Why The Tour de France Is So Brutal – Vox

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Good v. Evil

Yes, that is what 2020 is shaping up to be all about.

Watch the videos and read the tweets below and you decide, then act…

 

 

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Enter The Selling Zone 2.0

It’s that time again.

No, not the, now annual October fires in California (helluva a Chinese hoax, btw) we’re running from but the S&P moving into the selling zone.

We are reposting a piece we published on the very day the market peaked in July right around here.   The S&P came close to making a new high today, within 1/2 point and end at its closing high of 3025.86.

Money was made on that trade but not the kind that we think is coming.

We maintain this is good place to sell and set up shorts again.  We will sell all day up until 3125, at which point, we will cut and capitulate that “this time may be different.”  Arghh.

Stock valuations are at record highs and the markets are so, so gummed up and distorted by government intervention, mainly the Fed — the ultimate socialism, in our book — policymakers and market analysts have lost their compass and can’t tell, north from south, east from west or front from back.  The cheerleaders are out in full force with their pom-poms this week, by the way.

Tight Liquidity

Nobody can seem to figure out this “liquidity problem” in the repo market and why banks with excess reserves are not arbing the Fed funds and repo rate.

The shadow puppets that we see dancing on the wall of the cave are based on our first principles.

1)  Interest rate distortions.  If prices are not allowed to move to equilibrium, quantities will.  Go back are read some of our rent control analogies on how the repression of interest rates will lead to excess demand for liquidity, which can only be filled by monetization, ie., the Fed.   Witness the now.

Rent Control_2

2) Larger budget deficits and structural changes in Treasury financing.  The structural changes in the Treasury market and pro-cyclical deficits are wreaking havoc on liquidity and crowding out funding in other markets.  See here.

Deficit

Few understand that the U.S. G used to fund up to 50 percent of its annual shortfalls with the social security surplus (off-budget), limiting its financing pressure on the markets.  No mas, comrades.

Social Security is now running monthly deficits, which will continue to get worse until the geniuses fix it.   The Treasury will have to increase its reliance on the market not only to fund the on-budget deficit but now an off-budget deficit (Social Security plus USPS).

 

Treasury_Debt

More in the next few posts.

Finally,  check out the twisted logic of the markets.  Rick Reily is one smart dude and the real brains at Black Rock. He, in essence, states, last year interest rates were too high now they are too low but the market needs the liquidity from the Fed.   Do you have a feeling everyone is winging it?

In a well-functioning economy, interest rates would rise, reducing the demand for funding from zombie companies and/or drive them out business, for example, and savings would increase.   But interest rates can’t rise because it’s not a well-functioning economy.  There is too much debt, too many distortions, and the economy is too dependent on asset bubbles.

Enter The Selling Zone

 

We have entered the selling zone — S&P 3025-3100 — to execute the Get Shorty trade.  This also provides an excellent opportunity for long-term investors to start cutting back on risk if they have not already been doing so.

You know our view.  Rarely should LT investors reduce risk in a significant manner, maybe just three to four times during their working lives, but this is one of those times, we believe.

Structural Headwinds 

The tectonic plates of the global international economic order are breaking apart and moving in the wrong direction and valuations are at historic extremes.

Not to mention the absurdity that “billions upon billions” of fixed-income securities seem to enter the negative interest rate Twilight Zone on a daily basis.

Moreover, the Fed is about to take the unprecedented action of cutting rates next week with stocks at historical highs and inflation marching higher.   That signals, at least to us, a Fed gone political and that policymakers have created a beast they cannot tame.

We expect the summer Friday afternoon ramp into the close, which will be an opportunity to start letting some go or setting some up.  It’s hard to sell strength but much more enjoyable than selling into weakness and into a big hole.

Stocks Out Of Runway

The charts below illustrate that history dictates that stocks have very little room to run to the upside from current levels.    We could be wrong and ‘this time may be different.”

We seriously doubt it, however, but discipline always trumps conviction and that is why we have a hard stop at 3125 to cover.  We will then wait to put them out at even more absurd valuations.

Long-term investors that do sell should have a Plan B to get reinvested if they are wrong.

Good luck, folks.   See ya’ thirty-plus percent lower.

Micro Metrics

Valuations_1

Hat Tip: Antonio Pérez Algás  @apanalis

Valuations_2.png

Hat Tip:  Kevin C. Smith, CFA  @crescatkevin

Macro Metrics

Valuations_3

Valuations_4

See disclaimer

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Life After 10 Downing Street

This is too funny!  Click on and enjoy.

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WWLT: What Would Lincoln Tweet?

Lincoln

Maybe

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Why Trump Continues To Beat The Fed With An Ugly Stick

It’s the economy dollar, stupid.   And its impact on manufacturing payroll jobs.

Trump’s Economic Scorecard

Trump’s economic comps versus the prior 29-month period before taking office just aren’t that impressive even as he touts “it’s the greatest economy ever.”  Tomorrow we get the first look at the Q2 GDP print.  The Atlanta Fed’s  is forecasting a compounded annualized increase of 1.3 percent, down from 3.1 percent in Q1.

Jobs 

 

Man_Edit_1

The data above illustrate employment created under President Trump lags significantly the prior 29-month period, by almost one million payroll jobs, or -812k, including private payrolls of -594k.  Nominal wages are higher but the purchasing power is negated as inflation has almost doubled.

Yes, we get it the supply of workers is shrinking.

Mining and Manufacturing Payrolls:  Oil Prices & Dollar Correlation

Where the job comps (emphasis on comps) favor the Trump administration most are in mining and manufacturing, which can, in large part, be explained by  1)  the recovery in oil prices in the case of mining, where the majority of the recovery took place in support activities for oil and gas operations, after the 75 percent crash in WTI from July 2014 to February 2016,  and 2) the 20 plus percent strengthening of the dollar in the 29 months leading up to the birth of the Trump administration, which torched the manufacturing sector, particularly in metals and machinery.

We go deeper on manufacturing payrolls and the dollar in this post and leave mining and oil prices for later.

Durable Manufacturing 

Man_Edit_2

The table shows that durable manufacturing payrolls under Trump have outpaced the prior 29 months by 367k jobs,  primarily the result of the recovery of job losses that took place in the metals and machinery sectors, which, we believe were adversely affected by the spiking dollar.  Contrary to popular wisdom, the payroll increase in auto manufacturing is lower under President Trump than the prior period.

Dollar Correlation 

Take a look at these correlations between the 3-month moving average of monthly manufacturing payroll changes and the year-on-year change in the trade-weighted dollar with various lags.   We wrote in an earlier post it makes sense to look at lags,

Theoretically, it also makes sense as manufacturers do not change their hiring decisions based on short-term moves in demand, relative price changes, or competitiveness.   A sustained move in the dollar for, say, over a one year period  may incentivize management to change production and hiring decisions, which then takes months to ramp up.  – GMM, July 8th

 

Man_4

Those are stunning correlations, folks, which measure how jobs and the dollar move together.   A perfect correlation would be -1.0 or 1.0.

A negative correlation between the change in manufacturing jobs and dollar moves makes perfect economic sense and explains why Trump wants a weaker dollar, which creates a more competitive manufacturing sector ergo more jobs in the rust belt.

 

Man_3

We can’t stop staring at the above chart, which illustrates the -0.88 correlation between the 3-month moving average of the monthly change in the machinery sector payrolls and the year-on-year monthly change in the trade-weighted dollar index, lagged six months.

Politics

The following table is the latest tracking poll data from Morning Consult on the President’s approval ratings in the states that matter most in 2020.   He is now underwater in every state but Texas and even in Georgia.

Now, do you understand why Trump takes an ugly stick to Chairman Powell on an almost daily basis?

Man_Monring Consult_Polls

The Trump administration’s economic and political advisers may not have formally run the correlations and connected the dots but they are sure acting as if they have.

 

Prepare for a currency war.

 

Appendix

Man_5_$

 

Man_6_$

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Mitch McConnell Raises The White Flag, Lays Out Welcome Matt

 

White_Flag_2

White_Flag_4

Senate Majority Leader Mitch McConnell (R-Ky.) blocked two election security measures on Thursday, arguing Democrats are trying to give themselves a “political benefit.” 

…Sen. Richard Blumenthal (D-Conn.) also asked for consent to pass legislation that would require candidates, campaign officials and their family members to notify the FBI of assistance offers from foreign governments.

McConnell also objected to that bill.  The Hill, July 25

More Kafka Than Ever

Political benefit?

Wasn’t that the raison d’être of the Mueller investigation?  That the “Russian government interfered in the 2016 presidential election in a sweeping and systematic fashion,” which “favored presidential candidate Donald J. Trump and disparaged presidential candidate Hillary Clinton“?  Page one of the Mueller Report, by the way.

So, of course, blocking these bills to secure the integrity of the next presidential election from foreign influences would disadvantage one party.

The day after Robert Mueller’s Congressional testimony to boot!  See our, No Congress For Old Men,  post here.

More Kafka, please!

We don’t know about you but we believe McConnell’s actions are tantamount to laying out a welcome matt for more foreign influence in the 2020 election.

White_Flag_11

My God, what would George Washington think?

POTUS Gets A Taste Of The Coming Deep Fakes

President Trump appeared on stage today in front of a “fake” Presidential seal,

(CNN) An audiovisual aide for conservative student group Turning Point USA was fired this week after President Donald Trump appeared on a stage in front of a parody image of the presidential seal at its Teen Student Action Summit.

As the President took the stage Tuesday morning before a sea of 1,500 teenage cell phones, a screen behind him showed a fake presidential seal featuring a two-headed eagle — which bore similarity to the State seal of the Russian Federation — clutching a set of golf clubs in its talons. The seal was visible for a short time behind Trump, who stood behind a podium affixed with the official (and un-doctored) presidential seal for the duration of his speech.  – CNN

White_Flag_6

Last night we posted this,

They will be more sophisticated this time, loaded with deep fake videos, hacks, ‘bots, and whatever you can and can’t imagine. 

WASHINGTON (AP) — Hey, did my congressman really say that? Is that really President Donald Trump on that video, or am I being duped?

New technology on the internet lets anyone make videos of real people appearing to say things they’ve never said. Republicans and Democrats predict this high-tech way of putting words in someone’s mouth will become the latest weapon in disinformation wars against the United States and other Western democracies.  – TPM

Where is the panic?  Where is the outrage?  – GMM, July 24th

Buck up, folks.  Consider the source, don’t believe everything you see, beware of the subliminal, fact check, and listen carefully to detect those ugly dog whistles.

Your freedom depends on it.

An educated citizenry is a vital requisite for our survival as a free people. – Thomas Jefferson

 

 

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No Congress For Old Men

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Mueller_Time

Mueller Time

Man, it was painful watching an aging 74-year-old American hero caught up in the cross-fire of the Democrats and Republicans on Capitol Hill today.

Robert Mueller will be 75-years old on August 7th, is a decorated Marine, winning the Bronze Star and Purple Heart in Vietnam.  He gave it his best, trying to remain objective, nonpartisan, and being extremely careful to stay in his lane, but looked tired as he fumbled and bumbled his way trying to recall the most detailed facts from his 448-page report.  That’s not an easy task even for a 25-year-old.

Mueller was an assistant United States attorney; a United States attorneyUnited States assistant attorney general for the Criminal Division; a homicide prosecutor in Washington, D.C.; acting United States deputy attorney general; and director of the FBI. Mueller was also a partner at the D.C. law firm WilmerHale before being appointed as special counsel.  – Wikipedia

DisUnited States of America

We are stunned that the country can’t come together after the facts – yes facts – show that the Russian military attacked our nation during the 2016 Presidential election “in a sweeping and systematic fashion.”  That the Trump campaign had several contacts, as in > 100, with individuals with ties to the Russian government, welcomed them and expected to benefit from them politically.

One of those contacts, included the campaign manager of a United States presidential campaign,  Paul Manafort,  handing over internal polling data in key swing states to Konstantin Kilimnik, a Russian business associate with ties to Russian intelligence.  Hollywood can’t make this shit up, folks.

Nevertheless, the special counsel could not “establish that the president was involved in an underlying crime related to Russian election interference.”

Those are the facts.  The Russian investigation was not a hoax.  Nor were the attacks a joke.

Full disclosure: We were not supporters of Hillary and couldn’t and didn’t vote for her. We do regret our ABC (Anybody But Clinton) strategy but as a Californian our vote didn’t matter. Neither did we vote for Trump, however.   

Useful Idjits At Best

Come on, folks, at best the Trump campaign was a “corps of useful idiots” of the Russian military and the GRU, its intelligence unit, and benefitted politically from their help. This included Twitter ‘bots and campaign rallies for Trump sponsored by the GRU and IRA, among other things.

IRA Poster

The Cover-Up Is Always Worse

President Trump then tried to cover-up these actions, including his attempt to build a Trump hotel in Moscow, which would land any ordinary American citizen, other than the POTUS, in the Federal pen.   If you don’t believe us ask the 1000 other bipartisan former federal prosecutors.

We are stunned by charges that reaching our conclusion, based on these established facts, and condemning a Russian military attack on America – albeit without tanks and battleships- and its acquiescence, especially by the Republican Party, is deemed partisan. This isn’t about politics, it’s recognizing a beyond shocking and very ugly reality.  WTF has happened to our country?

Impeachment 

We don’t think Robert Mueller’s Congressional testimony today will move the needle much on impeachment.  We traded out of our impeachment shares at a small profit, which was very disappointing as at one point we were up over 100 percent.

We do note the President’s approval ratings average only about 5 points above the level, which supports his impeachment in the latest polls.

In our wildest imagination, we never thought the White House would turn the holiest of holies, the Department of Justice, into POTUS’ own personal attorney office.  As a trader, we accept reality, and we move on to the next trade.

Bad Moon Rising

Unfortunately, the country and world can’t move on to the next trade.

Trump, not being held accountable only emboldens him, makes a mockery of the U.S. Constitution, moves him to the next level of his delusion of grandeur, and further endangers the world with POTUS’ impulse-driven, self-interested staccato policy ejaculations.

Every racist tweet and fascismo racist rally, such as the “send her back” North Carolina rally last week, takes our country to a much darker place. 

So far, America (not so much the farm belt) and the world, has in general, been relatively lucky.  That is not going to last.

Take a look at the two headlines and connect the dots, folks.

 

Trump_Cuts_Deal

Donald Trump told Chinese president Xi Jinping last month that the US would tone down criticism of Beijing’s approach to Hong Kong following massive protests in the territory in order to revive trade talks with China. The US president made the commitment when the two leaders met at the G20 summit in Osaka, according to several people familiar with the meeting. One person said Mr Trump made a similar pledge in a phone call with Mr Xi ahead of the G20 summit.  – FT, July 9th

dot, dot, dot…….

 

Trump_Cuts_Deal_2

The Chinese military has said that it can be deployed to Hong Kong to maintain social order at the request of the city’s government, adding that  Sunday’s siegeof the mainland government’s liaison office in the city was intolerable. – SCMP, July 24th

Will Xi now try to put Taiwan on the table as part of a trade deal that makes Trump look like a winner before the election?

Nothing surprises us anymore, nor should it surprise you.

Trump does everything for Trump and will sell anyone or everyone and anything or everything down the river.   This man has zero principles.

That may be a bit of our partisanship surfacing as we do think the POTUS is an absolute disaster.    We believe, however, if a machine-learned algorithm were coded purely from data of Trump’s actions, it would confirm our priors and perspective.  It is possible that Putin, Xi, and Kim the Jung-un have that algo as they play the POTUS like Stradivari fiddle.

2020 Presidential Elections

The Russians are coming again in the 2020 presidential election,

…and are doing it as we sit here — Robert Mueller, July 24th

Probably, so too are the Chinese, the Iranians, North Koreans, and God knows, who else.  They will be more sophisticated this time, loaded with deep fake videos, hacks, ‘bots, and whatever you can and can’t imagine. 

WASHINGTON (AP) — Hey, did my congressman really say that? Is that really President Donald Trump on that video, or am I being duped?

New technology on the internet lets anyone make videos of real people appearing to say things they’ve never said. Republicans and Democrats predict this high-tech way of putting words in someone’s mouth will become the latest weapon in disinformation wars against the United States and other Western democracies.  – TPM

Where is the panic?  Where is the outrage?

Just imagine, the Wendell Willkie 1940 campaign meeting with individuals from the Imperial government of Japan hoping for a new administration to go easy on them as they ran rampant through Asia?   No, we are not comparing 1940 Japan with 2016 Russia, or are we?

What if John Kerry’s campaign manager passed on internal polling data on voting in Ohio (if Kerry won Ohio, he wins the presidency), to some North Korean government-backed political hackers during the 2004 campaign?   Would that have been OK and also turned into a partisan food fight?

Are we now just frogs enjoying the hot jacuzzi as it reaches a dangerous boiling point?

A bill to protect the 2020 election sits and will die on the Senate majority leader’s desk.  History will not look kindly on the senior Senator from Kentucky.

Upshot

Nevertheless, the special counsel Rober Mueller did testify under oath today that:

  1. the Russians hack of the 2016 election was “not a hoax;” 
  2. the investigation was “not a witch hunt;
  3. the Russians are still up to their old tricks “as we sit here;”
  4. he could not “criminally indict POTUS due to a [2000] Department of Justice policy;”
  5. President Trump “could be indicted after leaving office.

The indictment or criminal prosecution of a sitting President would unconstitutionally undermine the capacity of the executive branch to perform its constitutionally assigned functions.  – Department of Justice

An asinine policy opinion at that.

By the way, wasn’t that Attorney General, Janet Reno, who handed down that opinion in October 2000,  a bit conflicted as her president had just been impeached less than 21 months earlier?  Just askin’?

We wait for our Oskar Schindler friends on Wall Street to have their come-to-Jesus moment.

God Bless Help America.

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Greek 10-year Trades Through U.S. 10-year Treasury Yield

God, we love efficient markets.  Greece 10-years now trading through the U.S 10-year.

What is the bond market telling us?  Pleaaaazeee…

How much do you wanna bet the analysts, who were saying “Greece is still going to default” after the 2012 bond restructuring are now buyers of the 10-year Greek bond, which was then yielding around 19 percent and now trading through U.S. Treasuries close to 2 percent?  Nothing like retrofitting fundamentals to the price action.

Here is a nugget we posted just after the 2012 Greece bond restructuring.

We do find it interesting, however, to hear some analysts state “Greece is still going to default.”   On what, may we ask?

…The bond exchange allows Greece to effectively buyback and thus retire €141.11  billion or 68.5 percent of its €206 billion bond stock, at 22 cents on the euro.   The remaining 31.5 percent of bonds , or  €64.89 billion,  are exchanged for various bonds with 11-30 year maturities and an annual coupon of 2 percent through 2015 and gradually stepping up thereafter.

…We’ve worked on many of the world’s largest sovereign restructurings and this is one helluva of deal for Greece,  in our opinion.   Now let’s hope the government can continue on the reform path and animal spirits can generate some investor confidence, which will allow the economy to bottom and start to recover.

…At the very least,  assuming this deal closes,  the  “acute”  part of Greece’s sovereign debt crisis where large bond maturities could not be repaid and almost took down Europe and its banking system in the second half of 2011 is over.   – GMM, March 2012

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Housing Supply Curve – The Big Shift Left

Price up, supply down.

Existing-home sales fell 1.7% to a seasonally adjusted annual pace of 5.27 million, the National Association of Realtors said Tuesday. Sales declined 2.2% compared with a year earlier, marking the 16th consecutive month of annual declines in sales.

The spring selling season is crucial because about 40% of the year’s sales take place in March through June. Falling sales during most of this period have puzzled economists. They struggle to explain why the housing market has remained soft while the rest of the economy has been booming.

Borrowing rates have fallen to their lowest levels in two years, wages are rising and unemployment is at a 50-year low.

“It doesn’t make economic sense,” said Lawrence Yun, the NAR’s chief economist.  – WSJ

The housing market is all gummed up and still suffering from the big supply shock we have written about — homes bought up and beaten into rentals and rising costs of construction.

First-time buyers can’t afford homes even at these interest rates.  We suspect a demand shock — beginning with the retreat of foreign buyers — will start to show up in the data, which should bring prices down.

See here and here for our analysis on the housing market.

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