By Sagarika Jaisinghani and Farah Elbahrawy, Bloomberg Markets Live reporters and analysts

Corporate America is delivering the bleakest sales reports in four years this earnings season, a sign that weakening consumer demand is limiting companies’ ability to raise prices further.

With more than 80% of S&P 500 firms having reported, less than half have beaten revenue estimates for the third quarter — the lowest share since the same period in 2019, according to data compiled by Bloomberg Intelligence. The pace of sales growth globally has also moderated to “the lower end of their pre-pandemic ranges,” Deutsche Bank Group AG strategists said.

That’s overshadowed a surprise increase in quarterly earnings so far, with investors instead focusing on a long list of revenue warnings from the likes of Apple Inc. and Estée Lauder Cos. In Europe, too, the season has been characterized by high-profile cuts including from Remy Cointreau SA.

“We heard a lot of caution in managements’ guidance during the season and that’s exactly what we are watching for — weaker sales and margins compression as pricing power wanes,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “For now, consumer and corporates still have access to credit, but it’s getting harder and more expensive. Once that dries out, we would see more pain.”

Apple warned last week that revenue in the holiday quarter will be about the same as last year, disappointing investors banking on a rebound in growth. Estée Lauder shares tumbled after the owner of the MAC and Tom Ford brands flagged declining sales. Remy Cointreau fell to a three-year low after the French distiller cut its annual sales guidance.

A Bloomberg analysis of earnings call transcripts shows “weak demand” is among the top trending phrases in both the US and Europe. With 20% of companies still to report, these mentions are already the second-highest on record, according to data going back to 2000.

Figures from Barclays Plc also show that management teams are sounding far more negative about the outlook for revenue than they are about profits as margins appear to hold be holding up for now. As a result, analysts are revising sales estimates down faster than those for earnings-per-share, strategist Emmanuel Cau said.

For Morgan Stanley’s Michael Wilson, the trend particularly signals eroding pricing power for goods over services. The strategist — among the top equity bears on Wall Street — retained his pessimistic view on the S&P 500 for the remainder of 2023, citing a gloomy earnings outlook, weaker macro data and deteriorating analyst views.

In what appears to be a brazen echo of the Lois Lerner scandal, a conservative watchdog group says the Biden administration is unfairly targeting it with an IRS audit in retaliation for its work which put a critical spotlight on would-be occupants of the Biden administration’s inner sanctum.

The American Accountability Foundation (AAF), a conservative watchdog known for its longstanding scrutiny of public figures, alleges that the IRS has been “politically weaponized” – and began looking into their 501(c)(3) tax-exempt status following their investigative work that spotlighted questionable aspects of President Biden’s nominees to senior administrative roles. A letter from the IRS obtained by The Epoch Times indicates an examination of AAF’s activities and requests extensive documentation, including all external communications.

AAF President Tom Jones sees this move as nothing short of a politically motivated crackdown, given the timing and nature of the IRS’s audit request. According to Jones, the demand for records tied to current elected officials is a clear sign of targeting against the AAF’s research and education activities. He has termed it a “deliberate attempt to punish and suppress” the foundation’s work.

“This sudden request by the IRS is not random,” Jones said in a statement, insisting that the records request is “clearly a sign that they are targeting our research and education activities.”

“It’s a deliberate attempt to punish and suppress AAF’s activities. It is surely no coincidence that AAF—the very organization that exposed the weaponization of the IRS—is now the target of it,” Jones added.

The AAF has been a thorn in the side of the Biden administration, running ad campaigns that brought to light the “radicalism” of nominees like Gigi Sohn for FCC chair, who eventually withdrew her nomination. The group’s assertion is that it played a pivotal role in the unraveling of these candidacies by informing the public about what they perceived as extreme and partisan positions held by the nominees.

Not the first time

According to the report, Senator Sheldon Whitehouse (D-RI) pressured the IRS to investigate other conservative groups like Turning Point USA and the Conservative Partnership Institute, alleging that their activities were politically charged and aimed at undermining democratic elections.

Cleta Mitchell, an attorney who represented conservative groups targeted by the IRS during Obama’s presidency, sees a pattern in the AAF’s ordeal – particularly given that the IRS has previously admitted wrongdoing in targeting conservative groups. The agency’s past admissions of inappropriately increased scrutiny serve as a stark reminder that the IRS’s actions are not forgotten and the potential for misuse of power remains a concern.

“As the attorney for many conservative, tea party groups targeted and harassed by the Obama IRS a decade ago, this certainly smacks of the exact same tactics used by the IRS then … and apparently being used again now against AAF,” Mitchell said in a statement, adding “Before the IRS starts down this road again, it would be worth remembering the scorn heaped upon it the last time it allowed itself to be used as a pawn by a liberal  in the White House.”

In 2017, the IRS ended up admitting that it was wrong when it based screenings of the groups’ applications for tax-exempt status on their names, which included words like “Tea Party” or “patriots” on application forms. The IRS also acknowledged that it had acted inappropriately when it subjected the groups to increased scrutiny and delays, while demanding unnecessary information from them.

Depending on the type of exemption sought, groups applying for tax-exempt status under federal law may engage in limited amounts of political activity. Some experts have said that this fact—along with vague rules—can make it difficult for IRS agents to tell which groups overstep and become ineligible for exemption. –Epoch Times

According to the AAF, the latest action by the IRS is part of a pattern of “weaponized” federal agencies under the Biden administration. Other examples include the infamous October 2021 memo from AG Merrick Garland which instructed the FBI to keep tabs on parents protesting leftist indoctrination of their children.

“We demand that this abuses is put to an end at once,” Jones said in a statement. “Our Constitution and Declaration of Independence guarantee our God-given right to speak the truth about the powerful without being punished and harassed.”

About 11 days after General Motors’ autonomous car unit, Cruise, halted all autonomous vehicle deployment across the US following several collisions and a suspension of its permit to operate robot taxis in California, Forbes revealed that Cruise CEO Kyle Vogt held an all-hands meeting Monday to halt production of its fully autonomous vans temporarily. 

The fallout continues as Vogt, according to audio obtained by Forbes, told employees that suspending driverless operations nationwide was the primary reason why it must pause “production of the Origin” van. 

The Origin operates fully autonomously and has no steering wheel or pedals. This halt represents a significant setback for Cruise, which has faced regulatory scrutiny following an incident where one of its vehicles dragged a woman who had been struck by another car. Furthermore, an investigative piece by The Intercept revealed Cruise’s software has “problems recognizing children.” 

Vogt said Cruise has produced hundreds of Origin vehicles and “more than enough for the near-term when we are ready to ramp things back up.” 

“During this pause, we’re going to use our time wisely,” he explained, noting that Cruise was actively talking with regulators about its issues. 

“And so if we want to rebuild trust with these groups, we have got to make sure that we are having those discussions and they hear things from us first and not from the press,” he said, adding, “So, candidly because we’ve had some leaks about information coming out of this meeting we have got to be careful what we share from this meeting, or these efforts to rebuild trust could backfire.”

Forbes spoke with a GM spokesperson who confirmed that the company was “temporarily” pausing production of the robot vans. 

“More broadly speaking, we believe autonomous vehicles will transform the way people move around the world, and the Origin is an important part of the AV journey – it’s the first scalable vehicle ever designed specifically for autonomous rides and will make transportation more accessible,” the spokesperson said. 

So much for robo-taxis revolutionizing the world of transportation… Whatever happened to Tesla’s dream of robot-taxi fleets?

Via The Cradle,

Russian foreign ministry spokeswoman Maria Zakharova on Tuesday said that recent remarks by Israeli Minister of Heritage Amihai Eliyahu, in which he said dropping a nuclear bomb in the Gaza Strip is “a possibility,” raised a multitude of questions.

“It raised a great number of questions. Question number one: Does this mean we are hearing an official statement acknowledging [Israel’s] possession of nuclear weapons? Accordingly, the next set of questions that everyone has is: Where are the international organizations, including the IAEA [International Atomic Energy Agency]; where are the inspectors?” Zakharova said during a televised interview.

Estimates of Israel’s nuclear stockpile range between 80 and 400 warheads, which can be delivered via aircraft, submarine-launched cruise missiles, and the Jericho series of intermediate to intercontinental-range ballistic missiles.

Its first deliverable nuclear weapon is thought to have been completed in late 1966 or early 1967, making it the sixth country in the world to have developed them.

Israel has never openly tested its nuclear weapons nor signed the  Nuclear Non-Proliferation Treaty (NPT), making it the world’s only unacknowledged atomic power. The country has also never been subjected to an inspection from the UN nuclear watchdog.

Asked in an interview with Radio Kol Berama last week whether an atomic bomb should be dropped on Gaza, Israeli minister Eliyahu answered: “This is one of the possibilities.”

Eliyahu, from the Jewish supremacist Religious Zionist party, stated further that “there is no such thing as uninvolved civilians in Gaza” and that, therefore, no humanitarian aid should be allowed into the besieged enclave.

He also expressed his support for depopulating Gaza and reconquering it to reestablish Jewish settlements there. Regarding the Palestinian population, he said: “They can go to Ireland or deserts; the monsters in Gaza should find a solution by themselves.” Eliyahu added that anyone waving a Palestinian or Hamas flag “shouldn’t continue living on the face of the earth.”

Just in🚨Syria calls on the international community and the International Atomic Energy Agency to investigate Israel’s nuclear program, after Israel openly threatens to nuke Gaza. The Syrian Ministry of Foreign Affairs announced on Sunday. pic.twitter.com/YUUkBdSvvL

— Syrian Girl 🇸🇾🎗 (@Partisangirl) November 6, 2023

In response, Israeli Prime Minister Benjamin Netanyahu suspended Eliyahu from participating in cabinet meetings and dismissed his statement, calling it “not based in reality.”

Russia’s UN envoy has previously stated that, as an occupying state, Israel has “no right” to self-defense.

House Republicans under the leadership of Speaker Mike Johnson (R-LA) are preparing yet another temporary spending band-aid (continuing resolution) in order to avert a Nov. 18 government shutdown, which they could vote on as early as this week, lawmakers said following a meeting with Johnson.

This is Johnson’s first high-stakes negotiation as speaker, following the ouster of his predecessor, Kevin McCarthy (R-CA), shortly after the House passed the last continuing resolution.

Johnson’s options are as follows (via Punchbowl News).

1) The laddered CR. Under this Freedom Caucus-pushed concept, the House would pass two stopgap funding packages. One would extend four relatively non-controversial spending bills until early December. The second package would extend funding for the other eight bills until mid-January.

In theory, this would force the House and Senate into a negotiation over all 12 funding bills. It’s also meant to prevent the Senate from sending an omnibus to the House ahead of the Christmas break.

Republican senators — even the most seasoned appropriators — had no idea what a “laddered CR” even was before Monday. They’re less than thrilled about it now that they know.

“It seems to me that you would just constantly be having programs and agencies stop and go, stop and go,” Sen. Susan Collins of Maine, the top GOP appropriator, told us. “And so I think that would increase the difficulty.”

2) Clean, with no supplemental. Another idea under consideration is to extend government funding until January — which Johnson pitched to Senate Republicans — but separately negotiate on the $100 billion-plus supplemental spending requests dealing with the border, Israel, Ukraine and Taiwan. This has the benefit of being a clean CR, which is easy for the Senate to accept. But leaving aside the supplemental money will be very tricky.

3) Negotiate with the Senate. One option that Johnson is floating internally — and it seems like the least likely to us — is to have House Republicans try to see if they can get a CR deal with the Senate while still working to pass individual spending bills.

*  *  *

Under a laddered CR, agencies that have drawn Republican animosity – such as the DOJ, would be on a longer funding timeline, while departments with more widespread support, such as Veterans Affairs, would receive a shorter deadline, Bloomberg reports.

Does it have a chance?

The Democratic reaction to the stopgap proposal will hinge on whether Republicans demand offsetting spending cuts or other policy provisions. House Caucus Chair Pete Aguilar (D-CA) wasn’t too hot on the idea.

“Sounds like they want multiple shutdowns spread out over different calendar years,” he said.

Rep. Bob Good (R-VA), a member of the Freedom Caucus, said “We’ll focus on passing our spending bills. And if we need a little bit of time on that, I think you’ll see very short spending bills with some leverage points put in there for wins for the American people.”

Johnson and party leaders will meet Tuesday morning behind closed doors to discuss options, with the intention of averting the internal dissent that tripped up Kevin McCarthy.

McCarthy in September was unable to get enough Republican votes for a stopgap that would have temporarily cut spending by 30% while making changes to immigration policies. In the face of an imminent shutdown, he allowed the House to pass a 48-day funding bill with Democratic support.

Some lawmakers said they were eager to have the House vote on a stopgap to prevent the looming shutdown. -Bloomberg

According to Rep. Lisa McClain (R-MI), “We’ve got to get on it, like now.“

Update (1110ET): 

Manhattan’s largest private office lessee, WeWork, has collapsed into bankruptcy. Court papers indicate plans to abandon dozens of office lease agreements across the metropolitan area, which might worsen the commercial real estate crisis. 

According to Bloomberg, “Dormant locations in New York dominate a list of nearly 70 leases the coworking giant intends to terminate, court papers show. The roughly 40 contracts at issue include space near Union Square and in Fulton Center, a retail and transit facility in downtown Manhattan.” 

Bankrupt WeWork to Immediately Dump 40 NYC Office Leases: BBG

The proverbial straw that broke the CREmel’s back.

— zerohedge (@zerohedge) November 7, 2023

Court papers said the leases are “limited to no benefit” to the company and are primarily dormant space.

Buildings vacated by WeWork might ripple through an already weakened CRE market because the coworking startup is an anchor tenant for numerous buildings that account for “about $2.6 billion in CMBS debt, with about half of those loans reaching maturity within the next 12 months,” according to real estate news website Commercial Observer. Already, 80% of those landlords are on a special servicing watchlist, delinquent on their loans, and or in default, according to CMBS data firm Trepp.

WeWork’s collapse, accompanied by the termination of dozens of leases, is poised to cause even more strain for building owners grappling with the tightest borrowing conditions in years. 

As of June 2022, the company rented nearly 20 million square feet of office space across the US. And what’s happening in NYC is coming to a city near you. 

Weeks ago, Scott Rechler, Chairman and CEO of RXR Realty, warned the CRE crisis was just getting starting… 

*   *   *

Almost exactly two years after going public via SPAC, WeWork, the struggling co-working start-up that once held a valuation as high as $47 billion, filed for Chapter 11 bankruptcy protection in New Jersey federal court Monday, having, as Wolf Richter reports, spent its entire life burning huge amounts of cash raised from investors – a total of $13.8 billion raised in 22 rounds, much of it from SoftBank and SoftBank’s Vision fund.

In a press release, the company said it struck a “Restructuring Support Agreement” with creditors to “drastically” reduce the company’s “existing funded debt and expedite the restructuring process.” 

The bankruptcy is limited to only WeWork’s locations in the US and Canada, the company said. It reported liabilities ranging between $10 billion to $50 billion.

“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” WeWork CEO David Tolley said in a press release.

Tolley continued, “I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the Restructuring Support Agreement.” 

In recent months, WeWork provided numerous signals of its imminent demise.

The first was in August, when it stated in a 10-Q filing that “substantial doubt exists about the company’s ability to continue as a going concern.” 

As the company hemorrhaged cash and liquidity was running thin, Tolley said in September that the company “would seek to negotiate terms with our landlords” and “part of these negotiations, we expect to exit unfit and underperforming locations and to reinvest in our strongest assets as we continuously improve our product.”

Then, in early October, WeWork skipped interest payments totaling $95 million on five of its bonds, which triggered a 30-day grace period. 

As of June, the company was leasing 20 million square feet of office space, more than any other company in the US. This also comes as the office market is in a severe downturn due to remote and hybrid work trends, plus companies are panic exiting imploding progressive metro cities for safer areas. 

In 2019, WeWork was valued at $47 billion in a round led by Masayoshi Son’s SoftBank. The company attempted to go public but miserably failed. 

Despite the bankruptcy, Financial Times quoted WeWork as saying its office spaces were still “open and operational.”

Adam Neumann, the founder of WeWork, issued a statement on Monday ahead of the bankruptcy that said the impending news was “disappointing.” Remember, Neumann once said he aspired to be the world’s first trillionaire. 

WeWork might come out of bankruptcy with a much smaller office footprint across North America. This scenario could spell trouble for the already struggling office space market, potentially unleashing a wave of additional supply.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Is the bond bear market finally over? That is the question everyone is asking now that bond prices rallied sharply following the November FOMC policy meeting. As noted in the #BullBearReport this past weekend:

“On Wednesday, Jerome Powell’s speech sparked a broad rally in stocks and bonds as market expectations for further rate hikes collapsed. There was nothing new about the Fed’s recent policy announcement as they maintained that higher Treasury yields are doing their work in slowing economic activity and, ultimately, inflation. However, they did, again, as expected, leave open the possibility of further rate hikes as needed.”

• POWELL: PROCESS OF GETTING INF. TO 2% HAS A LONG WAY TO GO

• *POWELL: FULL EFFECTS OF TIGHTENING YET TO BE FELT

• *POWELL: NOT CONFIDENT WE’VE REACHED STANCE FOR 2% INFLATION

“Given that the Fed did little to talk up the projections of further rate hikes, the market took this as meaning the Fed is likely done hiking rates. Of course, that means, from the market’s perspective, the subsequent actions will be ‘rate cuts.’”

With the more “dovish” tone of the Fed’s commentary, combined with a much weaker-than-expected employment report last Friday, expectations for higher yields collapsed, sending bond prices higher. As shown, on a short-term basis, bond prices rallied sharply to the “neckline” of a potential “head and shoulders” low. That technical pattern, which is bullish for bond prices if it completes, is supported by a positive divergence in both the MACD “buy signal” and the Relative Strength Index (RSI).

However, while this rally has been very encouraging in the short term, there are many “trapped longs” that will be looking for an exit to sell holdings at higher prices. Such will apply pressure to the recent rally, as we saw profit-taking last Friday and again on Monday. As shown above, a retracement that sets a higher low and then breaks the above the neckline would likely confirm the start of a “bond bull market.” Furthermore, the massive short-position by professional hedgers will also support bond prices when they are forced to cover.

I would expect, over the next couple of weeks, that we will likely see yields remain in a more volatile trading range as the “Bond Bulls” and “Bond Bears” continue to “duke it out.”

But I agree with Jeff Gundlach’s recent point over the longer term.

“We like long-term treasury bonds for the short-term trade going into a recession. The 30-year US treasury yield downtrend of the past four decades has completely reversed, skyrocketing nearly 400bps in under two years. There has been about a 50% drawdown in the long bond, which means there is now potential for the long bond to increase in price.”

The technical setup for ending the “bond bear” market is in place.

Technical Setup For The End Of The Bond Bear Market

While in the short term, bond prices will likely pull back after the recent surge, the technical and fundamental backdrop for the end of the bond bear market is improving.

Let’s start with the technical setup.

First, as with everything, “what goes up must come down,” and vice versa. At the moment, bonds are in the worst drawdown…ever.

From a purely contrarian point of view, when no one wants to own something because they believe that prices are “only headed in one direction, indefinitely,” such is often the time to become a buyer. Historically, buying when there is “blood in the streets,” as stated by Barron De Rothschild, has often been profitable.

Secondly, once we step away from the daily volatility caused by hedgers and traders, a longer-term view also supports a potential reversal in bond prices. Historically, when interest rates traded at “2 standard deviations” above the 1-year moving average, a reversal occurred. Such was due to a financial event, economic strain, or other outcome caused by higher interest rates on a leveraged economy. Currently, rates are “3 standard deviations” above that mean. From a purely technical perspective, such extensions are unsustainable, suggesting an eventual reversion will occur.

But, if we push our analysis out further, using MONTHLY data, we see the same extreme deviations from the norm. Going back to 1994, whenever rates were highly overbought and deviated from long-term means, such were good buying opportunities for bonds. This time is unlikely to be different, and the failure of Citizens Bank this past weekend is further evidence of the financial strain on the economy.

The surge in bond yields has created another historic opportunity to buy bonds at a deeply discounted price. Just as investors don’t want to buy stocks at the bottom of “bear markets,” they don’t want to buy bonds for the same reason.

However, as shown above, history has repeatedly shown that some of the best bond-buying opportunities have come when investors are sure “this time is different.” The reality is that rates can’t rise much before the impact on economic growth leads to a crisis, recession, or bear market. Such is the problem of a heavily indebted and leveraged economy.

However, a drop in yields and the subsequent rise in asset prices is a problem for the Fed.

A Problem For The Fed

The end of the bond bear market in the short term is a problem for the Fed, but it is inevitable in the long term. In recent speeches from Federal Reserve officials and Jerome Powell himself, they specifically noted that higher yields on Treasury Bonds are acting as “defacto rate hikes.” Such is why they have “paused” on further rate hikes despite inflation still above their 2% target.

However, falling yields and rising stock prices undermine that objective by loosening financial conditions.

“Higher asset prices represent looser, not tighter, monetary policy. Rising asset prices boost consumer confidence and act to ease the very financial conditions the Fed is trying to tighten. While financial conditions have tightened recently between higher interest rates and surging inflation, they remain low. Such is hardly the environment desired by the Fed to quell inflation.” – Real Investment Advice

The FOMC needs substantially tighter financial conditions to slow economic demand and increase unemployment, lowering inflation toward target levels. Tighter financial conditions are a function of several items:

• A stronger US dollar relative to other currencies (Check)

• Wider spreads across bond markets (No, See below)

• Reduction in liquidity (Quantitative Tightening or QT)

• Lower stock prices. (Check, but only a minor correction)

However, despite evidence that financial conditions are tightening, they are not shrinking drastically. As shown, liquidity has remained primarily neutral over the last year. Last week’s surge in stocks and bonds is reflected in a recent uptick in liquidity.

The problem for the Fed is that increased liquidity, higher asset prices, and lower yields remove the pressure from consumers. If consumer confidence improves, then so does consumption. That increased demand then fosters higher prices, which is not what the Fed wants, at least not yet.

The Fed’s challenge is potentially a trap of their own making. On the one hand, they want falling asset prices and weaker economic data to quell inflation. However, the Fed does NOT want an economic event destabilizing the financial system. Unfortunately, the Fed may soon face a very tough decision. Either allow a deeper recession to take hold, quelling inflation, or cut rates to keep a banking crisis from spreading.

We will likely know the answer sooner than later.

However, I believe that Treasury bonds will be the asset class of choice.

The Biden White House has lately floated a plan that would see international peacekeeping forces control the security situation in the Gaza Strip once the war is over, which is premised on the total demise of Hamas, proving no small task especially given the immense network of miles of tunnels the group can utilize.

The post-Hamas “day after” has also been subject of proposals out of some leading Congressmen. There was speculation at first that Israeli leadership might welcome this, but a new televised interview with Prime Minister Benjamin Netanyahu which aired Monday night reveals different thinking in Tel Aviv. Netanyahu asserted it is Israel which will have “security responsibility” over the Gaza Strip for some ‘indefinite’ amount of time after the conflict is over.

“I think Israel will for an indefinite period have security responsibility,” Netanyahu told ABC News. “We’ve seen what happens when we don’t have that… security responsibility, what we have is the eruption of Hamas terror on a scale that we couldn’t imagine.”

The comments come after the Israel Defense Forces (IDF) have confirmed 30 Israeli troops have been killed in combat in Gaza since the ground war was launched. At this point over 10,000 Gazans – mostly civilians – have been killed, primarily by the unrelenting aerial assault. But here’s what Blinken said just last week in Israel:

“The idea of Hamas remaining responsible for governance such as it was and posing an ongoing and enduring threat to Israel and its citizens is unacceptable,” said Blinken. “We also know that Israel cannot reassume control and responsibility for Gaza, and it’s important to note that Israel has made it clear that it has no intention or desire to do that. So within those parameters, we are and will continue to have discussions with partners throughout the region and well beyond about what should follow.”

After US Secretary of State Antony Blinken just traveled to region again to meet with both Israeli and Arab leaders, it became clear that Washington is not in favor of a ceasefire, but Biden’s top diplomat did push for humanitarian pauses. 

Netanyahu in the ABC interview said he is open to “tactical little pauses” for the sake of hostages getting out and also humanitarian aid getting in, but emphasized that the IDF is ready to begin taking the fight to the tunnels, where Hamas commanders and fighters can wait out airstrikes while mounting sporadic ambush operations against tank units. 

At one point in the interview, Netanyahu was asked about the security failures of Oct.7, which resulted in over 1,400 Israelis in the south of the country being slaughtered: “Do you believe that you should take any responsibility?”

He replied: “Of course. It’s not a question,” and said there will be time after the war “to allocate” that responsibility and assess what happened. A week ago he issued a statement, before quickly retracting, which appeared to blame the military and its leadership for Oct. 7.

These guys have worse coordination than the Three Stooges

Blinken, November 3: “We also know that Israel cannot reassume control and responsibility for Gaza. And it’s important to note that Israel has made clear it has no intention or desire to do that”

Netanyahu, November 6:…

— Michael Tracey (@mtracey) November 7, 2023

The deleted statement which generated the outrage, having been briefly posted to X, said: “Under no circumstances and at no stage was Prime Minister Netanyahu warned of war intentions on the part of Hamas.” It continued, “On the contrary, the assessment of the entire security echelon, including the head of military intelligence and the head of Shin Bet, was that Hamas was deterred and was seeking an arrangement.”

But in the new ABC remarks he didn’t delve into much detail on this question of taking responsibility for severe failures which left the door open to the single deadliest terror attack in Israel’s history. Netanyahu’s political opponents have accused him of using the crisis to solidify power using the guise of the wartime emergency government.

Authored by Simon White, Bloomberg macro strategist,

The growing divergence between mortgage and credit spreads is highly unusual and counter-intuitive: it’s not obvious why corporates should be getting less risky and mortgages more when rates have risen for everybody. It turns out the ultimate cause is inflation.

It has been said that anyone who says they understand quantum mechanics doesn’t understand quantum mechanics. That applies equally to markets. Just when you think you have a handle on things, a new head-scratcher pops up.

A current one is the growing divergence between spreads on mortgage-backed securities (MBS) and credit spreads. In recent years they have moved relatively closely together, but when the Fed is raising rates, credit tends to tighten across the board, and all risk spreads widen. However, in this cycle MBS spreads have blown out to GFC-wides while investment-grade credit spreads have been trending down.

What gives? To answer the question requires touching on several different markets – credit, mortgages, equity, fixed-income and volatility. Doing so will illuminate the connections between them to better understand the current backdrop, and why elevated inflation is the ultimate cause of this anomaly. It will also give us clues about what to look for when the mortgage-credit divergence is about to correct.

So first we have to answer why credit spreads have remained contained, given rapid Fed rate increases and mounting signs of underlying credit stress? A principal driver has been the relatively depressed value of the VIX.

Implied volatility, which the VIX is a measure of, is a direct input to models of how likely firms are to default. Credit spreads and the VIX typically move very closely together.

In turn, the VIX has been repressed for at least three reasons.

I have discussed two of them previously: low implied correlation and a rise in call option speculation.

The third reason is the elevated level of forward rates of equity indexes.

The forward price has to take into account the carry cost of financing the position. As interest rates move higher, the cost of financing the position increases and this is reflected in higher forward prices. The current rate-hiking cycle has taken the spread between the second mini S&P future (i.e. the forward price of the S&P one to two quarters ahead) and the spot price of the S&P to at least 25-year highs.

Where does the VIX come in? Options are priced not off the spot rate, but off the forward rate at the time of option’s expiry. Therefore a higher forward price has the effect of cheapening put prices and increasing call prices.

The VIX is an average of all options with an ~1-month expiry, but as downside protection tends to cost more, and a greater number of the puts outstanding are typically more out-of-the-money than calls outstanding (investors prefer to protect against larger price declines), this means higher forward prices keep a lid on the VIX.

Thus forward prices are helping to keep credit spreads in check, but it is also forward prices, this time for bond yields, that are part of the reason why the spreads on newly-issued MBS have blown out.

MBS spreads are the spread between US bond yields and mortgage bonds issued or guaranteed by government-sponsored agencies – Freddie Mac, Fannie Mae and Ginnie Mae. Given MBS and government bonds are both de facto guaranteed by the US Treasury, you might think the spread should be quite narrow, not the ~150 bps it currently trades at.

The reason is pre-payment risk.

Borrowers can typically pre-pay their mortgage at any point with no penalty, which means MBS holders may see some of their principal repaid early. As this is more likely to happen when rates are falling, which means cash returned can only be invested at a lower level, MBS spreads reflect this extra risk.

But MBS spreads have been widening even as rates have been rising. There are two reasons for this, as Harley Bassman describes in his latest Convexity Maven letter: an inverted yield curve and high fixed-income volatility. As Bassman explains, an MBS can be approximated by buying a 10-year bond and selling an out-of-the-money call option on it with a three-year expiry.

A flat or inverted yield curve means forward yields are lower, which in turn increases the price of the call option, and therefore depresses the price of the bond-option package, i.e. flatter yield curves will, all other things equal, reduce the price of MBSs.

Essentially, the call option captures the cost of the prepayment risk, and the lower forward price means a higher chance of prepayment.

Cheapening MBS further is elevated fixed-income volatility, captured by the MOVE index.

Higher volatility means there is a greater chance of bigger moves in yield, and more so to the downside given the skew in bond options. That risk must be compensated for and is reflected in lower MBS prices and thus wider MBS spreads.

One last piece of the puzzle is why fixed-income vol has risen so much. Normally flat and inverted yield curves limit FI vol as there are fewer potential paths long-term rates can take to converge to short-term rates (as they eventually must do).

But this time FI vol has diverged from the yield curve.

The difference is inflation. The most elevated price growth since the 1980s has added more uncertainty to the path of rates, raising volatility.

Thus all roads lead back to inflation. It was inflation that led the Federal Reserve to hike rates, which raised equity forward prices, helping to depress the VIX. It was also higher rates that took the yield curve to its most inverted state in decades.

It’s unlikely the MBS and credit-spread divergence will last. MBS spreads should start to come in as the yield curve steepens, and fixed-income vol should ease back as inflation volatility falls. Credit spreads should eventually widen to better reflect the deterioration in underlying fundamentals.

Which happens first is hard to know, but either way, by the time this anomaly has resolved itself, there’ll no doubt be another one along to puzzle over.

Former Navy lieutenant Tony Bobulinski, the Biden family whistleblower who recorded operatives begging him not to blow the whistle (“You’re just gonna bury all of us man”), may receive a knock from the Biden DOJ, after NBC News reports that Hunter Biden wants him investigated.

According to the report, Bobulinski allegedly made false statements to the FBI.

“Specifically, we recently received information demonstrating that numerous statements made by Mr. Bobulinski in Washington, D.C. during an interview with the FBI on October 23, 2020, concerning our client, Hunter Biden, are false,” writes Hunter’s defense attorney, Abbe D. Lowell.

Hunter is asking that Biden-appointed DA for Washington DC, Matthew Graves, head the investigation. Graves was appointed by Biden after working on his 2020 presidential campaign as an unpaid policy advisor, according to the Daily Caller, citing a Senate Judiciary Committee questionnaire. Graves also donated to Biden’s 2020 campaign while he was an attorney in the private sector.

Graves testified to the House Judiciary Committee in October and confirmed he refused to partner with Delaware U.S. Attorney David Weiss on potentially charging Hunter Biden for alleged tax offenses, according to a transcript reviewed by the Daily Caller.

Bobulinski’s FBI interview in October 2020 was summarized by an FBI FD-302 form released in September by the House Ways and Means Committee as part of a trove of documents supporting testimony from IRS whistleblowers Gary Shapley and Joseph Ziegler.

Lowell disputes Bobulinski’s claim to the FBI that he was present in Miami for a meeting Hunter Biden held with Chinese business associate Ye Jianming, the chairman of Chinese infrastructure company CEFC, NBC reported. -Daily Caller

Bobulinski told the FBI that he had attended the Miami meeting, where they discussed the work that the Biden family was doing for CEFC beginning when Joe was VP.

“CEFC had used its relationship with HUNTER BIDEN and JAMES BIDEN – and the influence attached to the BIDEN name – to advance CEFC’s interests abroad. HUNTER BIDEN and JAMES BIDEN did not receive any monetary compensation for their assistance in these projects. HUNTER BIDEN and JAMES BIDEN did not receive any compensation because JOSEPH BIDEN was still VPOTUS during this time period,” reads the document.

On Aug. 8, 2017, per Senate report, CEFC began a series of wire transfers to a pass through to Biden’s law firm that totaled $4.7 million over the next year.

Bobulinski says he had no idea that CEFC struck deal with Hunter and Jim.

— Chuck Ross (@ChuckRossDC) October 25, 2020

“There was a concern it would be improper for payments to be made to HUNTER BIDEN and JAMES BIDEN by CEFC due to its close affiliation with the Chinese government. HUNTER BIDEN and JAMES BIDEN both wanted to be compensated for the assistance they had provided to CEFC’s ventures; in particular, they believed CEFC owed them money for the benefits that accrued to CEFC through its use of the BIDEN family name to advance their business dealings.”

According to the report, Bobulinski was one of the business associates who discussed a “sinohawk” venture with CEFC, which Joe Biden was potentially going to be involved in, per the FD-302 form. Bobulinski told the FBI that he met with Joe Biden in Beverly Hills, California to discuss.

The proposed joint venture with CEFC appeared to be the subject matter of an infamous email thread where business associate James Gilliar referred to Joe Biden as “the big guy” in a message about potential equity distribution.

“10 held by H for the big guy?” Gilliar asked his colleagues, the email shows. He suggested making Hunter Biden chair of the company and Bobulinski the CEO.

The “sinohawk” venture appeared to fall through, and instead Hunter Biden and James Biden set up a joint venture with CEFC called Hudson West III in August 2017, according to bank records released Wednesday by the House Oversight Committee.

Hunter Biden and Jianming appeared to change the terms of the joint venture at the Miami meeting, emails released by the Ways and Means Committee show. -Daily Caller

“My Understanding is that the original agreement with the Director was for consulting fees based on introductions alone a rate of $10M per year for a three year guarantee total of $30M. The chairman changed that deal after we me in MIAMI TO A MUCH MORE LASTING AND LUCRATIVE ARRANGEMENT to create a holding company 50% percent owned by ME and 50% owned by him,” Hunter emailed Chinese business associate Gongwen Dong on Aug. 2, 2017.

Tony Bobulinski found out through the Senate report a few weeks ago that Hunter and Jim Biden had a side deal with CEFC China Energy.

Here’s Bobulinski’s message to Jim Biden about that.

“The fact that you and [Hunter Biden] were lying…” https://t.co/wn47I87tID pic.twitter.com/C79mXN4GXP

— Chuck Ross (@ChuckRossDC) October 25, 2020

“Consulting fees is one piece of our income stream but the reason this proposal by the chairman was so much more interesting to me and my family is that we would also be partners inn the equity and profits of the JV’s investments,” he continued. “Hence I assumed the reason for our discussion today in which you made clear that the Chaireman [sic] would first get his investment capital returned in the profits would then be split 50/50. If you saying that is not the case then please return us to the original deal 10M per year a guaranteed 3 years plus bonus payments for any successful deal we introduce.”

Read the rest here, and see what Bobulinski claims about the Bidens, in his own words.