Authored by Steve Watson via Summit News,

The world’s number one tennis player Novak Djokovic has withdrawn from the Miami Open and the U.S. Open because he is still banned from entering the country owing to his vaccination status.

While the news is being reported as a “visa dispute,” the reason Djokovic cannot complete is because he refuses to take the COVID vaccine.

Djokovic has appealed for a special dispensation to play in the tournaments, given that the restrictions are slated to end in April anyway.

Djokovic requested a vaccine waiver, however it was rejected by the Homeland Security Department in a blatant move to once make an example out of the premier athlete.

Help me understand why Biden’s STILL-UNCONSTITUTIONAL VACCINE MANDATE is keeping Novak Djokovic from playing here NOW, 3 YEARS LATER?

— James Bradley (@JamesBradleyCA) March 6, 2023

Literally the healthiest male on the planet…Novak Djokovic…is denied entry into the U.S. due to vaccination status. Unbelievable. pic.twitter.com/vKbkQZ4xPW

— Liz Churchill (@liz_churchill8) March 4, 2023

Senators Rick Scott and Marco Rubio of Florida expressed support for the 22 time grand slam victor, and called on Congress to throw out Joe Biden’s “bogus vaccine mandate.”

“It has come to our attention that your administration is in receipt of a request to waive the current vaccine mandate for international travelers entering the United States from top-ranked men’s tennis player Novak Djokovic,” the Senators wrote in a letter.

“We write to urge you to grant the requested waiver, which is necessary to allow Mr. Djokovic to compete in the Miami Open professional tennis tournament held in our home state of Florida beginning March 19, 2023,” the pair added.

The letter continues, “In September 2022, you plainly declared to a national audience on 60 Minutes that ‘the [COVID-19] pandemic is over,’ and, earlier this year, Dr. Anthony Fauci published a professional article acknowledging the limited efficacy of vaccines in protecting against respiratory pathogens, like the novel coronavirus.”

“In light of these changing circumstances, and admissions by you and members of your own administration, the current restrictive vaccine mandate which you have maintained for international travelers entering the United States seems outdated and worthy of rescission,” the Senators urge.

They add, “Mr. Djokovic is a world-class athlete in peak physical condition who is not at high-risk of severe complications from COVID-19. It seems both illogical and misaligned with the opinions of your own administration to not grant him the waiver he requests so that he may travel to the U.S. to compete in a professional event.”

Biden will STILL not allow extremely healthy tennis superstar Novak Djokovic into our country because he’s unvaccinated, but if you’re an ILLEGAL ALIEN, come on in! pic.twitter.com/eCYkBoIQOk

— 🇺🇸ProudArmyBrat (@leslibless) March 5, 2023

Novak Djokovic should just fly into Mexico, enter the US by walking across our southern border and then travel to Miami to play in the Miami Open. pic.twitter.com/BggENasI3g

— Gain of Fauci (@DschlopesIsBack) March 4, 2023

Bill Maher on Novak Djokovic Being Banned from U.S. Matches Because of His COVID Vaccination Status

“This country is stuck on stupid, it just is”@billmaher @rustyrockets pic.twitter.com/L6nuHS1iyc

— Chief Nerd (@TheChiefNerd) March 4, 2023

Novak Djokovic denied entry to the US because he’s not vaccinated, even though he’s already had Covid.

0% science. 100% cult.

Countries still banning entry of unvaccinated foreign nationals:

🇺🇲 United States
🇵🇰 Pakistan
🇾🇪 Yemen
🇮🇩 Indonesia
🇲🇲 Myanmar

— Dr. Eli David (@DrEliDavid) March 4, 2023

How long are they going to carry on with this?

Video: CNN’s Lemon Says Unvaccinated “Idiots” Like Novak Djokovic Shouldn’t Be Part Of “Polite Society”

Video: Australian Tennis Officials Order Group To Hand Over Novak Djokovic Signs In Arena Or Leave

Video: Reporter Asks White House “How Come Migrants Are Allowed To Come In Unvaccinated, But World-class Tennis Players Are Not?”

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In a new survey, Bloomberg Terminal users have overwhelmingly agreed that cash in their portfolios would be a net positive this year, supporting the case ‘cash is no longer trash’ amid signs that higher-than-expected inflation data indicates global central banks will continue their ultra-hawkish stance to keep aggressively raising interest rates. 

Over 400 professional and retail investors participated in the latest MLIV Pulse survey. Two-thirds of professional respondents believe cash will be a net positive on their portfolios, while only 35% answered that cash holdings would drag on performance. Retail traders gave similar responses. 

The appeal of cash stems from increasing nervousness as higher-than-expected inflation data means central banks will continue to raise interest rates through at least June, dashing hopes for a full-blown risk-on rally in equity markets. The Federal Reserve clearly has more work to do as the economy still runs hot. The Fed’s benchmark rate implied by overnight index swaps shows at least three more 25bps hikes through June, with a terminal rate of around 544 bps by mid-summer. 

Bank of America Corp. notes, citing EPFR Global data, that during the week ending on March 1, global cash funds experienced inflows of $68.1 billion, whereas equity funds saw outflows of $7.4 billion. The significant inflows into cash suggest that investors are feeling nervous.

BofA’s Michael Hartnett wrote last Friday that the end of the bear market would coincide with credit market turmoil and lower home prices. He said until then, cash is as good as bonds and stocks. 

Authored by Mike Shedlock via MishTalk.com,

A Fed study shows the obvious… But Fed presidents never believe the few studies that ever make any sense…

Please consider the San Francisco Fed paper, Loose Monetary Policy and Financial Instability.

Much of the Fed report is truly Geek stuff and incomprehensible formulas. But the conclusions and many snippets ring home. 

Snips That Make Sense

Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long-run historical data. We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil down the road increases considerably. 

Kindleberger (1978) noted that “Speculative manias gather speed through expansion of money and credit or perhaps, in some cases, get started because of an initial expansion of money and credit” (p. 52). 

The originator of the natural rate concept, Wicksell (1898) hypothesized that low interest rates— and low-for-long periods in particular—spur house prices (p. 88). He even went further and argued that such increase in house prices could generate feedback as entrepreneurs expect further price increases (p. 88). Eventually, speculation starts to dominate markets (pp. 89–90), resulting in a boom-and-bust cycle (p. 90). Such a mechanism running from low interest rates set by the central bank, through behavioral responses in credit quantities and asset prices, also figures in the recent model of Kashyap and Stein (2023). 

Mian, Sufi, and Verner (2017) provide evidence that household debt booms are accompanied by a temporary boost in real activity. This boost, though, is short-lived and eventually reverses. Loose financial conditions boost the left tail of the predicted real GDP growth distribution in the short term at the expense of strong negative effects in the medium term without affecting the economy’s expected growth path.

When interest rates are relatively loose, financial intermediaries have incentives—or are even required—to search for yield and thus risk. This incentive to “search for yield” was famously put forward by Rajan (2005) as one source of financial risk. One example he gave was insurance companies. These institutions often face fixed long-term commitments and therefore increase their risk appetite when rates are low. 

Drechsler, Savov, and Schnabl (2018) also establish a theoretical link between lower interest rates and increasing leverage and thus risk exposure. 

Finally, from the experimental literature, Lian, Ma, and Wang (2019) find evidence for reference dependence and salience. In their experiments, an individual starting the experiment in a high interest rate environment will tend to make riskier investment decisions when shifted to a low interest rate environment. T 

The danger of low for long monetary policy is stressed in Boissay, Collard, Gal´ı, and Manea (2022). In their model, financial crises are the consequence of a central bank that keeps the policy rate too low for too long which in turn fosters an investment boom and eventually a capital overhang. Given this concern, we explicitly consider the consequences of persistently loose monetary policy as opposed to single periods of policy undershooting relative to the natural rate of interest. 

Our empirical analysis is based on the latest release of the Jorda-Schularick-Taylor (JST ` henceforth) Macrohistory Database which combines macro-financial data with a banking crisis chronology for 18 advanced economies over the period from 1870 until 2020. The database is described in Jorda, Schularick, and Taylor ` (2017). For this study, we shall ignore the world war periods (1914–18 & 1939–45) and we also exclude the German economy during hyperinflation (1922 & 1923), but we keep all other data points of the JST Database in the analysis that follows. Our final sample has 2457 country-year observations. 

Are periods of persistently loose monetary policy more crisis-prone? This section argues that the answer to this question is in the affirmative. We see significant estimates in the medium term, that is around horizons of 5 to 10 years. Financial crises are predicted by loose monetary policy several years ahead. The importance of this empirical finding does not only arise from its high level of statistical significance and—as we will see below—robustness to model specification, but also from economic relevance. 

We do not find evidence for a positive link between loose monetary policy and financial vulnerabilities in the short term. If anything, point estimates indicate a negative relation between financial fragility and a loose stance at horizons below 4 years. 

Panels (a) and (b) of Figure 6 now show that, at this point, it is likely that the country has already experienced financial fragility by entering an R-zone. A loose stance of monetary policy predicts the emergence of credit market overheating in post-WWII advanced economies both in the household and in the business sector. 

Our historical evidence suggests that running such a high-pressure economy may not be sustainable in general. In the following, we argue that potential short-term gains come at the considerable cost in the form of heightened risk of disasters in real economic activity. 

Fed Conclusion

 This study provides the first evidence that the stance of monetary policy has implications for the stability of the financial system. A loose stance over an extended period of time leads to increased financial fragility several years down the line. The source of this fragility is associated with swings in those financial variables that have been identified by the literature as harbingers of financial turmoil. 

Policymakers should take the dangers imposed by keeping policy rates low for long seriously, and thus weigh the potential short-run gains of loose monetary policy against potentially adverse medium-term consequences. Such policies increase the risk of financial crises and thus the risk of high social, political, and economic costs. 

My Conclusion

The study is welcome but the conclusion was obvious. The Fed kept interest rates too low, too long three times in the past twenty-some years. 

The result was a dotcom boom and bust, a housing bubble followed by the Great Recession, and what many call an “everything bubble” right now.

These crises take time to brew, at least four years and up to ten or more. The Great Recession ended in 2009, so this crisis (ignoring the pandemic), is right on time. 

The asininity of this setup is a Fed again trying to produce inflation while ignoring raging inflation all around. 

The Fed only looks at consumer inflation, not all inflation. The Fed again ignored a massive speculative mania in housing, the stock market, and a new phenomenon, cryptocurrencies.

The Fed Uncertainty Principle

If you think the Fed will learn from this, you are mistaken. I have written about this several times. 

One of my favorite posts ever is “The Fed Uncertainty Principle” written April 3, 2008, well before the economic collapse. 

I reposted a shortened version on February 11, 2022.

Please consider The Fed Uncertainty Principle and a Big Swift Kick in the Pants

The Observer Affects The Observed

The Fed, in conjunction with all the players watching the Fed, distorts the economic picture. I liken this to Heisenberg’s Uncertainty Principle where observation of a subatomic particle changes the ability to measure it accurately.

The Fed, by its very existence, alters the economic horizon. Compounding the problem are all the eyes on the Fed attempting to game the system.

What happened in 2002-2004 was an observer/participant feedback loop that continued even after the recession had ended. The Fed held rates rates too low too long. This spawned the biggest housing bubble in history. The Greenspan Fed compounded the problem by endorsing derivatives and ARMs at the worst possible moment.

Fed Uncertainty Principle

The Fed, by its very existence, has completely distorted the market via self-reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication, there would not be observer/participant feedback loops either.

There are four corollaries the the Fed Uncertainty Rule. If you have not yet read the principle or need a refresher course, please click on the preceding link.

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Authored by Dave DeCamp via AntiWar.com,

German Chancellor Olaf Scholz said Sunday that China “declared” it will not provide Russia with weapons for its war in Ukraine despite US claims, signaling that the German leader received some sort of assurance from Beijing.

“We all agree that there should be no arms deliveries, and the Chinese government has declared that it will not deliver any either,” Scholz said at a press conference with European Commission President Ursula von der Leyen, according to POLITICO. “We insist on this, and we are monitoring it.”

Von der Leyen said that the US has provided “no evidence” to back up its assertion that China is considering arming Russia. “So far, we have no evidence of this, but we have to observe it every day,” she said.

While making the accusation, US officials have also signaled they don’t have evidence to back it up. When asked on Thursday how serious China is about arming Russia, National Security Council spokesman John Kirby replied, “We actually don’t know the answer to that question.” Kirby and other US officials have said they’ve seen no evidence that China has already sent weapons.

The US started making the accusation before China presented a 12-point peace plan to end the war in Ukraine, a proposal Ukrainian President Volodymyr Zelensky expressed openness to but was rejected by President Biden. Beijing also recently told the UN General Assembly that sending weapons to be used in the Ukraine war would prolong the conflict.

After making the claim, the US started pushing its allies to pledge to join in on sanctions against China if it does start arming Russia. In an interview that aired Sunday, Scholz said there would be “consequences” for Beijing if it shipped weapons for Russia’s use in the war.

On Friday, Scholz met with President Biden in Washington DC. According to a White House readout of the meeting, the two leaders “reiterated their commitment to impose costs on Russia for its aggression for as long as necessary.” Scholz and Biden only offered brief remarks to the press before their meeting and did not hold the customary joint press conference afterward.

The last time Scholz was in Washington and held a joint press conference with Biden was on February 7, 2022. At the press conference, President Biden vowed to “bring an end” to the Nord Stream 2 pipeline if Russia invaded Ukraine. A recent report from investigative journalist Seymour Hersh alleged that the Biden administration was already plotting to bomb both Nord Stream pipelines.

President Biden’s disastrous border policies put the safety of the American people at risk, as an announcement by the Federal Bureau of Investigation (FBI) said four Americans were kidnapped and assaulted upon crossing into northeastern Mexico from Texas. 

On Friday, four Americans crossed into Matamoros, Tamaulipas, Mexico, driving a white minivan with North Carolina license plates. Shortly after crossing into Mexico, “unidentified gunmen fired upon the passengers in the vehicle… all four Americans were placed in a vehicle and taken from the scene by armed men,” the FBI wrote in a statement. 

CBS News’ Christina Ruffini reports a Twitter post shows the moment four Americans were kidnapped in Mexico. Ken Salazar, US ambassador to Mexico, said in a statement that “an innocent Mexican citizen was tragically killed” in the same incident. 

According to Salazar, American law enforcement officials are collaborating with Mexican authorities to ensure the kidnapped Americans’ safe return.

After reports of the kidnapping began circulating on local media outlets, the US consulate in Matamoros issued an alert on Friday.

Event: The US Consulate Matamoros has received reports of police activity occurring in the vicinity of Calle Primera and Lauro Villar in connection to a shooting. Media reports indicate that one individual has been killed. US government employees have been instructed to avoid the area until further notice. The US Consulate General reminds US citizens that Tamaulipas is classified as Level 4: Do Not Travel in the State Department’s travel advisory for Mexico.

How long will it take for the Biden administration to acknowledge the missing Americans? 

Authored by Peter Earle via The American Institute for Economic Research,

Founding myths tend to be mired in obscurity, and like many other investment trends, the roots of environmental, social, and governance (ESG) philosophies are unclear. 

The founding of the World Economic Forum is one origin. Stakeholder theory is another of ESG’s clear antecedents, especially as formalized in R. Edward Freeman’s 1984 book Strategic Management: A Stakeholder Approach. In 2004, the World Bank report “Who Cares Wins: Connecting Financial Markets to a Changing World” is another contender, providing as it did guidelines for firms to integrate ESG practices into their daily operations. And the publication of the reporting framework United Nations Principles for Responsible Investing in April 2006 (the most recent version of which can be found here) was another.

Wherever it began, ESG clearly hit its stride within the last five to ten years. Those were heady times, at least economically speaking, first characterized by zero interest rate policies (ZIRP) and then, during the pandemic, by massively expansionary monetary and fiscal programs. Yet in the last two years or so, the prevailing economic circumstances have changed considerably. Inflation at four-decade highs is battering firms by raising the cost of doing business. It is also negatively impacting corporate revenues, as consumers retrench by cutting back on expenditures. 

Nowhere are these effects more evident than in shareholder land, where the fourth-quarter 2022 S&P 500 earnings season is just about over. “Earnings quality” is an evaluation of the soundness of current corporate earnings and, consequently, how well they are likely to predict future earnings. For the past year, and certainly for the last quarter, the quality of earnings has been abysmal. One particular element – “accruals,” or cashless earnings – are their highest reported level ever, according to UBS. In that same report, we find the somewhat shocking revelation that nearly one in three Russell 3000 index constituents is unprofitable. 

For those and other reasons, a theme in many of the fourth-quarter corporate earnings reports has been cost-cutting: Disney, Newscorp, eBay, Boeing, Alphabet, Dell, General Motors, and a handful of investment banks are all eliminating jobs and slashing unnecessary expenses. And although firms regularly write-off the value of certain assets and goodwill, that process accelerates during recessions. Firms are additionally contending with the highest interest rates they’ve faced since 2007, and in some cases back to 2001. A substantial amount of corporate debt assumed at lower interest rates is now more costly to service. 

Dividend payments, typically considered sacrosanct during all but the most severe financial straits, are being targeted for savings. February 24th in Fortune:

Intel, the world’s largest maker of computer processors, this week slashed its dividend payment to the lowest level in 16 years in an effort to preserve cash and help turn around its business. Hanesbrands Inc., a century-old apparel maker, earlier this month eliminated the quarterly dividend it started paying nearly a decade ago. VF Corp., which owns Vans, The North Face, and other brands, also cut its dividend in recent weeks as it works to reduce its debt burden … Retailers in particular face declining profits, as persistent inflation also erodes consumers’ willingness to spend. So far this year, as many as 17 companies in the Dow Jones US Total Stock Index cut their dividends, according to data compiled by Bloomberg. 

All of this suggests two things. 

First, if large firms are doing everything they can to reduce unnecessary overhead, feel-good initiatives and other corporate baubles are likely to face the chopping block – even if quietly. ESG observance is a costly trinket, bringing as it does compliance costs, legal costs, measurement costs, and opportunity costs. The reporting requirements associated with upholding ESG standards are high, and rising. In 2022, two studies attempted to estimate those costs:

Corporate Issuers are currently spending an average of more than $675,000 per year on climate-related disclosures, and institutional investors are spending nearly $1.4 million on average to collect, analyze and report climate data, according to a new survey released by the SustainAbility Institute by ERM … The survey gathered data from 39 corporate issuers from across multiple U.S. sectors, with a market cap range of under $1 billion to over $200 billion, and 35 institutional investors representing a total of $7.2 trillion of AUM … The SEC has released its own estimates for complying with its proposed rules, predicting first year costs at $640,000, and annual ongoing costs for issuers at $530,000. The study explored the specific elements covered by the SEC requirements, and found that issuers on average spend $533,000 on these, in line with the SEC estimates. Elements not included in the SEC requirements included costs related to proxy responses to climate-related shareholder proposals, and costs for activities including developing and reporting on low-carbon transition plans, and for stakeholder engagement and government relations.

Difficulty measuring costs means difficulty budgeting for them. Another recent report commented:

Although it is inherently difficult to assess the costs [of ESG], it is fair to anticipate significant costs for ambitious ESG goals. In an article in The Economist, a specific cost estimate was made in relation to offset a company’s entire carbon footprint. This was estimated to cost about 0.4 percent of annual revenues. This could already be a huge component for many companies, but it is only one aspect of merely one ESG factor. 

Yet that comment concludes with the kind of assurance that flows effortlessly from consultants well-positioned to, frankly, make a lot of money off of ESG compliance: “However, there is no real choice. The climate certainly cannot wait.” Given the recent backlash against ESG, whether driven by ideology or accounting, it’s clear that there is a real choice, and that choice is being invoked with increasing frequency throughout the commercial world. 

Second, the recent explosion of ESG adoption may have been in the spirit, if not embodying a strictly theoretical manifestation, of malinvestment as predicted by Austrian Business Cycle Theory (ABCT). Without engaging in a lengthy discussion of ABCT, artificially low interest rates (interest rates set by policymakers instead of markets) undercut the natural rate of interest generate signals and mislead entrepreneurs and business managers. Many years of negligible interest rates, indeed negative real rates, have given rise to bubble-like firms, projects, and I would argue, by extension, business concepts. The latter, which include but are not limited to ESG, seem feasible and arguably essential when the money spigots are open. When interest rates normalize and sobriety re-obtains, cost structures reassert themselves. It’s back to the business of business. 

Gone are the salad days of easy money, and with it the schmaltzy wishlists of niceties which a decade of monetary expansion permitted activists to blithely force upon corporate executives. In the face of rising interest rates, an uncertain path for inflation, budget-constrained consumers and rapidly deteriorating corporate earnings, shareholders are likely to take a closer look at how and where their money is being spent than they have in some time.

Although it is unlikely to disappear completely, the ESG fad is probably past the crest of its popularity. It’s time again for firms to focus, singularly and completely, on the inestimable task of making money. 

Former CNN president Jeff Zucker ordered network employees not to investigate the Covid-19 lab leak theory because he considered it a “Trump talking point,” a “well-placed” CNN insider told Fox News Digital on Monday.

The ‘theory’ was recently bolstered by a Department of Energy finding that a lab-leak was the most likely origin for the virus, while FBI Director Christopher Wray confirmed last week that his agency believes the same.

“People are slowly waking up from the fog,” the insider told Fox. “It is kind of crazy that we didn’t chase it harder.”

Throughout Zucker’s tenure as CNN’s chief, he pulled what was once widely seen as a straight-news organization to an anti-Trump operation. CNN bent over backwards to knock down what former President Trump and members of his administration said lending credibility to the lab-leak theory, as the White House was deemed a nemesis by the network. -Fox News

Fox News notes that on March 28, 2020, CNN‘s Oliver Darcy published a story with the headline:”Here’s how to debunk coronavirus misinformation and conspiracy theories from friends and family.”

Add this near the top of the mountains of media scandals. On a vital question of this generation – how did COVID originate? – they claimed a certainty they lacked, and banished a theory that was fully viable, because they prioritized their partisan allegiances above reporting.

— Glenn Greenwald (@ggreenwald) March 6, 2023

“While the coronavirus pandemic has isolated family and friends inside their homes, it has in many cases increased online or over-the-phone communication with loved ones,” Darcy wrote. “But, in some cases, relatives and friends share poor information – whether it is bad science related to how to prevent the virus, debunked rumors about cities being put on lockdown, or conspiracy theories about the origins of Covid-19. While any strain of misinformation is not ideal, misinformation related to a public health crisis has an especially dangerous element to it,” he continued.

CNN host Fareed Zakaria notably said that “the far right has now found its own virus conspiracy theory” while discussing the lab-leak theory.

And on Feb. 18, 2020, CNN insisted that it was “possible, yet unlikely, that the lab was connected to the start of the outbreak.”

Meanwhile, during an interview with Dr. Anthony Fauci – who we recently learned ordered the fabrication of the ‘Proximal Origins’ paper ruling out the lab-leak – CNN‘s John Vause called the lab-leak theory “misinformation.”

Fauci responded that “theories that are not based on evidence and facts often can really mislead people.”

A CNN headline from April 2020 reading “Nearly 30% in the US believe a coronavirus theory that’s almost certainly not true” was based on a Pew Research poll taken at the time. 

“Its origin is up for debate, but it wasn’t made in a lab,” CNN reported. “There’s still much we don’t know about the coronavirus pandemic, but virus experts agree on one piece of its origin story: The virus likely originated in a bat, not in a Chinese lab.” -Fox News

CNN directly politicized the issue once again on May 5, 2020, when now-fired Chris Cillizza, wrote the headline “Anthony Fauci just crushed Donald Trump’s theory on the origins of the coronavirus,” in which he noted that Trump “has been making the case that the coronavirus originated not in nature but in a lab in Wuhan, China,” but that Fauci’s natural origins claim was more accurate.

“Now, before we play the game of ‘he said, he said’ remember this: Only one of these two people is a world-renowned infectious disease expert. And it’s not Donald Trump,” wrote Cillizza. “In short, Fauci’s view on the origins of the disease matters a whole lot more than Trump’s opinion about where it came from.”

“Especially because, outside of Trump and his immediate inner circle, most people in a position to know are very, very skeptical of the Trump narrative that the virus came out of a lab – whether accidentally or on purpose.”

And of course, it was more than just CNN…

Probably the most incredible media fact — one so shameful the NYT has to ignore it — is that their lead COVID reporter maligned the lab leak theory as **racist**, only for key parts of the USG itself to now admit it’s a likely explanation.

Fauci gave the orders; they obeyed. pic.twitter.com/p3sOcKBW0C

— Glenn Greenwald (@ggreenwald) March 6, 2023

Authored by Jim Colquitt via RealInvestmentAdvice.com,

On Friday, February 24th, the most recent reading of the University of Michigan Consumer Sentiment Index was released. It came in at 67.0 for February, an increase from January’s reading of 64.9.

As the name implies, the University of Michigan Consumer Sentiment Index measures consumer “sentiment” in the United States. Higher numbers suggest a more positive sentiment; lower numbers indicate a more pessimistic view. 

Investopedia notes the following regarding the University of Michigan Consumer Sentiment Index:

“Consumer sentiment is a statistical measurement of the overall health of the economy as determined by consumer opinion. It takes into account people’s feelings toward their current financial health, the health of the economy in the short term, and the prospects for longer-term economic growth, and is widely considered to be a useful economic indicator.”

The chart below shows the University of Michigan Consumer Sentiment Index and the Unemployment Rate from the 1980s (Note: the red vertical bars denote US recessionary periods).

Two Observations

There are two observations to take away from this data.

1. Both metrics trend over time, but the University of Michigan Consumer Sentiment Index appears to be extremely noisy in the process.

2. There appears to be a negative correlation (i.e., when one goes up, the other one goes down) between the two metrics.

To strip out some of the “noise” in the chart below, I am displaying the 24-month moving average for the University of Michigan Consumer Sentiment Index (blue line). Additionally, I have inverted the University of Michigan Consumer Sentiment Index values to observe if the two metrics are negatively correlated.

When we do this, we find that while not a perfect match, they tend to track one another quite nicely.

Because the two metrics tend to move in tandem with one another, this would suggest they are “coincident.” However, there are a few observations (green arrows in the chart below) where the University of Michigan Consumer Sentiment Index appears to be a “leading” indicator for the Unemployment Rate.

Another Way To Analyze The Data

Looking at the most recent green arrow in the chart above…is the University of Michigan Consumer Sentiment Index suggesting that the Unemployment Rate is about to start trending higher?

The chart below shows a scatter plot of the values from the previous graphs. The downward-sloping red line suggests a negative correlation between the two metrics.

Another note from the chart above is that there appear to be two periods with outlying observations, which I’ve highlighted in the chart below. 

If we dive deeper into the origin of these anomalies, we find that one likely caused the other, which is often the case when we see the pendulum swing from one extreme to another.

Why Is This Important?

The first “distortion” results from the period immediately following the beginning of Covid, where the Unemployment Rate spiked, yet we didn’t see a massive drop-off in consumer sentiment. 

Fast forward, and we see the pendulum swing in the opposite direction, as evidenced by the last 16 months. During this time, we’ve witnessed record-low levels of unemployment even though “sentiment” in the US economy has begun to sour. 

It’s common to see dramatic swings like this from one extreme to another until the market returns to equilibrium.   

We get the scatter plot below if we strip out these two outlier periods. Note that this scatter plot has an r-squared value of 0.6931 which is statistically very strong, thus suggesting a reasonably tight relationship between these two metrics. 

The current value for the University of Michigan Consumer Sentiment Index – 24 Month Moving Average (67.3) suggests that the current Unemployment Rate should be between 7.0% and 10.0%. 

In my piece, Layoffs…What Are They Telling Us? I made the case that even the FOMC believes that the Unemployment Rate will increase, as they foreshadowed in their “Summary of Economic Projections” released in December.

How High Will The Unemployment Rate Go? 

I don’t know how high the unemployment rate will go. However, as noted above, the current reading for the University of Michigan Consumer Sentiment Index – 24 Month Moving Average would suggest that the Unemployment Rate should be somewhere in the 7.0% – 10.0% range. 

Alternatively, what if, in the coming months, we see a dramatic improvement in the University of Michigan Consumer Sentiment Index – 24 Month Moving Average, somewhere directionally towards its long-term average of ~86? You can see from the chart above that a value of 86 has historically corresponded to an unemployment rate of 5.0% – 7.0%.

Given that the Unemployment Rate is currently 3.4%, the University of Michigan Consumer Sentiment Index would suggest it “needs” to go higher. Is it going to 7.0% – 10.0%? I certainly hope not, but the high end for the FOMC’s range of outcomes for 2023 is 5.3%, so maybe the 5.0% – 7.0% range is at least within the realm of possibilities. 

As noted in “Layoffs…What Are They Telling Us?”:

“Since the 1950’s, every time the unemployment rate had a sustained increase above its 12-month moving average, a recession has occurred.”

I followed by saying:

“The current unemployment rate is 3.4% and the current 12-month moving average is 3.59%.  If the FOMC is even directionally correct in their assessment of where the unemployment rate is heading in 2023, and subsequent years, the unemployment rate will easily cross above its 12-month moving average and will likely be sustained there for a period of time.”

Not to be draconian, but the takeaway is that we’re heading for a recession, and the University of Michigan Consumer Sentiment Index gives you advanced notice.

The question then becomes, “What should I do with this information?”. 

I would remind you of this historical fact:

“If we look at history, we find that since the 1960’s, the S&P 500 has always made a new low once a recession began and the average decline from the start of a recession to the market trough is -29.2%.  Further, if we look at this same time period, we find that the average decline from the first FOMC rate cut to the market trough is -27.7%.”

It’s not too late to prepare for this potential outcome. 

Until next time…

Russia says its large border city of Belgorod has come under fresh missile attack from Ukraine on Monday, following an uptick in drone attacks on various Russian cities and facilities.

The missiles were intercepted, the Russian military says. “At least one person was wounded in the southern Russian region of Belgorod on Monday after Russian forces shot down three missiles, the governor of the region bordering Ukraine said,” Reuters reports.

Governor Vyacheslav Gladkov described on Telegram that “The falling debris had also brought down some power lines near the town of Novy Oskol” but also said the damage has not been fully assessed.

“It’s known about one wounded, a man with shrapnel wounds to his hand,” Gladkov confirmed. He stopped short of naming Ukraine as being behind the attack, but over the course of the war there’s been numerous instances of fire coming from Ukrainian forces. The Russian city of some 400,000 people lies a mere 25 miles from the Ukrainian border.

On Saturday there were reports of a drone attack on a power substation at a village outside of Belgorod identified as Razumnoye, resulting in no injuries, however damage was reported.

The past week of threatening drone activity over Russian skies have made it clear that Ukrainian forces have stepped up attacks inside Russia. A series of attacks on Feb.28 were especially intense. The Kremlin has lately alleged Washington assistance in these attacks. 

Meanwhile, Russian state media is on Monday freshly alleging a covert plot to assassinate an influential media personality. “A Ukrainian bomb plot targeting the owner of a Russian TV channel has been thwarted by the Federal Security Service (FSB), the agency claimed on Monday,” RT writes. “It pinned the alleged assassination attempt on a Ukraine-based Russian-born neo-Nazi, who also claimed credit for a deadly cross-border raid last week.”

The FSB released and circulated the below videos…

The FSB prevented an attempt on the head of the Tsargrad Group of companies Konstantin Malofeev. They were going to blow him up in a car, as in the murder of Daria Dugina. pic.twitter.com/xsGGGjHEuE

— Tony (@Cyberspec1) March 6, 2023

“The plot allegedly involved rigging a bomb to the car of billionaire Russian entrepreneur Konstantin Malofeev, owner of the Christian-focused TV channel Tsargrad, the FSB said in a statement,” the report continues.

Russia’s FSB releases video said to be demining of car of Russian oligarch and monarchist Konstantin Malofeev. Chief suspect: Denis Kapustin (Nikitin) and his Russian Volunteer Corp, which appear to be the new Dmytro Yarosh and Right Sector. Has Nikitin got a business card yet? https://t.co/TRuDXSTHhS

— Euan MacDonald (@Euan_MacDonald) March 6, 2023

While there’s no independent confirmation of the plot, RT concludes that “It compared the plan to the assassination of political activist and journalist Darya Dugina, whose car was blown up last August near Moscow.”

By Rabobank’s Benjamin Picton

A Tale of Ten Cities

The Daily is today, and on most Mondays from now on, coming to you from the Land Down Under, where it is currently the future (in a time-zone sense) – and that is appropriate given some of the themes in this particular missive.

Futures markets are pointing to a flat start to the week after the US 10-year yield closed back below the 4% level on Friday, ISM and PMI data came in strong, and stocks finished up. The Fed’s Daly won’t have helped sentiment much with further promises of rates being higher for longer and warnings of structurally higher inflation. Neither will the ECB’s Christine Lagarde talk of the need to deal with the “monster” of inflation. Nor will the weekend’s China’s National People’s Congress, which set a “modest” GDP growth target of 5% while further centralizing control in the hands of Xi Jinping. Outgoing Premier Li Keqiang said “struggle creates brilliance.” Helpfully then, China’s defense spending will rise 7.2%, and the US is close to instigating capital controls to prevent investment in Chinese tech.

Li also said “Hard work builds the future.” In his trademark style, so did former President and 2024 aspirant Trump, who unveiled his vision for ten new ‘Freedom Cities’ to be built on federal land, opening a new American frontier to offer low cost homes to millions – and replete with flying cars. Trump’s vision was of the Jetsons, plural, as he also spoke of a baby bonus aimed at lifting a sagging fertility rate, and support for Medicare and social security. There was also a new (old?) program of public works to ”get rid of bad and ugly buildings and return to the magnificent classical style of western civilization.” These new spending promises are to be funded, at least in part, by universal tariffs via “America first” mercantilism. China should be nervous; and so should US allies and trade partners thinking of 1930s-style US isolationism while other Great Powers are returning to 1930s-style belligerence. So should markets, perhaps, because Trump dominated the conservative CPAC convention despite mainstream and social media not covering what he says anymore. Indeed, his grip on the Republican party still seems strong enough that an alternative Daily title suggested by the regular author of this Daily was ‘Trumpy Python’s Flying Car-cass’. 

While the US dreamed of flying cars, Europe was split on plans to phase out those with internal combustion engines: Germany and Italy are delaying final approval of the new law. And while that horse-power trading was going on, German Chancellor Scholz was in D.C. to meet President Biden to discuss the war in Ukraine. More horse-trading?

If the West isn’t backing down there, neither are the Russians. Foreign Minister Sergei Lavrov confirmed “it is existential for us,” and accused the West of hypocrisy, pointing at its actions in Serbia, Iraq, and Afghanistan, and saying “nobody gave a damn about anything but finances and macroeconomic policies” during those episodes. Even a broken clock is right twice a day, and he is quite right that it used to be possible to ignore geopolitics and focus only on quarterly earnings and what the Fed and other central banks might do. Now one needs to look at a whole lot more a whole lot more.

But sticking with the week ahead, there are plenty of catalysts for ordinary market volatility as three central banks meet to set policy rates, some key data hits our screens, and US Fed Chairman Powell delivers his semi-annual testimony before the US House and Senate Committees.

Today is covered in more detail below in the Day Ahead.

Tuesday, the RBA delivers its March policy rate decision. A 25bp hike to 3.65% is seen as a near certainty in the market, with only one economist amongst those surveyed by Bloomberg expecting rates to stay put. The picture is becoming more complicated for the Reserve Bank, however, following poor jobs figures for December and January, weak Q4 GDP growth, and slower than expected wage growth. The temptation will be to ease off hiking early, especially following the release of diabolical January building approval figures last week (-27.6%) and the Melbourne Institute inflation gauge for February coming in at +0.4% vs +0.9% prior. However, the implicit price deflator in the Q4 GDP was still very high (9.1%), and the RBA will have one eye on strong data and the hawkish tone emanating from the US. Falling behind the inflation curve and having to catch up later is not a prospect it would relish, so we expect that it will indeed be a 25bp hike tomorrow.

Tuesday also sees Fed Chairman Jerome Powell begin a two day testimony where he will speak on the semi-annual Monetary Policy Report. Powell will follow a stream of hawkish Fed speak in recent days, notably from Waller, Daly, and Barkin, though risk assets took some encouragement from Bostic last week when he said that he favoured a 25bps hike in March. It seems likely that Powell will continue the more hawkish tone as recent US data has mostly surprised to the upside.

Wednesday, the BoC meets. Markets, and our Christian Lawrence, expect an end to the hiking cycle and rates on hold at 4.5%.

Thursday sees US ADP and initial claims data.

On Friday, the BOJ is widely expected to leave rates unchanged at -0.1% and maintain the yield curve control (YCC) policy targeting the 10-year JGB yield at 0.5%. This will be the last BOJ meeting chaired by Haruhiko Kuroda, with Ueda-San due to take over from next month. Speculation as to Ueda’s policy preferences have been rife in the market, and there has been some suggestions that the YCC target may be lifted soon as the Japanese economy has started to show signs of a pickup in inflation.

Rounding out the week, Friday also has US non-farm payrolls following the blockbuster 517,000 figure for January that effectively reset expectations of the likely path of Fed monetary policy to ‘higher for longer’. The consensus of survey is a gain of 215,000 with the unemployment rate remaining steady at 3.4%.