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Challenging Week Ahead

Three macro considerations are shaping the investment climate: the evolution of the virus and the response, the timeframe of the Fed’s tapering, and China’s broad regulatory crackdown.  Beijing’s new policy initiatives are broader and quicker than general



Three macro considerations are shaping the investment climate: the evolution of the virus and the response, the timeframe of the Fed's tapering, and China's broad regulatory crackdown.  

Beijing's new policy initiatives are broader and quicker than generally anticipated.  Officials seem to be opening up several different fronts, including anti-trust, data protection, discouraging foreign capital raising, and private education reform.  The common element is reining in what officials may see as excesses.  It dovetails with other efforts seeking to strengthen the Communist Party's command and control functions.  

Beijing seemed unaware or uninterested in the broader implications.  The inclusion of the yuan into the IMF's Special Drawing Rights (SDR) and Chinese stocks and bonds into global benchmarks represents a new integration phase.  Recent estimates suggest foreign investors have doubled since 2015 to around $550 bln and around the same amount of Chinese bonds. However, foreign investors have been adversely impacted by the sharp drop in Chinese and Hong Kong equities, and, given the driver, may have a cooling effect on future allocations.  It wasn't until the sell-off in Chinese stocks accelerated to new lows for the year,  interest rates jumped, and the yuan sold to new three-month lows that Beijing moved to stabilize the markets.  

China is doing what some of its critics were struggling to accomplish, namely, discourage further integration of China into the global capital markets.   A year ago, the Trump administration prohibited federal pension fund investment in China. Ahead of the weekend, the SEC announced it would freeze the application process for Chinese IPOs and the sale of other securities on concerns about the risk disclosure.  In addition, Chinese companies face being delisted from US exchanges if they continue to refuse to share audits with regulators. 

There has been a pushback against claims of decoupling by focusing on the trade of goods and services.  But trade is a small part of the integration and is stickier than capital flows. Moreover, trade can be a shallow kind of integration.  Direct investment, listing on exchanges, patent registrations, incorporation of industry standards seem to be a deeper commitment.  

If there are more sustained outflows from China, the natural question of where they may go.  However, in the first instance, it seemed to weigh on global equities.  Interest rates fell, and curves tended to flatten, which is also consistent with delayed or weaker recoveries, making price pressures less likely to be sustained.  

In the foreign exchange market, the spread of the Delta variant and Chinese developments weighed on those currencies that are perceived to be levered to world growth, with relatively high volatility, and frequently seen as an expression of risk appetites:  the dollar-bloc and Scandis, and all but Sweden were seen to be ahead of the Federal Reserve in adjusting monetary policy. As a result, they have underperformed over the past few weeks.  At the same time, the strongest two currencies, the yen and Swiss franc tend to be used as funding currencies to purchase higher returning or more volatile assets. As the risk assets are liquidated, the funding currency is typically bought back.   However, as July drew to a close, the funding currencies are lagging behind the dollar bloc and Scandis.  

The high-frequency data highlight of the week ahead is the US employment report.  Once again, some economists are forecasting an increase of more than a million jobs in July.  After the nearly 20.7 mln loss of employment in April 2020, the US did add more than a million jobs in May-August last year.  June's 850k estimate is the largest so far this year.  The median forecast in Bloomberg's survey anticipates July's nonfarm payrolls rising by about 900k, which has drifted a little lower in recent data. Job growth, largely people returning to their jobs, averaged 567k in Q2 after 518k in Q1.

The unemployment rate is projected to fall to 5.7% from 5.9%.  At the end of 2019, the average unemployment rate for the past decade (120 months) was 6.2% and 5.9% for 20-years (240 months).  The underemployment rate (U-6) has fallen from nearly 23% in April 2020 to 9.8% in June.  Not to include the impact of the pandemic and recovery, we looked at the same long-term averages as of the end of 2019, and they stood at 11.7% and 10.7%, respectively. 

A robust employment report would mean the earliest window for the Fed to signal its intention on the pace and composition of its bond-buying would be the Jackson Hole conference at the end of August.  By the time the Fed meets in September, there will be another employment report, and there may be more clarity about the impact of the growing virus.  Fed Chair Powell has pledged an advanced warning to the market about its decision about tapering.  

The hawk camp wants to taper, and some want to focus on the MBS purchases, and the sooner, the better.  The dove camp is in no hurry and seems somewhat less convinced that those purchases drive up house prices, which have continued to soar at a record pace according to the S&P CoreLogic Case-Shiller 20-city 17% year-over-year in May.  The FHFA house price index has risen by more than 1% a month since June 2020.  It is more than twice the pace that it had averaged in 2016-2019. 

In practical terms, the hawks seem to prefer tapering later this year, which if this window is going to remain open, some clearer guidance needs to be provided soon (September).  The doves may be more inclined to start the actual tapering next year, clear of the debt ceiling issue, and have a better understanding of the sustainability of price pressures and after income support programs expire. Tactically, with note and bond yields at several month lows, and record-low real rates, some officials see these conditions as ideal to announce its intention to taper in the coming months.  The market has provided a cushion for an exaggerated reaction that cannot be ruled out.  

For long-term investors and corporate Treasurers, it might not be a big difference between tapering late 2021 or early 2022.  However, many will extrapolate from slowly taking a foot off the accelerator to tapping on the brake.   The December 2022 Eurodollar futures contract implies a three-month yield in 16 months of about 40 bp.  The current three-month rate is about 13 bp.  That implies a 25 bp hike is anticipated.  Recall that a significant minority of Fed officials (7/18) anticipated in June that a hike by the end of next year would be appropriate.  

Other central banks meet next week.  The Reserve Bank of Australia (August 3) meets with rising cases in Sydney, despite the lockdown and the economic fallout being picked up in some recent data, including June's preliminary retail sales (-1.8% month-over-month, more than twice the decline expected) and a flash composite PMI crashed to 45.2 from 56.7.  It looks likely to provide more support through stepped-up bond buying.  The RBA is currently buying A$5 bln a week and may increase by A$1-2 bln.  

The Bank of England also meets (August 5). Rising inflation and an economy clearly on the mend have seen a few MPC officials turn more hawkish. The risk of a dissent in favor of a reduction in bond purchases may have increased, but until the furlough program concludes at the end of September, the health of the labor market is not clear. Nevertheless, the market appears to be pricing in a hike in the second half of next year. Early signs that the wave of infections may be slowing may have lent support to sterling.  Meanwhile, the 10-year Gilt yield hovers around the 200-day moving average (0.55%) after peaking slightly above 0.92% in mid-May. 

Four central banks from emerging markets meet next week.  Thailand is the least likely to alter policy.  India is unlikely to change rates but will announce its August bond purchases.  The RBI may have to recognize and tolerate slightly higher inflation.  The Czech central bank began a tightening cycle in June and most likely follow-up with another 25 bp rate at the August 5 meeting.  Another 50 bp of increases appears to be discounted before the end of the year.  Brazil's central bank has hiked the Selic rate by 225 bp this year (to 4.25%) with three 75 bp rate hikes.  Inflation is still accelerating (the IPCA measure stood at 8.35% year-over-year, a five-year high.  With the economy seemingly on the course for a strong recovery and the currency off around 2.4% in July, the central bank may be emboldened to deliver a 100 bp hike.  


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United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."



Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.


United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.



It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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President Biden Delivers The “Darkest, Most Un-American Speech Given By A President”

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through…



President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through the State of The Union, President Biden can go back to his crypt now.

Whatever 'they' gave Biden, every American man, woman, and the other should be allowed to take it - though it seems the cocktail brings out 'dark Brandon'?

Tl;dw: Biden's Speech tonight ...

  • Fund Ukraine.

  • Trump is threat to democracy and America itself.

  • Abortion is good.

  • American Economy is stronger than ever.

  • Inflation wasn't Biden's fault.

  • Illegals are Americans too.

  • Republicans are responsible for the border crisis.

  • Trump is bad.

  • Biden stands with trans-children.

  • J6 was the worst insurrection since the Civil War.

(h/t @TCDMS99)

Tucker Carlson's response sums it all up perfectly:

"that was possibly the darkest, most un-American speech given by an American president. It wasn't a speech, it was a rant..."

Carlson continued: "The true measure of a nation's greatness lies within its capacity to control borders, yet Bid refuses to do it."

"In a fair election, Joe Biden cannot win"

And concluded:

“There was not a meaningful word for the entire duration about the things that actually matter to people who live here.”

Victor Davis Hanson added some excellent color, but this was probably the best line on Biden:

"he doesn't care... he lives in an alternative reality."

*  *  *

Watch SOTU Live here...

*   *   *

Mises' Connor O'Keeffe, warns: "Be on the Lookout for These Lies in Biden's State of the Union Address." 

On Thursday evening, President Joe Biden is set to give his third State of the Union address. The political press has been buzzing with speculation over what the president will say. That speculation, however, is focused more on how Biden will perform, and which issues he will prioritize. Much of the speech is expected to be familiar.

The story Biden will tell about what he has done as president and where the country finds itself as a result will be the same dishonest story he's been telling since at least the summer.

He'll cite government statistics to say the economy is growing, unemployment is low, and inflation is down.

Something that has been frustrating Biden, his team, and his allies in the media is that the American people do not feel as economically well off as the official data says they are. Despite what the White House and establishment-friendly journalists say, the problem lies with the data, not the American people's ability to perceive their own well-being.

As I wrote back in January, the reason for the discrepancy is the lack of distinction made between private economic activity and government spending in the most frequently cited economic indicators. There is an important difference between the two:

  • Government, unlike any other entity in the economy, can simply take money and resources from others to spend on things and hire people. Whether or not the spending brings people value is irrelevant

  • It's the private sector that's responsible for producing goods and services that actually meet people's needs and wants. So, the private components of the economy have the most significant effect on people's economic well-being.

Recently, government spending and hiring has accounted for a larger than normal share of both economic activity and employment. This means the government is propping up these traditional measures, making the economy appear better than it actually is. Also, many of the jobs Biden and his allies take credit for creating will quickly go away once it becomes clear that consumers don't actually want whatever the government encouraged these companies to produce.

On top of all that, the administration is dealing with the consequences of their chosen inflation rhetoric.

Since its peak in the summer of 2022, the president's team has talked about inflation "coming back down," which can easily give the impression that it's prices that will eventually come back down.

But that's not what that phrase means. It would be more honest to say that price increases are slowing down.

Americans are finally waking up to the fact that the cost of living will not return to prepandemic levels, and they're not happy about it.

The president has made some clumsy attempts at damage control, such as a Super Bowl Sunday video attacking food companies for "shrinkflation"—selling smaller portions at the same price instead of simply raising prices.

In his speech Thursday, Biden is expected to play up his desire to crack down on the "corporate greed" he's blaming for high prices.

In the name of "bringing down costs for Americans," the administration wants to implement targeted price ceilings - something anyone who has taken even a single economics class could tell you does more harm than good. Biden would never place the blame for the dramatic price increases we've experienced during his term where it actually belongs—on all the government spending that he and President Donald Trump oversaw during the pandemic, funded by the creation of $6 trillion out of thin air - because that kind of spending is precisely what he hopes to kick back up in a second term.

If reelected, the president wants to "revive" parts of his so-called Build Back Better agenda, which he tried and failed to pass in his first year. That would bring a significant expansion of domestic spending. And Biden remains committed to the idea that Americans must be forced to continue funding the war in Ukraine. That's another topic Biden is expected to highlight in the State of the Union, likely accompanied by the lie that Ukraine spending is good for the American economy. It isn't.

It's not possible to predict all the ways President Biden will exaggerate, mislead, and outright lie in his speech on Thursday. But we can be sure of two things. The "state of the Union" is not as strong as Biden will say it is. And his policy ambitions risk making it much worse.

*  *  *

The American people will be tuning in on their smartphones, laptops, and televisions on Thursday evening to see if 'sloppy joe' 81-year-old President Joe Biden can coherently put together more than two sentences (even with a teleprompter) as he gives his third State of the Union in front of a divided Congress. 

President Biden will speak on various topics to convince voters why he shouldn't be sent to a retirement home.

According to CNN sources, here are some of the topics Biden will discuss tonight:

  • Economic issues: Biden and his team have been drafting a speech heavy on economic populism, aides said, with calls for higher taxes on corporations and the wealthy – an attempt to draw a sharp contrast with Republicans and their likely presidential nominee, Donald Trump.

  • Health care expenses: Biden will also push for lowering health care costs and discuss his efforts to go after drug manufacturers to lower the cost of prescription medications — all issues his advisers believe can help buoy what have been sagging economic approval ratings.

  • Israel's war with Hamas: Also looming large over Biden's primetime address is the ongoing Israel-Hamas war, which has consumed much of the president's time and attention over the past few months. The president's top national security advisers have been working around the clock to try to finalize a ceasefire-hostages release deal by Ramadan, the Muslim holy month that begins next week.

  • An argument for reelection: Aides view Thursday's speech as a critical opportunity for the president to tout his accomplishments in office and lay out his plans for another four years in the nation's top job. Even though viewership has declined over the years, the yearly speech reliably draws tens of millions of households.

Sources provided more color on Biden's SOTU address: 

The speech is expected to be heavy on economic populism. The president will talk about raising taxes on corporations and the wealthy. He'll highlight efforts to cut costs for the American people, including pushing Congress to help make prescription drugs more affordable.

Biden will talk about the need to preserve democracy and freedom, a cornerstone of his re-election bid. That includes protecting and bolstering reproductive rights, an issue Democrats believe will energize voters in November. Biden is also expected to promote his unity agenda, a key feature of each of his addresses to Congress while in office.

Biden is also expected to give remarks on border security while the invasion of illegals has become one of the most heated topics among American voters. A majority of voters are frustrated with radical progressives in the White House facilitating the illegal migrant invasion. 

It is probable that the president will attribute the failure of the Senate border bill to the Republicans, a claim many voters view as unfounded. This is because the White House has the option to issue an executive order to restore border security, yet opts not to do so

Maybe this is why? 

While Biden addresses the nation, the Biden administration will be armed with a social media team to pump propaganda to at least 100 million Americans. 

"The White House hosted about 70 creators, digital publishers, and influencers across three separate events" on Wednesday and Thursday, a White House official told CNN. 

Not a very capable social media team... 

The administration's move to ramp up social media operations comes as users on X are mostly free from government censorship with Elon Musk at the helm. This infuriates Democrats, who can no longer censor their political enemies on X. 

Meanwhile, Democratic lawmakers tell Axios that the president's SOTU performance will be critical as he tries to dispel voter concerns about his elderly age. The address reached as many as 27 million people in 2023. 

"We are all nervous," said one House Democrat, citing concerns about the president's "ability to speak without blowing things."

The SOTU address comes as Biden's polling data is in the dumps

BetOnline has created several money-making opportunities for gamblers tonight, such as betting on what word Biden mentions the most. 

As well as...

We will update you when Tucker Carlson's live feed of SOTU is published. 

Tyler Durden Fri, 03/08/2024 - 07:44

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