Authored by Simon White, Bloomberg macro strategist,

The extent of the yield curve inversion is historically consistent with almost 500 bps of Fed cuts if the US goes into a recession.

Powell’s speech on Wednesday caused a lot of consternation. He reiterated his message that, yes, the pace of rate hikes was likely to slow, but that the Fed will need restrictive policy for “some time” – aka “higher for longer”.

Even though the message has not changed, the market over the last month has moved the peak rate higher, but brought it closer, and priced in a much steeper subsequent pivot – “higher for shorter”, almost the diametric opposite of Powell’s sentiments.

The flattening of the back-end of the fed funds curve is highly correlated with the flattening we have seen in the yield curve. 2s10s is now as inverted as it has been since the early 1980s, but when it comes to recessions, the more imminent sign is when the curve begins to re-steepen.

The big question is, though, if we do get a recession (which looks highly likely but not imminent), when and by how much will the Fed cut rates?

The market sees the first full 25 bps cut by November next year – I would hazard it will come sooner, based on leading indicators that are consistent with a potentially deep recession.

But the size of the yield-curve inversion suggests the depth of Fed cuts could be enough to take rates back towards the zero bound.

There is a strong relationship between the maximum inversion of 2s10 before a recession, and the total sum of Fed cuts that come after.

The current inversion in 2s10s is historically significant with almost 500 bps of Fed cuts, which, based on where the Fed rate is expected to peak, would mean a reversal of virtually all of the Fed’s hikes.

The Fed may live up to its own hype and keep rates very restrictive. But talk is cheap, and the truth of the matter is the Fed has not yet had to face the pressure from keeping rates high, continuing with QT, while unemployment is beginning to materially rise. In the 1974 recession, the Fed cut rates almost 800 bps in a period where inflation was above 9%.

The market currently anticipates about 150 bps of cuts. The high likelihood of a recession and the depth of the yield curve’s inversion suggest this is on the low side.

Recently-returned Disney CEO Bob Iger says he’s “sorry” to see the company getting dragged into an ideological battle with Florida lawmakers over a ban on the discussion of sex and gender in early elementary classrooms.

The Florida law, which progressive critics described as the “Don’t say gay” bill, was passed in response to complaints from parents that children as young as five-years-old are being taught about transgenderism, homosexuality, and other sexual and gender topics – and prohibits teachers from discussing said topics with students in Kindergarten through 3rd grade.

While Disney didn’t immediately going other major corporations in condemning the bill, which was passed in March, however a group of activist employees lashed out at the company for not taking a public position – after with both Iger and his successor, Bob Chapek, spoke out.

“To me, it wasn’t politics. It was what is right and what is wrong, and that just seemed wrong. It seemed potentially harmful to kids,” said Iger in a March 31 CNN interview, adding that he thought it was the responsibility of a CEO to “weigh in on issues, even if voicing an opinion on those issues potentially puts some of your business in danger.”

Now, Iger has expressed regret for the company’s involvement, as documented by journalist Christopher Rufo.

“When you tell stories, there’s a delicate balance,” Iger told an audience at a town hall meeting, where he reiterated that the company still pushes pro-LGBT “inclusion” messaging.

Iger expressed regret that Disney engaged in the high-profile fight against Gov. DeSantis, which resulted in the state legislature stripping the company of its special administrative status. “I was sorry to see us dragged into that battle.” pic.twitter.com/889toYW5ye

— Christopher F. Rufo ⚔️ (@realchrisrufo) November 29, 2022

As the Epoch Times notes;

Another question concerned Florida government’s move to strip Disney of its self-governance status, a privilege the company has enjoyed since the time of Walt Disney. Losing such privilege means that Disney may no longer control its own zoning, infrastructure, and policing within its special tax district in Orlando.

“I have to get up to speed on that completely. Obviously, I followed the news. That development occurred after I left the company. I was sorry to see us dragged into that battle,” Iger replied.

“I have no idea what the ramifications are in terms of the business itself. What I can say is the state of Florida has been important to us for a long time, and we have been very important to the state of Florida.”

Iger served as Disney’s CEO for 15 years, from 2005 to 2020, before he stepped down and was succeeded by Bob Chapek, who oversaw the company during the COVID-19 pandemic that triggered worldwide shutdowns of theme parks, resorts, movie theaters, and live sports events. Chapek’s 11-month tenure is also marked by a deteriorated relationship with Florida government, although the state allowed Walt Disney World to reopen as early as July 2020, while California’s Disneyland stayed closed because of lockdown policies.

“We thank Bob Chapek for his service to Disney over his long career, including navigating the company through the unprecedented challenges of the pandemic,” Disney said in a Nov. 20 message announcing the leadership change. “The board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period.”

Iger will remain in the CEO post for the next two years.

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

President Joe Biden’s administration has handed over years of former President Donald Trump’s federal tax returns to the U.S. House of Representatives.

“Treasury has complied with last week’s court decision,” a spokesperson for the Treasury Department, which includes the IRS, told The Epoch Times on Nov. 30.

The U.S. Supreme Court recently rejected a request from the former president to block the IRS from transmitting the returns, lifting a stay that Chief Justice John Roberts had temporarily imposed.

The lifting of the stay meant an order from the U.S. Court of Appeals for the District of Columbia Circuit came back into effect. That order had directed the IRS to transmit the materials to the House.

Rep. Richard Neal (D-Mass.), chairman of the House Ways and Means Committee, has been seeking six years of Trump tax returns since 2019.

A spokesperson for the panel declined to immediately comment on the Treasury’s statement.

“Since the Magna Carta, the principle of oversight has been upheld, and today is no different,” Neal said in a statement after the Supreme Court decision. “This rises above politics, and the Committee will now conduct the oversight that we’ve sought for the last three and a half years.”

Trump and his lawyers had argued that the bid to get the records was politically motivated and designed to publicly release sensitive information, pointing to statements to that effect by leading Democrats such as House Speaker Nancy Pelosi (D-Calif.). But several courts said Neal had put forth a legitimate legislative purpose.

Purpose

Neal, who hasn’t sought records from any other president, says the materials are needed to examine the way the IRS audits presidents.

The Department of Justice’s Office of Legal Counsel in 2019 said that Neal’s stated reason for requesting the records was “implausible.”

“The objective mismatch between the Committee’s stated purpose, on the one hand, and the particular information that the Committee demanded, on the other, provided strong evidence of pretext,” the office said at the time. “In addition, the nature of the request, the long series of events that preceded it, and Chairman Neal’s pointed failure to renounce his oft-proclaimed purpose of publicly releasing the President’s tax returns all confirm that the Committee’s purpose was the constitutionally impermissible one of forcing the public disclosure of the President’s tax returns.”

After Biden became president, Neal sent a new request that he described as having more detail, with Neal saying the materials would help not only oversee the audit program but also the way the IRS enforces federal tax laws against presidents. He said there were “serious concerns” that the audit program wasn’t functioning as intended because it allegedly wasn’t designed with an individual like Trump, who has numerous businesses, in mind, and that the program “does not provide explicit safeguards in the event a President interferes with or questions the appropriateness” of an audit.

Neal also changed the files sought to tax years 2015–2020 from 2013–2018.

The Office of Legal Counsel then reversed itself, finding that the previous legal opinion it released “failed to give due weight to Congress’s status as a co-equal branch of government” and saying that Neal’s request “would further the Committee’s principal stated objective of assessing the IRS’s presidential audit program—a plainly legitimate area for congressional inquiry and possible legislation.”

“Even if some individual members of Congress hope to see information from the former President’s tax returns disclosed on the public record merely ‘for the sake of exposure,’ that would not invalidate the legitimate objectives that the Committee’s receipt of the information in question could serve,” the opinion also said.

Read more here…

Amid years of scandals, mismanagement, mammoth asset outflows, and the current dilution from a vital capital raise that is under way, Credit Suisse shares have plunged for 13 straight days (the longest losing streak in the bank’s history) to a new record low, just a few percent above the price of 2.52 francs for the 4 billion Swiss Franc subscription rights that the bank offered existing investors.

The threshold of 2.52 francs is “the ‘hard underwriting’ price for the consortium of 19 banks,” JPMorgan & Co. analysts said in a research note.

If Credit Suisse’s shares keep trading above that level until “the last day of rights trading on Dec 6, 2022, we can assume at that point the capital raise was most likely a success.”

If not, then who knows what’s next?

As Bloomberg reports, while the rights offer is “highly unlikely” to fail, such a scenario would cause S&P to “evaluate” the impact on the credit ratings it has placed on Credit Suisse, analyst Anna Lozmann said by email. She also said that “continued strong outflows of deposits” could be a “trigger for a negative rating action.”

Credit Suisse’s overhaul, including job cuts and the carve-out of the investment banking business, has met with skepticism from analysts and investors concerned about the complexity of the restructuring.

And today, Bloomberg reports that, according to two people familiar with the bank’s plans, CS is cutting at least a third of its debt sales positions globally as part of a restructuring that will eliminate thousands of jobs and a new strategy that drastically downsizes its investment banking and trading business.

The Swiss lender is reducing headcount in its debt syndicate division, which prices bond deals, as it slims down its so-called flow business.

The Zurich-based bank plans to reduce costs by cutting 2,700 jobs this year and 9,000 jobs by the end of 2025.

The “material capital raise” and lack of details on a “very complex” investment banking restructuring is weighing on Credit Suisse’s shares, JPMorgan analyst Kian Abouhossein wrote in a note on Thursday.

He also cut earnings estimates by 45% for 2023, citing the hefty outflows in the bank’s wealth management business.

Talks about a possible takeover of Credit Suisse are likely to pick-up if outflows continue, he said.

The 5th US Circuit Court of Appeals has denied a Biden administration request to temporarily reverse a lower-court order that blocked the rollout of Biden’s student loan forgiveness plan.

The plan would forgive up to $20,000 in federal student loans for eligible borrowers who make under $125,000 per year, or $250,000 for households.

In a brief order, a three-judge panel of the New Orleans-based appeals court rejected the request – meaning the plan will remain on hold while the administration appeals a decision from a Texas judge which deemed the scheme (which undoubtedly garnered a few midterm votes for Democrats) illegal.

The next stop for the Biden administration will be to seek a reversal of the 5th Circuit’s decision through the US Supreme Court, according to a court filing from the administration in a separate legal challenge, Bloomberg reports.

Court orders across multiple lawsuits have blocked the distribution of any debt relief under the plan since late October. The government has ceased collecting applications for relief while the legal battles over the proposal proceed.

Wednesday’s order comes in a case brought by the Job Creators Network Foundation, a conservative advocacy group, on behalf of two Texas borrowers who claim that their education debt was unfairly excluded from the program. -Bloomberg

Meanwhile, another lawsuit led by six GOP states is asking the US Supreme Court to keep the plan on hold while their legal challenge works its way through the system. The state officials say Biden exceeded his executive authority by failing to obtain congressional approval, adding that it will negatively impact local loan servicers.

Roughly 26 million people requested debt relief before the Department of Education stopped accepting applications.

Authored by Jesse Felder via TheFelderReport.com,

It’s popular on Wall Street to say, “you can’t time the market.”

However, just because most people are bad at it doesn’t mean the tools don’t exist to do it fairly well. In fact, there is one market timing tool in particular that long-term investors should pay close attention to and that is the Coppock Curve. My friend Tom McClellan of McClellan Financial Publications recently wrote about the origin of the indicator:

[Edwin S.] Coppock had been a money manager, and did some work managing assets for the Episcopal Church in the U.S. As part of that, he had a discussion with a priest about the grieving process, and the priest asserted that it takes a person 11 to 14 months to grieve over the loss of a loved one. Coppock concluded that the process of getting over a big loss on an investment might work the same way in terms of human psychology, and so he incorporated that timeframe into his indicator. What he wanted was a way to identify the really important long-term buying opportunities.

And this is really where the Coppock Curve (sometimes called the Coppock Guide) really shines, in helping long-term investors determine when it is an opportune time to get aggressive in the equity market. My friend Jim Stack of InvesTech Research recently wrote about its usefulness:

This indicator has a remarkable 100+ year track record when it comes to signaling the start of a new bull market for stocks. And it is one of the few technical tools that would have kept anxious investors from stepping prematurely into the middle of the 1929-1932 record stock market decline… Coppock Guide buy signals are marked by upturns from readings at or below zero. And often the more negative the reading when it turns upward, the more impressive the profits ahead. Using these guidelines has confirmed practically every major bull market run since 1920, with just two false signals given in 1941 and November 2001.

While it is true that timing stock market peaks may be more difficult, once a bear market has begun, investors using the Coppock Curve at almost any point in time over the past century would have largely been successful in timing major stock market bottoms.

For this reason, it is noteworthy that the Coppock Curve broke below the zero line back in September. Moreover, it is unlikely to form a bottom and curl higher for at least a few more months. Even if the current rally were to continue higher the Coppock Curve likely wouldn’t itself reverse higher before February. And if the rally rolls over once again, it will push the upturn in the indicator out even further. In short, the grieving process for Mr. Market (over the loss of massive monetary stimulus) may take a bit longer than bullish investors today might hope.

So the next time you hear someone say, “you can’t time the market,” perhaps you should think to yourself, “maybe YOU can’t time the market but I know a tool that is pretty good at it.” Because, at the end of the day, everything is forecast. Rather than pretending otherwise, it probably makes sense to utilize a tool like the Coppock Curve to improve your own forecasting ability.

European leaders are scrambling again in a relentless pursuit to price cap Russian crude oil imports before a ban on purchases goes into effect Monday. There has been a disagreement between member states at what price level that cap should be. 

Recall last Friday, EU negotiations on the Russian oil price cap were suspended – despite a willingness by most member states to propose a ceiling of $65 a barrel, though Poland and the Baltic states objected. Earlier this week, there was still disagreement on $62, and now people familiar with the matter tell WSJ the European Commission has discussed lowering the limit to $60 — in hopes all 27 member states will agree. 

An agreement on the cap at the new level would be significantly below benchmark Brent prices, which traded around $89 a barrel Thursday morning.  

Countries such as Poland, Estonia, and Lithuania have argued that proposed price caps were too high and would allow Russia to continue profiting off international crude markets to fund the war in Ukraine. 

WSJ noted senior officials of various member states began discussing the $60 ceiling on Thursday afternoon, and a decision could come as soon as this evening, with the officials saying Polish officials needed time to examine the commission’s plan with Warsaw. 

But even at $60, the price cap could be meaningless because Russia’s production costs are estimated at around $20. 

Russian crude on international markets already trades at a significant discount to Brent. According to Argus Media, on Wednesday, Russia’s Urals were priced at around $48 a barrel at the Baltic port of Primorsk. 

Bloomberg data shows Urals trading around the $60 level…

Furthermore, according to Bloomberg data, China and India are currently buying Russia’s flagship Urals crude oil at a massive $33.28 discount to Brent.

However, summing it all up – the concept of a price cap is meaningless, as explained in “The Ridiculous Reality Of The Russian Oil Price Cap Debate In One Picture.”

The last months have seen broad-based disagreement on where the level should be – not too low as to really hurt Russia (as to prompt retaliation), and not too high to show that European nations are terrified of actually poking the bear. It appears all about virtue-signaling yet again…

And then there’s the risk that Russia could refuse to sell its oil at prices below the cap, thus reducing global supplies that could send prices higher. Kremlin spokesman Dmitry Peskov warned last week countries that impose a price cap could be cut off from Russian crude and crude products

“It feels like they are just trying to make a decision for the sake of a decision. For the time being, we proceed from the directive of President Putin, that we will not supply oil and gas to those states that will introduce and join the ceiling. Of course, we must analyze everything before formulating a position,” Peskov said.

EU member states are forced to choose between two priorities that are almost impossible to resolve: trying to choke off revenue to Russia and avoiding potentially painful spikes in the oil price that could damage the global economy.

The price cap is part of the West’s crusade to squeeze Moscow though many of the sanctions this year have backfired and sparked an energy crisis worldwide. 

Authored by Ven Ram, Bloomberg cross-asset strategist,

Fed Chair Jerome Powell said pretty much what one would have expected him to say on Wednesday. Just earlier this week, we saw how the markets sometimes hear what they want to hear — and it being the last day of the month, stock traders decided it was time to send valuations s-s-s-soaring.

Yes, Powell did remark that the Fed may dial down the pace of its increases as soon as this month, but it was an acknowledgement of what was already known. 

He did follow it up with these lines, which were completely lost on the markets:

“Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level…

For good measure, he also remarked that the Fed is aiming for “significantly positive real rates,” a message he has delivered before.

Inflation-adjusted policy rates are now around -90 basis points, a far cry from levels where the Fed will look to stop. In other words, if key surveys about short-term inflation expectations stay around current levels, there is just no way the Fed can afford to stop before rates get to 5.25%. And that would probably be the lowest possible level. In other words, the current terminal rate of around 4.90% is not quite where it needs to be. In fact, the Fed has never really been able to wind down its tightening before real rates went significantly higher — which has been circa 200 basis points on average.

Powell doesn’t want to be remembered as someone who left his task on quelling inflation unfinished, and there was ample reiteration of that as well:

“History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

So why did stocks rejoice and Treasury yields slump? The markets, we know, are a voting machine in the short run but a weighing machine in the long run.

That means one hard day of partying may be followed by many days being just hung over.

In a series of tweets earlier this week, Elon Musk accused Apple of sabotaging Twitter by slashing advertising spending and threatening to remove the social media platform from the App Store. Such claims led to speculation that Musk would need to build his own smartphone if Twitter was de-platformed from iPhones. However, in a significant sign of de-escalation, Musk tweeted Wednesday that he met with Apple CEO Tim Cook and resolved their issues.

“Good conversation. Among other things, we resolved the misunderstanding about Twitter potentially being removed from the App Store,” Musk tweeted. “Tim was clear that Apple never considered doing so.”

Good conversation. Among other things, we resolved the misunderstanding about Twitter potentially being removed from the App Store. Tim was clear that Apple never considered doing so.

— Elon Musk (@elonmusk) November 30, 2022

Musk tweeted a short clip of a reflecting pool at the center of Apple Park in Cupertino, California. 

Thanks @tim_cook for taking me around Apple’s beautiful HQ pic.twitter.com/xjo4g306gR

— Elon Musk (@elonmusk) November 30, 2022

The meeting comes after the head of Apple’s App Store deleted his Twitter account last month, then Apple deleted all Twitter posts from its official account. Musk said earlier this week that Apple pulled its ad revenue from Twitter while giving no explanation, adding that the Big Tech giant hates “free speech.”

“Apple has mostly stopped advertising on Twitter. Do they hate free speech in America?” he asked. “Apple has also threatened to withhold Twitter from its App Store,” Musk wrote, “but won’t tell us why.” Musk also asked CEO Tim Cook in a tweet, “What’s going on?

Another problem Musk had (ahead of the relaunch of Twitter Blue) was Apple’s 30% fee it charges Twitter for in-app purchases. Musk posted a meme suggesting he could “go to war” with Apple.

“Did you know Apple puts a secret 30% tax on everything you buy through their App Store?” Musk tweeted on Monday.

… and now it appears Cook followed Musk on Twitter. 

👥 @tim_cook (CEO of @Apple) is now following @elonmusk

— Big Tech Alert (@BigTechAlert) December 1, 2022

So they’re now friends? 

While initial jobless claims dipped last week (from 241k to 225k), Challenger Job Cuts exploded higher, jumping 416.5% YoY (up 127% in November)…

Source: Bloomberg

This is the biggest jump since the COVID lockdown crisis:

“The Tech sector has announced the most job cuts this year by far. While other industries are cutting jobs at a slower pace, hiring appears to have slowed as well,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.

This year’s tech cuts are 535% higher than the 12,761 cuts announced through the same period in 2021. Job cuts announced in the East 6,762; Midwest 7,883; West 58,497; South 3,693

More symptomatic of a weakening consumer, holiday hiring plans are down notably this year…

Source: Bloomberg

Finally, Continuing Jobless Claims rose to 1.608mm, their highest since Feb 2022…

Source: Bloomberg

The decline in initial jobless claims was mainly due to distortions from seasonal factors, which had signaled a decrease of 37k from the previous week. Instead, seasonally unadjusted claims declined by 51k, pushing seasonally adjusted figures down by 16k.

It appears Powell’s tightening policy is starting to have an effect on the labor market.