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What Are Bond Yields & Breakevens Telling Us?

#CKStrong    Carol K.’s ANC broke above 1200 today.  Absolute Neutrophil Count (ANC ) measures a type of white blood cell that kill and digest bacteria and fungi to help the body fight infections and heal wounds. At a time … Continue reading ?…

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#CKStrong   

Carol K.’s ANC broke above 1200 today.  Absolute Neutrophil Count (ANC ) measures a type of white blood cell that kill and digest bacteria and fungi to help the body fight infections and heal wounds. At a time around Day 0 of her stem cell transplant, it was below 100, which is severe neutropenia and often fatal for cancer patients.   Her fight and grit coupled with the combination of the miracle of modern medicine, deep resources, and all of your support — prayers, positive thoughts and energy, and other — around the world created this miracle.  Thank you so much to all of you.  She will be discharged after a 5 1/2 month hospital stay in isolation in early Novie.  Halle-freaking-lujah!

A very close friend posed the question in this post’s title to me the other day. 

I laughed and said, “are you kidding me?  I mostly ignore the bond market flapdoodle as it was nationalized long ago.  Bond yields and breakevens are about as relevant as the price of sausage, Back In The USSR!  Ergo, the bond market is not a real market with real price discovery. 

Baby, It’s Foggy Outside

Unfortunately, policymakers continue to make policy based on totally distorted flight instruments, which is very dangerous when it gets foggy.  The economy is foggy today, folks. 

It looks like PK is starting to waffle, and seems, to us, he may be considering playing out his option on Team Transitory,   

Why is it so hard to make a call on inflation right now? Because the current economy, still very much shaped by the pandemic, is, to use the technical term, weird. In particular, the standard measures economists use to distinguish between temporary price blips and underlying inflation are telling different stories. – Paul Krugman,  NY Times

Krugman’s piece is a must read. 

Fed Intervention In The “COVID” Bond Market

Maybe if we had a free bond market, we would have seen this inflation spike coming through a real and true bond yield and breakeven price. 

The conventional wisdom is that the Fed has financed 40-50 percent of the debt the U.S. Treasury has put on its books during COVID, and that is confirmed by the data at 46.6 percent of all new issuance, including Treasury Bills.    We dig deeper in the following table.  

Look at the profile of the new debt that financed the COVID deficit, however. 

The Fed has effectively purchased 75 percent of all new note and bond issuance and 160 percent TIPs issuance from March 2020 to September 2021.  If they hadn’t, interest rates would have spiked higher, maybe 500 bps higher, and it is possible some of the auctions would have failed. 

Why doesn’t the Treasury fund itself with more longer-term debt to lock in the lower rates?   Because they can’t, which illustrates why T-Bill issuance was up $2.5 trillion during COVID.  

Moreover, if you are going to repress coupon yields from moving to their equilibrium, you must also do the same in the TIPs market, otherwise breakevens would have gone wild and made no sense, especially  given its a relatively illiquid market. 

If there was real price discovery in the bond market, it may have tipped us off about a coming inflation spike and what markets really think about the path of future inflation.  After all the supply curve broke last year, so there was plenty of time for the bond market to get it right. See our post, Hot Retail Sales Not Supply Chain Positive.

 

Financing Of The Monthly Budget Deficits 

The following chart illustrates the path of the U.S. monthly budget deficits (red line) during COVID and how they were financed.

Treasury finances itself either through: a)  borrowing from the public (black line), b) reduction in operating cash. mainly in its General Account at the Federal Reserve (blue line), which is down from $1.8 trillion in July 2020 to a measly $78 billion on October 13 (see here), and confirms Secretary Yellin’s assertion the government is almost out of cash, and through c) other means, such as running arrears on Treasury contributions to federal government employee pension funds, to suppliers, and other extraordinary ways. 

We suspect “defaulting on the debt” as an “other means” financing is a bluff as the government will look for other bills and/or entitlements run up arrears on to conserve cash and prioritize spending. 

Tapping The Market When It Can

The chart also shows that Treasury seems to very good at tapping the market when there is a flight to quality bid.  Note how almost 70 percent of the borrowing from the public took place during March 2020 to June 2020, and exceeded the cumulative deficit during that period by 50 percent.  The differential went to build reserves in the Treasury’s General Account.

Even still, the Fed bought the equivalent of about 55 percent of all new borrowing during March 2020 to June 2020. 

Debt Ceiling Politics

Nevertheless, the political cost to the Administration of using other means as a source of financing, say, suspending Social Security payments, if legal, is certain political death, and that, folks, is the game that is playing out in Washington today. 

Forget about advancing the national interest, just destroy the opposition, and to be fair,  it always seems  M&M is on the wrong side of this issue.      

(the sum of the three non red lines in the chart above will equal the red deficit line) 

It is interesting that the Treasury’s borrowing from the public (black line) is constrained by the debt ceiling has been negative over the past few months, all while the Fed is taking $80 billion per month in Treasury securities out of the market.  No wonder why bond yields dipped during the summer, which some took as “everything is perfect,” deflation is coming, or, we hope not, the policymakers took it as inflation is under control.   

It is almost laughable to hear comments, such as

Is inflation caused by [monetary] inflation or by the supply chain problems.   

These are coming from major market pundits, who appear, and we could be wrong, they don’t even understand the basic concepts of inflation, much less where it comes from and how to stamp it out.  

My experience working with the high to hyperinflation central banks back in the day was there were lots of shortages throughout the economy.  No bread on the shelf at grocery stores because of hoarding and a breakdown in…wait for it…local supply chains.  

We seriously doubt we get there, if the FOMC does its job.  They tell us they have the tools but do they have the stomach given such lofty and stretched asset valuations?   Starting to smell a bit of panic the Fed is offsides and needs to move quicker.  

Stay tuned, folks.  

As always, we reserve the right to be wrong in our conclusion as we are pretty certain we have the facts (data) right.  We like to tell this story about getting your conclusion wrongs. 

Facts Right, Conclusion Wrong

President Lincoln,  a great storyteller, had something to say about drawing different conclusions from the same established or, what economists like to call “stylized facts,”

During his days as an Illinois circuit court lawyer,  legend has it Lincoln would persuade juries with the use of his funny but truth piercing stories,

The story goes that Lawyer Lincoln was worried he had not convinced the jury during the closing argument of a civil case against a railroad.   The jurors had gone to lunch to deliberate.  Lincoln followed them and interrupted their dessert with a story about a farmer’s son gripped by panic,

“Pa, Pa, the hired man and sis are in the hay mow and she’s lifting up her skirt and he’s letting down his pants and they’re afixin’ to pee on the hay.” “Son, you got your facts absolutely right, but you’re drawing the wrong conclusion.”

The jury ruled in Lincoln’s favor.

Chart Appendix

Treasury General Account Balance At The Fed, October 13

10-Year Treasury Yield

10-Year Breakeven Inflation Rate

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International

Beloved mall retailer files Chapter 7 bankruptcy, will liquidate

The struggling chain has given up the fight and will close hundreds of stores around the world.

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It has been a brutal period for several popular retailers. The fallout from the covid pandemic and a challenging economic environment have pushed numerous chains into bankruptcy with Tuesday Morning, Christmas Tree Shops, and Bed Bath & Beyond all moving from Chapter 11 to Chapter 7 bankruptcy liquidation.

In all three of those cases, the companies faced clear financial pressures that led to inventory problems and vendors demanding faster, or even upfront payment. That creates a sort of inevitability.

Related: Beloved retailer finds life after bankruptcy, new famous owner

When a retailer faces financial pressure it sets off a cycle where vendors become wary of selling them items. That leads to barren shelves and no ability for the chain to sell its way out of its financial problems. 

Once that happens bankruptcy generally becomes the only option. Sometimes that means a Chapter 11 filing which gives the company a chance to negotiate with its creditors. In some cases, deals can be worked out where vendors extend longer terms or even forgive some debts, and banks offer an extension of loan terms.

In other cases, new funding can be secured which assuages vendor concerns or the company might be taken over by its vendors. Sometimes, as was the case with David's Bridal, a new owner steps in, adds new money, and makes deals with creditors in order to give the company a new lease on life.

It's rare that a retailer moves directly into Chapter 7 bankruptcy and decides to liquidate without trying to find a new source of funding.

Mall traffic has varied depending upon the type of mall.

Image source: Getty Images

The Body Shop has bad news for customers  

The Body Shop has been in a very public fight for survival. Fears began when the company closed half of its locations in the United Kingdom. That was followed by a bankruptcy-style filing in Canada and an abrupt closure of its U.S. stores on March 4.

"The Canadian subsidiary of the global beauty and cosmetics brand announced it has started restructuring proceedings by filing a Notice of Intention (NOI) to Make a Proposal pursuant to the Bankruptcy and Insolvency Act (Canada). In the same release, the company said that, as of March 1, 2024, The Body Shop US Limited has ceased operations," Chain Store Age reported.

A message on the company's U.S. website shared a simple message that does not appear to be the entire story.

"We're currently undergoing planned maintenance, but don't worry we're due to be back online soon."

That same message is still on the company's website, but a new filing makes it clear that the site is not down for maintenance, it's down for good.

The Body Shop files for Chapter 7 bankruptcy

While the future appeared bleak for The Body Shop, fans of the brand held out hope that a savior would step in. That's not going to be the case. 

The Body Shop filed for Chapter 7 bankruptcy in the United States.

"The US arm of the ethical cosmetics group has ceased trading at its 50 outlets. On Saturday (March 9), it filed for Chapter 7 insolvency, under which assets are sold off to clear debts, putting about 400 jobs at risk including those in a distribution center that still holds millions of dollars worth of stock," The Guardian reported.

After its closure in the United States, the survival of the brand remains very much in doubt. About half of the chain's stores in the United Kingdom remain open along with its Australian stores. 

The future of those stores remains very much in doubt and the chain has shared that it needs new funding in order for them to continue operating.

The Body Shop did not respond to a request for comment from TheStreet.   

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Government

Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Government

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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