After a stellar 2Y auction yesterday, moments ago the US Treasury concluded the week’s second auction – an offering of $43 billion in 5 Year Notes. Unlike yesterday’s today which was a blowout across most categories, today’s sale was solid but nothing to write home about.
Pricing at a high yield of 4.019%, up from 3.749% in May and the highest since February’s 4.109%, the auction tailed the When Issued 4.012% by 0.7bps, the first tail for the tenor since February.
The bid to cover was 2.52, down from 2.58 last month and just below the 2.53 six-auction average.
The internals were also average, with Indirects awarded 68.1%, down from 72.7% and below the 70.1% recent average; and with the Direct award rising to 19.7%, the highest since Jun 2022, Dealers were left holding 12.2%, one of the lowest on record (but not the lowest – that was January’s 8.8%).
Overall, a mediocre auction but more than sufficient for government work.
1st Amendment: Supreme Court Raises Bar To Convict For Online Threats
The Supreme Court on Tuesday sided with a man who made extensive online threats to a singer, ruling 7-2 that prosecutors must prove that a person making said threats is aware of the threatening nature of their communications.
The Court ruled in favor of defendant Billy Raymond Counterman, who was convicted in Colorado of stalking after sending repeated messages to female musician Coles Whalen – including “die” and “Fuck off permanently,” which she says made her fear for her safety. Counterman’s conviction was based on an objective test over whether a reasonable person must believe his comments constituted “true threats,” which aren’t protected by the 1st Amendment. His attorney argued in front of the USSC that the test should instead focus on the speaker’s intent, because Counterman didn’t intend to threaten Whalen.
In the ruling authored by Justice Elena Kagan, the court found that while true threats of violence aren’t protected under the 1st Amendment, states must prove that a criminal defendant has “disregarded a substantial risk that his communications would be viewed as threatening violence.”
The court ruled that for speech to be considered a “true threat,” there has to be some demonstration that the speaker “had some subjective understanding of his statements’ threatening nature,” but it only has to be shown that the speaker was reckless with their comments, rather than intending them to be harmful. –Forbes
According to Kangen, the court’s recklessness standard offers ‘enough breathing space’ for protected speech, ‘without sacrificing too many of the benefits of enforcing laws against true threats,” adding “something is lost on both sides: The rule we adopt today is neither the most speech-protective nor the most sensitive to the dangers of true threats. But in declining one of those two alternative paths, something more important is gained: Not ‘having it all’—because that is impossible—but having much of what is important on both sides of the scale.”
Dissenting were Justices Clarence Thomas and Amy Coney Barrett.
The court’s interest involved the question of when statements, especially those made online, can be considered “true threats” not protected by the First Amendment.
Counterman contended the state must show that the speaker intends the messages to be threatening. Colorado, backed by the Justice Department and a majority of states, says it should be enough that a “reasonable” recipient feel the threat of physical harm could be imminent, based on the context of the circumstances. -Washington Post
The case is now back in the hands of lower courts, where prosecutors will weigh retrying the case under these new standards established by the Supreme Court’s decision.
Whalen, who testified at Counterman’s trial, said she was terrified at his relentless pursuit – and never knew if he would be in the crowd at her performances. She says it affected her mental health, and caused her to cancel concerts, affecting her career.
After she blocked Counterman on Facebook, she says he made new profiles and continued to harass her for years – all covered (now) under the 1st Amendment.
Below is my column in the Messenger on the use of Hunter Biden’s addiction as the final line of defense to corruption allegations. This week, President Joe Biden is continuing to deny that he had any knowledge of his son’s business dealing despite overwhelming evidence to the contrary. In the meantime, pundits are insisting that this is really not a story of millions of dollars being sent to the Biden family from foreign sources or the direct use of Joe Biden to shake down (apparently successfully) a Chinese officials with ties to foreign intelligence. Rather, it is now portrayed as “a story of a father’s love for his son.” In other words, it is just like “On Golden Pond” if the father and child were working together to extract millions in actual gold from the pond. Here is the column:
In Sir Arthur Conan Doyle’s 1890 story, The Sign of the Four, there is a scene in which Sherlock Holmes prepares to give himself an injection of cocaine in front of a curious Dr. Watson. Holmes explained: “It is cocaine, a seven-per-cent solution. Would you care to try it?” Watson wisely demurred — but the 7% solution has not lost its appeal to others as a diversion.
Last year, I wrote a column suggesting that there was a notable shift among Biden associates and some media figures in addressing the Hunter Biden scandal. In the wake of the release of new evidence of Hunter Biden’s alleged influence-peddling efforts, the Biden team has fully retreated to what I called the “Seven-Percent Solution” to the scandal.
In 2022, I wrote:
“The president and the press have been shifting to a new defense. As the father recently insisted of his son, ‘He fought an addiction problem. He overcame it. He wrote about it.’
“The family and the media have been cultivating the angle for months as they anticipated possible criminal charges. … With possible criminal conduct exposed, all that’s left is the addiction defense.”
One of the most vocal with this recent rollout was former U.S. senator Claire McCaskill (D.-Mo.), who became irate on MSNBC and declared that “Everybody needs to back off!” because Hunter was an addict and “suffering from these diseases.”
Of course, such suffering did not prevent him from allegedly shaking down foreign figures for millions of dollars in exchange for access to his father.
The Biden defense team invoked much the same explanation when confronted with a story about a WhatsApp message that purportedly showed Hunter threatening a Chinese businessman with ties to China’s Communist Party if he did not send Biden millions of dollars. He repeatedly referenced the fact that his father was sitting next to him, and suggested his father would be involved in the threatened response if the money was not transferred.
According to testimony made public last week, IRS whistleblower Gary Shapley told the House Ways and Means Committee in May: “[W]e obtained a July 30th, 2017, WhatsApp message from Hunter Biden to Henry Zhao, where Hunter Biden wrote: ‘I am sitting here with my father and we would like to understand why the commitment made has not been fulfilled. Tell the director that I would like to resolve this now before it gets out of hand, and now means tonight. And, Z, if I get a call or text from anyone involved in this other than you, Zhang, or the chairman, I will make certain that between the man sitting next to me and every person he knows and my ability to forever hold a grudge that you will regret not following my direction. I am sitting here waiting for the call with my father.’”
This past weekend, there were reports that, after the threatening WhatsApp message was sent, two payments totaling $5.1 million were sent to a law firm and another firm associated with Hunter Biden.
The response from Hunter Biden’s defense team seems telling with its conspicuous absence of an outright denial that Hunter sent the message. His lawyer, Chris Clark, first insisted that the release of the messages “are not only irresponsible, they are illegal.” (He did not explain why a message legally acquired by the government from the cloud account of his client would be illegal to include in the report of a congressional investigatory committee.)
He then added that any “verifiable words or actions of my client in the midst of a horrible addiction are solely his own and have no connection to anyone in his family.”
The 7% solution: It worked for Holmes, and it now appears to be working for Hunter.
The problem with this line of defense, however, is that it runs into some glaring contradictions.
In the first few years of the scandal, Biden associates — and Hunter himself — emphasized that he was a highly educated lawyer with executive-level experience to offer these companies. Back then, he was insulted by the notion that he was unqualified to sit on boards for companies like Burisma. He told ABC News reporter Amy Robach to “say it nicer” when she raised the subject of allegedly using his connections to his father.
Another problem is that Hunter did not appear to have any chemical-based challenge in allegedly maintaining what has been described by accusers as a global, multimillion-dollar influence-peddling scheme. As I noted last year, the fact is you can be an addict or an alcoholic and still be capable (or culpable).
Even more troubling is how members of the Biden family apparently continued to work with him on these deals despite his reported addiction. Before becoming the designated defendant of the Biden family, he was the conduit for millions in revenue, including alleged transfers to other Biden family members.
The Justice Department also appears to have latched on to the 7% solution. Rather than prosecuting Hunter Biden for a felony in lying on a federal gun form, it is sending him into a diversion program due to an addiction that he says he was able to break years ago.
Now, however, he is portrayed as a junkie emailing threatening messages to foreign figures, demanding (and apparently receiving) millions of dollars. It is little more than an elite version of an addict panhandling in Times Square — except that Hunter apparently panhandled effectively in different countries for almost a decade, reportedly using a web of more than 20 LLC corporations and banking accounts.
Hunter Biden’s 7% solution won’t do much to help the public resolve what really happened here — but it may help those in Washington who prefer to discuss addiction instead of corruption.
Last Monday, we highlighted that according to Deutsche Bank strategist Parag Thatte, investors had moved overweight US equities over the prior couple of weeks for the first time since early 2022.
In his updated report published on Friday, this overweight moved from the 64th percentile to the 73rd.
This recent outburst of hopium indicates that discretionary positioning is already in line with a soft landing (i.e., an ISM rebound). It, of course, remains very much unclear if such an outcome is assured.
Then, in Thatte’s latest piece (link here for pro subs) they show an interesting graph that suggests that we’re now in the 85th percentile of periods since WWII without a 3% drawdown in the S&P 500.
This, according to DB’s Jim Reid, translates into 73 trading days and over 3 months in real life. Due to a combination of this, positioning, and where vol currently is, Deutsche Bank think we’re due a 3-5% modest correction.
Even after being indicted in two separate criminal cases, former President Donald Trump has maintained a commanding lead over his Republican rivals in national polls of registered voters.
But those same polls are showing that if Trump were to run head-to-head against the presumed 2024 Democratic nominee, President Joe Biden, the two candidates would be in a statistical dead heat.
Although much could change between now and the presidential election, political insiders and analysts told The Epoch Times that current polling provides valuable insights into how the 2024 contest is taking shape.
They also say this election campaign already has secured a prominent place in U.S. history. Both major parties’ leading candidates are embroiled in unprecedented controversies, reducing the visibility of their primary election challengers.
Those simmering scandals will ultimately affect not only polling but also could greatly influence who wins the 2024 election. Many voters believe the result will prove pivotal for the future of democracy in America, regardless of partisan politics.
“In my wildest dreams, I would have never thought that, in the year 2023, we’d be dealing with what we’re dealing with,” Mike Allen, an attorney, former prosecutor and judge in Cincinnati, Ohio, told The Epoch Times.
Allen, a conservative who hosts a popular political talk show on radio station 700 WLW, said he senses that House Republicans’ recent revelations about Biden’s alleged foreign influence-peddling are starting to break through to average citizens.
“We may have reached a turning point,” Allen said on June 23.
That was just after House Republicans revealed IRS whistleblowers’ allegations that the Department of Justice (DOJ) put up roadblocks during an investigation of Biden’s son, Hunter Biden.
The president’s son allegedly failed to properly report millions of dollars in income from foreign sources but later paid taxes on that income.
The president has declined to answer reporters’ questions on this topic, but Attorney General Merrick Garland denies that the DOJ interfered with the IRS’s probe.
But following last week’s plea deal that could allow the younger Biden to avoid time behind bars, many people now perceive that the U.S. justice system appears to be “weaponized” for the persecution of political enemies such as Trump, Allen said. In contrast, free passes seem to be given to people such as the Bidens, who have powerful political connections.
“I do federal criminal work … and almost no one who ends up in federal court does not go to prison,” Allen said. “The feds don’t indict anyone unless it’s tied up in a pretty yellow bow … and they’ve got ya.”
But you don’t have to be a lawyer to see that Hunter Biden appears to have been offered a “sweetheart deal,” Allen said.
“People are angry about the two-tiered system of justice we have in this country. And that’s never happened here before,” Allen said. “People are mad.”
They don’t like seeing that the Biden family has been reaping millions of dollars “for no apparent reason,” Allen said.
He and others think that Trump is doing well in the polls partly because of backlash against the perceived injustices.
But New York-based Democratic strategist David Carlucci sees the polls as indicators of dual forces: Trump’s unshakable appeal to his most loyal supporters, as well as the unflinching disdain of his detractors.
“With little change in the national polls post-Trump’s indictment, it is clear that most Americans have already pledged allegiance to or against the former President,” Carlucci told The Epoch Times. “Even after being the first federally indicted president in U.S. history, Donald Trump’s base stands firmly behind him.”
According to the RealClear Politics (RCP) average as of June 24, Trump was outpacing his nearest Republican challenger, Florida Gov. Ron DeSantis, by more than 30 percentage points. All other GOP presidential hopefuls ranked in the single digits.
Likewise, RCP shows Biden is the clear frontrunner for his party’s nomination. The Democrat president holds a whopping 50-point margin over environmental lawyer Robert F. Kennedy Jr., even though his family’s name carries considerable cachet. His father was an attorney general, and his uncle was President John F. Kennedy; both were assassinated in the 1960s.
Kennedy, DeSantis and all the other 2024 presidential hopefuls are having difficulty getting much notice thus far. That’s because the Biden and Trump controversies are consuming all of the political “oxygen.”
Conservative commentator Dick Morris, in a Newsmax column, wrote: “American politics have stopped, frozen by the indictment of Trump for no good reason and the deterioration of Joe Biden.”
But Special Counsel Jack Smith has said that federal prosecutors followed the highest ethical standards as they pursued the Florida case against Trump.
Meanwhile, Morris was referring to continuing concerns about Biden appearing disoriented at times during public functions; Biden’s supporters counter that his physician has declared he is physically and mentally fit for the rigors of the presidency.
Still, concerns over both Trump and Biden have overshadowed the normal political cycle, Morris said.
“In theory, this week should have been when the nominating process in each party heated up as candidates took to the runway to launch their campaigns,” Morris wrote on June 24. “But there was zero energy for them.”
He argues that circumstances have paralyzed challengers to both Trump and Biden.
All current or potential Democrat candidates “will have to swear that they simply love the emperor’s new clothes. No one can step out and say that he doesn’t have any. Anyone who dares speak these words will be cast out and be doomed,” Morris said.
On the Republican side, “there is room for only two viewpoints: That Trump is guilty or that he is innocent,” Morris said.
“DeSantis [and others] can’t split the difference and say, ‘Trump is the innocent victim of the Deep State and is being persecuted by the Democrats, but I’m running against him anyway,’” Morris wrote.
This leaves Trump’s GOP opponents with nowhere to stand, he said.
DeSantis Could Climb
Allen said it’s a shame that DeSantis’ campaign has not soared; he likes what DeSantis has accomplished as Florida’s governor. “You have to keep in mind that it’s really early,” Allen said.
DeSantis’ biggest weakness: “He’s not real good on the stump. He just doesn’t seem real comfortable. But I’m sure that he’ll probably grow into that,” Allen said.
Most callers to Allen’s talk show are pro-Trump. But Allen thinks DeSantis has an opportunity to appeal to Trump supporters who oppose “woke” social policies.
DeSantis is “the epitome of anti-wokeness,” Allen said, “and people are fed up with all of that garbage. They see DeSantis isn’t afraid to stand up against it…I think people admire that. I know they admire that.”
Walgreens Boots Alliance Inc. shares plunged more than 8% in pre-market trading Tuesday in New York after the company slashed its full-year earnings guidance and missed Wall Street expectations for its fiscal third quarter due to “a more cautious and value-driven consumer.”
The drugstore chain and healthcare services company revised its earnings guidance lower to a range of $4.00 to 4.05 per share for the full year, down from its previous estimate of $4.65. Adjusted earnings were $1 per share, missing analysts’ average estimate of $1.06. However, revenue in the quarter was $35.4 billion, beating analysts’ expectations of $34.2 billion.
Year Forecast
Sees adjusted EPS $4.00 to $4.05, saw $4.45 to $4.65, estimate $4.44 (Bloomberg Consensus)
Third Quarter Results
Adjusted EPS $1.00, estimate $1.06
Sales $35.42 billion, estimate $34.21 billion
US sales $27.87 billion, estimate $26.78 billion
International sales $5.6 billion, estimate $5.42 billion
Adjusted gross margin 18.8%, estimate 20.4%
“Our revised guidance takes an appropriately cautious forward view in light of consumer spending uncertainty while still demonstrating clear drivers of a return to operating growth next fiscal year,” Chief Executive Rosalind Brewer said. She continued:
“We are raising our cost savings program target to $4.1 billion and taking immediate actions to optimize profitability for our US.”
Shares of Walgreens plunged 9%. If losses hold in the pre-market, the stock will hit the lowest level since 2010 in the cash session.
The earnings miss is the first time Walgreens has missed Wallstreet analysts’ expectations since July 2020.
Brewer said, “Significantly lower demand for Covid-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season created margin pressures in the quarter.”
Evercore ISI analyst Elizabeth Anderson called the company’s third quarter “tough.” She said, “The more significant trouble appeared starting with gross profit, which fell 150 bps yoy, driven by a similar step down in US Retail Pharmacy (less COVID contribution).”
And perhaps this is yet another sign Goldman’s Rich Privorosky is correct, “something is not quite adding up on the consumer” and asked, “Have we just run out of excess savings and are we returning to replenishing savings?”
In a note to clients earlier this month, Privorosky pointed to three excerpts from recent corporate transcripts (from Target, Walmart, and Costco) revealing consumers buckling under financial stress. So add Walgreens to the ever-expanding list.
It’s not like any of this is a surprise. After two years of persistent negative real wage growth, soaring credit card debt, depleted personal savings, and the highest interest rates in a generation, consumers are running on fumes.
Here’s “Joe Biden” trying to look like he knows what he’s saying, as he calls white supremacy “the greatest threat” to the United States today:
Now, if our schools (including colleges and universities) taught history, and not the pieties that fill the textbooks (however “woke” such textbooks may now be), and if “our free press” investigated warnings of the latest “threat” confronting us (according to the government), instead of amplifying such alarms non-stop, it would be clear at once to most of us, and not just to some few of us, that this year’s “existential threat” is just as fake as those that came before, and that it too has been created by the government now using it to panic and dividethe rest of us. Thus it was with “the communists” back in the Fifties (when countless “Reds” were agents of the FBI, and the CIA helped keep the Daily Worker going), then, after Soviet communism fell apart, with “Islamic terrorism” (all those “plots” concocted by the state), and now with “white supremacy” (a specter as delusory as the “killer virus” that was used to smash the world).
Here are glimpses of the latest show of “white supremacy,” as captured over the weekend in Oregon, by some real patriots who scared off a contingent of the “Patriot Front,” and unmasked two of them—both literally and figuratively. If (again) “our free press” took a duly skeptical approach to the scare stories pumped out by the government, instead of just repeating them ad nauseam (while trashing anyone who questions them), yesterday’s unmasking would be major news, and not just one more passing flash of truth on Twitter.
Watch:
This is the BEST video on the internet right now.
– Pro-America Patriot rally ongoing
– Feds show up dressed as “Nazis”
– Patriots force Feds out of rally
– Unmask the Feds, who PANIC
– The “Nazis” cry, tremble in fear
– Cops rush to save Feds
The same feds that parade around as Patriot Front were at the Capitol. This masked fed wearing an earpiece was caught removing a window from the capitol. When he realized he was being recorded, he blamed another man. He has not been added to the FBI’s most wanted list, arrested,…
Those interested in learning more about such state-backed performance of “far-right terrorism” (of which the biggest and most consequential was, of course, the one called “January 6”) should look back to the days when such theatrics were concocted to destroy not the far-right but the hard left. Specifically, those interested in helping save democracy from its most powerful opponents should look into Operation Gladio—a vast CIA project that began with the covert creation of “stay-behind armies” throughout Eastern Europe (“armies” full of diehard European fascists)—to be mobilized in the event of a Soviet assault on Europe overall—and that then morphed into an elaborate and very bloody false-flag operation, wherein far-right commandos would commit, or induce leftist outfits to commit, gruesome terroristic crimes (bombings and assassinations) that would then be imputed to the left alone. Such fake-outs were perfected in the Seventies, in Italy; but Gladio was very active elsewhere, too. (Mehmet Ali Ağca, the far-right Turkish hitman who shot Pope John Paul II, and his brotherhood, the fascist paramilitary outfit called the Grey Wolves, were connected to it.)
US Home Prices Surged In April; All 20 Cities See Gains As Rates Dipped
Having bounced (unexpectedly) in March (the most recent data), Case-Shiller’s 20-City Composite home price index was expected to continue bouncing in April (+0.4% MoM exp) and it did bigly – rising 0.91% MoM – the biggest MoM jump since May 2022…
Source: Bloomberg
Home prices peaked in June 2022, declined until January 2023, and then began to recover. The National Composite rose by 1.3% in April (repeating March’s performance), and now stands only 2.4% below its June 2022 peak. Our 10- and 20-City Composites both gained 1.7% in April.
“The U.S. housing market continued to strengthen in April 2023,” says Craig J. Lazzara, Managing Director at S&P DJI.
However, the National Home Price Index (NSA) turned down on a YoY basis for the first time since April 2012…
Source: Bloomberg
The ongoing recovery in home prices is broadly based. Before seasonal adjustments, prices rose in all 20 cities in April (as they had also done in March). Seasonally adjusted data showed rising prices in 19 cities in April (versus 14 in March).
On a trailing 12-month basis, the National Composite is 0.2% below its April 2022 level, with the 10- and 20-City Composites also negative on a year-over-year basis, but regional differences continue to be striking.
Miami’s 5.2% gain made it the best-performing city for the ninth consecutive month, but in April Chicago toddled into second place with a 4.1% gain. Atlanta (+3.5%) and Charlotte (+3.4%) round out the top four.
The next three positions are occupied by New York, Cleveland, and then perennial medalist Tampa, indicating a remarkable diversity among the top performers.
At the other end of the scale, however, the worst eight performers are all in the Mountain or Pacific time zones, with Seattle (-12.4%) and San Francisco (-11.1%) at the bottom. The Southeast (+3.6%) continues as the country’s strongest region, while the West (-6.9%) remains the weakest.
Notably the bounce in the highly-lagged Case-Shiller home price data occurred as mortgage rates eased lower. They are now back near recent cycle highs – above 7.00%…
Source: Bloomberg
Lazarra adds:
“If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument. Whether we see further support for that view in coming months will depend on the how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”
Finally, as a reminder, the man behind the home price index – Yale economist Bob Shiller – told CNBC’s “Closing Bell: Overtime” last month that “home prices are very, very high by historical standards.”
“I would extrapolate the downturn somewhat – it’s going to continue,” he added.
“Maybe if you have a good chance to delay your purchase, it might be a good time to do it.”
“It might get a little cheaper after another six months.”
This is certainly not the ‘normalization’ that The Fed is looking for from its aggressive tightening.
Seize Moment Of ‘Inflation Calm’ To Hedge Rate-Risk
Authored by Simon White, Bloomberg macro strategist,
Slowing inflation opens up a window to hedge portfolios ahead of a likely resurgence in price growth later this year.
The market continues to be splendidly untroubled by inflation. After a brief dalliance with concern around rising price growth in 2021 and the first half of 2022, the market has been happy to gorge on higher-duration stocks as if inflation is yesterday’s problem.
But this is woefully misguided. Inflation will return, with a re-acceleration likely late this year or early next year as China’s monetary and fiscal engines slowly shudder back into life.
The extra duration the market has taken on in recent quarters will become a millstone – as there is a greater prospect that rates may not return to their longer-term average as soon as expected – which is why currently out-of-favor lower-duration sectors such as energy and utilities are likely to outperform higher-duration ones through the shock of re-emerging inflation.
Tech hardware, software services and semiconductors are among those that have outperformed the most this year as AI fervor gripped markets, and are typically higher duration (using the inverse of their dividend yield as a proxy for it). At the other end of the scale, some of the most underperforming sectors have been lower duration, such as telecoms and energy.
This is in stark contrast to the period preceding last October’s low in the S&P, when it was lower-duration sectors that were leading, and tech and its cohorts were out of favor.
This reversal in fortunes came not long after US year-on-year headline CPI peaked last June. It has been falling rapidly since, with the market at first taking profits on sectors such as energy, and then going back into tech – slowly at the beginning, and then unrestrainedly after OpenAI’s release of ChatGPT 3.5 last November.
Rising duration risk is not just confined to equities. The market’s (i.e. the household and corporate sector) bond duration-risk has been rising too. As banks, central banks and the rest of the world eschew US debt, it is the corporate and household sector (principally the latter) that are absorbing it.
This across-the-board rise in duration risk is less of a problem in a regime of low-and-stable price growth. But inflation is not finished with us yet.
The reason is China. It was, and still is, China’s halting recovery that has driven most of the decline in US inflation. Splitting up US PCE into the components that are most sensitive to Fed policy (cyclical) and those that are left over (acyclical), shows cyclical inflation remains near its highs. All of the fall in inflation has been driven by the acyclical component, i.e. the inflation least sensitive to the Fed’s monetary actions.
In fact, acyclical inflation is highly correlated to producer inflation in China, and thus China’s inability so far to catalyze a durable recovery has been the core influence on the US’s disinflation. The chart below illustrates the underlying relationship clearly.
China has already been incrementally easing monetary and fiscal policy, and it will continue to do so until it arrests the slowdown currently besetting the post-pandemic economy. PPI will rise, and this will ultimately feed into US CPI, halting its fall and pushing it back higher.
It’s hard to know exactly when, but three to six months is a fair estimate, given youth unemployment in China is running at over 20%, and policy makers’ patience will be getting increasingly thin.
That leaves a golden opportunity for portfolios to be re-tilted back toward lower-duration sectors. Tech has become overcrowded, while lower-duration materials, energy and utilities are among the cohorts where investors are most underweight, according to BofA’s Global Fund Manager Survey.
Source: Bank of America
Energy is a particular standout. Not only is the sector currently unloved, it is the cheapest and second cheapest in relative price-to-earnings and price-to-book terms respectively. Moreover, it is typically the best-performing sector when inflation is elevated.
As the chart below shows, with US CPI color-coded for what sector has the best trailing 12-month performance, energy was often the best performer in the high-inflation periods in the 1940/50s and the 1970s.
Oil is another standout. Not only has the sector and the commodity itself been one of the best-performing assets (in real terms) though prior inflation regimes, the backdrop is currently very favorable.
Rising excess liquidity, topping out OECD inventories and increasing imports into China are all pointing to higher oil prices in the next 3-6 months. Recent news from Russia is a reminder that geopolitical risk is another reason to increase exposure to resources and resource-based industries.
Inflation is not a one-shot problem, and the risks are extremely elevated we have not seen the last of it in this cycle. Portfolios rotated toward real assets and with reduced duration risk will be much better positioned to weather the rebound than tech-and-bond-heavy ones.
‘Not Just Ukraine’: Here’s The Wagner Group’s Global Footprint
In an event that was as shocking in the speed of its escalation as it was in the abruptness of its ending, Wagner’s mutiny, or ‘march for justice’ as it was described as by the group’s founder, Yevgeny Prigozhin, threw Vladimir Putin’s government and Ukraine war effort into crisis mode.
Since its inception in 2014, it is known or suspected to have been militarily or politically active in numerous countries, centered to a great extent on Africa.
As described in the Soufan Center report: “Between its graphic brutality in Ukraine, alleged participation in a massacre and violence against civilians in Mali, and its growing prominence in the unstable and violent Sahel region of Africa more broadly, Wagner faces more international scrutiny today than ever before.”
