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The Week Ahead: Balancing Near-Term Fears with Medium-Term Optimism

A holiday-shortened week will see dwindling participation.  The lighter activity could make for either subdued price action or volatile activity. Brexit is a gift that keeps giving, and despite posturing to the contrary, neither side appears to want…

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A holiday-shortened week will see dwindling participation.  The lighter activity could make for either subdued price action or volatile activity. Brexit is a gift that keeps giving, and despite posturing to the contrary, neither side appears to want to be seen as the party that walked away.  After much teeth-gnashing and finger-pointing, the US still appears set to provide modest fiscal stimulus that will help overcome the cliff of expiring income support programs.  The scaled-down initiative keeps the door open to a larger package next year, depending on the two Senate races in Georgia.  Early in-person voting for the January 5 election has already begun, and the polls and betting markets show both are tight races. 

The economic calendar in the week of Christmas is thin, but there are a few highlights.  They should be understood, though, in the context that Q4 20 and the first part of Q1 21 will remain challenged by the surge in the coronavirus and social and official responses that dampen, if not reverse, the recoveries seen in Q3.  As investors and policymakers scrutinize the latest economic entrails, the vaccine roll-out continues and will now be joined by Moderna's vaccine. 

While the near-term tragedy continues to unfold, the optimism of a strong and sustained recovery once the vaccines create the herd immunity is running higher.  When people can move around safely, pent-up demand for services will be unleashed.  A boom in tourism and hospitality services, in general, is a common investment meme.  The reflation trade is being expressed in different ways throughout the capital markets. Notable in US equities has been the outperformance broader market.  The Russell 2000 has rallied about 15%, while the S&P 500 and the NASDAQ have gained around 5.6% and 7.2%, respectively,  since the vaccine was announced. 

The currency markets have given an extra fillip to the Antipodeans and Scandis.  It also helps explain the yen's lag and the broad dollar's weakness.   The JP Morgan Emerging Market Currency Index has appreciated for the past seven weeks.  The Institute for International Finance estimates that emerging markets drew a record amount of portfolio capital last month of more than $76 bln.  

The rise in copper to seven-year highs and soy to its highest level in four years reflects demand from China and East Asia more generally and boosts Latam.  Since the Pfizer announcement on November 9, the two strongest currencies in the world have been the Colombian peso (~6.7%) and the Brazilian real (~5.8%).  

The high-frequency data in the week ahead will be more for economists than investors.  Forecasts for Q4 GDP may solidify.  For December, the preliminary PMIs showed Europe not quite as weak as expected, and the US not quite as strong.  Japan's flash composite PMI slipped further below the 50 boom/bust level in December as the world's third-largest economy continues to struggle.  

The November US retail sales report's weakness warns of downside risks to the November personal consumption expenditures.  The 1.1% decline was more than three times larger than economists generally expected, and the Retail sales account for less than half of  PCE, which, of course, drives US GDP.   The Bloomberg survey's median forecast saw a 0.3% increase after a 0.5% increase in October.  Recall it averaged 1.3% in Q3.  

Consumption has three drivers: wealth, income, and credit.  Wealth, in turn, is largely a function of equity and house prices. Income is mostly about wages, but also transfer payments. Of the three, consumer credit has been the weakest.  Consider that consumer credit, which excludes mortgages, but includes student loans, was between about $14 and $16.5 bln a month in H2 19. In Q3 20, it averaged almost $6.6 bln.   

Alongside the personal consumption figures, the government will report personal income.  In October, wages and salaries rose by 0.7% (0.9% in September), the least since the spring's lockdowns eased.  However, the reduction in transfer payments (unemployment insurance and supplemental payments fell) offset the aggregate increase in wage income.   Economists look for an additional 0.2% decline in November income.  

The deflator association with the PCE always attracts attention, and this may be doubly true now, given that rising inflation is part of the reflation story.  However, most of it is about the future, not the present.  The PCE deflator was flat in October for a 1.2% year-over-year pace. Given the base effect, a 0.1% increase in November will leave the year-over-year rate at 1.2%.  This is the single most important inflation measure as the Fed formally targets it.  The core rate, which it talks about, is expected to be steady at 1.4%.   

The November durable goods orders will be released in addition to the income, consumption, and deflator reports.  The more moderate pace of Q4 growth compared with a 33.1% surge in Q3 is not only because consumption slow but so did business investment, for which durable goods offer a proxy.  They rose by an average of 4.8% a month in Q3 20.  After slowing to a 1.3% gain in October, growth in durable goods orders is expected to have been halved in November to 0.7%.  

Japan reports November employment figures and retail sales.  As we noted, the Japanese economy continues to struggle. A new cyclical high of 3.1% unemployment was recorded in October.  The risk is that it has not peaked yet.  Japan's labor market was changing before the pandemic, and the number of jobs per applicant began trending lower in H1 19 at a little more than 1.6.   In October, it was at 1.04.   Household spending rose on a year-over-year basis for the first time since September 2019. Retail sales essentially recouped the drop in March and April in the following two months and have risen slightly subsequently.  

The government's third stimulus budget will help support the economy in Q1 21.  Foreign demand may improve a bit later to the US and Europe.  The BOJ extended its emergency facilities last week, which is only prudent but does not appear to be in a hurry to more.  Although both the Prime Minister and the central bank Governor spoke out when the dollar initially fell below JPY104.00 in early November, cautioning about excess volatility, there is a steely silence now as the dollar tests the JPY103 area.  Yet, officials can hardly object to the volatility.  The dollar has been largely confined to the range set on November 9, when the vaccine was announced (~JPY103.20-JPY105.65).  

Here in H2, it appears the dollar be walking a staircase lower against the yen.  And the steps take around six weeks or so before the next step lower.  The timing lines up as the dollar struggled to sustain gains above JPY104 last week before slipping below JPY103.  Still, yen gains should not be exaggerated.  It has risen by about 5% against the dollar this year, less than its main regional competitors, like South Korea, Taiwan, and China.  Against the majors, the yen has trailed behind the euro and Australian dollar, and the others, but Norway, Canada, and the UK.   A move to par (JPY100) and below in 2021 seems reasonable.  

Australia's job growth has been nothing short of spectacular in October and November.  It boosted jobs by 270k in that period, and more than 180k were full-time posts.  As the lockdowns ended, the participation rate jumped to 66.1% in November from 64.8% in September and is above where it was in Q4 19 (steady at 65.9%).  More people working and the lighter social restrictions should help retail sales recover.  After falling 4% in August and 1.1% in September, retail sales gained 1.4% in October.  More consumption likely took place in November.  Bloomberg's survey's median forecast looks for a 2.3% increase, and we suspect the risk is on the upside.  

This month, the Australian dollar is the strongest major currency, appreciating about 3.8% against the US dollar to reach levels not seen since Q2 18.  Several investment themes converge with the Aussie, including robust risk appetites, the strength of East Asia economies and especially China,  the demand for commodities, and the US dollar's broad weakness. A move to at least $0.8000 in 2021 seems reasonable.  

Canada reports October GDP in the middle of next week.  The surging virus likely slowed growth after the 0.8% expansion in September.  Still, the labor market's strength (employment rose by 0.5% and the index of hours worked rose by 0.8%) and manufacturing sales increased.  The risks may lie on the upside of the Bank of Canada's 0.3% forecast. 

With Norway's Norges Central Bank sounding less dovish (now see the first hike in H2 22) helping lift the krone by nearly 1% on December 17, it leaves the Canadian dollar, which is trading near its best levels since April 2018 as the weakest of the major currencies this year.  It has gained a modest 1.6% against the US dollar this year.  We would pencil in Canada to be another candidate that will likely be among the first to taper its emergency measures, including QE.  On the other hand, the risks of an election in Canada as the contagion and vaccine approach herd immunity and when the fiscal spending can begin being felt.  We suspect there is potential for the US dollar to fall toward CAD1.22 in 2021. 



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Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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Government

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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