Via SchiffGold.com,

Everyone’s heard of Javier Milei, the new president of Argentina, called by Fox News the world’s first libertarian president. He has been in the news for his denunciation of leftism, Marxism, and the sprawling bureaucracy that has trapped Argentina in debt. He’s also taken aim at run-away inflation in Argentina. Inflation in the last year was over 200% in Argentina, a rate that the United States hasn’t reached, even with Biden-levels of inflation.

But what might surprise some, given Milei’s libertarian leanings, is that he promised to get his country to use the American dollar. Why and what does it say about the future of fiat currency?

The use of the American dollar by foreign countries in place of their own is called currency substitution or dollarization. There are different reasons why a country might want to abandon its sovereign currency for the currency of the United States. Some of the countries that use the American dollar are small island nations or territories like the Virgin Islands, Turks and Caicos Islands, or Micronesia. These islands depend heavily on American tourists or American military spending to keep their economies afloat. The use of the dollar is a way to appeal to their most important economic partners as well as a way to reduce transaction costs and make transactions more convenient. But Argentina is a major country, it trades with America of course, but its economy is larger and more diverse than those island states.

Argentina, or at least Milei and his supporters, want to switch to the dollar because Argentina’s currency, the Argentinian peso, has been run into the ground by constant government overspending and essentially printing money to cover the costs of government programs that are oversized relative to Argentina’s economy.  According to Stephen Matteo Miller of the Mercatus Center, Argentina has already experienced unofficial dollarization, with individual citizens of Argentina holding onto dollars or dollar-denominated assets because while the American dollar is constantly devalued by inflation it is devalued at a slower rate than the peso. Thus, dollarization would make official what rational Argentinians are already doing.

Milei has run into some setbacks with the dollarization part of the agenda and he is now claiming it’s part of a long-term agenda that will follow dramatic cuts to government spending. If Argentina dollarizes, in theory, it would benefit from “only” having to deal with American-level inflation instead of Argentina-level inflation. It would also help keep government spending under control- Argentina would not be able to run huge deficits and offset its spending by printing more dollars, only the United States can produce dollars. The strength of the currency that Argentinians use wouldn’t be undermined by Argentinian fiscal irresponsibility.

What about the situation for ordinary Americans? The Biden administration, even more so than typical politicians, has gone on a relentless spending spree, taking the federal debt to new heights and unsurprisingly we have seen high inflation to go along with it. The higher the debt, the more likely it is that the government will print money to pay it off. This fear causes inflation to rise, even before the government actually does it.

Argentina can turn to the United States for a source of a more stable and reliable fiat currency. But for the United States, there is nowhere to turn. There is no larger economy. The problems that the United States faces with its fiat currency are shared around the world. Fiat currency is constantly devalued and the existence of fiat currency makes government overspending easy. Another fiat currency will never save the United States from dangerous levels of inflation.

What could? Maybe gold. Gold can’t be printed by the government. A nation on the gold standard couldn’t spend without limit- its ability to repay debts would be limited by its store of gold and what investors thought of its long-run sustainability. A switch to hard money could be a solution to American inflation. Would it have to be gold?

In theory, gold isn’t unique. Some other assets or commodities could back a currency. But in practice, only gold (and maybe silver), have the historic, cultural role of serving as money and scarcity, fungibility, and other useful traits to serve as a currency.

Will the United States return to precious metals? Maybe. But if it does it probably won’t do so instantaneously. Instead, it would follow the path of Argentina. The unofficial use of gold and silver as money and as a store of value would spike first, far before any official adoption. A fact worth keeping in mind when considering investment options.

The US embassy in Russia has issued an unusual and somewhat mysterious warning over violent plots by ‘extremists’ that will potentially target gatherings of people in Moscow.

“The Embassy is monitoring reports that extremists have imminent plans to target large gatherings in Moscow, to include concerts, and U.S. citizens should be advised to avoid large gatherings over the next 48 hours,” the U.S. embassy said in a Thursday alert. 

The alert offered no further details or speculation as to the expected nature of the attack or who could be behind such plotting. The embassy further advised Americans to “be aware of your surroundings” and monitor local media.

Very soon after Russia’s invasion of Ukraine over two years ago, the State Department warned all Americans to exit Russia, given they could face arrest or unlawful detention. However, clearly some remain, likely including journalists as well as diplomatic personnel.

As for what the US embassy could be responding to, Forbes notes the timing of the alert:

The U.S. alert comes just hours after Russia’s Federal Security Service (FSB) said it had thwarted a planned terrorist attack on a Moscow synagogue. The agency, a successor to the Soviet-era KGB, said the shooting had been planned by a cell from the Afghan arm of the militant Islamic State group. The FSB said the terrorists were killed when resisting arrest, adding that firearms, ammunition and components for an improvised explosive device were found and seized from the area.

And Reuters reported that the ISIS cell in question has been operating in Russia’s Kaluga region and that the thwarted plot was to include “firearms” and “improvised explosive devises”.

Russia is holding presidential elections next week, scheduled for March 15-17, in which President Putin is expected to achieve easy victory. But Moscow has issued a strong warning to Washington against ‘interference’.

International reports suggest the US Embassy is responding to the shootout between Russian security services and an ISIS cell…

ISIS plot to slaughter Jews in Moscow synagogue: Terrorists planning gun massacre are killed in shootout https://t.co/L62Aorkdua pic.twitter.com/iDR4hVmDgc

— Daily Mail Online (@MailOnline) March 7, 2024

The Russian foreign ministry announced Thursday that it summoned US Ambassador Lynne Tracy to warn that if Washington interferes in Russia’s internal affairs it would move to expel US diplomats in the country.

The foreign ministry in particular warned over “subversive actions and the spread of information” related to the election as well as Moscow’s military operations in Ukraine.

Authored by Jeffrey Tucker via The Epoch Times,

By some miracle – actually, by the printing of $5.4 trillion that has shown itself in persistent inflation – the United States has so far avoided a financial crisis. That’s the one sector that so far the establishment has been able to protect from disaster.

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)

How long can this be forestalled?

Watching the highly leveraged economic environment carefully, it seemed fairly likely that this would begin with a commercial real estate bust in the big cities. New York in particular is the hot spot and bellwether.

The story goes like this.

After a long real estate boom in the cities, with workers commuting long distances, and zero interest rate policies that massively subsidized corporate leverage and an unhinged hiring binge, the sudden lockdowns of four years ago changed everything.

Suddenly vast swaths of the professional managerial class were forced to do their fake work from home. This not only led to a sudden shortage of household toilet paper. It introduced into corporate America a new way of managing the workforce. Even after all this time, the habit of the daily commute will not come back the way it was.

Looking from the outside in, it might seem like the obvious answer was to convert huge office skyscrapers to apartments, of which there is a tremendous shortage. But that turns out not to be so easy. These office spaces are set up to be what they are and cannot simply become apartments. There was really only one choice: either get the workforce back on a full-time basis or shrink the amount of leased space.

These commercial leases typically run for 5 to 10 years. Two years ago, the clock began to tick on many of them. Many began to expire last year and many more this year. Companies are looking at their huge office spaces and realizing that they could cut their footprint by half or more. The hybrid work schedule simply didn’t require the multifloor leases that they previously had.

As a result, many are cutting back, resulting in fewer revenue flows to the mortgage holders and thus less available to service the gigantic loans on large properties as held by big financial companies.

A major player in the New York City market is New York Community Bancorp. Last year, it began reporting that it was missing its metrics and falling on some hard times. Its stock started taking a beating. As the reports grew worse, the sell order mounted.

From a high of nearly $14, the stock began to tank, falling even lower than $2. That’s when the panic began from the banking community. Its CEO was fired and replaced. Then several major lenders ponied up $1 billion in a rescue package to make things right again. The stock has recovered slightly.

Notable is the source of the funds: former Treasury Secretary Steven Mnuchin. Involved are Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners and including Citadel. The new CEO is the former Comptroller of the Currency.

In other words, this is a deep-state bailout, an all-hands-on-deck attempt to stop contagion. It’s very serious. And though the action did get many headlines, it might be, in the poetic phrase, a cloud no bigger than a man’s hand.

“Moody’s Investors Service and Fitch Ratings have both downgraded New York Community Bancorp’s credit ratings to below investment grade,” writes the Wall Street Journal.

All the bailouts in the world are not going to solve the underlying problem. The commercial real estate issue in the big cities, particularly in Boston, New York, and Chicago, is not going away. They will worsen this entire year, leading to more weakness among the major lenders. This will provoke more centralization and bailouts. The Fed and the U.S. Treasury Department will be watching closely throughout.

Will they be able to contain it? Not likely, not over the long term. The financial crisis is coming. They are only kicking the can down the road.

If you wonder why the Fed keeps talking up rate cuts—despite the reality that inflation is nowhere near under control by any historical marker—this is why. It’s a means by which the Fed assures markets that it is ready to crank up the printing press at a moment’s notice. They will not let the system unravel.

What does this mean for you? Well, for starters, it means that inflation is not going away, not for a very long time. It might get vastly worse starting next year and the next. We could be headed into a repeat of the 1970s with three distinct inflationary waves. We might have been through the first and only waiting for two and three.

Sophisticated investors have figured this out, which is why gold and Bitcoin have hit new highs. It’s the only real safe haven in such an environment. No matter who is elected president, this is going to be a huge problem for the next term. It might emerge as the central issue. When that happens, please remember the roots of the problem, which trace not only to lockdowns but to the response to the 2008 crisis and even earlier with the loosening of credit after 2001.

So far, it’s been a century of inflationary finance. How could this not end in financial crisis? The only question is what pathway it will take to unfold. We are only now seeing the beginning of it.

Last month we though that the January jobs report was the “most ridiculous in recent history” but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let’s take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month’s record 4-sigma beat, today’s print was “only” 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR… and now in the US, apparently.

Before we go any further, a quick note on what last month we said was “the most ridiculous jobs report in recent history”: it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month’s ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month’s jobs print won’t be revised lower: it will be, and not just that month but every other month until the November election because that’s the only tool left in the Biden admin’s box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

In the past month the Biden department of goalseeking stuff higher before revising it lower, has revised the following data sharply lower:

– Jobs
– JOLTS
– New Home sales
– Housing Starts and Permits
– Industrial Production
– PCE and core PCE

— zerohedge (@zerohedge) August 30, 2023

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years – and thus denying expectations from Sahm’s Rule that a recession may have already started – in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years…

… for one simple reason: last month’s average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic…

… but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS’s latest choice of seasonal adjustments (after last month’s wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it’s more than just the Biden admin hanging its “success” on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge… such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There’s more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of “new jobs” has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that’s great… until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there’s even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers…

… but there has been zero job-creation for native born workers since June 2018!

This is a huge issue – especially at a time of an illegal alien flood at the southwest border…

… and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened – i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden’s handlers will do everything in their power to insure there is no official recession before November… and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Authored by Jonathan Turley,

It took just three days.

After drag performer RuPaul announced the creation of a “no censorship” Allstora bookstore, censorship was back with a vengeance after many on the left learned that free speech meant that opposing views might be sold at the site.  While the sentiment was appealing, it became intolerable when activists noted that a “no censorship” store would mean that they could not censor others.

In the rollout, RuPaul stood in a blue suit before a flag to defy the censors and embrace access to works of different authors and viewpoints. For many of us, it was an exciting moment. The anti-free speech movement on the left has grown exponentially. Now, this iconic figure from the left was taking a bold stand for free speech.

With ten million titles, readers could buy most any book, including writers like Riley Gaines who have challenged transgender theories.

Various sites like National Review have covered the rise and rapid fall of the free speech initiative.

The rollout was promising. Like many of us, the founders objected to book bans across the country. Such bans have been implemented by both the left and the right.

Allstora was founded on the pledge that “We’re a marketplace for all books and all stories, with a focus on elevating marginalized voices.” Co-founder Eric Cervini and drag performer Adam Powell, welcomed visitors to the website with a pop-up message that warned “you may find books you disagree with.”

The site declared “censorship of any book, perspective, or story is incompatible with the survival of democracy.” After all, “banning books is never the answer.”

The pledge was heralded in the media. Many viewed it as a jab at conservatives to show that there is nothing to fear in access to opposing views.

Then someone thought about what free speech means.

Liberal critics raised the alarm that the bookstore would be selling “homophobic,” “transphobic,” and “anti-woke” works.

Drag performer “Lady Bunny” noted that the store would be selling works by figures like Mike Huckabee, Chaya Raichik, and Matt Walsh.

Lady Bunny asked “Why not just stop selling what many on the left consider to be hate speech?”

That is all that it took.

Allstora first implemented a flagging system for offensive books and then just got rid of the no censorship pledge.

While some sites state that Allstora only moved to add disclaimers, it appears that the no censorship pledge is gone and various authors are missing.

I searched for books by writers like Gaines and Matt Walsh and found nothing.

The obvious response to Lady Bunny is that she is the answer to her question. In the name of combatting hate speech, she is embracing the very tool used by the most hateful movements in history from book burning to black listing of opposing views. Censorship becomes insatiable as the list of offensive topics or views grows from transgender politics to climate change to abortion. Every advocacy group finds opposing its own views to be dangerous and harmful.

It is analogous to what Gandhi said about vengeance:  “An eye for an eye leaves the whole world blind.” The same is true about censorship. Eventually it leaves the whole world ignorant.

Update (1151 ET):

What the hell is happening with United Airlines’ Boeing jets this week? 

The third incident occurred on Friday morning, as United Flight 2477, a Boeing 737 MAX 8 carrying 160 passengers and six crew members, skidded off the taxiway and into a grassy area after landing at George Bush Intercontinental Airport in Houston. 

Up close photos of @United Flight 2477 (Boeing 737 MAX 8) that left the runway and came to a stop in grass at George Bush Intercontinental Airport (IAH) in Houston. @KPRC2 has learned no one was injured.

📸 Janet Bumbarger pic.twitter.com/oH8JZa1lGZ

— Gage Goulding – KPRC 2 (@GageGoulding) March 8, 2024

LOOK | A United Airlines Boeing 737 MAX 8 suffered a runway excursion at Houston Airport (IAH) on Friday morning (local time).

The aircraft, registered N27290, was operating flight UA-2477 from Memphis.

More details at https://t.co/koWzazIk5P later.

📷 u/Gadac via Reddit pic.twitter.com/Dc1uMzkHHg

— AviationUpdatesPH.com (@AUPhilippines) March 8, 2024

United flight 2477 #Houston pic.twitter.com/BxCKH7fPWC

— jamesjimenez (@jamesjimenez) March 8, 2024

Flight 2477’s incident comes in the wake of two other incidents:

• On Thursday, United Airlines Flight 35, a Boeing 777-200 en route to Osaka from San Francisco, lost a wheel shortly after departure,
• and on Wednesday, Flight 1118, a Boeing 737 flying from Houston to Fort Myers, encountered an engine fire mid-flight.

*   *   * 

One day after a United Airlines’ Boeing 737 from Houston to Fort Myers experienced a dramatic mid-flight engine fire, a United jet heading to Japan from San Francisco lost a tire during takeoff that fell from the sky and crushed vehicles. 

United Airlines Flight 35, an Oska-bound Boeing 777-200 with 249 souls on board, experienced a landing gear malfunction that caused a tire to separate from the widebody jet. The tire fell several hundred feet and then crushed vehicles in a parking lot at San Francisco International Airport. 

Flight tracking website RadarBox reposted a video on X that captured the moment the tire separated from the plane’s landing gear. 

Full HD video of United flight UA35 taking off from San Francisco and losing a wheel ✈️ https://t.co/VzHSi2NB9T

— RadarBox (@RadarBoxCom) March 8, 2024

“The 777-200 has six tires on each of its two main landing gear struts. The aircraft is designed to land safely with missing or damaged tires,” United Airlines told Bloomberg in a statement. 

Images of the crushed vehicle were posted on X. 

Here’s the car smooshed by the United wheel at SFO. You can see the rubber smudge, and the circular imprint of the tire. pic.twitter.com/rue3ttai2u

— Wilson Walker (@WilsonKPIX) March 7, 2024

The 777 was able to divert and land safely at Los Angeles International Airport shortly after takeoff. 

🚨 UPDATE: United Airlines Flight 35 from San Francisco to Osaka, Japan is now back on the ground after LOSING A WHEEL upon takeoff

The Boeing 777-222ER diverted to Los Angeles and was met by emergency crews on the runway

The falling wheel caused HUGE damage to cars and… https://t.co/9mQfrWwPN7 pic.twitter.com/1zp0pLOLkR

— Nick Sortor (@nicksortor) March 7, 2024

Meanwhile, United Flight 1118 suffered an engine malfunction over Texas on Wednesday. 

🇺🇸 BOEING SUFFERS ANOTHER MID-AIR ENGINE FIRE

The United Airlines flight had to make an emergency landing in Texas minutes after take-off when flames began shooting from one of its engines.

This is the second mid-air engine fire to affect Boeing in the U.S this year, after a… https://t.co/HxaPH1RHeB pic.twitter.com/SKbHofwcZj

— Mario Nawfal (@MarioNawfal) March 7, 2024

The incompetency crisis continues for Boeing. 

Nvidia, which controls about 80% of the high-end AI chip market, has surged over 80% since the start of the year amid exponentially-growing euphoria around AI. The literal explosion in NVDA has added a stunning $1 trillion in market cap this year alone.

NVDA is rapidly converging on AAPL’s fading market cap (having overtaken Aramco this week)…

The surge in ‘price’ has prompted some to suggest a stock split is imminent:

“Probably in the next year or so, I expect the stock to split and that would be able to get some small retail investors into the stock where they think it’s out of reach right now,” said Ken Mahoney, president and chief executive officer of Mahoney Asset Management.

The company last announced a four-for-one stock split in May 2021, when it was trading at about $600 per share. Today, the stock is nearing the $1,000 level, extending last year’s 240% surge.

As Bloomberg reports, the reasoning Nvidia gave at the time of the 2021 split was “to make stock ownership more accessible to investors and employees,” according to a press release.

Of course, stock-splits are nothing more than a cosmetic move generally enacted to attract smaller investors.

But it seems ‘smaller investors’ have been anything but shy about piling into this now-giant tech stock.

The stock was on course for its 7th straight daily gain – the longest streak since November – until crypto starte to doive today and smashed the giant AI company’s stock lower…

It seems the 0-DTE gamma-squeezers just abandoned ship…

But…

Remember: today (friday) is 0DTE day for single stocks (indexes are every day).

So any minute now we will see the 0DTE BTFD hordes

— zerohedge (@zerohedge) March 8, 2024

As Goldman Sachs trader, Rich Privorotsky, noted earlier, if you could attempt to bottle the current sentiment of the market toward AI in one chart it would probably look something like the one below:

“Investors have piled into Nvidia-focused exchange-traded funds (ETFs) this year on the frenzy around AI, with inflows into a bullish fund that tracks the shares of the chip designer hitting an all-time high on Wednesday.

Net daily inflows into the GraniteShares 2x Long NVDA Daily ETF NVDL.O hit a record of $197 million, according to LSEG Lipper data.

The assets managed by the ETF have grown to $1.41 billion from $213.75 million at the start of the year.” – RTRS

As Reuters reports, net monthly inflows into leveraged ETFs tracking Nvidia such as the GraniteShares 2x Long NVDA ETF, the Direxion Daily NVDA Bull 1.5X Shares ETF and the T-Rex 2X Long Nvidia Daily Target ETF hit a record in February.

The GraniteShares ETF has already crossed its net monthly flow record within the first six days of the month.

Assets of the three Nvidia-linked ETFs jumped between five and 11 times since the start of 2024, while their prices are up between 143% and 218% year-to-date, outperforming other ETFs.

“Nvidia has been the hottest stock in 2024 and many investors are eager to seek out higher returns in exchange for added risk,” said Todd Rosenbluth, chief ETF strategist at VettaFi.

“We expect to see continued demand for single stock leveraged ETFs as a new wave of must-own companies emerge.”

Well, of course, until the whole house of cards collapses Todd.

Which leaves us asking: if the world and their pet rabbit is literally all-in – selling VIX with leverage, selling calls, buying puts, and 2x levered inverse VIX ETNs, buying 2x-levered NVDA ETFs – who the fuck is left to buy?

By Stefan Koopman, Senior Macro Strategist at Rabobank

Prune In June?

The ECB sharpened its shears for a potential prune in June, even as it kept policy rates steady at yesterday’s meeting, aligning with expectations. Crucially, the central bank’s staff projections for both growth and inflation were revised down, with the ECB’s economists now seeing core inflation at target in 2026, and close to in 2025. This added a dovish element to the meeting, even as president Lagarde was slightly more reserved during the press conference. Nonetheless, her phrase, “we will know a little more in April, but a lot more in June,” was a signal even the famously direct Dutch could pick up on, pointing to a probable rate cut in June. This has now become our base case scenario. We expect further cuts in September and December.

The potential snag in this planned pruning could come from disappointing wage or inflation data. However, using the shears too soon raises the risk that the ECB might have to pause or reverse its course sooner than anticipated. For example, geopolitical tensions could inflate energy prices and freight rates, further jolting global trade. Moreover, with the possibility of President Trump’s return to the White House in 2025, his trade policies could impact European inflation, particularly if they speed up de-globalization and/or China decoupling. Given this backdrop, even if the easing cycle is not interrupted by a new inflationary surge, we believe that the endpoint of this cycle may be higher than markets currently anticipate. For more details, please read the ECB post-meeting comment by Bas van Geffen.

The ECB’s post-meeting cacophony is in full swing this morning. Bundesbank president Nagel said the probability is increasing we could see a rate cut before the summer break, so that could mean June or July. His French colleague Villeroy believes a rate cut in the spring is ‘very likely’, so that could mean April or June. And the Latvian central bank chief Kazaks said that the ECB should keep some optionality even after the first cut is implemented, so that means if there is a cut in June, the ECB may keep its powder dry in July. The odds of a rate cut for April are now just 17% compared to a full rate cut priced in for June. Markets anticipate nearly a full percentage point of cuts by year-end, 8 basis points more than yesterday.

The euro nonetheless climbed against the dollar, reaching 1.095 and heading for its best week of the year. This followed comments from Fed Chair Powell, who said on Thursday that the FOMC is “not far” from having the confidence that inflation would reach 2%. His colleague Mester added that a couple more inflation reports could give confidence on inflation, with the Fed likely in a position to cut rates later this year. We expect the Fed to start pruning in June. President Biden would welcome this news, as he highlighted his administration’s economic achievements in his State of the Union. Many voters still disapprove of how his administration handles the economy, even though it delivered strong job gains, low unemployment, faster-than-expected GDP growth and cooling inflation. The price level, not just its rate of change, remains a liability for the president. Unfortunately for Biden, from this point it is hard to imagine even stronger economic data. This implies that from here the risk is mostly to the downside.

The Bank of England’s DMP survey showed that UK CFOs expect lower inflation going forward, seeing their selling prices rising by 4.3% this year, while realized increases are at 5.4%. The extent of embedded selling price inflation in the UK remains an issue. Companies often adjust prices in response to expected changes in the market and to past price rises. This staggered process can keep inflation going as companies and consumers adjust to each other’s expectations. The average between expected and actual price rises suggest embedded inflation is around 4.9%, close to the survey’s measure of expected wage growth of 5.2%. So even with consumer prices possibly dropping below 2% due to lower energy costs this Spring, we think it is likely the Bank of England will lag the ECB or the Fed when it comes to its first interest rate cut.

Analysts at Goldman Sachs forecast that companies in the S&P 500 will buy back $925 billion in stock in 2024, and this number is expected to exceed $1 trillion by 2025. This increase in stock buybacks is mainly attributed to solid earnings from big tech firms and a possible resolution of political uncertainty surrounding the US presidential elections. 

“We raise our 2024 buyback forecast and introduce a forecast for 2025. We forecast that S&P 500 repurchases will total $925 billion in 2024 (13% yr/yr growth) and $1,075 billion in 2025 (16% yr/yr growth),” analysts Cormac Conners and David Kostin wrote in a note to clients. 

The analysts continued, “Solid earnings growth will be the primary tailwind to buybacks, while elevated valuations and policy uncertainty will be headwinds. We expect buyback growth in 2024 to be driven largely by mega-cap tech stocks.” 

The surge in expected buybacks this year and next comes after repurchases plunged 14% in 2023, the second-largest annual decline since the Global Financial crisis. 

Conners upgraded GS’ S&P500 forecast for 2024 ($241 EPS, 8% growth) and 2025 ($256, 6% growth) due to improving macroeconomic conditions and stronger-than-expected mega-cap tech margins and earnings.

“The broader macro environment since the fall, like the decline in Treasury yields, also helps to inform our forecast upgrade,” the analyst said. 

“Rich valuations and elevated policy uncertainty indicate S&P500 buybacks will grow by slightly less in 2024 than our earnings forecast alone implies,” Conners said, adding:

• First, management teams are less likely to deploy cash into repurchases when their shares trade at elevated valuations. The median S&P 500 stock trades at 18x today (87 th percentile since 1990) while the aggregate index trades at 20x (86 th %-ile). We expect multiples will remain near these elevated levels throughout 2024.
• Second, history suggests the November general election will lead to elevated policy uncertainty in 2H 2024, incentivizing companies to postpone large increases in buybacks until 2025. 

Also, improving profit growth and expectations of an interest rate cut from the Federal Reserve in June add to bullish animal spirits among investors, suppressing VIX and catapulting the S&P500 to record highs. According to the analyst, this improving environment will send S&P 500 buybacks above the trillion dollar mark for the first time next year. 

They noted the bulk of the buybacks will be from big tech companies:

“Revenue growth for the sectors will be supported by strong consumer spending and increased demand for AI-related products. A continued focus on improving operating efficiency will drive further margin expansion. Info-Tech remains the single largest source of repurchases for the index while Communication Services is the third largest sector for repurchases, behind Financials.”

The Magnificent 7, consisting of Apple, Meta Platforms, Alphabet, Microsoft, Tesla, NVIDIA, and Amazon, will likely drive a substantial portion of S&P 500 buyback growth this year and next. Recent filings show this group had already authorized $215 billion in stock buybacks this year, 30% higher than the level authorized at the same time last year ($166 billion).

“The group’s continued rapid revenue growth should be sufficient to fund AI investments in the coming years without hindering capital return to shareholders,” the analysts said.  

They continued, “The group spent $407 billion on capex and R&D in 2023, representing 23% of their annual revenue and 27% of all S&P 500 capex and R&D. Capex and R&D will top $500 billion in 2025 if spend grows in line with consensus estimates for revenue growth (12% CAGR).” 

And this is very important for the future of buybacks:

“If management teams see attractive investment opportunities beyond this growth in spend, they may limit growth in buyback programs in order to fund investment. However, the sheer scale of their existing capex and R&D spend and the group’s increased focus on operating efficiency suggests this is unlikely,” the analysts said. 

During Thursday night’s State of the Union address, President Biden proposed tripling the current buyback tax on corporations. This move would force executives to spend more cash on workers and factories instead of rewarding shareholders. 

And moar buybacks, please, as Bloomberg macro strategist Simon White sees the market “entering its topping phase.”  

More of the note is available to pro subscribers.

USDJPY extended its decline overnight as BoJ rate-hike rumors continued to build.

Reuters reports that the Bank of Japan is warming to the idea of raising interest rates and considering a new quantitative monetary policy framework.

Specifically, Jiji news agency reported on Friday that the BoJ is reviewing its Yield Curve Control framework and considering a new framework that will show the outlook for upcoming government bond buying amount (reportedly mulling buying nearly 6tln of JGBs under new quantitative policy framework).

As we detailed here, recent wage gains and optimism that this year’s annual wage negotiations will yield strong results, have seen a growing number of BoJ policymakers to support ending negative interest rates this month, four sources familiar with its thinking said.

“The yen is rising as speculation mounts that the BoJ will buck the global central bank trend and hike interest rates later this month,” said Kathleen Brooks, research director at XTB.

The market is now fully pricing in a BoJ rate-hike by June and a 65-80% chance of a hike at the next meeting in March…

Source: Bloomberg

Interestingly, this morning’s (apparently ‘bad’) payrolls print prompted dollar-selling (more yen strength), erasing all of the Japanese currency’s losses since the last payrolls print (which was massively revised lower)…

Source: Bloomberg

Today’s “bad” jobs data prompted a jump in rate-cut expectations for The Fed, The ECB, and The BoE…

Source: Bloomberg

“In the short term, a powerful downtrend seems to be building for USD/JPY, and we believe that this pair could test 145.00,” Brooks added, especially if now that we have seen a moderation in U.S. payrolls growth.