Macro Links Feb 7th – “Beginnings of a Rumbling”
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MACRO LINKS TABLE OF CONTENTS (Click or Scroll Down)
- FALCON HEAVY LAUNCH
- WALL STREET ROARS BACK
- IMPLODING VOLATILITY PRODUCTS
- INFLATION AND SENTIMENT
- STEVE WYNN RESIGNS
- BITCOIN, CRYPTOCURRENCY, INITIAL COIN OFFERINGS
- FOREX, CARRY TRADES, EXCHANGE RATES
- TRADE, PROTECTIONISM, REGULATION, OVERSIGHT
- HEALTHCARE, BUDGET, INFRASTRUCTURE
- RUSSIA PROBE
- NORTH / SOUTH KOREA, IRAN, NUCLEAR WEAPONS
- RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
- MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
- CENTRAL BANKS & MONETARY POLICY
- USA ECONOMY DATA, CITIES AND STATES
- GLOBAL ECONOMY, INTERNATIONAL
- POSITIONING, INFLECTION, MARKET CALLS
- COLOR, EARNINGS, SENTIMENT, VALUATIONS
- DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
- HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
- ENERGY RENEWABLES, NUCLEAR
- BREXIT, SCOXIT, LONDON, UK ECONOMY
- DACA, TRAVEL BAN, IMMIGRATION, WALL
- PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
- PROPAGANDA, CORRUPTION, AUTHORITARIANISM
- ELECTORAL POLITICS
- SCANDALS, LAWSUITS, FINES, REGULATORY
- SILICON VALLEY, UNICORNS, STARTUPS, VC
- MEDIA, CABLE, SPORTS, ENTERTAINMENT
- AUTOS, ELECTRIC, SELF-DRIVING
- SCIENCE, NATURE, PSYCHOLOGY
FALCON HEAVY LAUNCH
Space Exploration Technologies Corp. successfully launched the Falcon Heavy rocket on its initial test flight, marking another historic coup for founder Elon Musk. With throngs of spectators on hand, the closely held Southern California company defied industry critics by flying the world’s most powerful rocket since U.S. astronauts landed on the moon almost five decades ago.
The company’s Falcon Heavy rocket, carrying Mr Musk’s own Tesla Roadster, blasted off from the Kennedy Space Center at 3.15pm local time. Constructed by yoking together three of SpaceX’s workhorse Falcon 9s, it is capable of carrying 140,000lbs into orbit, giving it twice the capacity of the next biggest rocket.
The rocket carried a playful payload: Mr. Musk’s red Roadster, an electric sports car built by his other company, Tesla. Strapped inside the car is a mannequin wearing one of SpaceX’s spacesuits. They are expected to orbit the sun for hundreds of millions of years. “It’s kind of silly and fun, but silly and fun things are important,” Mr. Musk said.
Falcon Heavy cleared the launch pad without blowing up — a feat Musk had said would be enough to deem the mission a win — and continued on to deliver Musk’s cherry red Tesla Roadster with a space-suit wearing mannequin at the wheel toward an Earth-Mars elliptical orbit around the sun. “It seems surreal to me,” said Musk, 46, during a post-launch press conference. “Crazy things can come true.”
“When automakers buy an ad spot in the Super Bowl, they aspire to create a spectacle with a commercial. In Elon Musk’s case, he makes the spectacle his own reality,” said Jessica Caldwell, executive director of industry analysis at Edmunds. “The buzz he creates with a stunt like this is far beyond what marketing dollars can buy you.”
WALL STREET ROARS BACK
U.S. stocks bounced up in the final hour of trading Tuesday after a rocky morning that saw the Dow Jones industrial average dip into correction territory. After a big swing of more than 1,168 points during the day, the Dow landed up 2.3 percent, or 567 points, to finish at 24,913. Still, the blue-chip index is off to its worst month in eight years.
The question that vexed traders: were the wild swings of the past two days the start of a deeper move down or just clearing the way to the resumption of the aging bull market, which would turn nine on March 9.
Treasury Secretary Steven Mnuchin on Tuesday tried to dampen concerns over the recent stock market fall, which he said was not tied to any issues of financial stability and didn’t overly concern him. The secretary chalked up the recent volatility to a “normal market correction” that he said represented a short-term disconnect from underlying economic fundamentals, which he said were also strong. “Markets move in both directions,” he said.
IMPLODING VOLATILITY PRODUCTS
There was a fatal flaw in the way the note was structured. In the event of very sharp spikes in volatility, Credit Suisse reserved the right to “accelerate” the product—covering all of its positions and liquidating the note to avoid being on the hook itself. Typically when individuals short a futures contract or stock, they need to put up more cash if the value rises. But with an ETN, the sponsor can’t go after investors for a margin call.
“In my wildest imagination I don’t know why these products exist. Who do they benefit? No one, except if someone wants to gamble -– then, OK, just go gamble… And who exactly made money? The VXX from its inception in 2009 is down, what, 99%, even after this move… It’s kind of sad that these products exist in the first place, but it’s hard to stop it. If you stop this, something else will come up.”
Wild swings in volatility are wreaking havoc with exchange-traded products tied to the Cboe Volatility Index. A day after doubling in the biggest run-up in its history, the VIX swung from 50 and back to 25, triggering price volatility halts in a number of ETFs and ETNs linked to the gauge as the market awaits further news.
The last day of trading for VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) will be Feb. 20, according to an announcement from Credit Suisse. The bank is triggering this liquidation because the product during these last three volatile days could not keep up with the scenario it was supposed to track: a calm market. The XIV security, which had fallen roughly 85 percent in after-hours trade Monday, resumed trading Tuesday, closing down 93 percent.
The Dow Jones Industrial Average fell 4.6% Monday as the VIX—a popular measure of U.S. equity market volatility—surged to its highest closing level in 2½ years. That rapid rise shattered the low-volatility environment of recent years and drove some heavy losses for investors, following an era in which the popularity of shorting volatility has grown rapidly. That trend is part of the global reach for yield, with investors seeing fewer opportunities for easy profits due to the global low interest rate environment.
Nowhere was the pain more palpable than on Reddit’s “Trade XIV” group, which counts more than 1,800 members. One of them goes by the cyber-handle Lilkanna, and to say he’s had a rough stretch would be a huge understatement. “I’ve lost $4 million, 3 years worth of work, and other people’s money,” he wrote in a post that’s garnering lots of attention. “Should I kill myself?” If he’s to be believed, wow. Brutal. How did it happen?
It was the hot trade on Wall Street, a seemingly sure thing that lulled everyone from hedge fund managers to small-time investors. Now newfangled investments linked to volatility in the stock market — until a few years ago, obscure niche products — have exploded in spectacular fashion. The shock waves have only just begun. How these investments proliferated is a classic story of Wall Street salesmanship and old-fashioned greed.
Betting against wild price swings has been one of the most profitable trades in recent years as central bankers flooded the markets with cash and lulled investors with record-low interest rates. But Monday’s sharp decline in stocks, followed by an abrupt surge in an index measuring stock volatility that is known as Wall Street’s fear gauge, triggered a spectacular unraveling.
INFLATION AND SENTIMENT
Be wary of the herd mentality, the old stock-market adage goes. Now it may be coming true, judging by Americans’ sentiment just days before equities went into a tailspin. When asked about the probability of continued stock price gains, respondents in January put the probability of increases during the year ahead at 67 percent, the highest level recorded since the University of Michigan started asking the question in 2002 as part of its monthly consumer survey. Last month’s poll concluded Jan. 29.
While machines got all the press, the stage was set by individuals, often making decisions based on uniquely human emotions like the fear of missing out. Those who hadn’t touched stocks in years poured back in. Enough that trades from just two retail shops — E*Trade Financial and TD Ameritrade — accounted for more than one-third of the volume on the New York Stock Exchange last month. That’s triple levels in 2016.
“This is the most predicted selloff of all time because the markets have been up so much and they have had so many days in a row without meaningful down days,’’ Bullard told reporters after a speech Tuesday in Lexington, Kentucky. “So it is probably not surprising that something that has gone up 40 percent like the S&P tech sector would at some point have a selloff. Before there was a selloff, people said repeatedly some day this will sell off.”
“We are replaying an age-old storyline of financial bubbles that has been played many times before,” Jones, founder of Tudor Investment Corp., wrote in a Feb. 2 letter to clients. “This market’s current temperament feels so much like either Japan in 1989 or the U.S. in 1999. And the events that have transpired so far this January make me feel more convinced than ever of this repeating history.”
“We are in the throes of a burgeoning financial bubble,” Jones said. “If I had a choice between holding a U.S. Treasury bond or a hot burning coal in my hand, I would choose the coal.” The investor lambasted what he called an “arbitary” 2 percent inflation target set by the central bank, a goal he views as both outdated and dangerous.
Higher prices would be good news for the ECB, which like its peers has toiled for years to coax inflation back up. But while it would reflect rosier prospects across the eurozone, it could lead to a faster phaseout of stimulus and ultimately higher interest rates, potentially pressuring the currency bloc’s recovery just as it begins to gather speed.
The reason for the market’s downward turn isn’t that investors believe stimulus measures, like tax cuts and deregulation, are failing, or might fail. It is quite the opposite: Investors believe his policies to stoke growth are going to work so well that they will overheat the economy, and force the Federal Reserve to try to slow things down by raising interest rates faster than expected.
Treasury Secretary Steven Mnuchin said the U.S. government’s plan to borrow what analysts expect to be more than $1 trillion this year isn’t contributing to volatility in markets. “I don’t think that’s had an impact on the market at the moment,” Mnuchin told reporters at the Capitol on Tuesday. “The debt markets are one of the most liquid markets in the world and are reacting very well.”
STEVE WYNN RESIGNS
Wynn Resorts Ltd. founder Steve Wynn stepped down as CEO and chairman after reports that the casino magnate had engaged in multiple instances of sexual harassment. The board said in a statement Wednesday it has appointed Matt Maddox, currently president, as its CEO, effective immediately.
BITCOIN, CRYPTOCURRENCY, INITIAL COIN OFFERINGS
The North is well-known for its hacking prowess. NK-linked hackers are suspected of perpetrating some of the most high-profile hacks of the last five years, including the WannaCry and Petya hacks last spring, and the embarrassing 2014 hack of Sony Pictures. In an interesting innovation, North Korean hackers are suspected of infiltrating systems and installing malware to discreetly mine cryptocurrencies like Monero. Some of these illegal Monero miners have been found in the systems of Russia’s largest energy pipeline company.
Bitcoin miners who’ve decided to stay in the game amid plunging prices may soon find that the well has run dry. A 70 percent price drop since the heady days of mid-December has cut profitability to the bone. With the cryptocurrency hitting $6,000 on Tuesday, only the biggest and most efficient can stay above water, but even these are balancing on a knife edge, according to a Gadfly analysis.
Asked by federal lawmakers Tuesday whether they had enough authority to shield cryptocurrency investors from scams, market manipulation and abuse, top officials from the Securities and Exchange Commission and the Commodity Futures Trading Commission said that the agencies were still consulting with other U.S. officials but that they may need more legislative authority.
U.S. regulators said Congress should consider expanding federal oversight of bitcoin and other cryptocurrency trading, as market cops amplify alarms about an asset class that is largely exempt from investor-protection laws.
Set in Washington D.C. at the Dirksen Senate Building, the Committee on Banking, Housing, and Urban Affairs met in open session for about 2 hours. Before the hearing began, testimonies were released on behalf of both witnesses.
Augustín Carstens, the general manager of the Bank for International Settlements (BIS), called Bitcoin a “combination of a bubble, a Ponzi scheme and an environmental disaster” and asked central banks to more closely regulate cryptocurrencies during a speech at Goethe University on Feb. 6. BIS is known as the “bank for central banks,” for it only provides banking services to central banks and other international organizations.
Central banks must clamp down on bitcoin and stop such cryptocurrencies “piggybacking” on mainstream institutions and becoming a “threat to financial stability”, the head of the Bank for International Settlements has warned.
Like Japan, Singapore has highlighted itself as a permissive environment for both cryptocurrency and Blockchain innovation over the past few years. In stark contrast to China and Indonesia, the city-state has favored Blockchain in particular as part of its bid to become a global hub for the technology.
Just prior to a Senate Committee hearing on cryptocurrencies, Roubini wrote, “Cryptocrazies are also criminal Cyber-Terrorists,” and alleged that his consulting firm, Roubini Global Economics, was targeted in a 2015 denial-of-service attack because he criticized bitcoin. Roubini further claimed that he had received death threats as a result of his views.
America’s largest banks had myriad worries in mind when they rushed this week to ban customers from using credit cards to buy cryptocurrencies. Bitcoin’s gut-wrenching slide was just one of the threats.
Most cryptocurrency investors in South Korea remain anonymous without moving their accounts to the government-mandated real-name system. So far, less than 10% of crypto traders have converted their virtual accounts into real-name ones.
The Moscow bankruptcy court has ordered a bankrupt debtor to provide information about his cryptocurrency holdings. The trustee has requested that his cryptocurrencies be included in the bankruptcy estate. The court will decide if the coins can be used to pay creditors.
“We have serious doubts about whether Venezuela has the capacity to launch a cryptocurrency,” the two wrote at the time. “But regardless, it is imperative that the U.S. Treasury Department is equipped with tools and enforcement mechanisms to combat the use of cryptocurrency to evade U.S. sanctions in general, and in this case in particular.”
Vattenfall AB, already one of Europe’s biggest energy traders, plans to expand further and needs blockchain technology to do some of the heavy lifting in its computer systems. The Swedish utility is feeling the strain from processing as many as 8,000 deals a day in continental Europe. That number is expected to multiply several times in the next few years as the company seeks to profit from the unprecedented shift toward a greener and more decentralized market.
FOREX, CARRY TRADES, EXCHANGE RATES
Days before a surge in volatility riled equities around the world, signs of tumult were emerging in the $5.1 trillion foreign-exchange market. Sterling and the Aussie have come into focus as barometers of financial market health as traders avoid traditional havens more closely aligned with central bank policy. As the turmoil in stocks seeped into other asset classes, these measures of sentiment have become even more pronounced.
In January the renminbi staged its sharpest one-month rally against the dollar since 1980, in the very early days of China’s opening up to the world under President Deng Xiaoping. It has now retraced 91 per cent of its losses against the greenback since a devaluation in July 2015, as the second chart shows. Analysts have been quick to link the move, in at least in part, to President Trump’s criticisms of the Middle Kingdom’s trade policies.
TRADE, PROTECTIONISM, REGULATION, OVERSIGHT
“We’re going to see more trade actions taken against certain trading partners in the coming weeks. The announcement that was made just two weeks ago on import protection for washing machines and solar panels is just the beginning of a series of announcements that will be coming. “
China is showing a willingness to push back against mounting trade pressure from the Trump administration, filing challenges to new U.S. tariffs on solar panels and washing machines at the World Trade Organization. The petitions submitted to the global commerce arbiter on Tuesday argue that the tariffs “are not consistent” with international rules, and seek compensation from Washington.
The trade deficit with China hit a record high in 2017, defying President Trump’s repeated promises to shrink a number that he regards as a test of whether other nations are treating the United States fairly. U.S. purchases of Chinese goods and services last year were $375 billion greater than Chinese orders from the United States, the Commerce Department said Tuesday.
HEALTHCARE, BUDGET, INFRASTRUCTURE
Despite the optimism, no agreement was finalized with less than three days until Thursday’s deadline. And even as congressional leaders were sounding an upbeat note, Trump was raising tensions by openly pondering a shutdown if Democrats did not agree to his immigration policies.
“I’d love to see a shutdown if we don’t get this stuff taken care of,” Mr. Trump said at a meeting with lawmakers and law enforcement officials to discuss gang violence. “If we have to shut it down because the Democrats don’t want safety,” he added, “then shut it down.”
Senate leaders signaled they were closing in on a two-year spending deal, with the chamber’s top Democrat, Chuck Schumer, saying he was working productively with Senate Majority Leader Mitch McConnell.
A Quinnipiac University poll released Tuesday finds that just over half of likely voters, 53 percent, believe the president has tried to obstruct or derail the federal probe, compared to 41 percent who say Trump has not interfered.
During an interview on Good Morning America on Tuesday, Carter Page admitted that he served as an adviser to the Kremlin before joining Donald Trump’s campaign for president. But he doesn’t think the FBI had good reason to view that as suspicious.
Asked today if Trump had read the Democratic memo, White House Chief of Staff John Kelly suggested it was “too lengthy” for Trump to read and he will instead be briefed later.
The confirmation about Bannon’s meeting with Mueller’s investigators comes as another appearance before the House Intelligence Committee, scheduled for Tuesday, was postponed until next Tuesday.
Devin Nunes, the chairman of the House intelligence committee, says he’s investigating the FBI and Justice Department. But at a committee meeting on Monday, he declined to give members details that were requested about the direction of that investigation, The Daily Beast has learned.
President Trump met Tuesday with Deputy Attorney General Rod Rosenstein to discuss a classified Democratic memo rebutting GOP allegations of partisan motives in the federal investigation of his former campaign aide.
NORTH / SOUTH KOREA, IRAN, NUCLEAR WEAPONS
Defense Secretary Jim Mattis offered a justification for the Pentagon’s amped-up nuclear weapons policy, saying that at least one of two new nuclear arms the U.S. military wants to introduce could be used as a bargaining chip with the Russians.
With the opening ceremony of the 2018 Winter Olympics just days away, the South Korean economy is enjoying a boost from the roughly $12 billion that has been spent on new hotels, housing projects, venues and infrastructure.
RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
Billionaire Carl Icahn told CNBC on Tuesday there are too many exotic, leveraged products for investors to trade, and one day these securities are going to blow up the market. The market is a “casino on steroids” with all these exchange-traded funds and exchange-traded notes, he said. These funds, especially the leveraged ones, are the “fault lines” that will eventually lead to an earthquake on Wall Street, he said. “These are just the beginnings of a rumbling.”
Estimates for the volatility-targeting investment industry vary, but most estimates put the total assets under management of strategies like “risk parity” or “commodity-trading advisers” at close to $1tn. “Monday’s sell-off is an appetiser,” says Christopher Cole, the head of Artemis Capital Management, a volatility-focused hedge fund. “The Vix ETP market is tiny. There is a much bigger short-volatility trade still out there.”
The turmoil in global equities has spurred a wave of deleveraging among volatility-targeting funds that’s set to unleash $225 billion of equity sales in the coming days, according to Barclays Plc. Some $500 billion of assets are tied to funds that target a given level of volatility — two-thirds of which are traded by algorithms that look poised to divest after Monday’s eruption of turbulence, according to the British bank. Volatility-targeting investment strategies have become popular in recent years, spurred by the market calm and equity bull run.
BlackRock Inc., the world’s biggest asset manager, called for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products after the collapse of two notes linked to volatility. Inverse and leveraged exchange-traded products don’t perform like exchange-traded funds under stress and regulators should acknowledge the difference, BlackRock said in a statement on Tuesday. BlackRock “strongly supports” a classification system that would label these ETPs differently than “plain vanilla” ETFs, the firm said.
The largest exchange-traded fund tracking emerging-market dollar debt posted its biggest daily outflow on record on Monday amid a global retreat from risk assets. Investors pulled $444 million from the iShares J.P. Morgan USD Emerging Markets Bond ETF, according to data compiled by Bloomberg. The outflow adds to the highest weekly withdrawals from the fund since July last year.
MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
A decade-long era of easy access to money engineered by central banks in Asia, Europe and the United States was ending, opening a new chapter in which corporations would have to pay more to borrow and ordinary people would have to pay more to finance homes, cars and other purchases. To digest the wild swings in stocks and bonds from New York to London to Tokyo is to absorb this uncomfortable realization taking hold.
While drama played out rapidly, its depth may be a lesson for investors wondering how bad things can get in such an environment. The S&P 500 Index violently plunged 19 percent in a matter of weeks, from a high on July 17, 1998, through the last day of August. Yet, the decline was all but forgotten two months later. “In both instances the market was acting giddy, euphoric,” said Howard Ward, chief investment officer of growth equities at Gabelli Funds. “A highly speculative market then, versus a bitcoin craze now. Individual investors entering the market late only to get crushed when it sinks. Stocks rising exponentially when there were few factors justifying the advance.”
Then, as now, bond yields rose steadily for a while, and stocks rose, obliviously. Then yields broke through a major level, seen as marking the end of their steady downward trend that had persisted since Paul Volcker tamed inflation — 5 per cent back in 2007, and 2.7 per cent this time round. Then stocks finally began to pay attention. The question which is about to be tested is whether the network of financial products that has blossomed this time round turns out to be as precariously constructed as the financial engineering that ended up failing so spectacularly in 2007. History suggests we are about to find out.
Two radical policy experiments are colliding, as unconventional monetary policy accommodation that led to near-zero official interest rates and record purchases of debt securities is reversed at the same time as a bold and risky fiscal spending plan is being enacted. The net effect should be a major shift in liquidity flows with more money being directed and used in the economy, leaving less liquidity — in the form of higher interest rates and fewer new flows — for the financial markets.
There are grounds for concern about a credit cycle in which risk is clearly being mispriced. This is partly a product of the enduring search for yield. When almost every asset class looks expensive, investors tend to respond by taking on more risk. This is most obviously true of emerging market debt, where a serial defaulter such as Argentina can issue 100-year paper and find that the issue is oversubscribed.
Federal Reserve tightening cycles always tend to get messy. The tax package that got signed into law late last year only complicates things. Lower corporate tax rates and the tax-cut-related bump many people are now seeing in their paychecks will boost the economy this year. The Fed faces a situation in which it will be tapping on the brakes as the fiscal policy is pushing on the accelerator. Making the situation even more complex, nobody knows exactly how much of a boost to growth the tax plan will induce or how long it will persist.
Even a substantial price correction shouldn’t damage the real economy much after the long market rally since November 2016. A correction of 15% would take us back to prices last fall. The larger risk to the real economy will arrive over time as rates rise and QE unwinds and we see who took on too much risk. We don’t know what those asset classes are, but you can bet they’ll show up naked on the beach somewhere.
Monday’s stock-market plunge is unlikely by itself to make a significant dent in a U.S. economy that’s enjoying solid gains in spending and hiring, though it has the potential to rattle consumer sentiment, which soared after the November 2016 election. “This is the stock market. This is not the economy,” said Allen Sinai, president of Decision Economics Inc. in New York. “Underneath, the U.S. and world economies look very good. The stock market outran the state of the U.S. and world economies and overpriced itself for this early in 2018.”
On Monday morning, Doug Schifter, a livery driver in his early 60s, killed himself with a shotgun in front of City Hall in Lower Manhattan, having written a lengthy Facebook post several hours earlier laying out the structural cruelties that had left him in such dire circumstance. He was now sometimes forced to work more than 100 hours a week to survive, he said; when he had started out in the 1980s, a 40-hour week was fairly typical. He blamed politicians — mayors Michael R. Bloomberg and Bill de Blasio, Gov. Andrew M. Cuomo — and their acquiescence to the rich for permitting so many cars to flood the streets. He blamed the Taxi Commission for the fines and hassles it imposed.
Imagine the day when operatives can create fake video of their enemies. That day is here. It might be impossible to stop the advance of this kind of technology. But the relevant algorithms here aren’t only the ones that run on computer hardware. They are also the ones that undergird our too easily hacked media system, where garbage acquires the perfumed scent of legitimacy with all too much ease. Editors, journalists and news producers can play a role here — for good or for bad.
The idea of the “Deep State” opposing elected leaders and the rule of law is—I will be blunt here—a fascist concept, which is intended to discredit the institutions of democracy. It is done, precisely, so that a “Leader” can represent the “people” without the encumbrance of law or representative institutions.
The president has a pattern of debasing discourse and diluting the potency of language. It’s rubbing off on other people. While the president was certainly being flip, this wasn’t just idle talk. It appears to be part of a coordinated effort to raise questions about the motives of the opposition. The Republican National Committee pushed out a web advertisement earlier Monday attacking Democrats for not standing during the State of the Union.
CENTRAL BANKS & MONETARY POLICY
With unemployment at a low 4.6 percent and hiring consistently solid, Yellen said she thought employers no longer needed large tax cuts and heavy infrastructure spending to create jobs. In fact, she suggested that with unemployment at a nine-year low, a major stimulus of the kind Trump is pushing could pose risks. For one thing, Yellen indicated that the government’s debt could become a heavier burden.
Federal Reserve Chairman Jerome Powell will deliver his first semiannual monetary policy report to the House Financial Services Committee on Feb. 28, the committee said Tuesday.
Analysts stressed that US economic prospects remain sufficiently buoyant to keep the Fed on track for three rate rises this year, which was the median forecast from Fed policymakers published in December. Goldman analysts are among those still expecting four increases. Mark Spindel, founder and chief investment officer at Potomac River Capital LLC, said: “The correction has been nowhere near large enough to hit the real economy. It is true that we have a new Fed chair and a lot of vacancies at the central bank, so there is uncertainty in the markets about how they will react.
USA ECONOMY DATA, CITIES AND STATES
On Monday, a new study, by the Program on Extremism at George Washington University, warned that the absence of programs to deradicalize people convicted on terrorism charges risked the spread of extremist ideas to other inmates in America’s prisons, and beyond.
Residents are paying more for everything from parking tickets and 911 calls to sewer service and trash pickup as cash-strapped American cities struggle to pay for mounting pension obligations, cover costly infrastructure improvements and replace revenue depleted by the last recession.
GLOBAL ECONOMY, INTERNATIONAL
The U.S. trade deficit grew 12% last year to $566 billion, its widest mark since 2008 and a challenge for President Donald Trump, who has pledged to rebalance the nation’s books with the rest of the world. The goods deficit with China alone rose 8% during Mr. Trump’s first year in office to a record $375.2 billion, or nearly half the total global gap between U.S. imports and exports, the Commerce Department said Tuesday.
China’s pension shortfall is emerging as the next big challenge for policy makers as they intensify their years-long campaign to keep rising debt from derailing the economy. Aging in the world’s most populous country means pension contributions by workers no longer cover retiree benefits, forcing the government to fill that gap since at least 2014.
Sales of smartphones in China — the world’s biggest market, responsible for about one in every three shipments — fell last year for the first time since 2009, raising fresh concerns about the strength of the global handset market. China’s slowing appetite for new phones is a blow for Apple, Samsung and Huawei, the country’s top-selling brands, and has prompted manufacturers along the telecoms groups’ vast supply chains to rethink their strategies.
Productivity is at a crawl in most rich economies. Though not as intensely as in the United States, men in their prime, 25 to 54 years old, are leaving the labor force across the nations of the Organization for Economic Cooperation and Development. While women have picked up some of the slack, the labor supply across the O.E.C.D. as a whole has flattened. Most notably, the economy’s ability to generate and support new businesses — agents of creative destruction that bring new products and methods into the marketplace — appears to be faltering across the world. In the United States, the rate of company formation is half what it was four decades ago. And it is slowing in many industrialized countries.
South Korea has one of the world’s highest rates of online shopping, but many of its warehouses and distribution centers are nearing obsolescence by modern e-commerce standards. That disconnect has been like catnip for international investors. In recent years, the Korean logistics sector has attracted hundreds of millions of dollars in investments from big names in global real estate.
Airlines, especially those in Asia, have ordered new aircraft worth hundreds of billions of dollars in the past few years as rising incomes boost travel numbers to a record. This has led to a shortage of experienced pilots, a situation that looks set to worsen. The world will need 637,000 more pilots in the two decades through 2036, Boeing predicts.
POSITIONING, INFLECTION, MARKET CALLS
One place hot money could come into play is Turkey, whose relations with the U.S. have been strained lately. Turkey has some unorthodox economic policies, including the central bank’s decision not to raise the cost of borrowing recently despite 13% inflation, the highest since 2004. And it has some political problems—including a recent trial in a federal court in New York in which a Turkish gold trader was convicted last month of conspiring with Turkish and Iranian banking and government officials to help Iran evade U.S. sanctions.
China’s growing throng of affluent consumers is driving a rebound in demand for gold rings, bracelets and necklaces as a property boom and high stock market valuations boost wealth in the largest bullion market. The nation’s demand for gold jewelry climbed 10 percent last year to almost 700 metric tons as the wealthy increased purchases and consumption improved in second and third-tier cities, according to the China Gold Association.
Shares of U.S. homebuilders bounced back from 10 straight days of declines, the longest losing streak for the sector since 2002, riding the broader market’s recovery to end up 3.7 percent. After performing four times as well as the market last year, the homebuilders got walloped, nearly matching 2002’s string of 11 consecutive days in the red. Borrowing costs spooked some investors, who worry the shares will decline as rising interest rates make housing more expensive.
COLOR, EARNINGS, SENTIMENT, VALUATIONS
Snap Inc. reaccelerated revenue and user growth for the first time as a publicly traded company, a promising sign that may reflect progress in convincing advertisers its Snapchat app is a viable alternative to Facebook and Google.
DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
The IPO market can’t catch a break. After a protracted stretch in the dumps, January was a record month for U.S. initial public offerings as the strong equity market encouraged a slew of companies to list their shares. But the turmoil that erupted last week threatens to stop that momentum in its tracks. It also raises questions about whether a strong run in merger activity will continue.
HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
The automated nature of quants—from big funds like Two Sigma Investments LLC to high-frequency trading firms like Virtu Inc.—causes some novel and lightning-fast behavior during special events like the sell off this week, say executives and analysts who follow quant trading. Paired with a huge shift toward investing in exchange-traded funds, which act as simple algorithms, trends ricochet across markets and asset classes faster than ever, they said. But quants also act as shock absorbers, buying when others sell with the rationale that prices are overcorrecting too fast.
In a world where investors are flocking to dirt-cheap index funds and comparatively low-cost smart-beta and quantitative options, active managers are under intense scrutiny to outperform — and earn their heftier fees. To that end, they’re looking to a slew of new tools, including portfolio analytics software, to help them gain an edge in the cutthroat envrionment.
ENERGY RENEWABLES, NUCLEAR
Electricity in California cost nothing for two hours Tuesday as a wave of solar energy flooded the grid while demand was below the day-ahead forecast. Northern California and Southern California wholesale spot power averaged $0 a megawatt-hour in the hours ending at 11 a.m. and noon, according to Genscape Inc. data compiled by Bloomberg. Solar generation was as much as 8,500 megawatts, supplying almost 40 percent of the state’s demand during that period, according to the California Independent System Operator.
BREXIT, SCOXIT, LONDON, UK ECONOMY
The EU wants powers to punish UK non-compliance during the Brexit transition by summarily cutting off the country’s access to parts of the single market, according to a treaty draft. The five-page text, circulated to EU member states by the European Commission and seen by the Financial Times, sets out how the EU plans to make Britain abide by union law until December 2020 while excluding it from decision-making.
Britain and the EU are heading for another clash over Northern Ireland’s post-Brexit status as Brussels pushes for greater clarity on a fragile compromise on the Irish border. The EU side is within weeks of publishing a legal text of December’s Brexit divorce agreement that would lay out exactly how Northern Ireland might need to “align” with the union’s single market — a move that would give much greater definition to the ambiguously worded deal.
German party talks on building Chancellor Angela Merkel’s next government went into a third day of overtime as negotiators pushed for a breakthrough to end more than four months of political stalemate.
DACA, TRAVEL BAN, IMMIGRATION, WALL
President Trump’s proposal to cut legal immigration rates would delay the date that white Americans become a minority of the population by as few as one or as many as five additional years, according to an analysis by The Washington Post.
PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
Identity fraud struck more victims last year than at any point in more than a decade, a new report found, due in part to the data breach at Equifax Inc. and criminals becoming more skilled at gaining access to consumers’ mobile-phone and email accounts.
PROPAGANDA, CORRUPTION, AUTHORITARIANISM
Polish President Andrzej Duda approved a libel law imposing up to three years in jail for accusing the Polish people of assisting in the Holocaust, overriding worries it would gag a discussion over how 6 million Jews were murdered during World War II.
At the president’s direction, officials say they have begun planning a large-scale military event in Washington, inspired by France’s Bastille Day celebration.
The comedian tweeted on Tuesday he was selling his Facebook shares and deleting his page because the company profited from Russian interference during the 2016 U.S. election. He asked all “other investors who care about our future to do the same.” Carrey did not state how many Facebook shares he owned or sold.
One of President Donald Trump’s loudest critics from within his own party took to the Senate floor on Tuesday afternoon to denounce his calling Democrats “treasonous” at an event in Ohio the prior evening. In a scathing address, Republican Sen. Jeff Flake of Arizona described Trump’s comments as “vile,” lamenting what he described as the “daily sundering of our country” at the hands of a bombastic and often incendiary commander-in-chief.
The Illinois Democrat, an Iraq War veteran, criticized Trump after he called Democrats “treasonous” for not applauding him. Duckworth, who lost her legs in 2004 while serving in Iraq as an Army helicopter pilot, then shared this quote from Theodore Roosevelt, lifted from an opinion piece the former president wrote during World War I: “To announce that there must be no criticism of the president or that we are to stand by the president, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public.”
SCANDALS, LAWSUITS, FINES, REGULATORY
The crimes were not carried out by civilian criminals, but by Baltimore police officers. They are among the dozens of bombshells in one of the most startling police corruption scandals in a generation. In a trial in Baltimore federal court, witnesses and even the officers themselves have described an elite squad gone rogue, taking every opportunity to rob those they were supposed to be policing or protecting, and barely bothering to cover up their deeds.
Some evidence may not look so good for Travis Kalanick’s innocent explanation that he and the self-driving car rock star he poached from Waymo, Anthony Levandowski, were just “brothers from another mother.”
SILICON VALLEY, UNICORNS, STARTUPS, VC
Tosi, the former CFO at Blackstone Group who turns 50 on Thursday, never fit in at Airbnb, according to interviews with more than a dozen executives, employees and investors, who asked not to be identified discussing private matters. While tensions between Chesky and Tosi have been widely reported by technology website the Information and elsewhere, the company’s financial results, clashes over Airbnb’s IPO timeline and Tosi’s differences with other executives including Johnson haven’t been previously reported.
MEDIA, CABLE, SPORTS, ENTERTAINMENT
The Marvel film, opening next Friday, features one of the first black superheroes in comic books, and its resonance for African-American moviegoers is transforming a typical action-movie rollout into a full-blown cultural event. Disney , which owns Marvel, hopes to translate that into the first international blockbuster whose cast and crew are mostly black.
Tronc Inc. is close to selling the Los Angeles Times to billionaire investor Patrick Soon-Shiong, according to a person familiar with the matter, potentially opening a new chapter for the 136-year-old newspaper’s staff after an open rebellion against the current owner.
AUTOS, ELECTRIC, SELF-DRIVING
General Motors and Toyota are on divergent paths in North America, where GM is posting lofty profit margins while Toyota’s bottom line has been battered. The diverging results for the two auto giants in North America is partly explained by the changing shopping patterns of American car buyers. GM’s strength lies in pickup trucks and sport-utility vehicles, categories that are booming amid lower gas prices and an emerging preference for more-versatile rides.
The shift into carmaking will be a trip into the unknown both for the conglomerate and for Vietnam’s manufacturing-driven economy, analogous to the moment in the 1970s when the South Korean chaebol Hyundai, today a top producer, developed its first cars.
SCIENCE, NATURE, PSYCHOLOGY
Scientists have developed a brain implant that noticeably boosted memory in its first serious test run, perhaps offering a promising new strategy to treat dementia, traumatic brain injuries and other conditions that damage memory. The device works like a pacemaker, sending electrical pulses to aid the brain when it is struggling to store new information, but remaining quiet when it senses that the brain is functioning well.
A research institute linked to the Chinese military has manufactured the first prototype dish for what will be the world’s largest radio telescope, with vast fields of antennas picking up radio signals from space in remote regions of South Africa and Australia. For China, the project is a milestone in its emergence as a global science power, earning it the prestige of participating in multinational projects. It is one of ten countries collaborating on the SKA.
In what’s being hailed as a “major breakthrough” in Maya archaeology, researchers have identified the ruins of more than 60,000 houses, palaces, elevated highways, and other human-made features that have been hidden for centuries under the jungles of northern Guatemala.
Here, Tarantino discusses in great detail the article and his long and complex relationship with Thurman, and in so doing, he illuminates how the dynamic between director and his actor works and why it can seem so awkward when given brief description in an article. “I am guilty, for putting her in that car, but not the way that people are saying I am guilty of it,” Tarantino told me. “It’s the biggest regret of my life, getting her to do that stunt. There are certain things I can’t get too far into the weeds on, but I will any questions you have about it.” Buckle up.
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