Oil prices traded down today after punching up to seven-week highs with WTI back to a $79 handle after weak ‘soft’ survey data poured more cold water on the idea of a ‘soft landing’., along with disappointing results from a handful of economic-activity bellwethers, such as Union Pacific and 3M. These results have tempered optimism for the economy in the near-term.

Oil prices declined on “uncertainty about how much of a demand boost we’ll see, and concerns over a weakening U.S. economy constrains the upside,” said Michael Hewson, chief market analyst at CMC Markets U.K.

“With the latest PMI numbers in US, Europe and the U.K. showing signs of weakness despite lower energy prices, some doubt is creeping in around any sort of rebound in economic activity,” he said in market commentary.

After two crazy weeks of inventory builds (in crude and at Cushing), all eyes are on this week’s data as the impact of storms and deep-freezes begins to wear off.

It’s the second week in a row with no release of oil from the Strategic Petroleum Reserve, “but at the same time refinery maintenance could lead to an increase in crude oil supply,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

There’s an “expectation that we could see an increase in supply in the Cushing, Okla. delivery point,” he said. However, oil products are “still very tight and the focus will be on both gasoline and diesel supplies.”

API

• Crude +3.378mm

• Cushing +3.928mm – biggest build since April 2020

• Gasoline +620k

• Distillates -1.929mm

Crude inventories rose for the 5th straight week, but the size of the build was much more ‘normal’ than the last two.

Source: Bloomberg

Cushing stocks rose for the 4th straight week, by 3.928mm barrels – the most since April 2020…

Source: Bloomberg

WTI was hovering just above $80 ahead of the print and was unmoved after the data hit…

Oil advanced over the past two weeks on China’s swift pivot away from Covid restrictions, which may spur daily consumption to hit a record in 2023. Still, OPEC and its allies are staying conservative with production, as the group is expected to leave levels unchanged when they meet next week.

Finally, President Biden has a problem as gas prices at the pump are about to start accelerating fast…

On Feb. 5, the European Union will impose a ban on imports of Russia-refined petroleum products, and a price cap on Russian oil products will also take effect. That follows an EU embargo and G7 price cap on Russian seaborne oil last month.

“A key question is whether these measures are already lowering or will further lower Russian oil production,” said Stephen Innes, managing partner at SPI Asset Management, in a market update.

Authored by Charles Hugh Smith via OfTwoMinds blog,

One of the great fictions about money is that it is neutral. It isn’t. It’s either designed for the elites or for the citizenry.

Many proclaim a desire for “sound money,” but “backed by X” currencies are not “sound money” unless they can be converted directly into X. Those proposing gold-backed currencies are trying to secure the promise of “sound money” without actually doing the hard part, which is convertibility to the underlying asset.

The only way a currency can be “as good as gold” is if it can be converted to gold. Without a conversion mechanism, the currency isn’t backed by anything but an illusory connection between reserves and the currency being issued.

The only way an oil-backed currency is actually backed by oil is if the currency can be converted into an oil futures contract, i.e. a claim on actual oil. This is what made America’s “gold standard” an actual gold-backed currency: other nations could (and did) demand gold in exchange for their surplus dollars.

As I’ve discussed elsewhere, America’s geopolitical goals required running sustained trade deficits to support our allies’ economies, which left these exporting nations with surplus dollars they could trade for gold. America’s gold reserves were being drained and if the convertibility had been left in place, the reserves would have fallen to zero: with the gold gone, that would have been the end of the gold standard.

Rather than waste our time with illusory “backed by X” schemes, why don’t we cut out the intermediary paper-digital currency and just use gold and silver as money directly in coinage? In other words, if we want truly sound money, then use intrinsically valuable metals as money.

So let’s run a thought experiment on this very ancient and common-sense sound money. Please withhold your screams that “this can’t possibly work!” until the end. On second thought, let’s just dispense with all the quibbles right now: gold and silver coinage was “sound money” for millennia, so we know it works. If we can’t make it work now, that’s our fault, not the fault of precious-metal coinage as money.

Three problems immediately arise:

1. The gold reserves are not large enough at the current price.

The US currently holds 261,500,000 ounces of gold in reserve (8,133 tons). At the current price of gold around $1,900 per ounce, this stash is worth $500 billion–nowhere near enough to equal the current monetary base or money supply. Per the Federal Reserve:

• Currency in circulation: $2.292 trillion.

• Monetary base (currency in circulation plus reserves): $5.418 trillion.

• M1 Money Supply: $9.913 trillion

• M2 Money Supply: $21.327 trillion

2. The amount of “money” and “assets” that can be converted to cash floating around the world far exceed the reserves.

World individually held wealth (2022): $480 trillion

According to a report from the Boston Consulting Group, there was $27.5 trillion US dollars worth of electronic money in circulation around the world.

3. This generates the third problem: like every other asset, gold-silver coins will be bought up and hoarded by the wealthy few, leaving none for the the many to use as money.

There is no way to have a currency that circulates if every coin is immediately socked away, mostly by the wealthy both domestically and overseas.

The solution is three-fold:

1. Arbitrarily set the value of gold in the coins at $20,000 an ounce. Thus a coin containing 1/100th of an ounce is stamped with a value of 200 dollars. The value of a coin containing 1/1000th of an ounce is set at $20. The difference between the current price of gold and the $20,000 per ounce valuation in US dollars is the value of the coins being legal tender in the US.

The same mechanism could be used for silver coinage: the value of silver in the coins could be set at $250 per ounce.

This limits hoarding, at least until the global price of gold approaches $20,000 an ounce and the price of silver approaches $250/ounce.

This would set the total value of the dollar amount stamped on the coins of the US gold holdings of 261 million ounces at $10 trillion. This is roughly double the current monetary base.

2. Reverse-split the dollar 100-to-1, so $100,000 is reduced to $1,000. This will reduce the dollar-denominated “wealth” to a number more in line with the currency in circulation. A house that is currently worth $300,000 would be worth $3,000, and so on. A $1 coin would have the same purchasing power as a $100 bill today.

This would reduce total household wealth in the US from $140 trillion to $14 trillion–more in line with the monetary base of $10 trillion.

3. Make holding coins abroad illegal and subject to immediate confiscation. Furthermore, make it a federal crime to hold more than $5,000 in coinage. This limit is necessary to keep the wealthy from buying up and hoarding the nation’s coinage. To enforce this, each coin must have its own unique ID stamp so it can be tracked.

This changes the coin currency from an anonymous commodity that can be acquired without limit by criminals or the wealthy to money that is intended to circulate rather than become yet another asset hoarded by the wealthy.

There are other forms of precious metals the wealthy can accumulate in vast quantities, but money for the citizenry is intended for circulation, not hoarding by the wealthy.

One could argue that the difference between the arbitrary value of the coin–a $10 coin would only have 10% of that value in precious metals–is too high for these coins to be “sound money.” But this misses the point: “sound money” doesn’t require the value of the precious metal set by global markets to equal the dollar value stamped on the coin.

Sound money simply means the money has an intrinsic value that isn’t reliant on some intermediary mechanism such as paper or digital money supposedly “backed” by one kind of tangible asset or another–a form of money that has no intrinsic value if it can’t be converted to the tangible asset itself.

Any US resident could convert their electronic dollars into coinage with intrinsic value at any bank, with a maximum of $5,000 to disable hoarding by the wealthy. Note that once the dollar is reverse-split, then that $5,000 would be enough to buy a house currently valued at $500,000.

When the electricity goes out, coins are still money.

These coins would have value for 1) containing a defined quantity of precious metals and 2) being legal tender in the US.

As noted, the value stamped on the coins has to far exceed the price of the metal to discourage hoarding. Without this vast premium for being legal tender, precious metal coinage would immediately disappear into the vaults of the wealthy.

One of the great fictions about money is that it is neutral. It isn’t. It’s either designed for the elites or for the citizenry. Since we’ve never really had a currency that wasn’t designed for the wealthy to accumulate and hoard, no one even knows what a currency designed for the citizenry even looks like.

A monetary base of metal money would place strict limits on the central bank, Treasury and government spending. It would no longer be possible to conjure currency out of thin air to fill every interest group’s trough or bail out the banks again. Free money for financiers would not longer be possible. Neither would giving every taxpayer “free money” to spend to support consumption. The Treasury could still sell interest-bearing bonds, but the monetary base could not be expanded by a few keystrokes.

In other words, a stable monetary base would be inconvenient for financial and political elites. There would be limits on their power and predation. But there would also be limits on the citizenry’s demands. Promises made to win elections (“I’ll give you more free money than my opponent”) could no longer be honored with “free money” conjured out of thin air.

Living with constraints is the cost of having sound money.

This is a stone coin on the island of Yap. It’s an extreme example of money. Metal coins are certainly more transportable and easier to use.

*  *  *

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.  Read the first chapter for free (PDF)

Become a $1/month patron of my work via patreon.com.

Authored by Julianne Geiger via OilPrice.com,

• AAA: gasoline prices continue to climb throughout the U.S.

• Gasoline prices are up 11.8 cents over a week ago.

• Gasoline prices are rising along with the rise in WTI crude oil prices, which are up $3 per barrel from a week ago.

Gasoline prices continue to climb for the fourth straight week, rising 32.7 cents over the last month as crude oil prices rise, data from AAA showed on Monday.

Gasoline prices are up 11.8 cents over a week ago, and are 9.4 cents higher than they were a year ago, before Russia’s “special military operation” in Ukraine.

Gasoline prices are rising along with the rise in WTI crude oil prices, which are up $3 per barrel from a week ago, and up $2 per barrel from a month ago… and given the lags of the supply chain, pump prices are set to go considerably higher…

In addition to rising crude oil prices, gasoline prices are rising as “continued refinery challenges kept supply of gasoline from rising more substantially,” Patrick DeHaan, head of petroleum analysis at GasBuddy said in a Monday note.

“Macroeconomic factors have continued to weigh on oil and refined products, as strong demand in China hasn’t been slowed much by a surge in new Covid cases.

In addition, releases of crude oil from the Strategic Petroleum Reserve have wrapped up.

Concerns are increasing that without additional oil, supply will tighten in the weeks ahead, especially as the nation starts to move away from softer demand in the height of winter. Moving forward, it doesn’t look good for motorists, with prices likely to continue accelerating,” DeHaan added.

U.S. crude oil inventories have risen over the last two weeks by leaps and bounds, while gasoline inventories also grew, but by a lesser amount. Still, gasoline inventories are below the five-year average for this time of year.

GasBuddy on Monday said that its demand data shows that U.S. retail gasoline demand fell 1.4% in the last week ending on Saturday, with demand falling sharply in the Rockies.

The national average for a gallon of gasoline is $3.423 per gallon as of Monday, according to AAA data.

Whose fault will it be this time? Putin’s again… or “greedy” Big Oil… or ‘mom and pop gas station owners’?

Update(1412ET): The Biden administration has said it will send 30 M1 Abrams tanks to Ukraine, in a significant breakthrough and escalation after weeks of debate, as well as division over the issue within the NATO alliance.

Politico’s national security correspondents Alex Ward and Hans von der Burchard are further reporting that with the US ready to pull the trigger, Scholz’s Germany has followed by approving Leopard 2 main battle tanks. Germany is planning to send 14 of its Leopard 2 A6 tanks to Ukrainian forces.

Scholz’s decision was made possible after Biden agreed to send U.S. Abrams tanks as well. In the end, seems like the Chancellor prevailed with his insistence that both Germany and the U.S. must send modern Western tanks:https://t.co/JFpCYmfOvW

— Hans von der Burchard (@vonderburchard) January 24, 2023

Ominously, this comes on the very same day that the war in Ukraine has pushed the Doomsday Clock to its closest point to midnight in history, as The Hill details: 

Russia’s war in Ukraine has significantly raised the risk of global self-annihilation, the Bulletin of the Atomic Scientists warned Tuesday, moving forward the Doomsday Clock to its closest point to midnight ever.

The Doomsday Clock is meant to measure the gravest risks to human existence to pressure world leaders to recommit to addressing extinction-level challenges, such as the threat of nuclear weapon use, but has grown to include the dangers of climate change and biological risks such as the COVID-19 pandemic. 

The clock has moved to 90 seconds before midnight, 10 seconds closer than when it was last set in January 2022, shortly before Russia launched its invasion against Ukraine on Feb. 24.

The Bulletin of Atomic Scientists has moved the Doomsday Clock to 90 seconds to midnight, the closest it has ever been, primarily because of the NATO-Russia proxy war being fought in Ukraine. pic.twitter.com/L8ImrfpZty

— MintPress News (@MintPressNews) January 24, 2023

“It is now 90 second to midnight”…

The Doomsday Clock was moved to 90 seconds to midnight today, Jan. 24, the closest it’s ever been.

The Doomsday Clock is a decades-long project of the Bulletin of the Atomic Scientists featuring a clock face where midnight represents Armageddon. https://t.co/uG9vmchRXK pic.twitter.com/IFM1gmIjjT

— USA TODAY Graphics (@usatgraphics) January 24, 2023

* * *

Now the US is “leaning” toward sending Ukraine its advanced Abrams M1 tanks, reports The Wall Street Journal on Tuesday. “The Biden administration is leaning toward sending a significant number of Abrams M1 tanks to Ukraine and an announcement of the deliveries could come this week, U.S. officials said,” the report indicates.

At the moment, a reluctant German government is coming under immense pressure to allow its Leopard 2 main battle tanks to be transferred to Ukrainian forces. Poland is leading the way in this pressure campaign. 

“The announcement would be part of a broader diplomatic understanding with Germany in which Berlin would agree to send a smaller number of its own Leopard 2 tanks and would also approve the delivery of more of the German-made tanks by Poland and other nations,” WSJ continues. “It would settle a trans-Atlantic disagreement over the tanks that had threatened to open fissures as the war drags into the end of its first year.”

Earlier this month Berlin signaled that would authorize the Leopards if Washington made the first move and took the initiative on sending the Abrams.

As of Tuesday the Polish government says it has formally submitted its request to Berlin to send the tanks. Germany by law must first authorize these transfers of its German-manufactured military items by other nations.

“The Germans have already received our request for consent to transfer Leopard 2 tanks to Ukraine,” Polish Defense Minister Mariusz Błaszczak confirmed on Tuesday. “I also appeal to the German side to join the coalition of countries supporting Ukraine with Leopard 2 tanks.”

Despite prior signals that Berlin would not be approving the transfer anytime soon for stated reasons of wishing to avoid escalation with Russia, as predicted it looks as if Germany is weakening under pressure.

Bloomberg reports Tuesday that “Germany is expected to give Poland approval as soon as Wednesday to re-export its German-made Leopard tanks to Ukraine, according to people familiar with the matter, who asked not to be identified because the decision is private.”

This despite repeat warnings from Russian officials this week that ‘global catastrophe’ could be unleashed if the West keeps pumping heavier weapons in the conflict, also amid nuclear escalation warnings.

It was several years ago when Jeremy Grantham quietly turned from stock bull to vocal permabear, and while his market notes turned breathlessly alarmist (if only to those who were long his multi-billion fund GMO), such as this from June 2020 “Stock-market legend who called 3 financial bubbles says this one is the ‘Real McCoy,’ this is ‘crazy stuff’”, it wasn’t until early 2021 that Grantham’s warnings of an imminent crash became especially shrill… and wrong. Recall, back in January 2021, Grantham wrote that “Bursting Of This “Great, Epic Bubble” Will Be “Most Important Investing Event Of Your Lives“, while was followed by warnings of a “Spectacular” Crash In “The Next Few Months.”

Needless to say, no crash followed as the Fed and other central banks went all in on stabilizing the market, resulting in an epic year for risk assets which closed 2021 at all time highs, while GMO suffered not only steep losses but also substantial redemptions, a humiliating outcome for Grantham who had previously called the bursting of both the dot com and housing bubbles, but failed to account for just how determined the Fed is to avoid another bubble bursting.

Grantham then tried his market-timing luck once more, this time with somewhat better results, when in January 2022 he doubled down on the fire and brimstone. The GMO founder revisited a familiar theme, namely that we are currently living in a superbubble – only the fourth of the past century – and like the crash of 1929, the dot-com bust of 2000 and the financial crisis of 2008, Grantham was  “nearly certain” the bursting of this bubble has begun, sending indexes back to statistical norms and possibly further.

How much lower? The value manager saw the S&P tumbling by nearly 50% to 2,500 from its then recent all time highs of 4,800 weeks ago (he appears to enjoy forecasting 50% drops as will apparent in a second). He also predicted that the Nasdaq Composite will sustain an even bigger correction.

“I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000, or as I had been in Japan, or as I had been in the housing bubble of 2007,” Grantham told Bloomberg in a “Front Row” interview last January. “I felt highly likely, but perhaps not nearly certain. Today, I feel it is just about nearly certain.”

Well, maybe not that certain, because one year later stocks did drop, but nowhere nearly as much as Grantham predicted, with the S&P sliding 20% in 2022 and the Nasdaq losing a third. Hardly the catastrophic bursting of a superbubble which has inflated stock prices by order of magnitude.

But with Grantham, now 84 and eager to make at least one more historic call before his career is over, is not giving up and in a new paper published today titled “After a Timeout, Back to the Meat Grinder!”, the value investor is doubling down on his call from last January (and January 2021… and June 2020), and warns – again – that the popping of the bubble in US stocks is far from over and investors shouldn’t get too excited about the strong start to the year for the market.

According to Grantham, the value of the S&P 500 at the end of the year should be about 3,200, which in retrospect is well above his previous bubble-bursting forecast of 2,500.  That equals a 17% full-year drop and a 20% decline for the year from current levels. Not satisfied with his bearish forecast, Grantham hopes to outbear the likes of Mike Wilson, and believes the index is likely to spend some time below that level during 2023, including around 3,000.

“The range of problems is greater than it usually is — maybe as great as I’ve ever seen,” Grantham told Bloomberg in an interview from Boston.

“There are more things that can go wrong than there are that can go right,” he added. “There’s a definite chance that things could go wrong and that we could have basically the system start to go completely wrong on a global basis.”

Grantham, who is desperate to eventually “nail the crash” as the biggest bear, is also quietly doubling down on his apocalyptic call from a year ago and said he doesn’t discount the idea that the benchmark index could fall to around 2,000, a 50% drop from the current price, which he says would be a “brutal decline.” He is, of course, right… if the Fed were to ever allow that to happen. The problem is that Powell would step in long before the S&P dropped anywhere near there and would instruct Blackrock to buy any and all ETFs. Meanwhile, the only brutality has been the collapse in GMO’s assets which had been cut by half since 2015 through the end of 2020, as the fund kept doubling down incorrectly on ever more bearish scenarios.

The irony, of course, is that if Grantham is – finally – correct, it will only force Powell to exit from his “Fed put” hibernation and start bidding up risk assets, thus leading to even more pain for bears.

Beside Grantham’s bearishness, GMO – which is a value fund – has struggled with lackluster returns in the decade following the global financial crisis as growth stocks led the longest bull market in US stocks on record. But now, as the Federal Reserve tries to tame elevated inflation with aggressive interest-rate increases, value strategies are enjoying a revival. The GMO Equity Dislocation Strategy, which is long value equities and short those the company sees as being valued at “implausible growth expectations,” had gained nearly 15% last year through November; alas it has to more than double to regain its lost AUM.

Value has worked “quite a lot better” over the past year and has outperformed growth during that stretch. Before that, growth had a solid 10-year run, though value had been outperforming in the decades prior to that, Grantham said. “In the range of value versus growth, value is still much more attractively positioned than growth,” he explained. “It’s gone half the way back, but it’s still cheaper.” Value stocks could outperform growth ones by 20 percentage points over the next year or two, he added.

As to what might be currently attractive, Grantham says an investor could divide value stocks into four quartiles. The third group — made up of “the pretty cheap” — did well last year and is no longer super attractive. But the cheapest quartile, which didn’t have the best year, could be poised to hold up best. “It will have a very good time,” he said.

Grantham views the process of further stock market pain playing out now as similar to the popping of bubbles following other rare “explosions of investor confidence” such as in 1929, 1972 and 2000. While many are attributing last year’s slide in stocks to the war in Ukraine and the surge in inflation, or reduced growth from Covid-19 and ensuing supply chain problems, Grantham believes the market was due for a comeuppance regardless.

While the first and “easiest” leg of the bubble’s bursting is over, Grantham says that the next phase will be more complicated. Seasonal strength in the market in January and during the current period of the presidential cycle could keep the market buoyant in the early part of the year.

“Almost any pin can prick such supreme confidence and cause the first quick and severe decline,” he wrote echoing what he has said again, and again, and again. “They are just accidents waiting to happen, the very opposite of unexpected. But after a few spectacular bear-market rallies we are now approaching the far less reliable and more complicated final phase.”

For Grantham’s sake, we hope he is right because at 84, he is rapidly running out of time for the apocalypse to finally hit.

Grantham’s full note is below (pdf link).

Authored by Jonathan Turley,

Below is my column in the Hill on how the two criminal investigations over classified documents could create an unprecedented constitutional conflict in 2024. We are likely to have two candidates with their own respective special counsels. One or both could be indicted. Either way, the election could protect the winner practically from prosecution either due to a self-pardon or an internal Justice Department rule. A vote for Biden or Trump could therefore literally prove to be a “get out of jail free” card.

Here is the column:

President Biden has declared that the criminal investigation into his possession of classified material ultimately will fizzle out because “there is no ‘there’ there.” To the contrary, there obviously is a great deal “there,” enough that a special counsel was appointed to investigate a classified documents trail from a D.C. office closet to Biden’s Delaware garage.

Although the president wants Americans to look down the road past images of classified documents next to his vintage Corvette, we may be heading into one of the most bizarre, unsettling moments in our constitutional history.

There is now a distinct possibility we will have not just two leading candidates campaigning for the presidency with their own respective special counsels in tow, but two candidates who could be indicted or close to indictment at the time of the election. That would present some novel political and constitutional questions.

A great deal already has been written about comparisons of the two cases and the obvious differences. The Justice Department’s Trump investigation includes not only accusations of mishandling classified material but also of false statements and obstruction; far more documents are involved, too. Yet enough similarities exist that Justice could weigh charges in both cases, even if only misdemeanors.

Moreover, the Biden allegations are serious in their own way. The documents in Donald Trump’s possession at Mar-a-Lago were largely housed in a locked storage room with security added at the FBI’s request; there was ’round-the-clock Secret Service protection and camera surveillance. That is not ideal — but it is better than a dozen documents scattered around a closet, garage and library in different states.

There is no question of gross mishandling in Biden’s case. There is only the question of who was responsible.

If the evidence shows that Joe Biden used any of these clearly marked documents to write his book or other projects, his insistence on “inadvertent” possession will take on a more sinister meaning as an effort to deceive the public and the FBI.

Both of these investigations could easily take a year or more.

The average time of a special counsel investigation of a president is over 900 days. These two investigations should take less than the average — but they are starting in 2023, with a presidential election in 2024. Trump has already announced, and Biden is expected to do so soon.

• The one indictment scenario – One possible scenario that many Democrats are hoping for is that Biden is spared and Trump indicted. This option could be the most explosive with many in the country seeing a double standard.

• The no indictment scenario – If the investigations of both Trump and Biden extend to August 2024, the department could follow its policy of not taking actions that might affect an election. Indicting a candidate clearly falls into that category.

• The double indictment scenario – The Justice Department could also make fast work of both cases and indict both men. This option however could require a change in Justice Department policy.

This is where it gets wicked.

There has long been a debate over whether a sitting president can be indicted. While some of us believe there is no constitutional barrier to indicting a sitting president, the Justice Department has maintained that such an indictment is improper. Unless the Justice Department changed its view, it could indict Trump but might decline or delay indicting Biden. Moreover, given its policy, Justice could indicate it was holding final action on an indictment of Biden until after the election. A vote for Biden might then be seen as a way to effectively block any indictment.

Under any scenario (absent a decision to forego any charges), both candidates would face indictments or the possibility of indictment after the election. The vote literally could come down to who you want to see pardoned and who you would like to see jailed.

Even if the Justice Department elects not to indict Biden due to a lack of evidence, as opposed to a constitutional bar, it still would mean that Trump’s election could be used to negate any indictment over Mar-a-Lago. Many voters likely would view that as unequal treatment, and a self-pardon prospect could become a rallying point for many voters.

The right of a president to self-pardon is another subject of long-standing debate. Just as I believe a sitting president can be indicted, I also believe a president can pardon himself. Article II, Section 2, of the Constitution states the pardon power allows a president to “grant reprieves and pardons for offenses against the United States, except in cases of impeachment.” There is no language limiting who can be pardoned other than that it can only extend to federal crimes. Others disagree. However, it could prove the ultimate factor for the single-issue voter: Who do you want pardoned or prosecuted?

A couple of other potential wrinkles exist.

Trump’s election could result in a pardon, even a prospective pardon for federal crimes. However, he cannot pardon himself for state crimes. For example, Georgia’s Fulton County district attorney, Fani Willis, is investigating Trump over the 2020 election; the case has some major evidentiary and legal issues to overcome in any trial — but Trump could well be indicted.

If elected, Trump could clear the boards of any and all federal crimes, but he would face a trial in Georgia during his second term.

Biden could have his own pardon surprise. If his son, Hunter, is eventually indicted, Biden could follow the lead of President Clinton, who pardoned his own half-brother. It would be another abuse of the pardon power for personal benefit. Clinton, however, waited until the final days of his second term to act; if Biden was looking for a reason not to run, he might pardon his son and then withdraw from a reelection bid.

This may all sound like a constitutional version of the popular movie, “Everything Everywhere All at Once,” in which one finds oneself in some bizarre parallel universe.

In the movie, protagonist Alpha Waymond explains that “every rejection, every disappointment has led you here to this moment” — and that may be the case with the American electorate. Our duopoly of power has led us to a series of compromises that have brought us to this moment, and we may have to decide which of two candidates we most want to pardoned or prosecuted.

Back in November, when the 2Y auction hit a cycle high of 4.513%, markets knowingly nodded muttering that the bond market was agreeing with the hawkish Fed. Since then however, things haven’t gone according to plan with each auction printing at an lower and lower yield, culminating with today’s sale of 2Y paper which priced at just 4.139%, down from 4.390% in December, and the lowest since August. It also stopped through the When Issued 4.152% by 1.3bps, the third consecutive stop through which prior to December had tailed 3 of the past 5 times.

The Bid to Cover confirmed the stellar demand, jumping from 2.713 to 2.944, the highest going back all the way to the flight to safety bond market chaos of April 2020.

Finally, the internals were also phenomenal, with Indirects – or foreign buyers – awarded a whopping 65.0%, the third highest on record, and well above the recent average of 57.4%. And with Directs taking down 18.7%, it meant that Dealers were left holding on to just 16.3% which was also one of the lowest on record.

Bottom line: this was an absolutely blowout auction, and one which is clearly mocking the Fed’s “higher for longer” intention as demand for 2Y paper at well below the Fed’s market implied terminal rate of 2Y suggests that even the smartest guys in the room are convinced the Fed will be cutting quickly and aggressively as soon as the second half.

Not surprisingly, both the 10Y and the 2Y yields hit session lows after news of the stellar demand for 2Y paper hit the wires.

A ‘small number’ of documents with classified markings were discovered at former Vice President Mike Pence’s home in Indiana last week, officials confirmed Tuesday.

On January 18, Pence’s team notified the National Archives that the documents were “inadvertently boxed and transported” to the former VP’s house at the end of the Trump administration, and that Pence was “unaware of the existence of sensitive or classified documents at his personal residence,” according to his lawyer.

The findings at Pence’s residence comes as President Biden is facing mounting criticism, which had also come from Pence, over the discovery of classified materials at Biden’s old office at a Washington, D.C., think tank and at his Delaware home.

Greg Jacob, the attorney representing Pence, wrote to the Archives that Pence used outside counsel with experience handling classified documents to review records stored at his personal home after several classified documents were found at Biden’s Delaware home earlier this month. -The Hill

“Vice President Pence has directed his representatives to work with the National Archives to ensure their prompt and secure return,” wrote Jacob. “Vice President Pence appreciates the good work of the staff at the National Archives and trusts they will provide proper counsel in response to this letter.”

So – we imagine the new narrative will be that everybody does it, so it’s no big deal – and nevermind all that ‘treason’ and ‘walls are closing in’ talk when it was just Trump. We’re sure many committees will be launched to get to the bottom of the ‘classified document problem.’

Update 2 (11:15am ET): The NYSE says it is continuing to investigate the “technical issue” that caused wild stock swings at the market open Tuesday as dozens of large-cap stocks suddenly plunged or spiked during the broken opening auction.

According to the New Jersey-based New York Stock Exchange, “impacted members may consider filing for Clearly Erroneous or Rule 18 claims”  adding that “In a subset of symbols, opening auctions did not occur. The exchange is working to clarify the list of symbols.”

* * *

Update (9:52am ET). According to the NYSE, as of 9:48am, all systems are back to normal, although that is an understatement in a market where nobody knows what the correct opening price is! We are still waiting for the NYSE to give a detailed explanation of what caused this latest “broken markets” episode.

While it is still unclear what was the “technical glitch” that sent the world’s biggest companies into a multi-trillion market cap rollercoaster, Bloomberg reports that “a wave of sell orders targeting financial services stocks swept across American equity exchanges at the open of trading Tuesday, sending companies including Wells Fargo & Co. and Morgan Stanley to brief but sharp plunges from which they mostly quickly recovered.”

After closing Monday at $45.03, Wells Fargo fell as low as $38.10 before bouncing back, while Morgan Stanley plunged to $84.93 after ending at $97.13 on Monday.

That may be accurate, it’s not comprehensive as virtually every NYSE-listed stock was slammed at the open, only to rebound powerfully before tumbling once more. Indeed, as noted below, other impacted stocks included the likes of Walmart, McDonald’s and Exxon. These stocks saw drops of at least 12% before they were halted. Their moves have now rebounded to less than 1% in either direction.

Separately, at least 40 S&P 500 Index stocks were hit with trading halts. Other impacted shares included the likes of Walmart Inc. and McDonald’s Corp. These stocks saw drops of at least 12% before they were halted. Their moves have now rebounded to less than 1% in either direction.

“It’s a little concerning,” Oanda senior market analyst Ed Moya told BBG. “These are not your typical meme stock, easily manipulated companies, these are Morgan Stanley, Verizon, AT&T, these are some of the giants.”

Tuesday’s transactions occurred in New York Stock Exchange-listed securities and took place on virtually every trading platform, including ones overseen by CBOE Global Markets and private venues reporting to the Finra trade reporting facility.

The start of trading in most American stocks involves a complicated but usually routine process called the opening auction, designed to limit volatility resulting from orders for shares that pile up before the start of the regular session. In it, a computer balances out supply and demand for a particular stock by establishing an opening price that can be viewed as the level that satisfies the largest possible number of traders.

“We don’t have all the details yet, but what it looks like is that some stocks opened and were automatically or were erroneously triggered for limit up/limit down, which threw them into a halt status,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners who typically works on the floor of the New York Stock Exchange.

“All of our phones are lighting up,” he said. “We’re trying to field calls from our customers and try to explain to them what happened, what’s going on and relay as much accurate information so they understand what’s happening. But as of now, things are still unfolding.”

* * *

It has been a while since we had a market-wide break.

Something snapped at exactly 9:30:00 am ET this morning when stocks opened for trading, only… they didn’t, as instead hundreds of NYSE-listed stocks were immediately halted for trading after breaching circuit breaker limits…

… which among others saw giga-caps such as Exxon, Morgan Stanley, Verizon, AT&T, Nike, and Wells Fargo tumbling as much as 11%…

… while McDonalds traded down to $236.42 before rebounding to $268.32 – a $55 billion swing in market cap in seconds – before being almost immediately halted.

While it is unclear what the “technical glitch”, as CNBC called it, in question was many stocks had abnormally large moves when stocks opened for trading, which triggered the resulting volatility halts.

It took several minutes for the circuit breakers to be lifted and for trading to return to something resembling normalcy although nobody knows if these prices are accurate or still affected by whatever glitch halted trading.

Authored by Lance Roberts via RealInvestmentAdvice.com,

From a contrarian investing view, everyone remains bearish despite a market that corrected all of last year. I polled my Twitter followers recently to take their pulse on the market.

Of the 1280 votes cast in the poll, roughly 73% of respondents anticipate the market to be lower throughout 2023. That view also corresponds with our sentiment gauge of professional and retail investor sentiment, which, while improved from the October lows, remains depressed.

More importantly, investor allocations, particularly among professional investors, remain extremely light, suggesting a much higher level of caution. The following is the 4-week moving average of the National Association of Investment Managers bullish index. While the reading of 25.04 in October coincided with the market low, the current reading of 48.16 remains bearish.

As Bob Farrell’s Rule Number 9 states:

“When all the experts and forecasts agree – something else is going to happen.

As a contrarian investor, excesses are built by everyone betting on the same side of the trade. When the market peaked in January 2022, everyone was exceedingly bullish, and no one was looking for a 20% decline. Sam Stovall, the investment strategist for Standard & Poor’s, once stated:

“If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Today, everyone remains bearish, suggesting the possibility of the market doing something no one expects.

The Art Of Contrarianism

As we have often discussed, one of the investors’ most significant challenges is going “against” the prevailing market “herd bias.” However, historically speaking, contrarian investing often proves to provide an advantage. One of the most famous contrarian investors is Howard Marks, who once stated:

“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, particularly when momentum invariably makes pro-cyclical actions look correct for a while.

Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.”

As noted, a majority of investors remain bearish. There are certainly ample reasons to BE bearish:

1. The Fed is remaining aggressive on monetary policy.

2. Central banks are reducing liquidity to markets.

3. Inflation remains problematic.

4. Earnings remain elevated.

5. The economy is slowing.

6. Consumers are running out of savings.

We certainly agree with the more dismal outlook and continue to suggest that investors should be more cautious in their portfolio allocations. However, this is also the point where investors make the most mistakes. Emotions make them want to avoid the risk of loss.

Given that many investors have never witnessed a “bear market,” the current bearing sentiment is unsurprising. The increased price volatility, and subsequent decline in prices, created a substantially higher level of instability. That instability creates “fear” and drives investors to the behavioral bias of “loss aversion.”

That increased volatility weighs on investor sentiment leading to poor investment decision-making and, ultimately, poor outcomes.

However, if the most fundamental premise of investing is to “buy when everyone is fearful,” investors may again be missing the contrarian opportunity.

With the market negatively positioned, the contrarian trade is an expectation of the unexpected.

• What if the markets have discounted an economic slowdown?

• What if earnings remain stronger than currently expected?

• Could the Fed reverse monetary policy?

• Have valuations declined enough?

The fundamentally bearish arguments of valuations, earnings, a Fed policy mistake, and a recession are certainly viable outcomes.

However, given that “everyone” is already expecting those outcomes, what happens if something else occurs?

Navigating A Contrarian Trade

Everyone is so bearish the markets could respond in a manner no one expects.

There are plenty of reasons to be very concerned about the market over the next few months. Given the market leads the economy, we must respect the market’s action today for potentially what it is telling us about tomorrow. Therefore, there are some actions we can take to navigate for whatever path the market chooses.

1. Move slowly. There is no rush to make dramatic changes. Doing anything in a moment of “panic” tends to be the wrong thing.

2. If you are overweight equities, DO NOT try and fully adjust your portfolio to your target allocation in one move. Again, after significant declines, individuals feel like they “must” do something. Think logically about where you want to be and use the rally to adjust to that level.

3. Begin by selling laggards and losers. These positions were dragging on performance as the market rose, and they led on the way down.

4. Add to sectors, or positions, that are performing with or outperforming the broader market if you need risk exposure.

5. Move “stop-loss” levels up to recent lows for each position. Managing a portfolio without “stop-loss” levels is like driving with your eyes closed.

6. Be prepared to sell into the rally and reduce overall portfolio risk. You will sell many positions at a loss simply because you overpaid for them to begin with. Selling at a loss DOES NOT make you a loser. It just means you made a mistake.

7. If none of this makes sense to you, please consider hiring someone to manage your portfolio. It will be worth the additional expense over the long term.

Just remember:

“In good times, skepticism means recognizing the things that are too good to be true; that’s something everyone knows. But in bad times, it requires sensing when things are too bad to be true. People have a hard time doing that.

The things that terrify other people will probably terrify you too, but to be successful, an investor has to be a stalwart. After all, most of the time the world doesn’t end, and if you invest when everyone else thinks it will, you’re apt to get some bargains.“

Follow your process.