Macro Links Jan 9th – Vanishing Crypto
You are viewing the Macro Links delayed archive. The real time Macro Links, posted each trading day, are available via the Mercenary Research Suite. To see how it works, click here.
MACRO LINKS TABLE OF CONTENTS (Click or Scroll Down)
- BITCOIN, CRYPTOCURRENCY, INITIAL COIN OFFERINGS
- FOREX, CARRY TRADES, EXCHANGE RATES
- TAXATION, WEALTH HAVENS, INEQUALITY
- 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 DATA
- POSITIONING, INFLECTION, MARKET CALLS
- COLOR, EARNINGS, SENTIMENT, VALUATIONS
- DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
- HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
- ENERGY CRUDE OIL, OIL SANDS, SHALE
- ENERGY NATURAL GAS, COAL
- COMMODITIES BASE METALS, MATERIALS
- BREXIT, SCOXIT, LONDON, UK ECONOMY
- DACA, TRAVEL BAN, IMMIGRATION, WALL
- GEOPOLITICS, CRIME, TERRORISM
- PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
- PROPAGANDA, CORRUPTION, AUTHORITARIANISM
- TRUMP WORLD
- TRADE, PROTECTIONISM, REGULATION, OVERSIGHT
- ELECTORAL POLITICS
- SILICON VALLEY, UNICORNS, STARTUPS, VC
- RETAIL APPAREL, SPECIALTY, DINING, BIG BOX
- AUTOS, ELECTRIC, SELF-DRIVING
- AEROSPACE, MILITARY & DEFENSE
BITCOIN, CRYPTOCURRENCY, INITIAL COIN OFFERINGS
In the final weeks of 2017 and the first seven days of 2018, ripple was the rising star in the cryptocurrencies market. That came to a screeching halt on Monday when it tumbled by more than a third.
In other bearish news: Dogecoin, the cryptocurrency that began as a joke but then garnered a $2bn market value, was down 17.3 per cent in recent trade. It is still up 553 per cent over the past month.
A website called coinmarketcap.com on Monday removed data from some South Korean exchanges from its price quotes for a range of virtual currencies including bitcoin, Ethereum and Ripple’s XRP. The move followed a South Korean government crackdown on cryptocurrencies.
The move by coinmarketcap caused some amount of chaos when prices across the board suddenly plunged. In mid-Monday trading, XRP had fallen 26% over the past 24 hours, Bitcoin Cash was down 18%, and litecoin was down 12%. Of the top 40 cryptocurrencies, 31 were down, including bitcoin and Ethereum.
A Hong Kong-based company whose stock benefited from cryptocurrency fever to jump more than 900 percent last year had trading in its shares suspended by U.S. regulators over concerns that investors are being misled about the company’s business.
The Securities and Exchange Commission halted buying and selling of UBI Blockchain Internet Ltd. due to “unusual and unexplained market activity” for its shares, according to a statement issued Monday by the regulator. The SEC added that there are questions about the accuracy of assertions that the company has made in its financial statements.
Bitcoin slumped as much as 17 percent to $14,820, the most in more than two weeks. The rout in bitcoin is part of a broader selloff in the cryptocurrency realm, with all of the top 10 by market cap falling, and most tumbling by at least 10 percent, according to Coinmarketcap.com. Cardano fell 16 percent, while litecoin slumped as much as 16 percent to as low as $230. Bitcoin is little changed this year after surging about 1,400 percent in 2017.
Encrypted messaging startup Telegram plans to launch its own blockchain platform and native cryptocurrency, powering payments on its chat app and beyond. According to multiple sources which have spoken to TechCrunch, the “Telegram Open Network” (TON) will be a new, ‘third generation’ blockchain with superior capabilities, after Bitcoin and, later, Ethereum paved the way.
The launch will be funded with an enormous Initial Coin Offering, with forthcoming private pre-sales ranging into the hundreds of millions, potentially making it one of the largest ICOs to date. Demand is driven by the fact that rather than the ICO coming from a fresh startup, Telegram is a well-established messaging platform used around the world.
Two U.S. companies shelved proposals to launch bitcoin exchange-traded funds, citing ongoing concerns by the Securities and Exchange Commission (SEC), filings showed on Monday.
Staff at the regulatory agency “expressed concerns regarding the liquidity and valuation” of futures contracts based on the digital asset, according to one of the filings.
South Korean regulators said they have started on-site inspections of the country’s large commercial banks, marking a change of tack in authorities’ efforts to clamp down on cryptocurrency speculation in one of Asia’s hottest bitcoin markets.
The inspection comes 10 days after South Korea banned the use of unidentified virtual accounts for trading digital currencies. It is a slightly different approach from regulators’ previous attempts to regulate entities in the cryptocurrency industry largely by dealing with them directly—a difficult task since they aren’t generally covered by existing laws.
FOREX, CARRY TRADES, EXCHANGE RATES
Although the Bank of Japan insists that they want to continue ultra-easy monetary policy, their massive quantitative easing program has dramatically slowed down.
The BOJ’s massive balance sheet actually shrunk slightly in December. That suggests tightening could be on the way.
A minor tweak in a regular Bank of Japan bond-purchase operation on Tuesday was enough to send the yen climbing the most in almost a month, even though evidence weighs overwhelmingly against the adjustment signifying anything meaningful.
Tuesday’s move was minor compared with what happened to the euro on June 27, when traders interpreted comments from European Central Bank President Mario Draghi as a sign that ECB tapering was coming. The euro surged 1.4 percent that day, and has remained stronger ever since.
Although foreign exchange reserves fell from nearly $4tn from mid-2014 to less than $3tn in January 2017, capital controls and a weaker dollar have helped the reserve pile recover to slightly more than the $3tn line (see chart). Foreign exchange data may suggest further tightening is unwarranted but this latest clampdown on bank cards reflects attempts to impose greater control on a porous capital account.
This is part of a campaign that has ended a global asset-buying spree by a group of highly leveraged private firms, has resulted in a slump in overseas direct investment, and has stalled the government’s plans to internationalise the renminbi.
China’s central bank has made a change to the regime used to manage the yuan, effectively removing a component used by banks to calculate their submissions to the currency’s daily reference rate, according to people familiar with the matter.
The People’s Bank of China recently told some lenders that contribute to the rate — known as the fixing — to adjust their use of the “counter-cyclical factor” in such a way that it would have no impact on the mechanism, said the people, who asked not to be identified as the details are private. They said the change has already taken effect.
The yuan, which headed for its biggest drop in two months on the news, is allowed to move a maximum of 2 percent either side of the fixing. Analysts said the change shows China is confident in the yuan’s current trajectory, which has been one of steady appreciation.
TAXATION, WEALTH HAVENS, INEQUALITY
Berkshire Hathaway Inc, the conglomerate run by Warren Buffett, may see its book value grow by $37 billion because of U.S. tax law changes enacted by President Donald Trump, Barclays Capital analysts estimated on Monday.
Book value, a key performance measure for Buffett reflecting assets minus liabilities, probably rose by 12 percent in the final quarter of 2017 because Berkshire can lower its tax bill on investments that have risen in value, Barclays analysts led by Jay Gelb wrote.
The special counsel, Robert S. Mueller III, told President Trump’s lawyers last month that he will probably seek to interview the president, setting off discussions among Mr. Trump’s lawyers about the perils of such a move, two people familiar with the discussion said on Monday.
No formal request has been made and no date has been set. White House officials viewed the discussion as a sign that Mr. Mueller’s investigation of Mr. Trump could be nearing the end. But even if that is so, allowing prosecutors to interview a sitting president who has a history of hyperbolic or baseless assertions carries legal risk for him. Mr. Mueller has already brought charges against four of Mr. Trump’s former aides. All face accusations of lying to the authorities.
Mueller raised the issue of interviewing Trump during a late-December meeting with the president’s lawyers John Dowd and Jay Sekulow. Mueller deputy James Quarles, who oversees the White House portion of the special counsel investigation, also attended.
The special counsel’s team could interview Trump soon on some limited portion of questions — possibly within the next several weeks, according to a person close to the president, who spoke on the condition of anonymity to describe internal conversations.
In a past career, Glenn R. Simpson had been a reporter’s reporter, tenacious through two decades in journalism, often driving the Washington story of the day — congressional corruption, fund-raising shenanigans, sundry misbehavior — but never becoming it himself. “It’s not news when things go right,” he told a group of students in 1991, describing his craft. “When things go right, it’s boring.”
Mr. Simpson’s life has not been boring for some time now. It has, perhaps inevitably, become news.
As investigators circle President Trump’s administration over ties to Russia during the 2016 campaign, Mr. Simpson, a 53-year-old Wall Street Journal veteran-turned-master of high-dollar research, has arrived at the biggest story of either of his careers, lurching to the center of the Russia-tinged scandal that clouds the presidency.
NORTH / SOUTH KOREA, IRAN, NUCLEAR WEAPONS
The Trump administration is debating a “bloody nose” attack on North Korea, recent reports say, with the president’s inner circle split and apparently teetering between endorsing a strike and holding out hope for diplomacy.
Both The Telegraph and The Wall Street Journal have portrayed Secretary of State Rex Tillerson and Secretary of Defense James Mattis as trying to caution President Donald Trump against a strike, and the national security adviser, H.R. McMaster, as advocating it.
North Korea has offered to send athletes and a high-level political delegation to next month’s Winter Olympic Games in South Korea amid positive signs from the first round of inter-Korea talks.
While warmly received by Seoul, the development has the potential to complicate Washington’s efforts to impose “maximum pressure” on Pyongyang over its increasingly sophisticated weapons programmes.
“The North said that they will send a high-level delegation, including Olympic committee representatives, athletes, a cheering squad, an art performance group, spectators, Taekwondo demonstrators and press,” Chun Hae-sung, vice minister of unification, told reporters at the Panmunjom truce village on the border between the two Koreas.
President Hassan Rouhani of Iran lashed out at his hard-line opponents on Monday, saying the protesters who have shaken Iran in recent weeks objected not just to the bad economy but also to widespread corruption and the clerical government’s restrictive policies on personal conduct and freedoms.
“One cannot force one’s lifestyle on the future generations,” Mr. Rouhani said, in remarks reported by the ISNA news agency. “The problem is that we want two generations after us to live the way we like them to.”
Mr. Rouhani, a moderate, has been seeking a relaxation in social controls, but he faces resistance from hard-liners in unelected power centers like the judiciary, vetting councils and the state news media. They want to keep in place the framework of Islamic laws that effectively dictate how people should live, despite enormous changes in Iranian society in the past decade alone.
RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
With the Dow Jones Industrial Average breaking through 25000 for the first time, the Nasdaq Composite crossing 7,000 and with market volatility falling to near all-time lows, many investors have decided that spending money to hedge against big declines is a waste of money.
“I haven’t seen hedging activity this light since the end of the financial crisis,” said Peter Cecchini, a New York-based chief market strategist at Cantor Fitzgerald. “It started in late 2016 and accelerated in the second half of the year.”
A University of Michigan survey in October showed that consumers saw a nearly 65% chance on average that the stock market would rise in the next 12 months, the highest share on record. That measure remained near record levels in the following months.
The blue-chip gauge has gone 386 trading days without a selloff of 5%, its longest stretch since 1996, according to The Wall Street Journal’s Market Data Group.
By letting their hedges expire, investors would feel the full brunt of a market selloff. While that would intensify the pain for any individual trader, some analysts and brokers worry that the cumulative effect of more investors giving up their protective positions could itself become a source of volatility.
U.S. consumer credit outstanding rose in November by the most in 16 years as credit-card balances surged, Federal Reserve data showed Monday.
The acceleration in revolving debt shows Americans’ credit-card balances were mounting during the holiday-shopping season. The increase in non-revolving credit outstanding probably reflects more motor vehicle purchases. While household wealth is climbing on the heels of higher home prices and record stock values, the risk to the economy is that consumers with fewer assets may have to temper their spending until debt loads become more manageable.
A Wall Street watchdog has warned of the risks of people borrowing against their investment portfolios, in a move that could crimp a money-spinning product line for the likes of Morgan Stanley and Bank of America.
On Monday the Financial Industry Regulatory Authority said it would be looking particularly closely at securities-backed lines of credit, as it set out its priorities for the year ahead. Such products, which involve customers taking out loans secured against portfolios of stocks and bonds, have grown rapidly as markets have continued their gently rising trend.
Prices in Venezuela, which is believed to have the world’s highest inflation, jumped 2,616 percent last year, the country’s opposition-led National Assembly said, as millions suffer from food and medicine shortages during a severe economic crisis.
Opposition politicians, whose numbers are broadly in line with analysts’ estimates, on Monday put December’s inflation figure alone at 85 percent, well into hyperinflation territory for which the benchmark is usually 50 percent.
“Inflation in December alone is greater than accumulated inflation (over the whole year) for all of Latin America,” said lawmaker José Guerra.
Venture capital funding in the U.S. has hit its highest level since the dot-com era. U.S. venture firms deployed $84 billion in more than 8,000 companies last year, according to research firm PitchBook. The last time this much money sloshed around Silicon Valley and other tech hubs, many venture firms lost their investments in the dot-com bust of the early aughts. That’s far less likely to happen today.
There is a downside for investors: Because so many companies are staying private longer, they’re finding it harder to get their money out. The number of exits fell for the third consecutive year, the report said, the lowest since 2011.
After selling billions of dollars of debt backed by consumer loans last year, Chinese billionaire Jack Ma’s Ant Financial is pausing such fundraising as the government steps up curbs on micro lending.
The company hasn’t sold any asset-backed securities since early December, according to data compiled by Bloomberg and China Securitization Analytics. That marks an abrupt shift after it issued a record 238 billion yuan ($37 billion) in 2017 of such securities backed by consumer loans.
“Without the new rules, Ant Financial’s consumer loans would balloon with no limit because it can move most loans off its balance sheet by packaging them into ABS,” said Shanghai-based Yang Junmin, an analyst at Internet finance research firm Shanghai Yingxun Technology Co. “Now they would be very cautious about selling new ABS. Ant Financial’s new consumer loans may have an obvious slowdown this year.”
The latest jump has pushed Bezos’s fortune definitively above the high reached by Microsoft Corp.’s Bill Gates in 1999. The Amazon founder passed Gates in October with a net worth of $93.8 billion and his fortune crossed $100 billion for the first time a month later when the holiday shopping season kicked off on Black Friday.
Gates, 62, would have a net worth of more than $150 billion if he’d held onto assets that he’s given away, largely to the Bill & Melinda Gates Foundation. He has given away almost 700 million Microsoft shares and $2.9 billion of cash and other assets since 1996, according to an analysis of his publicly disclosed giving.
MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
Military planners have started using phrases such as “kick in the shin” and “bloody nose” to describe action they believe would send a strong message to Mr Kim, but not one so strong as to spark serious retaliation, according to two people familiar with the internal discussions.
Dennis Wilder, a former top CIA analyst, says there are many options that could be interpreted as a kick in the shin or a bloody nose. They include striking an air base or naval facility not associated with the ICBM programme, destroying one of Mr Kim’s homes, hitting a key part of the missile programme or targeting a missile during a test launch.
“Presumably, such a strike would be a one-off attack that is immediately followed-up by a presidential announcement that this is a warning shot and nothing more,” says Mr Wilder.
Many former officials are sceptical, however, that the US could take such limited military action. James Stavridis, former Nato supreme allied commander and now dean of the Fletcher School at Tufts University, who puts the odds of nuclear war at 10 per cent, sees “no military options which would result in fewer than several hundred thousand casualties and perhaps as many as 2m to 3m”.
Mr Mullen says Mr Trump’s team would be taking a huge gamble if it assumed Mr Kim would not respond to an attack. “Our intelligence is not great, so how do we know that they would not respond?” he says. “If I was Japan or South Korea, I would be asking ‘what are we, chopped liver?’ The US is supposed to be protecting them.”
The C.I.A. and other American intelligence services had predicted this moment would come, eventually. For decades, they accurately projected the broad trajectory of North Korea’s nuclear program. Yet their inability to foresee the North’s rapid strides over the past several months now ranks among America’s most significant intelligence failures, current and former officials said in recent interviews.
That disconnect — they saw it coming, but got the timing wrong — helps explain the confusion, mixed signals and alarm that have defined how Mr. Trump’s untested national security team has responded to the nuclear crisis.
In an interview, Lt. Gen. H.R. McMaster, Mr. Trump’s national security adviser, acknowledged that Mr. Kim’s race to the finish line — a bid to establish the North as a nuclear power before any negotiations begin or sanctions take a more punishing toll — “has been quicker and the timeline is a lot more compressed than most people believed.”
As a result, he argued, “we have to do everything we are doing with a greater degree of urgency, and we have to accelerate our own efforts to resolve the issue short of conflict.”
If you listen to bitcoin’s biggest backers, it’s supposed to be our gleaming future, one where we can make money just by holding it, move it anywhere in the world for free, and no longer have to depend on banks or governments to do the right thing. If you look at what bitcoin actually does, though, it’s more like digitized nostalgia for a pre-modern past where money was discovered rather than printed, economics was a simple subject where markets never failed, and you never had to trust anyone you didn’t know. It works, then, the way libertarians think things should—which is to say not at all.
The first thing they don’t understand is that money isn’t just a store of value. It’s also a medium of exchange, or what we use to buy things with. And if it’s going to be much of one, then it not only has to avoid losing too much value, but also gaining too much. Otherwise, why would you ever spend it? You wouldn’t. You’d just hold on to it as long as you could in case, like bitcoin, it went from being able to buy $900 worth of stuff one year to $19,000 the next. Which, if it ever did replace the dollar, would bring the economy to a halt while everyone stopped buying anything other than the essentials and waited to become bitcoin millionaires.
To stop that from happening, you’d need to be able to increase the supply of bitcoins as the demand for them did. This is more or less what is known as “printing money,” and, as is often the case, it can be either good or bad depending on whether it’s done appropriately or not. Do it too much and you can get the type of persistent inflation the U.S. had in the 1970s; way too much and the kind of currency-killing hyperinflation Germany had in the 1920s; but too little and the economy might fall into a doom loop like the whole world did in the 1930s. Bitcoin, though, is set up under the assumption that people — or, more accurately, governments — can never be trusted to do this, and that pretty much anything that reduces the value of a currency is by definition bad. That’s why its pseudonymous creator decided there would only ever be 21 million coins, even though that hard limit has meant prices have zoomed up and down and back up again as interest in bitcoin has itself. That’s made it the best penny stock and the worst currency in the world.
Bitcoin is a revolutionary technology built on reactionary economics. That first part has blinded people to the second — how could something so clever be so useless? — but it’s true. Bitcoin’s strictly limited money supply harks back to a time when money was a shiny rock you dug out of the ground, not a piece of paper with a dead president (or treasury secretary) on it. And its attempts to insulate miners from the forces of economic rationality are akin to nobles’ old feudal protections.
Believing these people, and afraid to miss out on the gold rush, small-time investors, grandma and grandpa, and barbers and taxi drivers invested their life savings in companies such as Pets.com, Webvan, and eToys. The bubble burst, and they lost everything. Through a transfer of wealth in the billions of dollars from Main Street to Wall Street, VCs, unscrupulous CEOs, and bankers had effectively enriched themselves at the expense of hundreds of thousands of ordinary investors, leaving them to despair about their futures.
History is repeating itself now with bitcoin. This time, it isn’t just Main Street USA that is about to lose its shirt; it is also the developing world. Technology has made it possible for hypesters in Silicon Valley, China, and New York City to fleece anyone, anywhere, who has a bank account and an internet connection.
The story that bitcoin victims are being sold is that, because we cannot trust government-issued currencies, bitcoin is the future of money. One investor calls bitcoin “a gift from God to help humanity sort out the mess it has made with its money.” A PayPal director predicts that bitcoin’s price will reach $1 million in the next five to 10 years; asset managers say it is the new gold.
This is complete nonsense. Yes, the price of bitcoin may yet double or even quadruple — because its price is based on pure speculation, and these stories are feeding such speculation. But bitcoin’s market price is almost certain at some point to crash and burn, just as the dot-coms’ did, and for the same reason: because it is all hype. And there will be no one to turn to when it does, because no government or bank is backing bitcoin up; and the people who are hyping bitcoin will have cashed out and be long gone.
From a corporate governance and accountability perspective, cybersecurity today is being treated like accounting was before the fallout from the Enron scandal inspired the Sarbanes-Oxley Act’s increased standards for corporate disclosures. With the privacy and personal data of hundreds of millions of people at risk, and especially now with the increasing ubiquity of connected devices in our lives, the security of digital assets is too important for that kind of treatment. We need to bolster a culture of responsibility around cybersecurity, combining stronger and more uniform corporate governance with a clearer government commitment to enact better defensive policies.
A complex hack may not be a C.E.O.’s fault, but it is absolutely his or her responsibility. Investors and consumers need to demand more from the executives to whom they entrust their digital lives. The same holds true for government. Protection of the welfare and livelihood of its citizens is a foundational principle of government, and yet for more than a decade there has been very little consequence for nation-states and state-affiliated groups who’ve pilfered the intellectual property, and violated the personal privacy, of citizens and companies around the world.
While more must be expected of companies, more should be expected of government as well. American businesses are under attack by our nation’s geopolitical adversaries, and by nonstate groups affiliated with them. Just imagine if American shipping companies were battling foreign navies, or if domestic airlines were fighting an adversary’s air force. This asymmetry locks the businesses into fights they cannot win.
Last week, Prescher’s worst fears were proved right when Intel, one of the world’s largest chipmakers, said all modern processors can be attacked by techniques dubbed Meltdown and Spectre, exposing crucial data, such as passwords and encryption keys. The biggest technology companies, including Microsoft Corp., Apple Inc., Google and Amazon.com Inc. are rushing out fixes for PCs, smartphones and the servers that power the internet, and some have warned that their solutions may dent performance in some cases.
Prescher was one of at least 10 researchers and engineers working around the globe — sometimes independently, sometimes together — who uncovered Meltdown and Spectre. Interviews with several of these experts reveal a chip industry that, while talking up efforts to secure computers, failed to spot that a common feature of their products had made machines so vulnerable.
Fires ravaged the West, hurricanes battered the East—and still emissions continued to rise. Despite all our climate policies, global accords, solar advances, wind farms, hybrid cars, and Teslas, greenhouse-gas emissions are still moving in the wrong direction. And as long as we’re emitting any at all, we’re only making the problem worse.
The most alarming projections for global warming this century also seem to be the most reliable, according to a December study in Nature that compared climate models against what’s already happening in the atmosphere. That suggests the risks of climate change are greater than feared, and that we’ll have to cut emissions even deeper to prevent dangerous levels of warming.
CENTRAL BANKS & MONETARY POLICY
Two Federal Reserve officials said Monday the U.S. central bank should consider changes in its inflation-targeting framework to create more ammunition to respond to future downturns.
The Fed established a formal 2% inflation target six years ago, but in recent months some officials and other economists, including former Fed Chairman Ben Bernanke, have said the central bank should revisit the framework because interest rates now appear likely to remain much lower for longer. As a result, the Fed could find itself with less room to stimulate economic growth during the next downturn.
The idea of revisiting the Fed’s inflation target also has gained new attention because inflation has confounded officials’ forecasts for years by consistently falling below the 2% target. Such targets can be less effective if officials are chronically unable to hit them.
The Swiss National Bank said on Tuesday it expects to report profits of around SFr54bn ($55bn), the largest in its history, thanks to a weaker franc and buoyant global stock markets.
The steep rise in profits – up from SFr 24.5bn in the previous year – highlights the turnaround at the Swiss National Bank since the start 2015, when it was forced to abandon its attempts to cap the value of the super-strong Swiss franc.
USA ECONOMY DATA, CITIES AND STATES
U.S. economic growth picked up last year and that could continue into 2018 if tax cuts enacted into law last month spur business investment and consumer spending, as many forecasters expect.
But economists who study the long-run outlook—many of whom were gathered this weekend for the annual meeting of the American Economic Association—aren’t budging much from their projections that output growth will remain far slower than its historical average in the years ahead.
U.S. car sales remain strong by historical standards, but last year slipped 1.8%—the first annual decline since the 2008 recession. A major reason for this downturn, despite the strong economy, is increasingly stiff competition from the secondhand market, which is inundated with cars coming off three-year leases. The average gap between new and three-year-old vehicle prices last year was $14,200, up from $10,500 in 2010, according to information provider Edmunds.
With 12% more vehicles coming off lease in 2018 than did in 2017, this effect will only get stronger. Hence industry forecaster IHS expects another dip in U.S. unit sales this year. The same trend is at work in the lease-addicted U.K. market, where car sales fell close to 6% in 2017.
GLOBAL ECONOMY DATA
German industrial production rebounded in November, setting up the euro area’s biggest economy for a strong finish to the year and adding to the picture of robust growth in the currency bloc.
Led by demand for investment goods, output increased 3.4 percent from the previous month, data from the Economy Ministry showed on Tuesday. Production surged 5.6 percent from a year earlier, the most since 2011.
Official data from Germany on Tuesday appeared to validate the country’s record levels of business confidence, with new figures on industrial production and trade coming in well ahead of expectations and prompting analysts to suggest the economy has “returned to full speed”.
Italy’s unemployment rate dropped to the lowest since September 2012, providing a much-needed boost to the ruling Democratic Party before the March general election.
Unemployment decreased to 11 percent in November from 11.1 percent the month before, the Rome-based national statistics office Istat said in a preliminary report on Tuesday. The rate matched the 11 percent median of 10 estimates in a Bloomberg News survey.
Joblessness in the euro area declined to the lowest level since early 2009 last month as the labor market continued to benefit from a resurgent economy growing the fastest in a decade.
The unemployment rate dropped to 8.7 percent in November from 8.8 percent the previous month, according to a report from Eurostat on Tuesday. The reading matches the median of 34 estimates in a Bloomberg survey.
After a bleak period beset with bank failures, record joblessness and a sovereign-debt crisis that jeopardized the currency union and triggered unprecedented stimulus by the European Central Bank, the region’s economy has returned to health. Economic growth last year was probably the quickest in a decade, and the pace of expansion in 2018 is forecast to be almost as fast.
Equity euphoria has gripped most of the world to kick off 2018, with the 14-day relative strength index for major stock markets surging to overbought levels.
The S&P 500 Index, MSCI Asia Pacific Index, MSCI World Index, Nikkei 225 Index, and MSCI Emerging Markets Index are all in overbought territory, while the Euro Stoxx 600 Index lingers just shy of such a level.
POSITIONING, INFLECTION, MARKET CALLS
On Wall Street, where pundits spent a decade warning people not to get hurt in the market, the mantra has become don’t get left out. Stocks are surging and signs of receding skepticism are everywhere. Broker clients are adding stocks hand over fist. Price targets meant to last a year, last days.
Optimism over Donald Trump’s tax program is pushing up profit estimates faster than any time in five years. Data on everything from manufacturing to employment and housing is breaking in the bull’s favor. Nobody seems to mind that the S&P 500 Index trades for around 23 times earnings. It was higher than that only about 1.5 percent of the time since 2003.
Euphoria on Wall Street that stocks can just keep on building on record highs is getting so stratospheric that it’s reaching levels that previously signaled a slump.
Analysts are ratcheting up their forecasts for U.S. corporate profits at the fastest pace in more than 10 years, according to the research firm Bespoke Investment Group. And that’s happening, unusually, right in the run-up to an earnings-season kick-off. While the upgrades could be taken as a positive reflection on the economy’s outlook, in the past such bullish analyst sentiment has served as a precursor to a market decline.
The last time the gap between analysts lifting forecasts and those lowering estimates was this wide was in May 2010. The divergence at the time widened after the U.S. S&P 500 Index had climbed more than 10 percent over the previous three months. Just before analyst sentiment peaked, stock prices also topped out, and the index slid more than 15 percent.
COLOR, EARNINGS, SENTIMENT, VALUATIONS
Samsung Electronics Co. spent more money on capital expenditures last year than any other publicly traded company, offering a dramatic example of how technology and telecom firms have driven an uptick in global manufacturing investment.
The South Korean tech giant invested $44 billion to build or expand new facilities making semiconductors, displays and other products, according to S&P Global Market Intelligence estimates. That’s more than what Royal Dutch Shell PLC and Exxon Mobil Corp. , traditionally two of the largest investors, spent combined last year—and about 50% more than the next biggest spender, PetroChina Co.’s $29 billion.
Shares in GoPro tumbled as much as 33% in Monday trading after the company announced restructuring plans and warned that its quarterly revenue would be substantially lower than expected.
The shares regained some lost ground during the day after Chief Executive Nicholas Woodman told CNBC that GoPro would entertain a sale to a larger company. The stock closed down 13% at a record low of $6.56.
DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
The former Revel Hotel and Casino in Atlantic City, N.J., which closed after two years in business, has been bought for $200 million by a Colorado development company.
The former $2.4 billion Revel will be rebranded as the Ocean Resort Casino and is expected to reopen in summer 2018, AC Ocean Walk announced Monday. Integrated Properties, a Denver-based commercial and real-estate development company, is the principal owner and managing partner of AC Ocean Walk.
HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
The quantitative hedge fund industry is on the brink of surpassing $1tn of assets under management this year after breakneck growth from rising interest in more systematic, computer-powered investment strategies.
The amount of money managed by quant hedge funds tracked by HFR, a data provider, rose to more than $940bn by the end of October 2017 — nearly double the level of 2010 — and flows have continued to be strong in the fourth quarter, according to hedge fund executives.
While funds with equity strategies served as a bright spot, many of them trailed the markets in which they traded. The S&P 500 Index rocketed almost 22 percent last year, supported by steady economic growth and optimism for President Donald Trump’s tax overhaul.
Macro managers had little to be optimistic about. Low global interest rates and volatility lashed their funds, which rose 4 percent on average last year, the worst-performing strategy. The muted market environment took a toll on some macro titans: Paul Tudor Jones closed his Discretionary Macro Fund and John Burbank shut his flagship macro fund.
ENERGY CRUDE OIL, OIL SANDS, SHALE
A key OPEC minister has warned that the group risks overheating the oil market as crude prices head toward $70 a barrel.
“Members of the Organization of Petroleum Exporting Countries are not keen on increased Brent crude prices above $60 a barrel because of shale oil,” Iran Oil Minister Bijan Namdar Zanganeh said, according to the ministry’s news service Shana. Prices have climbed in recent days because of production cuts and increased demand for petroleum products due to cold weather, he said.
While the view isn’t universally held among OPEC ministers, the comments show concerns among some countries that keeping production curbs in place as a strengthening global economy drives demand could spur more output from shale producers in the U.S. Higher prices also encourage producers to hedge future output, adding to supplies.
OPEC’s strategy to end a worldwide crude glut is causing havoc for a vital link in the oil industry’s supply chain: the fleet of supertankers that shuttle fuel between continents.
The ships’ average earnings plunged last year by more than half to levels not seen since 2009 and far below what shipping analysts had been predicting. Now, the producer group’s extension of output cuts throughout 2018 is adding to the downturn.
“These cuts reduced the number of cargoes from the Middle East to Asia significantly at a time when a large amount of newly-built vessels are being delivered,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said in a phone interview.
ENERGY NATURAL GAS, COAL
The White House’s plan to bail out America’s coal country has been shot down — by the very energy regulators that President Donald Trump appointed last year.
In an order Monday, the Federal Energy Regulatory Commission rejected U.S. Energy Secretary Rick Perry’s sweeping proposal to subsidize struggling coal and nuclear plants in the name of keeping power grids dependable. Instead, the commission asked grid operators to suggest their own ideas to make the system more resilient.
While a few utilities with significant coal and nuclear capacity supported the idea, Mr. Perry’s proposal generated a fierce backlash from a broad coalition of energy companies, free-market groups and former regulators.
Critics argued that Mr. Perry’s proposal would upend competition in the nation’s electricity markets, which have been deregulated in much of the country since the 1990s and currently tend to favor the lowest-cost sources of power.
Opponents of Mr. Perry’s proposal also pointed out that blackouts usually occurred because of problems with transmission lines — not because power plants had insufficient fuel on site.
In its decision, the commission largely sided with the critics, noting that grid operators have so far proven adept at keeping the lights on even as natural gas, wind and solar have crowded out baseload coal and nuclear plants, which were once favored by utilities because they can reliably generate power at all hours of the day.
COMMODITIES BASE METALS, MATERIALS
Iron ore cargoes from Australia’s Port Hedland, the world’s biggest bulk export terminal, jumped to an all-time high of almost half a billion metric tons last year, offering fresh evidence of burgeoning global supply at a time when bearish forecasts for the commodity are stacking up.
Exports from the port, which handles material for BHP Billiton Ltd., Fortescue Metals Group Ltd. and Roy Hill Holdings Pty, climbed 5 percent to 46.1 million tons in December to set a monthly record, according to Pilbara Ports Authority figures on Tuesday. For all of last year, shipments were 497 million tons, up from 479 million in 2016, according to Bloomberg calculations.
China’s steel production growth is expected to slow sharply in 2018 as state-mandated factory closures and policies to protect the environment begin to bite. The world’s largest producer of the metal will experience just a small rise in output of 0.6 per cent this year, a poll of 15 analysts found in a Financial Times survey.
Steel is often viewed as a barometer of economic activity because it is used in carmaking, construction and manufacturing, which means a significant price move could have repercussions for the broader economy.
BREXIT, SCOXIT, LONDON, UK ECONOMY
Spain’s Alantra Partners SA is considering moving its headquarters from Madrid to London in a bet the U.K. capital will remain the center of European business and finance even after Brexit, according to two people with knowledge of the matter.
The investment bank and money manager, which oversees 3.7 billion euros ($4.4 billion) of assets and employs about 350 staff in 21 countries, is weighing how many workers it might deploy in London if it completes the move, the people said, asking not to be identified because the plan is private. A spokeswoman for Alantra declined to comment.
Morrison’s sales growth suggests that the pain from Brexit-fueled inflation was felt more severely in the U.K.’s shopping centers than in its grocery stores over Christmas. Weak holiday sales prompted profit warnings at department-store chain Debenhams Plc and infant-care retailer Mothercare Plc. Another store owner, House of Fraser, is seeking rent reductions from landlords.
DACA, TRAVEL BAN, IMMIGRATION, WALL
The Trump administration would cut or delay funding for border surveillance, radar technology, patrol boats and customs agents in its upcoming spending plan to curb illegal immigration — all proven security measures that officials and experts have said are more effective than building a wall along the Mexican border.
President Trump has made the border wall a focus of his campaign against illegal immigration to stop drugs, terrorists and gangs like MS-13 from coming into the United States. Under spending plans submitted last week to Congress, the wall would cost $18 billion over the next 10 years, and be erected along nearly 900 miles of the southern border.
The wall also has become a bargaining chip in negotiations with Congress as lawmakers seek to prevent nearly 800,000 young undocumented immigrants from being deported.
But security experts said the president’s focus on a border wall ignores the constantly evolving nature of terrorism, immigration and drug trafficking.
Nearly 200,000 people from El Salvador who have been allowed to live in the United States for more than a decade must leave the country, government officials announced Monday. It is the Trump administration’s latest reversal of years of immigration policies and one of the most consequential to date.
Homeland security officials said that they were ending a humanitarian program, known as Temporary Protected Status, for Salvadorans who have been allowed to live and work legally in the United States since a pair of devastating earthquakes struck their country in 2001.
GEOPOLITICS, CRIME, TERRORISM
Libyan militias, aided by U.S. Special Forces and airstrikes, drove out Islamic State militants from their stronghold of Sirte in December 2016, ending their brutal rule and aspirations for an alternate capital in North Africa. A year later, this sprawling coastal city remains deeply scarred physically and psychologically.
Whole neighborhoods are flattened. Thousands of families have yet to return. Many who have come back are renting in half-destroyed buildings. Schools and hospitals are partially functioning, as are businesses. Streets are covered in garbage. The smell melds with the stench from sewers that don’t work.
Thirty Iranians and two Bangladeshis were aboard the 899-foot tanker when the accident occurred. Just one sailor’s body had been found and taken to Shanghai to be identified, Mohammad Rastad, head of Iran’s Ports and Maritime Organization, told Iranian state media on Monday. Chinese authorities said Tuesday that a preliminary assessment had determined the body belonged to one of the Sanchi’s crew members.
PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
Since 2012, Huawei has expanded to 170 countries from 140, and now claims 45 of the world’s 50 biggest wireless carriers as customers. Huawei, which also runs a popular smartphone brand, made $75 billion overall in 2016. About $26 billion came from its telecom equipment and software business, making it the leader in the $126 billion-a-year global market, according to research-firm IHS Markit Ltd.
PROPAGANDA, CORRUPTION, AUTHORITARIANISM
Thailand’s prime minister evaded journalists’ questions on Monday by turning to a life-size cardboard cutout of him and telling the reporters to quiz it instead.
Prime Minister Prayuth Chan-ocha then turned on his heel and walked off, leaving the cutout behind, to bemused looks and awkward laughter from the journalists.
The prime minister had briefly spoken to the news media after attending an event promoting the coming Children’s Day, but he deployed his dodging tactic before anyone could ask him about a number of pressing political issues. “If you want to ask any questions on politics or conflict,” Mr. Payuth said, “ask this guy.”
From the US to Germany, security officials have warned about the growing threat to elections from Russian disinformation campaigns — and in the Czech Republic there are fears that this week’s presidential election could become the next target.
Miloš Zeman, seen as one of Russia’s most outspoken backers within the EU, is running for re-election. Following revelations about the scale of Russian efforts to influence the US presidential election in 2016, Czech politicians and officials are worried Russia could try similar moves.
A Republican member of the Kansas House of Representatives is facing criticism this week after arguing that illicit drugs are illegal in part because of “the African Americans” and their predisposition to drug abuse.
Attempting to explain at a weekend legislative coffee session with constituents why “all drugs” were outlawed in the United States in the 1930s, Rep. Stephen Alford offered the following, according to The Garden City Telegram: “One of the reasons why, I hate to say it, it’s that the African Americans, they were basically users and they basically responded the worst off to those drugs just because their character makeup, their genetics and that.”
A fire broke out on the roof of Trump Tower in Midtown Manhattan early Monday morning, law-enforcement officials said. Two civilians and one firefighter suffered non-life-threatening injuries in the electrical fire, which sparked at about 7 a.m., officials said. The firefighter was brought to Bellevue Hospital, while the civilians were treated at the scene.
The more than 80 firefighters had the fire at the 58-story building under control by 8:13 a.m., a Fire Department of New York official said. There were no evacuations at the tower, a police official said.
Doubts about Trump’s state of mind have been whispered about in Washington’s corridors of power since before he was elected and have occasionally broken into the open, such as when Sen. Bob Corker (R-Tenn.) said last August that Trump lacked “the stability” and “some of the competence” to be successful as president.
But Wolff’s book has thrust the topic to the forefront of public debate, prompting the White House to confront the issue directly.
President Trump’s physical exam this week will not include a psychiatric evaluation, the White House said Monday.
“No,” White House spokesman Hogan Gidley told reporters on Air Force One who asked whether Trump will undergo a psychiatric exam. Gidley would not expand on what the exam will involve. The White House has said that physician Rear Adm. Ronny Jackson will issue a public report on the results.
TRADE, PROTECTIONISM, REGULATION, OVERSIGHT
President Donald Trump told a gathering of farmers Monday that he is seeking a better trade deal with Canada and Mexico that will benefit both the agricultural industry and manufacturing, but he didn’t reiterate previous warnings on withdrawing from the North American Free Trade Agreement.
“On Nafta, I am working very hard to get a better deal for our country and for our farmers and for our manufacturers,” Mr. Trump said at the American Farm Bureau Federation convention in Nashville, Tenn. “When Mexico is making all of that money, when Canada is making all of that money, it’s not the easiest negotiation.”
President Trump delivered an economic victory lap during a speech to farmers on Monday in which he vastly overstated the size of the tax cuts passed by Congress late last year and played up a rollback of regulations on American businesses.
Declaring that the “American dream is roaring back to life,” Mr. Trump — who has made clear that he likes big numbers — claimed that the tax overhaul cut taxes by $5.5 trillion when, in fact, the legislation will reduce the overall tax burden on individuals and companies over the next decade by $1.5 trillion, or $4 trillion less than what he cited.
India, the largest importer of Chinese solar equipment, proposed a 70 percent safeguard duty on cells and modules shipped from China and Malaysia, citing “threat of serious injury” to the domestic industry.
Acting on an application by five local cell and module makers, the Directorate General of Safeguards, Customs and Central Excise made the proposal in a document dated Jan. 5. It recommended the levy remain in effect for 200 days.
Tom Steyer, the billionaire environmentalist and Democratic political donor, announced Monday that his advocacy group, NextGen America, will spend $30 million to help Democrats retake the House in 2018, with the aim of eventually impeaching President Trump. Mr. Steyer also announced that he would not run for Senate or governor in California, as had been speculated.
Mr. Steyer, who was a major donor to President Barack Obama’s 2012 campaign, emerged as the largest single political donor of the 2014 midterm election. His group spent $74 million to back Democrats that year, and $87 million in the 2016 elections.
If Ms. Winfrey’s ambitions are unclear, the sometimes giddy reaction to her speech at a Hollywood awards dinner underscored the unfulfilled hunger among Democrats for a larger-than-life leader to challenge President Trump.
With no obvious front-runner for the 2020 campaign, Democrats appear likely to spend the next few years grinding through internal disagreements over policy and identity in a long contest for the nomination. There are thorny disagreements in the party about how bluntly liberal its agenda should be, how boldly to confront Mr. Trump and how to balance the task of turning out core Democratic voters with the desire to win over disaffected Republicans and independents.
Some Democrats expressed skepticism and even frustration about the swirl of fascination with Ms. Winfrey, arguing that the party was jumping the gun with fevered speculation about 2020. Senator Brian Schatz of Hawaii, a young liberal in the chamber, wrote tersely on Twitter: “Hey. Let’s focus on winning in 2018. Thanks.”
Rebecca Katz, a Democratic strategist from the party’s progressive wing, said it would be a mistake for Democrats to rush toward a magnetic personality rather than hashing out a compelling agenda for the midterm elections and beyond.
SILICON VALLEY, UNICORNS, STARTUPS, VC
Canva, an Australian-based graphic design app, has raised $40 million to become the country’s only privately backed technology startup to be valued at $1 billion.
Sequoia Capital took part in the fundraising alongside existing investors Blackbird Ventures and Felicis Ventures. Co-founder Melanie Perkins said the Sydney-based company was profitable and didn’t need the money but was offered terms too good to refuse. The startup, whose apps help advertisers and companies create banners, logos and presentations, plans to double its workforce of 250 staff over the next year, she added.
RETAIL APPAREL, SPECIALTY, DINING, BIG BOX
Amazon.com Inc. took the biggest slice of the online U.S. holiday-shopping pie last year among a four-retailer peer group tracked by New York-based Earnest Research. The purveyor of everything under the sun maintained its 89 percent share of spending in the five-week period beginning on Thanksgiving, according to the researcher.
The fact that the balance among the group including Wal-Mart Stores Inc., Best Buy Co. and Target Corp. was little changed from a year ago, however, suggests that “traditional brick-and-mortar retailers are figuring out how to maintain share,” said Earnest President Andrew Robson.
AUTOS, ELECTRIC, SELF-DRIVING
General Motors Co Chief Executive Mary Barra has made a bold promise to investors that the Detroit automaker will make money selling electric cars by 2021. What Barra has not explained in detail is how GM intends to do what, so far, no major automaker has done.
The answer is a big bet on combining proprietary battery technology, a low-cost, flexible vehicle design and high-volume production mainly in China, according to six current and former GM and supplier executives and six industry experts interviewed by Reuters.
If GM can meet Barra’s ambitious profitability target, then it will house two different businesses by the mid-2020s: A traditional focus in North America on trucks, sport utility vehicles and cars fueled with petroleum, and a global electric car company centered in China, branching into pay-per-use services such as robotaxis.
Intel Corp Chief Executive Brian Krzanich said on Monday 2 million vehicles from BMW, Nissan Motor Co Ltd and Volkswagen AG would use its unit Mobileye’s autonomous vehicle technology to crowdsource data for building maps that enable autonomous driving.
The world’s largest chipmaker bought Israeli firm Mobileye last year to compete with peers such as Qualcomm Inc and Nvidia Corp and tap the fast-growing market of driverless cars.
Uber Technologies Inc.’s rivals are stepping up the battle for ride-sharing dominance in Europe, with local startups raising funds and global adversaries increasing contact with local regulators as they seek to gain a toehold in the region.
Taxify OU is looking to raise $50 million in the first quarter to fund expansion plans, according to a person familiar with the matter. The move comes after the Estonia-based startup revealed in October that it received backing from Chinese giant Didi Chuxing.
AEROSPACE, MILITARY & DEFENSE
An expensive, highly classified U.S. spy satellite is presumed to be a total loss after it failed to reach orbit atop a Space Exploration Technologies Corp. rocket on Sunday, according to industry and government officials.
Lawmakers and congressional staffers from the Senate and the House have been briefed about the botched mission, some of the officials said. The secret payload—code-named Zuma and launched from Florida on board a Falcon 9 rocket—is believed to have plummeted back into the atmosphere, they said, because it didn’t separate as planned from the upper part of the rocket.
The Mercenary Trader Macro Links were created by Justice “Jack” Litle, aka Justice Litle / Jack Litle — the founder of Mercenary Trader — to provide a compact summary of daily information flows. They are accessed via the Mercenary Research Suite, the flagship offering of Mercenary Trader, which combines trading education and trading research. To see how it works, click here.