor Michelle Bowman will speak at a conference on economic resilience hosted by the Cleveland Fed.
  • 09:45 AM Markit Flash US manufacturing PMI, June (consensus 61.5, last 62.1): Markit Flash US services PMI, June (consensus 70.0, last 70.4)
  • 10:00 AM New home sales, May (GS +0.7%, consensus +0.9%, last -5.9%): We estimate that new home sales increased by 0.7% in May, reflecting mean-reversion and a rise in starts but a slowdown in permits and mortgage applications.
  • 11:00 AM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss the impact of systemic racism on entrepreneurship. Audience and media Q&A is expected.
  • 04:30 PM Boston Fed President Rosengren (FOMC non-voter) speaks: Boston Fed President Eric Rosengren will discuss the economy in a moderated Q&A hosted by the National Association of Corporate Directors. Audience Q&A is expected.

 Thursday, June 24

  • 08:30 AM Advance goods trade balance, May (GS -$86.7bn, consensus -$87.7bn, last -$85.7bn): We estimate that the goods trade deficit increased by $1.0bn to $86.7bn in May compared to the final April report, reflecting the tail end of stimulus-driven import strength and inventory restocking partially offset by firming seaborne exports.
  • 08:30 AM Wholesale inventories, May preliminary (consensus +0.8%, last +0.8%): Retail inventories, May (consensus +0.4%, last -1.6%)
  • 08:30 AM Durable goods orders, May preliminary (GS +2.4%, consensus +3.0%, last -1.3%); Durable goods orders ex-transportation, May preliminary (GS +0.4%, consensus +0.7%, last +1.0%); Core capital goods orders, May preliminary (GS +0.4%, consensus +0.6%, last +2.2%); Core capital goods shipments, May preliminary (GS +0.6%, consensus +0.8%, last +0.9%): We estimate durable goods orders rose 2.4% in the preliminary May report, reflecting an expected rebound in commercial aircraft and defense orders. We estimate smaller gains in the core categories, including +0.4% in core capital goods orders and +0.6% for core capital goods shipments, reflecting rebounding exports but an elevated pace of orders the prior month.
  • 08:30 AM GDP (third), Q1 (GS +6.4%, consensus +6.4%, last +6.4%); Personal consumption, Q1 (GS +11.3%, consensus +11.4%, last +11.3%): We estimate no revision on net in the third vintage of the Q1 GDP report (previously reported at +6.4% qoq saar).
  • 08:30 AM Initial jobless claims, week ended June 19 (GS 380k, consensus 380k, last 412k); Continuing jobless claims, week ended June 12 (consensus 3,481k, last 3,518k): We estimate initial jobless claims decreased to 380k in the week ended June 19.
  • 09:30 AM Atlanta Fed President Bostic (FOMC voter) and Philadelphia Fed President Harker (FOMC non-voter) speak: Atlanta Fed President Raphael Bostic and Philadelphia Fed President Patrick Harker will take part in a moderated panel discussion hosted by the Official Monetary and Financial Institutions Forum. Audience Q&A is expected.
  • 11:00 AM Kansas City Fed manufacturing index, June (consensus +25, last +26)
  • 11:00 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will take part in a virtual moderated discussion hosted by the College of Staten Island. Audience Q&A is expected.
  • 01:00 PM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will discuss the economic outlook in a virtual event hosted by the Clayton Chamber of Commerce. Prepared text is expected.
  • 01:00 PM Dallas Fed President Kaplan (FOMC non-voter) speaks: Dallas Fed President Robert Kaplan will take part in a virtual discussion hosted by the Headliners Club of Austin. Audience Q&A is expected.

Friday, June 25

  • 08:30 AM Personal income, May (GS -2.4%, consensus -2.7%, last -13.1%); Personal spending, May (GS +0.6% consensus +0.4%, last +0.5%); PCE price index, May (GS +0.52%, consensus +0.5%, last +0.61%); Core PCE price index, May (GS +0.56%, consensus +0.6%, last +0.66%); PCE price index (yoy), May (GS +3.95%, consensus +3.9%, last +3.58%); Core PCE price index (yoy), May (GS +3.43%, consensus +3.4%, last +3.06%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.56% month-over-month in May, corresponding to a 3.43% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.52% in May, corresponding to a 3.95% increase from a year earlier. We expect a 2.4% decrease in personal income and a 0.6% increase in personal spending in May.
  • 10:00 AM University of Michigan consumer sentiment, June final (87.0, consensus 86.5, last 86.4): We expect the University of Michigan consumer sentiment index increased to 87.0 in the final June reading, reflecting stronger signals from other consumer sentiment measures.
  • 11:35 AM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will speak at a conference on economic resilience hosted by the Cleveland Fed.
  • 01:00 PM Boston Fed President Rosengren (FOMC non-voter) speaks: Boston Fed President Eric Rosengren will discuss financial stability during a virtual event hosted by the Official Monetary and Financial Institutions Forum. Prepared text and audience Q&A are expected.
  • 03:00 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will deliver honoree remarks at the UCEAP Distinguished Alumni Award Ceremony hosted by the University of California Education Abroad Program.

Source: DB, BofA, Goldman

Tyler Durden Mon, 06/21/2021 - 09:58

Front-Running The Crash

Front-Running The Crash

Authored by Charles Hugh Smith via OfTwoMinds blog,

What if everyone in the market realizes it's now the moment to front-run the crash?

We have a fine-sounding word for running with the herd: momentum. When the herd is running, those who buy what the herd is buying and sell what the herd is selling are trading momentum, which sounds so much more professional and high-brow than the noisy, dusty image of large mammals (and their trading machines) mindlessly running with the herd.

We also have a fine-sounding phrase for anticipating where the herd is running: front-running. So when the herd is running into stocks, those who buy stocks just ahead of the herd are front-running the market.

When the Federal Reserve announces that's it's going to make billionaires even wealthier with some new financial spew, those betting that stocks will never go down because the Fed has our back are front-running the Fed.

There are two remarkable assumptions at the heart of momentum and front-running: The momentum herd and those front-running the herd base their behavior on the assumption that there will always be other rich people who will sell all the shares they want to buy at today's prices before the run-up to new highs.

Since only rich people own stocks, we know that those selling stocks are selling to other rich people and those buying stocks are buying from other rich people. So the assumption of those front-running the market is that there is a large enough sub-herd of rich people who for whatever reason aren't smart enough to front-run the herd, and who will foolishly sell their stocks just before they double in value.

The second assumption is that there will also be a large enough sub-herd of rich people who will buy all the shares they want to sell at the top, just before the bubble pops and the value of the newly purchased shares falls in half.

There are various ways to state this, but the bottom line is that momentum and front-running are only profitable if you sell at the top, just before the bubble bursts. You would be forgiven for anticipating that the same sub-herd front-running the herd and the Fed on the way up to the top of the bubble would be just as prescient and active in front-running the inevitable bursting of the bubble, but this is not how running with the herd works.

Short interest recently plumbed multi-year lows, indicating that very few are front-running the market crash.

Those trading momentum and front-running the herd/Fed are making a remarkable assumption, an assumption which is visible in a great volume of financial-media content: the stock market, we're told, will continue to make new highs like clockwork until some point in the third or fourth quarter, at which point there may well be a spot of bother, i.e., a crash.

The assumption is that all the rich people who own stocks will be so splendidly stupid that they will hold their shares until the crash and then sell them at prices far lower than they can fetch today. Put another way, the market participants who decide this is close enough to the top to liquidate their positions today and not wait around for the crash to wipe them out assume that that the herd of other rich people who will be delighted to buy their insanely overvalued shares at today's prices is large enough to absorb all their selling with no downward pressure on valuations.

In other words, the assumption being made is: I can wait until just before the crash to sell, because there will be boatloads of splendidly stupid rich people who will buy all the shares I want to sell at today's lofty prices--or higher, and this liquidation won't push valuations off a cliff.

As a general rule, people don't all become rich by being splendidly stupid, i.e., failing to anticipate what other rich people are about to do, and so this raises the question: what if everyone in the market realizes it's now the moment to front-run the crash?

Perhaps Wile E. Coyote could offer some useful perspective on what happens next.

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Tyler Durden Mon, 06/21/2021 - 09:20

MicroStrategy Buys 13,005 Bitcoin At $37,617 Using Proceeds From First Ever Crypto Junk Bond

MicroStrategy Buys 13,005 Bitcoin At $37,617 Using Proceeds From First Ever Crypto Junk Bond

Two weeks after Microstrategy announced that it was selling the first ever batch of $400 million in (subsequently upsized to $500 million) junk bonds (6.125% coupon due 2028; by comparison, the average junk bond yields just about 4%) for the sole purpose of buying bitcoin, earlier today MSTR CEO Michael Saylor confirmed that the transaction had been consummated with the company buying 13,005 bitcoin at an average price of $37,617 for a total of $489 million.

The transaction has cemented MSTR's status as the largest corporate hodler of bitcoin, with a total of 105,085 bitcoin acquired for $2.741 billion or an average price of $26,080.

Putting these numbers in context, the amount purchased using junk bond proceeds was more than $100 million higher than the company’s entire operating cash flow since 2016, according to Bloomberg data; MicroStrategy also announced that it was taking a roughly $284.5 million charge during its next earnings report thanks to losses related to fluctuations in the price of the digital asset. That amounts to more than its cumulative earnings since 2011.

Previously, MSTR already issued convertible bonds worth around $1 billion in its quest to scoop up more of the coins, though this was the first-ever corporate bond sale with proceeds earmarked for such purchases.

Naturally, news of the offering sparked both praise from the diamond hand crew, as well as scathing criticism from the crypto skeptics:

“The $400 million in debt isn’t being used to fund an acquisition or growth. It’s being used to speculate on a volatile asset,” said Marc Lichtenfeld, chief income strategist at the Oxford Club. “Does MicroStrategy even have a business anymore or is it simply a proxy for Bitcoin -- with borrowed money?”

The answer is obvious, and considering the move in the stock in the past year, it has been a great strategy... so far.

News of the offering come in a day when the crypto space tumbled...

... after the latest dose of FUD from China (how many times can Beijing credibly ban bitcoin before investors start asking if this is just a daily jawboning tactic to distract from the disastrous reception of the digital yuan).

Saylor has been one of leading advocates of converting company cash to Bitcoin, saying that the Federal Reserve’s relaxing of its inflation policy helped convince him to invest MicroStrategy’s reserves. The company’s disclosures around Bitcoin and its foray into the digital-assets space served as one of the catalysts to the coin’s red-hot rally in 2020 and early 2021, before it tumbled last month. The coin on Monday traded just over $32,000 down more than 50% from its mid-April record.

Tyler Durden Mon, 06/21/2021 - 08:59