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Wall Street In Pain: 163 Hedge Funds Are Long AAPL Stock

First it was the blow up of hedge fund darling Valeant that crushed countless funds who were long the name.

Then, one month ago after the collapse of the Allergan-Pfizer deal, we showed (one of the reasons) why the hedge fund world continued to underperform the broader market: Allergan was one of the most widely held hedge fund stocks.

And now, following the biggest Apple debacle in years, here is the reason why the hedge fund community is about to see even more redemption requests and underperform the market even more: according to the latest GS hedge fund tracker, at least 163 hedge fund are long the name which has just lost over $40 billion in market cap in the after hours. The good news: it used to be over 200 as recently as a year ago.


Tears won't be confined to Wall Street however: let's not forget that none other than the Swiss National Bank is also long some 10.4 million shares of AAPL.

Silver: Do Old Indicators Matter Or Is Physical About To Overrun Paper?

Submitted by John Rubino via,

For as long as most gold and silver investors can remember, the paper markets - that is, banks and speculators placing bets with futures contracts - have set the price of those metals. And within the paper markets, “the commercials” - fabricators and big banks - have consistently fooled speculators like hedge funds into going long or short at exactly the wrong time.

The data series that tracks this relationship is known as the commitment of traders report (COT), and it’s been a pretty reliable indicator of precious metals’ short-term trajectory.

Right now that’s bad news for gold and especially for silver, because the speculators - who, remember, are usually wrong at the extremes - are exuberantly long the latter, implying that the silver recovery is due for a correction. Here’s a recent piece from well-known metals trader Dan Norcini:

Silver Commitments of Traders – Halloween is Arriving Early This Year


By that I mean, it just keeps getting scarier and scarier.


My guess is that every speculator on the planet is long silver/short gold or outright long silver.


That of course is an exaggeration but I am not exaggerating when I categorically state that the silver market is a train wreck just waiting to happen. As I have said before, and will say so again – I would rather miss any more upside in this market than get long now, not with a trade so lopsidedly jammed with speculators on the long side. I will leave that for the daredevils and others who like driving the stagecoach as close to the edge of the mountain pass road as they possibly can.


Here is a look at the hedge fund outrights:



Yet another all time record high! Tell me we do not have a buying frenzy taking place in the silver market! I suppose it can keep going higher and the specs can keep piling on more and more longs but when it breaks, it is going to be ugly – unless you are short and then it will be a thing of beauty to behold a mass exodus of hapless specs who ended up buying the top in this thing.


Commercial interests and Swap Dealers have been more than happy to offload silver into the hands of speculators at these prices. If I were long this market, and I am not, I would get some downside protection through the use of options at the very least.

On the other side of this argument is London metals trader Andrew Maguire, who in his latest interview on King World News asserts that gold and silver are entering new, post-paper age in which physical demand sets prices:

Western central planners have finally lost control of the gold market.


There is an unprecedented liquidity drain out of London markets into physical markets in the East. It’s flowing out of the paper market into the physical exchanges. These events are unprecedented, forcing changes in the behavior of paper markets that are not comprehended by paper-centric analysts who are puzzling over outdated chart patterns and synthetically extracted data.


Just this week things came to a head. An overwhelming number of bearish observations appeared in the blogosphere. I see a lot of hand wringing about open interest structure which historically at these levels has resulted in a major rinse lower. But the gold market is increasingly driven by global physical benchmarks. The physical market dog is starting to wag the paper market tail. Anyone trading paper-centric historical patters is driving forward while looking in the rear view mirror.

Maguire goes on to say that if this is indeed the long-awaited physical take-over of the precious metals markets silver will not only fail to correct, it will go up faster than gold, bringing the gold/silver ratio down to more historically normal levels.

For those getting back into precious metals after the brutal bear market of the past few years, the prospect of the Eastern physical markets taking over from the Western paper markets is welcome. But it adds another layer of complexity to an already opaque market.

So here again, the only rational response is to embrace the short-term uncertainty and dollar-cost average. Since both camps in the above debate see precious metals much higher a few years hence, just buy a little at a time and don’t try to play the squiggles. Leave that to the pros.

Apple Plunge Drags Entire Nasdaq Lower By 60 Points

With AAPL trading with a $95 handle after-hours (down over $40 billion in market cap), the blowback of the demise of this "no brainer" is echoing through the once impregnable walls of Nasdaq futures which are now down over 60 points from the cash close...back to one-month lows.

AAPL back to a $95 handle...


Smashing Nasdaq down over 60 points...


Back to one-month lows...

Life Is Good In The Corner Suite: Highest-Paid CEOs See Pay Jump Despite Dismal Performance

As most Americans have resigned themselves to the fact that merit increases are a thing of the past, and yearly reviews will only yield a pat on the back and new goals for the upcoming year, life is still good in the corner suite. CEO's are still getting raises, but don't be alarmed, you'll feel that trickle down effect any minute now.

In a study performed by Equilar which looks at the largest U.S. companies in terms of revenue, the average pay for CEO's of these firms was $15.5 million, and the median pay was $14.5 million, up 3% from 2015.

Oracle's Mark Hurd (see kids, you too can survive sex scandals, resign for lack of integrity and good judgement, and still make more than any other CEO in the U.S.) and Safra A. Catz top the list, tied at $53.2 million.

Without further delay, here are the highest paid CEO's in 2015

Incidentally, the top paid Co-CEO tandem of Mark Hurd and Safra Catz significantly under performed the S&P, as did Fox's Rupert Murdoch and Morgan Stanley's James Gorman.

We're sure that the boards of all of these companies, specifically ones that are under-performing, will propose executive pay changes when the economy grinds to a halt in 2016 and cost cuts are implemented to hold earnings estimates.

FANGs Slump Despite Crude Pump As China Commodity Carnage Continues

Nothing to see here, move along...China commodity carnage, US data dismal, and a Fed meeting that has to err on the side of hawkishness...


The commodity carnage in China continued overnight...


But for the 4th day in a row, authorities intervened to support Chinese stocks...


And that provided some hope oveernight into the US open...


On the day - very mixed - Nasdaq underperformed but Trannies & Small Caps squeezed higher...Dow/S&P Unch...


Once again, VIX was smashed into the close in an effort to maintain Dow 18,000...BUT FAILED


Another day, another short squeeze...lifts Trannies & Small Caps


AAPL was chaotic today into earnings...


FANGs had their worst 3-day run in almost 3 months, back to 6-week lows...


Treasury yields rose for the 2nd day heading into The Fed meeting, with a wider range today...


The USD Index drifted lower once again... (though notably JPY weakened also)...


Copper drifted lower - dragged by the industrial metal collapse in Chinas but crude and PMs all rallied on the weaker dollar...


Crude algos panic-big oil prices above $44, running yesterday's high stops ahead of tonight's API report...


Charts: Bloomberg

Bonus Chart: Macro madness...

Apple Tumbles After Missing Sales And Earnings, Guides Below Lowest Estimate

First it was Twitter, now it is consumer tech titan AAPL's turn to tumble. For those pressed for time, here is the breakdown:

  • APPLE Q2 REVENUE $51.56BN, EST 251.97BN
  • APPLE Q2 EPS $1.90, EST $2.00
  • APPLE SEES 3Q REV. $41B-$43B, EST. $47.4B
  • APPLE SOLD 4.03M MACS IN 2Q, EST. 4.6M
  • APPLE 2Q IPHONE ASP $641.83, EST. $651

And now the details:

Moments ago AAPL reported Q2 EPS of $1.90, missing expectations of $2.00 on revenue of $50.56BN which not only plunged by 13% from ayear ago, but also significantly missed expectations of $52 Billion. Perhaps the biggest driver for this was both the sequential and annual plunge in Chinese sales, which dropped to $12.5 billion from $16.8 billion a year ago.


And while Apple beat expectations on iPhone sales, selling 51.2 million units in the quarter, above the 50.7 million expected, if still 16% lower than a year ago, it did so on both a lower than expected margin of 39.4%, and lower iPhone ASPs, which dropped to $641.8 below the $651 estimate.


Worse, the company's guidance for Q3 revenues was absolutely abysmal, and now sees only $41-$43BN in Q3 sales, well below not only the median estimate of $47.35bn but below the lowest sellside estimate of $43.95bn.

But the scariest chart is probably the one showing the sharp slow down in sales across virtually all geographies.


For those curious about AAPL's crash, the gross cash rose once again to a new record high...


... but net cash after deducting AAPL's rapidly rising debt shows that it is virtually unchanged for 3 years:


According to Tim Cook, "our team executed extremely well in the face of strong macroeconomic headwinds. We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices.”

Shareholders do not appear to share his pleasure because more troubling was the CFO commentary according to whom what was slowing iPhone sales was the slowness to upgrade.

So is the AAPL magic gone?

As of this moment investors says yes, as AAPL tumbles 6% after hours, and that despite AAPL announcing that the Board has increased its share repurchase authorization to $175 billion from the $140 billion level announced last year.It also added that it will continue to access domestic and international debt markets to fund shareholder returns, adding that it has authorized boost of $50b to holder return plan to a total of $250b by end of March 2018.

Crude Extends Gains After Surprise Inventory Draw

With expectations for a 1.75m barrel build, API shocked by reporting a 1.1m inventory draw sending WTI crude above $44.50 - running stops from last week's highs. Gasoline (-400k) and Distillates (-1.02m) also saw draws. Cushing, however, after recent declines from pipeline closures, saw a 1.9m barrel build.



Spiking crude above last week's highs...


IIF Ruins The Party, Predicts Another $420 Billion In Chinese Capital Outflows This Year

In early 2016, the biggest global macroeconomic risk factor was the accelerating capital outflows out of China over fears of currency devaluation (or simply because the local population knows better than anyone just how dire to domestic situation is and is rushing to park its assets offshore) and with good reason: after the PBOC burned through $1 trillion in reserves to offset capital flight starting in the summer of 2014, even the IMF chimed in with a concerned report suggesting China may have at most another half a trillion "buffer" left before it runs into illiquid assets which would prove virtually impossible to liquidate easily in the open market.

It got so bad that in January and early February, US equity futures would surge or slump based on a Yuan fixing that was a few basis point lower or higher than expected.

But then, almost as if on cue, following three consecutive months of nearly $100 billion in outflows, in February the capital flight slowed sharply and then proceeded to reverse (not if one includes FX adjustments but these days who actually does math) in March, leading to the first Chinese reserve increase since October. (assuming of course one believes Chinese data; one reason why one should not is everything that is currently going on in Vancouver real estate which proves the capital outflow has never been stronger).

So perhaps as a result of the rapid reversal in reserve liquidation or the stabilization in the offshore Yuan rate (where the PBOC has been particularly active in punishing shorts), fears about Chinese capital flights have been relegated to the back pages. Which is paradoxical, because not only have none of China's underlying problems been addressed, the only way China managed to sweep its all too glaring problems under the rug was with the aid of $1 trillion in new Q1 loans.

Of course, it was concerns about soaring bad debt (as well as a hard landing economy and plunging exports, but those are all derivatives of China's 350% in debt/GDP) that got China where it was in the summer and winter of 2015 in the first place, when it first started devaluing its currency. So to suggest that by adding even more debt on top of what was a debt problem somehow fixed it, well, debt problem is something only a full Krugman could suggest.

Which is why we were not surprised to read that according to the latest Institute of International Finance forecast, and in validation of Kyle Bass' strong conviction that China is about to suffer a major 15%+ devaluation, China's capital outflow headaches may be only just starting. According to the IIF's latest report released today, global investors are expected to pull $538 billion out of China's slowing economy in 2016, which means another $420 billion after the $118 billion that has already been withdrawn in Q1.

That number would be down a fifth from the $674 billion pulled out last year, the industry association said, but could be a stark acceleration from $118 in reserves sold in the first three months of the year as fears re-emerge of a "disorderly" drop in the yuan, or the renminbi, as the currency is also known.

"A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets," the IIF said in a new report.

"Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China."

As noted above, for now, however, outflows are slowing. Roughly $35 billion was pulled out in March, bringing the total since the start of the year to around $175 billion, well below the pace seen in the second half 2016.

The IIF cited progress Chinese authorities had made in easing worries about the yuan's direction. Once again, we fail to see what those are aside from one more trillion in loans and another unprecedented round of fiscal stimulus.

Ironically, the IIF forecast that:

  • We project net capital outflows to slow to $538 billion in 2016 from $674 billion last year, supported by a gradual recovery in non-resident capital inflows. However, there remain risks that outflows could accelerate again if concerns about RMB depreciation intensify again

Which is certainly not improvement but actually a sharp deterioration to the latest runrate inflow, considering it took the Shanghai Accord and countless central bank interventions to stabilize the Yuan, and the halt the Chinese outflows. The IIF's forecast is implicitly suggesting that what has been achieved is nothing but a pyrrhic victory and over the next three quarters, China is about to see another $420 billion in outflows, a dramatic deterioration to the status quo, one which would return the market into a full blown sell-off mode as that encountered at the end of 2015 and first two months of 2016 when panic over China's soaring outflows was all the rage.

So did the IIF just tacitly open the next Pandora's box in China's capital flight tale? In its own conclusion, the IIF hopes for the best:

In our baseline projections, capital outflows and pressure on the RMB persist through 2016, but diminish in intensity as policymakers persuade investors that they will be successful in stabilizing the RMB’s value.

With brute central bank intervention to punish anyone found shorting the CNH. Anyway, continuing:

Greater confidence that the economy is on track to meet the growth target of 6.5-7 percent would also help. Most of the improvement is projected to
be in a turnaround in non-resident capital flows, while resident outflows and errors and omissions are forecast to moderate more gradually

That confidence won't come to anyone who does an even cursory look behind the scenes because as we have reported over the past week, none of the Chinese numbers - be they imports, annualized GDP or province level GDP - actually make any sense.

The IIF conludes as follows:

Nonetheless, China remains vulnerable to a renewed intensification of capital outflows, particularly if doubts about the stability of the RMB were to come to the fore again. In particular, stress could rise through a combination of a stronger USD—particularly if the market comes to believe that the Fed will tighten more quickly than currently priced in—and further disappointment about China’s growth momentum.

So yes, any Fed rate hikes and we are right back out of the eye of the hurrican, but even more amusing would be if we end up in the same spot if after reading this report the market realizes that after managing to restore inflows, China is now expected to see another $400 billion in outflows for the rest of 2016 as per the IIF's "benign" forecast, and proceeds to panic all over again.


As Fed Meeting Begins Futures Are Flat In Sleepy Session; Apple Earnings On Deck

With the Fed decision just one day away, followed the very next day by the increasingly more irrational BOJ, stocks had no desire to make significant moves and overnight's boring session was the result, as European stocks and U.S. index futures rose modestly but mostly hugged the flatline while Asian declined 0.2% for a third day as raw-material shares declined and Tokyo equities slumped before central bank meetings in the U.S. and Japan this week. China’s stocks rose the most in almost two weeks, up 0.6% but failed to rise above 3000 on the Shanghai Composite, in thin trading.

The reason why no breakout is possible in any direction is because confusion reigns about the most basic issue: earnings. Take these two quotes for example:

"While policies are supportive of equities, valuations look expensive,” Hans Goetti, the Dubai- based chief strategist for the Middle East and Asia for Banque Internationale à Luxembourg told Bloomberg. "First-half earnings don’t really look great. Unless you have very good earnings coming through in the second half, I think valuations could be on the high side."

And then this: "Earnings are doing pretty well,” Michael Woischneck, a fund manager who oversees the equivalent of $190 million at Lampe Asset Management in Dusseldorf, Germany told Bloomberg. "But that’s something that could change with just one word from a Fed governor. Although no changes are expected, wording at this week’s meeting is key."

Peraps one was looking at GAAP while the other one was focused on non-GAAP?

In any case, European stocks climbed for the first time in four days as BP Plc and Standard Chartered Plc rose after the companies reported earnings. The Stoxx Europe 600 Index rose 0.5 percent as of 10:37 a.m. London time. BP rallied 4.2 percent and Standard Chartered jumped 10 percent in London. The pound strengthened against all of its major counterparts on speculation that the U.K. is less likely to leave the European Union.  Banks led gains in Europe and Asian equities pared their decline. The yen and Treasuries advanced before central bank meetings this week. Malaysia’s ringgit dropped to a one-week low after a state-owned investment fund withheld an interest payment on its bond. Copper fell for a second day and crude oil traded below $43 a barrel. Day ahead natural gas in the U.K. rose to the highest since mid January as colder-than-usual weather boosted demand.

BP, the first oil major to report quarterly earnings, posted a surprise profit as a stronger-than-expected refining and trading performance helped mitigate the lowest crude prices in more than a decade. In the U.S., Apple Inc. releases results Tuesday that may shed more light on the state of the technology sector. The Federal Reserve concludes its meeting Wednesday, with investors pricing in no chance of an interest-rate increase. The Bank of Japan’s outcome is a day later and most analysts predict Governor Haruhiko Kuroda will unveil a stimulus boost.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. Apple, the world’s most valuable company, forecast in January that quarterly revenue would drop for the first time in more than a decade as iPhone sales slowed. The company’s projection of $50 billion to $53 billion for the three months through March compares with an average estimate of $52 billion in a Bloomberg survey of analysts.

The MSCI Emerging Markets Index rebounded 0.1 percent, after losing 0.4 percent, as stocks in China, India and South Korea advanced. The Hang Seng China Enterprises Index of mainland shares in Hong Kong rose 0.3 percent after sliding 1.4 percent. The Shanghai Composite Index added 0.6 percent, rebounding from the lowest since March.

Global Market Snapshot

  • S&P 500 futures up 0.2% to 2087
  • Stoxx 600 up 0.2% to 347
  • FTSE 100 up 0.3% to 6279
  • DAX up less than 0.1% to 10295
  • German 10Yr yield up 1bp to 0.28%
  • Italian 10Yr yield up 1bp to 1.54%
  • Spanish 10Yr yield up 1bp to 1.65%
  • S&P GSCI Index up 0.2% to 346
  • MSCI Asia Pacific down 0.2% to 133
  • Nikkei 225 down 0.5% to 17353
  • Hang Seng up 0.5% to 21407
  • Shanghai Composite up 0.6% to 2965
  • S&P/ASX 200 down 0.3% to 5221
  • US 10-yr yield down 1bp to 1.9%
  • Dollar Index down 0.3% to 94.56
  • WTI Crude futures up 0.7% to $42.94
  • Brent Futures up 0.7% to $44.80
  • Gold spot down 0.3% to $1,235
  • Silver spot up less than 0.1% to $17.01

Global Top News

  • DuPont Boosts Outlook as First-Quarter Sales Top Estimates: Boosts yr oper. EPS forecast to $3.05-$3.20, had seen $2.95- $3.10; 1Q oper. EPS $1.26 vs est. $1.04; says on track for $730m cost reductions
  • BP Reports Surprise Profit on Strength in Refining, Trading: Profit adjusted for one-time items and inventory changes was $532m vs analyst ests. for loss of $244.9m; co. says it can balance books w/ oil at ~$50-$55/bbl
  • Sarepta Fails to Win FDA Panel Backing for Muscle Disease Drug: Panel votes 7-3 that drug wasn’t shown to be effective
  • U.S. to Require Large Banks to Have Year Worth of Liquidity: WSJ; Details of rule crafted by Federal Reserve, FDIC, Office of the Comptroller of the Currency to be released Tuesday at FDIC board meeting
  • Toyota Cedes Global Sales Lead to VW as Shutdowns Trump Scandal: Toyota sales fell 2.3% in 1Q to 2.46m in Jan.- March, Volkswagen deliveries rose 0.8 percent to 2.5m
  • Fed to Keep Options Open for June Rate Hike: Decision-Day Guide: Officials to debate whether to reinstate risk assessment
  • Toshiba Books $6.2 Billion Loss After Westinghouse Writedown: Yr prelim Oper. loss 690b yen; had forecast 430b yen loss; nuclear business results in 260b yen impairment
  • Oil’s Recovery Inches Higher as Fracklog Awaits Price Trigger: Drilled, uncompleted wells could return 500,000 b/d to market
  • New Valeant CEO Papa Trades Challenge at Perrigo for Fresh One
  • Verisk to Sell Health-Care Services Ops to Veritas for $820m: Sale prices includes $720m cash, $100m L-T promissory note with interest paid in kind, other contingent consideration
  • Perella Weinberg Said In Merger Talks With Tudor Pickering: Considering a tie-up with Tudor Pickering in a push into the energy sector
  • Alere Said to Get Default Notice From Creditors on Filing Delay: Received notice of default from group of bondholders after company delayed filing 2015 financial statement
  • McDonald’s Said to Market Euro Bonds After ECB Expands Stimulus: Offering the securities in 3 parts, with notes maturing in January 2021, November 2023 and May 2028, according to person familiar with matter
  • Earnings Blowups Send Tech Traders to Options Market for Hedges: Ratio of Nasdaq VIX to S&P 500 gauge near highest since August
  • Landry’s, Jefferies CEOs Plan IPO for New SPAC: Reuters: Landry’s CEO Tilman Fertitta, Jefferies/Leucadia CEO Richard Handler to start special purpose acquisition co. through their cos. called Landcadia, plans to raise as much as $300m in IPO

Looking at regional markets, Asian stocks traded lower following the subdued lead from Wall St. as participants remained cautious ahead of the week's key policy decisions. ASX 200 (-0.3%) opened from its long weekend to trade in minor-positive territory, underpinned by a rebound in the commodities-complex in which WTI briefly reclaimed USD 43/bbl, but failed to hold onto gains as commodities pulled back and the downbeat tone persevered. Nikkei 225 (-0.5%) extended on losses with participants tentative as they contemplate on whether the BoJ will ease further this week, while Chinese markets (Shanghai Comp +0.6%) initially outperformed following another substantial liquidity injection and expectations outflows are to improve this year, before sentiment later soured on commodity weakness with Dalian iron ore prices falling over 4%. 10yr JGBs traded mildly higher as the risk-averse tone in Japan supported safe-haven assets, while the BoJ were also in the market to acquire around JPY 1trl in government debt.

Top Asian News

  • Mitsubishi Motors’ Improper Mileage Tests Date Back to 1991: Formed a panel of three former prosecutors to investigate improper testing that goes back as far back as 1991, including the falsification of fuel efficiency data
  • 1MDB Defaults on Bond After Missing $50 Million Payment: 1MDB in disagreement with IPIC over debt obligations
  • Hyundai Posts 9th Successive Profit Drop as China Sales Fell: Deliveries in South Korea rose 3.7%, while in China fell 9.6%; 1Q oper. profit 1.34t won; est. 1.42t won; 1Q net income, excluding minority interests, 1.69t won; est. 1.5t won
  • Obscure Chinese Hedge Fund Is Making Big Enemies in Stock Market: Activist investor in the making takes on Internet firms
  • UBS Says Hong Kong Traders Should Be Worried Amid China Defaults: End of implicit state support to drive up funding cos
  • Alipay Owner Raises Record $4.5 Billion to Fund Global Expansion: China’s sovereign wealth fund joins as new investor
  • Mallya Faces Expulsion From India Parliament by Ethics Panel: Businessman said to be overseas as creditors seek debt dues
  • India’s Energy Minister Wants to Cut Coal Imports to Nothing: Goyal says India increasing domestic output to cut imports

Sentiment today has kicked off in a more upbeat fashion in Europe, with equity indices higher across the board (Euro Stoxx: +0.4%). In terms of the notable outperformers, the likes of BP (+3.8%) and Standard Chartered (+10.0%) have both seen strength in the wake of their earnings updates, while Italian banks are once again among the best performers in Europe. In tandem with the uptick in sentiment, WTI futures remain near their highest levels of the day, although still slightly lower than the USD 43.00/bbl level.

In fixed income, Bunds have ebbed lower throughout the morning to break below 162.00 to the downside and approach the April 25th low at 161.90 in what appears to be more of a technically driven move and also in tandem with the move higher in stocks. Separately, orders for the UK 2065 Gilt syndication exceed GBP 19bIn with price guidance unchanged according to bookrunners with price guideline at 0.25-0.5bps above 3.5% 2068 Gilt. Looking ahead, highlights still to come include US durable goods orders, flash services PMI, comments from ECB's Constancio and Fed's Mester and Lockhart.
Top European News

  • Standard Chartered Jumps on Surprise Drop in Loan Impairments: 1Q pretax adj. profit fell 64% to $539m, capital ratio climbs, costs fall 12% y/y, losses on bad loans fell 1% to $471m
  • Diamond’s Atlas Mara Interested in Barclays Africa Takeover: Said it’s held talks with investors on a potential bid for or the U.K. lender’s operations in Africa to boost its presence across the continent
  • Bayer Profit Beats Estimates as Newest Drugs Buoy Demand: 1Q Ebitda before special items EU3.4b, est. EU3.1b, top-selling drugs Xarelto and Eylea continued to soar
  • Orange Quarterly Sales Rise 0.6% as Growth Resumes in Spain: 1Q rev. EU10b vs est. EU10b; keeps guidance, targets 2016 restated Ebitda higher than in 2015 on comparable basis
  • BAT Revenue Beats Estimates on Gains Across Western Europe: Reported a surge in cigarette sales in western Europe that helped 1Q revenue beat analysts’ estimates
  • EON Sees Profit of Up to 1 Billion Euros After Uniper Split: Utility plans to pay dividend of 40%-60% of underlying income
  • Merkel Said to Weigh $1.4 Billion in Electric-Car Incentives: Will meet with German automotive CEOs on Tuesday evening to discuss a plan to spend as much as EU5,000 per vehicle,
  • Pound Shows How Brexit Concerns Are Starting to Look Overdone: Implied pound volatility falls most since 2015 U.K. election

In FX, nothing other than GBP buying behind the USD moves this morning, as ($) index has turned lower aggressively and is now testing support in the 94.50 area. Brexit repositioning said to be largely behind the sharp turn in the tide of UK sentiment, but we sense specs are now pushing for further stops with pre 1.4600 offers set to be tested. Nevertheless, mid Feb highs now achieved. EUR/GBP losses have slowed though as EUR/USD has turned higher in tandem, touching on 1.1300. AUD and CAD gain on follow on moves, but .7750 and 1.2630 levels contain respectively for now.

Ahead of the FOMC, some restraint is likely to kick in soon, but levels are getting stretched despite the focus on whether Yellen and Co will hint/signal at a potential move in June.

The ringgit slid 0.5 percent. 1Malaysia Development Bhd. said it didn’t pay $50 million of interest on a $1.75 billion bond amid a dispute with Abu Dhabi’s sovereign wealth fund on who should be making the payment. The latter is the co-guarantor of the defaulted securities and said this month 1MDB owed it more than $1 billion. 1MDB’s dollar bonds slumped, sending $3 billion of March 2023 securities down 1.76 cents to 88.37 cents on the dollar to yield 6.53 percent .

The yen strengthened 0.3 percent to 110.87 per dollar, having touched a three-week low of 111.91 on Monday. Nikkei newspaper reported that Japan’s $1.3 trillion Government Pension Investment Fund will start hedging to protect its foreign assets against an appreciating yen, a move Bank of America Merrill Lynch strategist Shusuke Yamada said could boost the local currency.

In commoditues, WTI has been trickling lower after reaching highs of USD 45.45/bbl last Thursday. Prices have continuously made lower highs and lower lows (1hr chart) and currently resides at USD 42.94/bbl. Gold has been largely range bound between USD 1240.77/oz to USD 1232.35/oz. Silver was also bearish overnight and on a technical note used the 23.6 fib on the 4 hour chart as resistance for a move up which was at the USD 17.00 level. In industrials we also saw copper and Dalian iron ore futures pressured with the latter retreating further away from 20-month highs amid a widespread cautious tone.

On today's US docket highlights include US Durable Goods Orders, Flash Services PMI, API Crude Oil Inventories and Fed's Mester. The early release will be the first reads for durable and capital goods orders: the market is expecting a +1.9% mom headline durable orders print, and +0.9% mom core capex print. Also due out today will be more housing market data in the form of the S&P/Case-Shiller house price index, along with the Conference’s Board’s leading index (expected to decline 0.4pts to 95.8), the flash services and composite PMI, and finally further regional manufacturing data in the form of the Richmond Fed manufacturing activity index. Away from the data there will be more Central Bank speak from the ECB with Constancio scheduled to speak, while BoE Deputy Governor Cunliffe is also due to speak today. Earnings season kicks up another gear meanwhile with 50 S&P 500 companies set to report. The highlights look set to be Proctor & Gamble (before-market), AT&T (after-market), eBay (after-market) and of course Apple (after-market). Meanwhile, the highlight of the European calendar today will likely be results out of BP.


Bulletin Headline Summary from RanSquawk and Bloomberg

  • Sentiment today has kicked off in a more upbeat fashion in Europe, with equity indices higher across the board (Euro Stoxx: +0.4%)
  • Nothing other than GBP buying behind the USD moves this morning, as ($) index has turned lower aggressively and is now testing support in the 94.50 area
  • Looking ahead, highlights include US Durable Goods Orders, Flash Services PMI, API Crude Oil Inventories and Fed's Mester
  • Treasuries little changed during overnight trading amid European equity strength after better-than-expected earnings from BP and Standard Chartered; Treasury auctions continue with sale of $34b 5Y notes, WI 1.385%; last sold at 1.335% in March, 1.169% in February.
  • Federal Chair Janet Yellen and her colleagues will have a chance this week to signal whether they want to raise rates as soon as June. The message is likely to be it’s still an option, but far from a certainty
  • Bond traders aren’t fully pricing in another rate increase until February, while driving a gauge of expected volatility in Treasuries to the lowest since 2014 this month. That’s the sort of hubris that can get them burned, according to Jerome Schneider, a money manager at Pimco
  • The ECB’s announcement in March to include corporate bonds in its QE program has sent borrowing costs toward record lows for issuers in the region. That has investors looking beyond senior debt to find bonds that may have been overlooked
  • A measure of risks to sterling following the June 23 vote on Britain’s membership in the European Union has tumbled by the most since the country narrowly avoided an inconclusive general election result last year
  • If Britain leaves the European Union, it’s going to need negotiators, and lots of them. Parliament’s Foreign Affairs Committee thinks it knows where it can find them: London’s financial sector
  • Fitful financial markets and signs of a southwest Florida real estate slowdown so unnerved Canadians Fab and Christa Michetti that they sold one of their two vacation homes there last month. The U.S. presidential election’s isolationist talk provided one more push
  • Sovereign 10Y bond yields mostly higher; European, Asian equity markets mostly higher; U.S. equity-index futures rise. WTI crude oil higher while metals drop

US Event Calendar

  • 8:30am: Durable Goods Orders, March P, est. 1.9% (prior -3%)
    • Durables Ex Transportation, March P, est. 0.5% (prior -1.3%)
    • Cap Goods Orders Nondef Ex Air, March P, est. 0.6% (prior -2.5%)
    • Cap Goods Ship Nondef Ex Air, March P, est. 0.9% (prior -1.7%)
  • 9:00am: S&P/Case-Shiller US HPI m/m SA, Feb. (prior 0.52%)
    • S&P/CS 20 City Index NSA, Feb., est. 182.83 (prior 182.56)
    • S&P/CS 20 City m/m SA, Feb., est. 0.80% (prior 0.8%)
    • S&P/CS 20 y/y NSA, Feb., est. 5.75% (prior 5.75%)
    • S&P/CS US HPI NSA, Feb. (prior 175.42)
    • S&P/Case-Shiller US HPI y/y NSA, Feb. (prior 5.43%)
  • 9:45am: Markit US Services PMI, April P, est. 52 (prior 51.3)
    • Markit US Composite PMI, April P (prior 51.3)
  • 10:00am: Consumer Confidence Index, April, est. 95.8 (prior 96.2)
  • 10:00am: Richmond Fed Mfg Index, April, est. 12 (prior 22)

Central Banks

  • Two-day FOMC meeting begins
  • 8:40am: BOC’s Poloz speaks in New York


  • 11:30am: U.S. to sell $20b 52W bills, $35b 4W bills
  • 1:00pm: U.S. to sell $34b 5Y notes

US Event Calendar

  • Two-day FOMC meeting begins
  • 8:30am: Durable Goods Orders, March P, est. 1.9% (prior -3%)
  • 8:40am: BOC’s Poloz speaks in New York
  • 8:55am: Redbook weekly sales
  • 9am: S&P/Case-Shiller US HPI m/m SA, Feb. (prior 0.52%)
  • 9:45am: Markit US Services PMI, April P, est. 52 (prior 51.3)
  • 10am: Consumer Confidence Index, April, est. 95.8 (prior 96.2)
  • 10am: Richmond Fed Mfg Index, April, est. 12 (prior 22)
  • 4:30pm: API weekly oil inventories

DB's Jim Reid concludes the overnight wrap

Markets were snoozing a little yesterday ahead of things hotting up in what is a very busy rest of the week. There was some cautiousness around though with the Fed and the BoJ continuing to create lots of debate, especially the latter. The meeting is seemingly on a knife-edge in terms of whether they'll act now or not and as we highlighted yesterday the consensus split is fairly even as to whether they pull the trigger this time. Our FX colleagues touched upon the topic of the BoJ approving NIP loans yesterday in their daily FX piece. While they ultimately expect no change in policy, they believe that it’s unlikely in their view that NIP loans would provide a major jolt that leads to an increase of banks’ corporate loans.

This morning in Asia, bourses are generally following the lead from the US last night and drifting lower. Leading the way are markets in Japan where the Nikkei is currently -1.08% and the Topix is -1.31%. The Hang Seng (-0.81%), Kospi (-0.09%) and ASX (-0.34%) are also in the red, with China flattish as we go to print. The risk-off tone is being reflected by the strengthening in the Yen this morning too, currently up +0.28%. Despite the near 3% weakening for the currency last week, which is going part of the way to lending support to the BoJ on hold camp, the Yen is still a not too insignificant 6.7% stronger from the day before the January negative rate move, rallying from nearly 119 to the current level of just below 111.

As we noted earlier there wasn’t much to write home up about with regards to newsflow and price action in markets yesterday, compounded also by a lack of earnings releases for investors to get stuck into. Some slightly softer macro data and an easing across the energy complex (WTI ended down nearly 2.5% and back below $43/bbl) contributed to a softish day for markets on the whole with the S&P 500 (-0.18%), Dow (-0.15%), Stoxx 600 (-0.51%) and DAX (-0.76%) all ending the session in the red. Its worth noting though that volumes were generally 10-20% lower than the average depending on the index. Credit markets were probably the bigger underperformer yesterday. In Europe, after rallying to the tune of 5bps or so last week, the iTraxx Main gave back about half of that move in yesterday’s session, while across the pond CDX IG ended just over 1.5bps wider following a 7bp rally last week.

Speaking of credit markets, some of the more interesting news yesterday was in the new issue market where Unilever became the latest corporate to price a post ECB-CSPP announcement zero-coupon bond in Euros (4y bonds). The bonds were priced at a discount so as to yield a miniscule 12bps. This comes after Sanofi priced 3y bonds last month also with a zero coupon and it feels like it won’t be the last.

That news came despite it being a broadly weaker day across rates markets. 10y Bund yields edged another 3bps higher yesterday and at 0.263% is now some 19bps off the early April lows. It was a similar story in the US Treasury market where the benchmark 10y ended up 2.5bps higher in yield at 1.914% - the first time it’s closed above 1.9% since March 25th.

Just on that economic data, in the US we learned that new home sales declined unexpectedly last month (-1.5% mom vs. +1.6% expected) to an annualised rate of 511k. In fairness this actually masked what was actually 26k of upward revisions to the prior two months so the headline probably looked softer than the overall details revealed. Meanwhile, the other data released in the US was another regional manufacturing survey, this time from the Dallas Fed. Data for this month was weaker than expected however at -13.9 (vs. -10.0 expected), a slight weakening from the -13.6 in the prior month. Closer to home, the only data of note came out of Germany where the IFO business climate survey was little changed from March at 106.6 (and below hopes for a rise to 107.1). The current assessment component declined 0.6pts to 113.2 which was offset by a modest 0.4pts gain in the expectations component to 100.4

Turning to the micro and a quick update of where we’re standing on the earnings front (ahead of a busy rest of the week calendar). As it stands with 138 S&P 500 companies having reported, 104 have beat EPS consensus (75%) at a weighted average beat of 2.6%. Meanwhile 82 companies have beaten revenue estimates (59%) at a more modest 0.2% average beat. The bottom-up EPS for the index is now over 8% lower on a YoY basis, while DB’s David Bianco made mention in his piece on Friday that analysts have cut their Q1 EPS estimates by a whopping 9.4% since January 1st – with this number likely to increase as we run further through reporting season. This was most evidenced by the Banks last week and looking ahead to Apple’s Q2 results today, the current EPS consensus estimate is $1.98 which has been marked down nearly 17% since the start of the year. So while earnings are tracking at their usual beat/miss ratio, this is being propped up by materially lower consensus earnings expectations while earnings are also down high single digits (in percentage terms) relative to last year.

Taking a look at the day ahead now, this morning in Europe it’s a fairly sparse calendar with only BBA loans data out of the UK of any interest. That all changes this afternoon however where we’ve got a packed afternoon for data in the US. The early release will be the first reads for durable and capital goods orders in March. The market is expecting a +1.9% mom headline durable orders print, and +0.9% mom core capex print, while our US economists are a little less optimistic at +1.0% mom and +0.7% mom respectively. Also due out today will be more housing market data in the form of the S&P/Case-Shiller house price index, along with the Conference’s Board’s leading index (expected to decline 0.4pts to 95.8), the flash services and composite PMI, and finally further regional manufacturing data in the form of the Richmond Fed manufacturing activity index. Away from the data there will be more Central Bank speak from the ECB with Constancio scheduled to speak, while BoE Deputy Governor Cunliffe is also due to speak today.

Earnings season kicks up another gear meanwhile with 50 S&P 500 companies set to report. The highlights look set to be Proctor & Gamble (before-market), AT&T (after-market), eBay (after-market) and of course Apple (after-market). Meanwhile, the highlight of the European calendar today will likely be results out of BP.

Major UK Pension Fund Slashes Benefits As Funding Crisis Spreads

As we continue to cover the pension crisis that is unfolding in the United States (recently here and here), it is important to remember that these problems are not unique to just the U.S.

One of the largest educator pension funds in the U.K., the Universities Superannuation Scheme (USS) is implementing significant changes to the plan benefits as it becomes increasingly under-funded, just like its peers in the United States. The changes are drastic, and are meant to keep the fund solvent in order to at least pay some benefits rather than none over time. The plan represents 330,000 members across 400 institutions, according to its website.

The changes were foreshadowed in 2014, when in discussing the funding issues, the USS said "this means it is likely that, given the increased cost of providing future pensions and the need to deal with an increased deficit, higher contributions and/or other responses will be required."

Upon the completion of the 2014 actuarial valuation, the first of those "other responses" was for the fund update its deficit recovery plan to include employer's contributing 2.1% of salaries toward the deficit over a period of 17 years.

Following completion of the 2014 actuarial valuation, and further consultation with Universities UK (as the representative body for the scheme’s sponsoring employers), the trustee has updated its recovery plan for addressing the scheme’s deficit. The updated recovery plan requires employers to contribute 2.1% of salaries towards the deficit over a period of 17 years. The trustee has extended the period of the recovery plan following an extensive piece of work, undertaken independently, on the financial strength of the scheme’s sponsoring employers (which is generally referred to as the employers’ covenant). The conclusions from that work confirmed the trustee has reasonable visibility of the ongoing strength of the covenant over a period of 20 years.

Then, as the funding gap widened, further measures were taken.

According to the 2015 annual report (month ended March 31, 2015) the fund had £49.1 billion in assets, and £57.3 billion in valued liabilities, adding up to a deficit position in the amount of £8.2 billion. Said another way, only 86% funded, down from 89% the prior year.


Based on the 2015 results, additional steps were taken in the effort to lower the plan's deficit.

The USS introduced changes that significantly change the structure of the plan, and begins to shift the focus from definied benefit to defined contribution. Beginning April 1, 2016, the following changes have been made (per the annual report):

  • The use of final salary to calculate retirement benefits comes to an end, and will be replaced by a career revalued benefit (CRB) basis (i.e. an average salary calculation, adjusted for a capped CPI amount will be used to calculate defined benefit payments instead of using the most recent - and presumably highest - salary at retirement).
  • Employer contribution rates will increase to 18%, up from 16%
  • Employee contribution rates will increase to 8%, up from 6.5% for current CRB members, and up from 7.5% for final salary members)

Additionally, beginning October 1, 2016, contributions after the first £55,000 of one's salary will be paid into a new defined contribution plan (of which the employer will contribute 12% of the excess salary over the threshold). This point is critical, as it starts to move the plan from defined benefit to defined contribution, which takes pressure off employers to fund guaranteed payout amounts, and puts members at the mercy of the performance of the money managers handling their investments.

In summary, one of the UK's largest pension funds couldn't sustain the current trajectory of cash flows, so they decided to cut defined benefits and put the burden on money managers to live up to member expectations in retirement. This is a plan that we already know will end poorly once the markets reset and wealth is once again transferred from the savers to the asset owners, as is the recurring cycle under the central banking regime. Of course, there is always helicopter money tied to bailouts of such pension funds, which is forever a possibility with the PhD's behind the central banking curtain.

h/t Henry Lahr

"Brexit" - What Else Is Wrong With The European Union?

Submitted by Josephine Bacon via The Gatestone Institute,

  • Ever since the inception of the European Economic Community, British politicians across the entire political spectrum have been perceptive enough to realize that Britain will lose its sovereignty and turn into a vassal of the France-Germany axis.

  • This month, in March, an official audit reported that EU auditors refuse to sign off more than £100 billion ($144 billion) of EU spending. The Brussels accounts have not been given the all-clear for 19 years in a row.

There is a joke going around the internet it how the European Union works (or doesn't):

Pythagoras's theorem - 24 words.
Lord's Prayer - 66 words.
Archimedes's Principle - 67 words.
10 Commandments - 179 words.
Gettysburg address - 286 words.
U.S. Declaration of Independence - 1,300 words.
U.S. Constitution with all 27 Amendments - 7,818 words.

EU regulations on the sale of cabbage - 26,911 words.

Why are EU Regulations so long? Maybe because they have to be translated into the 18 official languages? Interpreters also have to be found who can work into and from those languages at the European Parliament. The translation budget is massive. One of the official languages currently is Irish. It can confidently be said that there is no one in the Republic of Ireland who does not speak English; many Irish do not even speak or understand Irish, and certainly none of Ireland's politicians will be fluent only in Irish. But all of the "acquis," the body of regulations that are already part of the EU body of laws, also have to be translated into the languages of candidates for EU membership, such as Turkey, thus adding more languages to the tally each time a new regulation is passed. If Catalonia breaks away from Spain and remains a member of the EU, Catalan will need to be added, even though Catalan politicians all speak perfect Spanish.

Corruption and Waste

This month, in March, an official audit reported that EU auditors refuse to sign off more than £100 billion ($144 billion) of EU spending. The Brussels accounts have not been given the all-clear for 19 years in a row. Moreover, the EU is apparently less than incompetent at managing the funds it has.

This is happening at a time when the EU is demanding that the UK pay it £1.7 billion ($2.45 billion). It was reported on September 17, 2015 in the Daily Mail newspaper that Britain had reluctantly paid this sum, which prime minister David Cameron himself, a fan of staying in Europe, has described as "appalling."

Also reported on September 17 in the Daily Telegraph, was that, according to the annual report of the European Court of Auditors, £5.5 billion ($7.9 billion) of the EU budget last year was misspent because of controls on spending that were deemed by experts to be only "partially effective."

The audit, published on March 17, 2016, found that £109 billion ($157 billion) out of a total of £117 billion spent by the EU in 2013 alone was "affected by material error" -- that is, disappeared into various people's pockets.

Thanks to the European Union, the Value Added Tax (VAT), the tax which in the UK replaced purchase tax in 1973, is now applied to services as well as goods. Such a tax discriminates against service-based economies, such as those of the developed countries, because such economies are taxed so they cannot compete with services provided outside the EU. Each member country's tax regime is micro-managed by the European Union. The former purchase tax was specifically designed for taxing luxury goods, but the VAT is now imposed even on essentials needed by the poorest members of society. Furthermore, the VAT discriminates against women because the EU requires the member states to tax products used by only one gender, such as tampons.

The "Traveling Circus"

Few people outside European parliamentary circles are aware that there is an EU "traveling circus." Once a month, the European Parliament moves from Brussels in Belgium to Strasbourg in France. Even though Members of European Parliament (MEPs) voted to scrap this move, the French government, which initiated this madness in the first place, has the power to block any such decision and is apparently determined to do so. That is another fact which goes unmentioned by those determined to keep the UK in the EU. When this author challenged an MEP, Mary Honeyball, on the subject, she claimed that it was "being dealt with," but the French government is fiercely opposed to keeping the parliament exclusively in Brussels and it has the power to block any such reform. The cost of the "travelling circus" alone is conservatively estimated at £130 million ($187 million) a year.

Free Movement of Labour

The free movement of labour between EU member states was always going to be a non-starter. Has anyone noticed the hordes of British plumbers and electricians emigrating to Bulgaria and Romania? The movement of skilled and unskilled labour from the poorest countries of the EU to the wealthier ones -- those that offer generous benefits to the unemployed and even subsidise low wages -- has always been a fact of life, one seriously underestimated by successive British governments. The British suffer most because, of all the countries of the EU, the UK offers the most generous benefits. The so-called "freedom of movement," which has proved to be just a one-way street, is only one of the reasons why Britain needs to regain control of its own destiny and stop being subservient to laws being made by unelected, overpaid, un-unelectable bureaucrats in Brussels.

But Will There Be a Brexit?

Unfortunately, most voters in the British referendum glean their information from the sound bites of politicians on television. This circumstance leaves the public open to manipulation, uninformed, and ignorant of the facts. One fact, however, that cannot be ignored is that ever since Britain joined the European Economic Community in 1973, British politicians across the entire political spectrum from left (Tony Benn) to right (Enoch Powell) were perceptive enough to realize that Britain would lose the power to make its own laws and turn into a vassal of the France-Germany axis.

Leaving the European Union will give the UK back its sovereignty and leave it free to make alliances not only with its former European partners, but with other Commonwealth countries, to say nothing of the United States, and Central and South America.

"What Do We Do Now?" - Anti-Trump Alliance Self-Destructs Within Hours

Less than 24 hours after the Cruz/Kasich alliance was announced, it already appears to be on the verge of failure. Upon hearing of the deal between Cruz and Kasich, GOP voters and strategists alike were left scratching their heads, wondering how this was all supposed to work. To recap, the two men had their campaigns release statements late last night telling voters of a plan they'd put together that would prevent Donald Trump from winning the necessary delegates required to have an outright victory prior to the convention. Cruz was to focus on Indiana, while Kasich was responsible for Oregon and New Mexico.

Immediately GOP strategists were left wondering how this plan was going to sit with voters, dreading that this would be the latest anti-Trump plan to violently backfire. "I think the Kasich people are now left choosing between two people who they see as unappealing. I have talked to a lot of friends today who are stunned and puzzled and kind of adrift: 'what do we do now?'" said Mike Murphy, a GOP operative in the state of Indiana.

The Hill also quoted an anonymous Republican Strategist in Indiana who said people were torn between stopping Trump, and asking themselves what has happened to their party that made this circumstance even possible. "I think it's a bit of an open question as to whether this deal will take. I've got people who say, 'Yes, I will do anything to stop Trump.' And others who say, 'What in the world is the party coming to?' They view Cruz as unsatisfactory as a nominee but Trump as unfathomable."

And then there was outright frustration at the absurdity of it all. "This election is garbage. I voted early and then they cut a deal a week before election day." Dave Ober, a Republican state representative in Indiana tweeted.

Not only were strategists left dumbfounded, but apparently so was Kasich. Before the ink was even dry, as it were, Kasich suggested during a campaign stop in Philadelphia that his voters should still vote for him in Indiana, which was one of the places the so-called plan was calling for him to fall back on so Cruz had a chance to win. At a campaign stop in Philadelphia, Kasich said "I've never told them not to vote for me. They ought to vote for me." which no matter how one looks at it is thoroughly confusing considering this is precisely what the so-called alliance urged against.

Not one to let anything slip by without comment, Trump had this to say about the half thought out and frankly laughable attempt at blocking his nomination:

“So they colluded, and, actually, I was happy because it shows how weak they are; it shows how pathetic they are,” the front-running candidate said at a rally in Rhode Island on Monday.

“If you collude in business, or if you collude in the stock market, they put you in jail. But in politics, because it’s a rigged system, because it’s a corrupt enterprise, in politics you’re allowed to collude,” he added.

As the circus continues into the final states, we're not sure how everything will ultimately play out. However, we are confident that from now until July, there will be more fodder for Trump to tweet about, and certainly more once unheard of tactics deployed by a desperate GOP establishment which will do anything, even if it results in a smoking crater just hours later, to stop Donald Trump while achieving precisely the opposite of what was intended, and boosting support for Trump to even greater highs.

The Separation Of Bathroom & State

Submitted by Roy Cordato via The Mises Institute,

The saga of the so-called Charlotte bathroom ordinance — and the state of North Carolina’s response to it — has taken on a life of its own. At the national level leftists are accusing North Carolina of bigotry while, in the name of tolerance, a growing list of performers and businesses are boycotting the state. Unfortunately, what has gotten lost in all the rhetoric surrounding this issue is the truth about both the original Charlotte law and the state’s response to it.

In late February the Charlotte, North Carolina, city council passed an “antidiscrimination” law, scheduled to go into effect on April 1. It was aimed at protecting what, in the view of the city council, are the rights of those in the gay, lesbian, and transgender community. The centerpiece of this law was a provision that prohibits businesses providing bathrooms, locker rooms, and showers from segregating usage of those facilities by gender, biologically defined. Biological males or females must be allowed to use the facilities of the opposite sex if they claim that that is the sex they identify with psychologically. (Note, no proof was required.)

Much of the criticism of the Charlotte bill was centered around two issues: the religious freedom of business owners and the privacy rights of people, particularly women, using public bathroom and shower facilities. Most of the vocal opposition to the ordinance came from religious organizations and advocacy groups that focused on traditional values. As argued by John Rustin, President of the Family Policy Council:

Similar ordinances have been used to force small business owners like florists, bakers, photographers and bed-and-breakfast owners and others either to conform to a government-dictated viewpoint in violation of those sincerely held religious beliefs or to face legal charges, fines and other penalties that have ultimately caused some to go out of business.

Private Property, Not Religion, Is the Key

While religious liberty is an important concern, the issue is much broader. This ordinance was an assault on the rights of private property owners and economic freedom, regardless of one’s religious beliefs.

The primary targets of the Charlotte ordinance were privately owned businesses that offer bathrooms, changing rooms, showers, etc., for their customer’s convenience. The decision of how to structure access to these facilities may, for some, be based on their religious beliefs but for many others it is a secular business decision. Their goal is customer satisfaction driven by the desire to make a profit and earn a living. The property that they use is privately owned, the investments that they make come from private funds, and those who reap the rewards or suffer the losses are private entrepreneurs. The bathrooms in their establishments are part of the product that they provide.

In a free society based on property rights and free markets, as all free societies must be, a privately owned business would have the right to decide whether or not it wants separate bathrooms strictly for men and women biologically defined, bathrooms for men and women subjectively or psychologically defined, completely gender neutral bathrooms with no labels on the doors, or no bathrooms at all.

Businesses Seek to Please Their Customers

Their goal is to provide the products and services that most of their customers want in an environment that those customers feel comfortable in. This environment may indeed be different for different establishments depending on the desires and cultural makeup of their clients. This Charlotte ordinance told businesses that they are not allowed to adjust their decisions regarding their bathroom, locker room, or shower facilities in order to accommodate customer preferences. In this sense the now overturned Charlotte ordinance was a gross violation of property rights and economic freedom and on libertarian grounds needed to be overturned.

So what was the state of North Carolina’s response to all this? In fact, it was to restore freedom and property rights and to guarantee those rights across the state. The law in North Carolina that so many progressives are up in arms about does not prohibit businesses from having bathrooms, locker rooms, showers, etc., that allow use by people of all genders defined biologically, psychologically, or whatever. In a “myths vs facts” explanatory statement put out by the governor of North Carolina this was made quite clear:

Can private businesses, if they choose, continue to allow transgender individuals to use the bathroom, locker room or other facilities of the gender they identify with ...?


Answer: Yes. That is the prerogative of private businesses under this new law. …The law neither requires nor prohibits them from doing so.

In other words, the state of North Carolina codified a basic libertarian principle: the separation of bathroom and state.

The only place where bathrooms, showers, etc., must conform with biological sex is in government owned facilities — courtrooms, city halls, schools, etc., where this separation is not possible. So yes, in North Carolina 12-year old boys, defined by what body parts they are sporting, may not use the girls’ locker room and showers after gym class at the local public middle school. Of course private middle schools are free to do what they want. If not believing that this is unjust discrimination makes me a bigot, then so be it.

So where does this approach leave the issue of religious freedom? For the most part, and particularly in cases like this, religious freedom is nothing more than the right to use your own property in a way that comports with your religious beliefs. This applies not only to the issue of who gets to use what bathrooms but also to the Little Sister’s of the Poor and Obama’s contraceptive mandate, and most of the other religious freedom cases that are of concern to traditional values advocates. If property rights and economic freedom are the values that are upheld, then religious freedom will take care of itself.

Cash-Starved ISIS Offers Incentive Pay For Fighters: $50 Per "Female" Sex Slave

ISIS appears to be at a bit of a crossroads. As we detailed yesterday, faced with a cash crunch and significant military losses, the organization is becoming quite strained. The group has reached the point where the rank and file are becoming frustrated and have started to defect.

In order to stop the defections, ISIS dug deep in its bag of incentives and decided to employ the carrot and stick method.

First we learned of the stick, which is to literally freeze members to death if they're caught trying to defect.

As we wrote yesterday

According Iraqi media agency Al Sumaria News, the 45 defectors attempted to flee the battlefield during recent fights in Iraq. They accused deserters were executed by being locked in morgue freezers in Mosul for 24 hours, left for a slow, presumably agonizing death.


Their bodies were reportedly then stretched out along the sides of the road at city entrances to act as a warning to any other fighter who might have second thoughts.

Now, courtesy of the Washington Post, we learn what the carrot is. A wage voucher obtained by the post details out the fact that ISIS is now paying soldiers extra cash for each additional family member. Also, as a sick and twisted added bonus, anyone who has a sex slave gets another $50... USD of course.

The base salary offered to the worker named al-Jiburi was a pittance, just $50 a month. But even the cash-challenged Islamic State knew it had to do more to sustain the loyalty of a man with nine mouths to feed.


A crinkled wage voucher breaks it down by family member:

  • For each of his two wives, al-Jiburi would receive an extra $50.
  • For each of his six children under age 15, he would get another $35.
  • Any “female captive” - sex slave - would entitle him to an additional $50.

For al-Jiburi, described in the document as a service worker for the terrorist group, the monthly total came to $360, payable in U.S. greenbacks.

The voucher that shows the breakdown is shown below - the article notes that the document was dated within the last six months, and was found along with other documents in Syria and Iraq.


Although the article goes on to caution any predictions about the collapse of ISIS, what's taking place is an indication that the group is in rough shape, and is now turning on its own. We certainly won't make any predictions, but none of this bodes well for the sustainability of the organization - which perhaps even more worryingly leaves ISIS fighters with even less to lose by their actions.

A Look Inside Europe's Largest Foreigner "Ghetto"

On the heels of State Department spokesman John Kirby's renewed proclamation that "US is committed to admitting more refugees," we thought this brief clip from France's picturesque Mantes La Jolie (in the western suburbs of Paris) - Europe's largest "ghetto" - would be useful...


Here's the postcard...


Le Val-Fourré, the largest housing project in the district, is extremely ghettoized, and is dominated by immigrants from the Maghreb, the majority of whom are Moroccan, and sub-Saharan immigrants.


The friendly local inhabitants - who seem to be integrating into European culture so well - appear to not take kindly to police driving through the middle of their road-blockage, drug-dealing, motorbike-racing, street party... and trouble ensues...

h/t LiveLeak

It is any wonder the police stayed away from Mollenbeek?

*  *  *

Coming to a 'picturesque city in America' any day now.

Despite Record Liquidity, Chinese Repo Rates Are Rising Again

As out friends from Fasanara Capital remind us, despite record liquidity injections by the PBOC in the past few days, Chinese repo rates have resumed continue breaking higher.

The move is odd, given ongoing record liquidity injections (RMB 680 bn last week, RMB 150 bn today).

As Fasanara's Francesco Filia writes, "the mind inevitably goes to excess credit troubles in China and potential for CNH selling-off" and adds that the "move directly affects leveraged positions on bonds, funded by short-term repos."

While so far, the currency and the SHCOMP remain stable, it is a notable trend to watch.



China Monthly Foreign Exchange Reserves: next release on the 7th of May


BofA's "Economic Shock" Bear Case In 4 'Fragile' Charts

Outside of an exogenous geopolitical event - which given the way the world is tilting is becoming an increasingly likely occurrence - BofAML believes a bear market case is strongly supported by the probability of an economic shock most likely be tied to credit where signs of stress are building the most.

There are four simple factors that suggest problems ahead...

1. Investors are starting to believe we’re “late cycle”

2. Growth expectations may now be back in positive territory for the next 12 months, but are still extremely low

3. There are signs of stress in the high yield market, with the distress ratio increasing recently

4. More companies in the S&P 500 are projected to lose money than those with negative EPS 12M ago.

Below we provide a snapshot of conditions today vs. prior S&P 500 peaks, to assess whether any economic or financial metrics suggest the end of the cycle is near.

Some signals are more worrisome than others: High Yield spreads are very elevated, and rail carloads are at levels typically seen  preceding or during recessions. IPO and M&A activity are both above prior peaks, though IPO levels through the first quarter of 2016 have not been the lowest since 2009.

A Bird's-Eye View Of How The US Economy Is Falling Apart (In 4 Simple Charts)

Submitted by Tony Sagami via,

My college-aged kids love him. I’m not talking about Stephen Curry or Justin Bieber (although they love them too); I’m talking about Bernie Sanders.

Whether you support him or not, my guess is that most Americans my age are very surprised about his popularity. However, it shouldn’t be a surprise given the economic stress many Americans face.

The four charts below capture the essence of what I’m talking about…

A shrinking middle class and a growing lower class

Sadly, roughly 50 million Americans live below the poverty line—the largest number in our nation’s history—and the poorest 40% of all Americans now spend more than 50% of their incomes just on food and housing.

Consumer sentiment is plummeting

No wonder that consumer sentiment has been sinking fast, which is a very troubling sign for our consumer-driven economy.

Spending is slowing

That consumer angst translates into a drop in spending. The Commerce Department reported that retail sales dropped by 0.3% in March, well below the +0.1% gain Wall Street was expecting.

The biggest drop was in auto spending, which was down 2.1%.  One of the weakest sectors, however, was restaurants.

Wages are shrinking

I suspect the root of the issue is wages… or lack thereof. The reality is that inflation-adjusted wages—despite the recent minimum wage increase in several states—have been shrinking.

A recent report concluded, “In real terms, the average wage peaked more than 40 years ago.”

Check out these discouraging numbers:
•    39% of American workers make less than $20,000 a year.
•    52% of American workers make less than $30,000 a year.
•    63% of American workers make less than $40,000 a year.
•    72% of American workers make less than $50,000 a year.

Debt is piling up

And it doesn’t help that Americans continue to rack up debt. 

Example: Outstanding auto loans have hit more than a trillion dollars. With an average balance of $12,000 per person, that consumes nearly 8% of the average borrower’s disposable income!

No wonder that an estimated 62% of Americans are living paycheck to paycheck.

And all of us—low, medium, and high income combined—are working longer than ever to pay a growing tax bill. Tax freedom day (the day when the nation as a whole has earned enough to pay the state and federal tax bill for the year) arrived on April 24, according to the nonpartisan Tax Foundation.

That means all the money we made in the first 114 days of 2016 went to taxes.

"China Is Hoarding Crude At The Fastest Pace On Record"

In the aftermath of China's gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up.

We now know where most of it went: soaring imports of crude oil.

We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs.


As Energy Aspects pointed out in a report last week, "Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports."

And sure enough, this kind of record surge in imports should promptly lead to another tanker "parking lot" by China's most important port. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, according to data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show.

As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

So what caused this surge in demand? The answer is China's "teapot" refineries.

According to, the operating rate at small refineries in eastern Shandong province rose to 51.84% of capacity as of the week ended Apr. 22. The utilization rates climbed as various teapot refiners completed maintenance and restarted production.

How much of a boost in oil demand did teapot refineries represent? Well, the current operating run rates is averaging 50.42% this tear compared to just 37.72% a year ago, Bloomberg calculated.

Notably, this may be just the beginning of China's. As Bloomberg adds today, China, the world’s second-biggest crude consumer, may be poised for another increase in imports after the number of supertankers bound for the Asian country’s ports rose to a 16-month high amid signs it’s stockpiling.

There were 83 headed to China, the most since December 2014, according to a ship-tracking snapshot compiled by Bloomberg on Friday. Assuming standard cargo sizes, they would be able to deliver about 166 million barrels.


Others also noticed China's ravenous demand. As JPM reported in a note last week, China crude imports rose in February and March after dip in January. The total crude imports (a number which certainly should be taken with a salt mine) was 7.7 million bpd in March, up 21.6% compared to last year. Furthermore, 2016 YTD imports are running 12.3% above the same period in 2015.

Where is China getting the most of its oil? Cue JPM:

Atlantic Basin, Russian imports strong in March at the expense of Middle East. In total, Atlantic basin–sourced crude was 28% of total imports, up from 25% the month prior, while Middle East–sourced crude was 44% of imports, down from 51% the previous month. Russian imports were the second highest on record at 4.6 million tons (up from 4.1 million tons in February), well above Saudi Arabia (4.0 million tons). Russia imports were 14% of total Chinese imports. The strength in Atlantic Basin exports primarily came from Venezuela, Colombia, and Brazil, which were all at or near record high.

It appears that at least China is delighted to take advantage of the ongoing OPEC production chaos and massively oversupplied oil market.

Furthermore, as ClipperData reported moments ago, Chinese waterborne crude oil imports are on pace for another record high this month.


However, while China is importing at a near record pace, is there also an offsetting increase demand? There was early in the year as shown in the chart below, but as of March the answer appears to be no. According to JPM, apparent oil demand was down slightly. Because while crude oil processed by Chinese refineries remained high in March, roughly unchanged month-over-month, after accounting for net product exports, apparent oil demand was 10.3 mbpd in March, down 2.3% from February and down 2.5% year-over-year.

So supply is soaring, demand is declining, which means just one thing: "China is hoarding crude at the fastest pace in at least a decade", according to Bloomberg, filling up excess inventory capacity at a record pace.

The punchline:

The nation added 787,000 barrels a day to stockpiles in the first quarter, the most for the period since at least 2004 when Bloomberg started calculations based on customs data. Its imports climbed in March from countries including Iran, Venezuela and Brazil.

For now - with the record credit impulse still reverberating across its economy - China's demand is relentless, and is keeping virtually all producers busy: "we’ve seen crude buying in recent months coming from a very broad range of sources, more coming from Latin America and more from Europe,” said Richard Mallinson, an analyst at Energy Aspects Ltd. in London. Shipments are being boosted by so-called teapot refineries and may also be advancing in preparation for the end of refinery maintenance programs in China, he said.

However, the party may be ending.

China's pace of imports may drop substantially in coming weeks as the teapot operating rate starts to drop next week, as many refineries are scheduled to start repairs, just like in the US.

Meanwhile, the oil production glut persists, and if suddenly China can no longer take advantage of all those tankers overflowing with oil for the next few months as teapot maintenance takes place, the world will suddenly realize that the spike in Chinese excess demand, driven by the biggest credit impulse in history, may be over, at which point attention will once shift to an oil market that remains in a state of pernicious imbalance as a result of weak global demand, record OPEC production, and a critical storage situation as there is ever less onshore and offshore space in which to store all the excess oil.

Judging by today's oddly rational drop in the price of crude, attention may already be shifting...

"The Men Behind The Curtain Are Being Revealed" – CEO Says Real-World Pricing To Return To Gold & Silver Markets

Submitted by Mac Slavo via,

Astute observers of financial markets, especially in the precious metals sector, have long argued that small concentrations of major market players have been manipulating asset prices. Last week those suspicions were confirmed when Deutsche Bank, one of the world’s leading financial institutions, not only admitted to regulators that they have been involved in the racket, but that they were prepared to turn over records implicating many of their cohorts in a global scheme to suppress prices.

In his latest interview with SGT Report, straight-shooting Callinex Mines CEO Max Porterfield explains that now that the men behind the curtain are being revealed, asset prices in precious metals, base metals and other commodities will return to more natural pricing mechanisms based on core supply and demand fundamentals.

They are being revealed, most certainly… whether anybody actually takes a fall for it is a whole ‘nother discussion in its own right.. It’s good someone is being held accountable in some form or fashion and at least we understand what we’re dealing with.


… The real world pricing is being seen not only in the precious metals space, but it’s being played out in other base metals as well… Underlying all this manipulation is really the supply demand fundamentals for all these commodities…

Full Interview Via SGT Report:


With the genie now out of the bottle, many of the institutions involved in price manipulation and suppression appear to have backed off for fear of multi-billion dollar class action lawsuits from investors. The direct result, as we have seen just in the last couple of weeks, has been upward price movement in gold and silver.

If you start getting some of the manipulation to come out of the market for fear that people are going to get called out on it, then you can allow the fundamentals to play out.

And according to Porterfield, those fundamentals bode very well for gold, silver and base metals investors who have thus far been pillaged by paper market conspirators:

I think this has signified the start of a new bull market… what we’ve been through, these nice gains… I can tell you right now… I travel frequently to investor hubs in North America and Europe as well… the sentiment is improving quite significantly compared to where it was last November when I was in Zurich where people were very, very negative.


There’s more optimism in the space, particularly in the precious metals space… and in the not-too-distant future in the overall base metals space as well.


I think investors should be aware and be prepare for pullbacks in any bull market and I think that’s healthy for any kind of bull market you’re in… it is a bumpy road no matter what… but there’s definitely a lot more upside ahead of us.

We know that during the bear market in gold, silver and other commodities many companies either slowed their operations or completely shut their doors. This reduction in supply, a growing demand for precious metals amid global economic chaos and the official acknowledgment of paper price suppression by at least one major financial institution (and likely many more) suggests that gold and silver prices could rise significantly over coming months and years.