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The Shills Are Alive With The Sound Of Music

The Shills Are Alive With The Sound Of Music

By Michael Every of Rabobank


NOUN: an accomplice of a confidence trickster or swindler…

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This article was originally published by Zero Hedge

The Shills Are Alive With The Sound Of Music

By Michael Every of Rabobank


  • NOUN: an accomplice of a confidence trickster or swindler who poses as a genuine customer to entice or encourage others. “I used to be a shill in a Reno gambling club.

  • VERB: act or work as a shill. “Your husband in the crowd could shill for you.”

I find myself having to use the word ‘shill’ depressingly often of late, but became aware that not all readers were aware of its definition – which is why the shills are alive with the sound of music.

First example: USTR Tai’s crucial speech on US-China trade policy.

I stayed up late to watch it in full, which was a good decision given the spin was shill-tastic, e.g., the South China Morning Post reporting that “Washington set to exempt some products from tariffs”, then saying 2/3 were to be open to an exclusion process. My initial reaction was shock given this was an obvious geostrategic error. Just as global supply chains are considering shifting and ‘building back better’, the US would make them 25% cheaper staying in China, and vs. new buddies such as Vietnam and India, or even Mexico. Moreover, doubling down on “Too Big to Sail” while sailing more military vessels around China would give Beijing greater relative ability to fight while feeding its fears this might actually be needed. That’s as *56* PLA planes went through Taiwan’s ADZ yesterday, worrying even Forbes magazine, and as a US/UK/Japanese carrier group exercises nearby.

However, this is not at all what Tai said. It was, in fact, continuity-Trump trade policy that expands on its policy direction, potentially substantively. Yes, the language was schmoozy not spikey, with a clear emphasis on the wish to avoid inflaming trade tensions. And, yes, SMEs can apply for exclusion from tariffs for intermediate inputs –which was also the case under the Trump deal until the end of 2020 before that expired– and some might be granted given the strains many firms are under. Yet Tai made clear that: the US must keep a large industrial and manufacturing base for long-run R&D success and its overall economic complexity; US supply chains must shift to “resiliency” away from “efficiency”, so national security over price; the US “must defend, to the hilt, our economic interests”; the ‘phase one trade deal’, where China is running well behind target in its purchases, will be enforced; China will not reform or shift away from a state-led economic model; Nothing is off the table to deal with that, and new tools will be developed as needed; Decoupling is unrealistic, but recoupling will only be on US terms; and although there is a desire to work with allies, if trade diversion happens due to the phase one deal,…it happens.

Some will point out that there were no substantive policies beyond what Trump left behind, others that China will never accept the new trading relationship to be proposed in “honest” bilateral conversations. If so, the implications were: tariffs; buy-local provisions; industrial policy; perhaps even pan-Western standards that exclude goods on various grounds (subsidies, human rights, etc.) Get ready for the shills being alive with the sound of music trying to cover this up. Bloomberg gets top prize so far with the totally-misleading headline: “US Trade Chief to Engage With China on Trump-Deal Shortfalls”.

Second example: Stagflation.

Bloomberg is pointing out today that stagflation fears, which have knocked US stocks down by around 5% from their peak, and the Nikkei 10% as of this morning, cannot be correct if we are seeing bear steepening of yield curves: as such, “Buy now while stocks last!” Such claims are true if they imply central banks hiking to deal with a surge in energy prices and a shortfall of goods are not doing anyone any good, least of all themselves, and that such hikes would mean curve flattening as a result. Yet if central banks are not going to hike because energy prices reach into the stratosphere and goods supply dries up, then what are yield curves –and stocks– supposed to do, short term? Take comfort that central banks aren’t doing anything?

Consider that as the Atlantic Council, albeit via the head of the Ukrainian Naftogaz, says “Europe is under attack from Putin’s energy weapon”; in the EU, EEX prices are now up 895% over 2020’s average; German energy firm Uniper states NordStream 2 certification “will definitely be so late that this pipeline will no longer help us this winter”, while gas-rich Azerbaijan’s offer to help still means that even if negotiations started now, the soonest they could supply the EU would be the winter of 2022; and as US oil prices hit the highest since 2014 after OPEC+ resisted calls to accelerate production. (And imagine how high other key commodities will go when everyone globally tries to build out new power infrastructure at the exact same time.) Yes, that backdrop spells enormous economic damage ahead: but it spells much higher supply-shock inflation firstwhich is by definition stagflation, whether Bloomberg, or stocks, like it or not.

Third example: the anti-sanctions law in Hong Kong.

For some time, Hong Kong has been on tenterhooks over the promised introduction of an anti-sanctions law to mirror the one in place in the mainland. Critics feared this would place firms and banks located there in the impossible position of not being able to comply with both US and Chinese law: proponents stressed this was not an issue. It is now being reported by HGK01 that this law will be dropped “in the short term” as “executives from Hong Kong and Chinese financial institutions had directly raised concern to Vice Premier Liu He that the law would put the institutions in a difficult situation.” This is a reprieve, and a major retreat from Beijing. It also underlines the power the US can still wield via the US dollar and the global financial system. Don’t think the same people who are pushing AUKUS and The Quad, and are insisting on a new US trade relationship with China, can’t and won’t join those dots. Expect much sound of music to cover this discussion up too.

Fourth example: anything in Congress.

The battle over the debt ceiling, the infrastructure bill, and the reconciliation bill rages on, even into the new arena of the public toilet, literally not just metaphorically: is such haranguing of senators in toilets or at home going to become a normal part of the US political discourse? As USTR Tai said yesterday, US trade policy will from now on line up with its domestic policy: so are both then a flush in the pan?

Meanwhile, another Chinese property developer, Fantasia, has defaulted on its debts, denting the shills who kept saying Evergrande was OK, and a one-off. And Facebook, WhatsApp, and Instagram had their own little power-cut for a few hours, putting alternative platforms such as Telegram and Signal under stress, in their own little supply-chain squeeze. Even the virtual world can’t escape what is happening in the real, it seems.

Tyler Durden
Tue, 10/05/2021 – 10:15

Author: Tyler Durden

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30Y Gilts Soar Most Since Covid Crisis In Giant Short Squeeze After UK Slashes Debt Issuance

30Y Gilts Soar Most Since Covid Crisis In Giant Short Squeeze After UK Slashes Debt Issuance

While it is of secondary importance to US readers,…

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30Y Gilts Soar Most Since Covid Crisis In Giant Short Squeeze After UK Slashes Debt Issuance

While it is of secondary importance to US readers, in the UK everyone was glued to the telly following today’s Autumn Budget and Spending Review, and the budget speech in Parliament by Chancellor of the Exchequer Rishi Sunak. For the benefit of our British readers, and for gilt traders everywhere, here is a snapshot of what was just announced courtesy of Bloomberg:

  • Sunak presented his third budget, pledging a “new age of optimism” even as the risk of inflation lurks:
  • Sunak cut taxes on alcohol, part of his “radical” plans to simplify alcohol duty, aligning higher rates with stronger drinks, causing pub stocks to rally, and froze a planned rise in fuel duty. He also gave a one-year 50% reduction in business rates to the retail, leisure and hospitality sectors

  • With the cost of living rising for Britons, Sunak reformed Universal Credit, increasing how much welfare people will keep as their incomes rise. Specifically, the taper rate on universal credit will be reduced by 8% — from 63 to 55%, a much higher level than expected.
    • Pivoting from his spending announcements, Sunak made a philosophical statement that “government should have limits — it needed saying”. He added: “I want to reduce taxes — by the end of this parliament I want taxes to be going down not up . . . that’s my mission over the remainder of the parliament.”
  • With upgraded forecasts to economic growth and tax revenues, Sunak committed to real-term increases in departmental spending in all areas of government. As the FT notes, “there’s a lot of spending in this Budget but quite a bit of it is undoing the austerity years under David Cameron and George Osborne. The rise in per pupil funding, for example, is substantial but also returns the country to where it was in 2010.”
  • But perhaps most important to bond traders, despite those sweeteners, Sunak also focused on strengthening the public finances. As a result, the borrowing forecast for the next five years was lowered by a whopping 154 billion pounds, while planned debt sales for this fiscal year were cut by a fifth.
    • As Resolution Foundation’s Torsten Bell writes, “this is a much much bigger Budget than expected. Why? Because the @OBR_UK have become hugely more optimistic: borrowing down because taxes are up. And it’s a Boris Budget because the Chancellor has basically gone and spent it.”

While the details in the budget are secondary, as they will surely change once the BOE does hike rates throwing the entire forecast for a loop, the one thing worth emphasizing is the projected reduction in gilt issuance: the Debt Management Office has released its gilt issuance plans, and they contain a bigger cut than expected. The U.K. is slashing gilt issuance by 57.8 billion pounds compared to an estimate of 33 billion pounds. This according to Bloomberg shows how far the U.K. is willing to go to curb the debt spree at the height of the pandemic. It also confirms that a BOE taper is now inevitable as there will be far less need to monetize the debt spree.

And while it took a while for them to respond, 30Y gilts have plunged by a whopping 17bps…

… the biggest one-day move since the covid crisis, and one that is surely VaR shock inducing among the countless shorts who are currently spitting blood.

Tyler Durden
Wed, 10/27/2021 – 09:52

Author: Tyler Durden

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Joint Action Needed to Secure the Recovery

By Kristalina Georgieva G20 should lead in sharing vaccine doses, helping developing countries financially, and committing to reaching net-zero carbon…

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By Kristalina Georgieva

G20 should lead in sharing vaccine doses, helping developing countries financially, and committing to reaching net-zero carbon emissions by mid-century.

When G20 leaders gather in Rome this weekend, they can take inspiration from the bold design of the meeting venue, known as La Nuvola.

Just as the architect created a striking new space, global leaders must take bold action now to end the pandemic and create space for a more sustainable and inclusive economy.

The good news is that the foundations for recovery remain strong, because of the combined effect of vaccines and the extraordinary, synchronized policy measures led by the G20. Yet our progress is held back especially by the new virus variants and their economic impact, as well as supply-chain disruptions.

G20 leaders have a once-in-a-generation opportunity to move the carbon needle.

The IMF recently reduced its global growth forecast to 5.9 percent for this year. The outlook is highly uncertain, and downside risks dominate. Inflation and debt levels are rising in many economies. The divergence in economic fortunes is becoming more persistent, as too many developing countries are desperately short of both vaccines and resources to support their recoveries.

So, what should be done?

Our new report to the G20 calls for decisive actions within each economy. For example, monetary policy should see through transitory increases in inflation, but be prepared to act quickly if risks of rising inflation expectations become tangible. Here, clear communication of policy plans is more important than ever to avoid adverse spillovers across borders.

Carefully calibrating monetary and fiscal policies, combined with strong medium-term frameworks, can create more room for spending on healthcare and vulnerable people. These calibrations can deliver quick benefits through 2022.

After that, growth-enhancing structural reforms provide the bulk of added gains—think of labor market policies that support job search and retraining, and reforming product market regulations to create opportunities for new firms by reducing barriers to entry. Such a package of short-to-medium-term policies could boost aggregate real GDP in the G20 by about $4.9 trillion through 2026.

First, end the pandemic by closing financing gaps and sharing vaccine doses.

The pandemic remains the biggest risk to economic health, and its impact is made worse by unequal access to vaccines and large disparities in fiscal firepower. That’s why we need to reach the targets put forward by the IMF, with the World Bank, WHO, and WTO—to vaccinate at least 40 percent of people in every country by end-2021, and 70 percent by mid-2022.

But we are still behind: some 75 nations, mostly in Africa, are not on track to meet the 2021 target.

To get these countries on track, the G20 should provide about $20 billion more in grant funding for testing, treatment, medical supplies, and vaccines. This additional funding would close a vital financing gap.

We also need immediate action to boost vaccine supply in the developing world. While G20 countries have promised more than 1.3 billion doses to COVAX, fewer than 170 million have been delivered. Thus, it is critical that countries deliver on their pledges immediately.

Equally important is swapping delivery schedules for doses already under contract, allowing the buyer with more urgent needs to go first. Countries with high vaccination coverage should swap delivery schedules with COVAX and AVAT to speed up deliveries to vulnerable countries.

We must take these and other measures to save lives and strengthen the recovery. If COVID-19 were to have a prolonged impact, it could reduce global GDP by a cumulative $5.3 trillion over the next five years, relative to the current projection. We must do better than that!

Second, help developing countries cope financially.

Even as the global recovery continues, too many countries are still hurting badly. Think of how the pandemic caused a spike in poverty and hunger, lifting to more than 800 million the number of people who were undernourished in 2020.

In this precarious situation, vulnerable nations must not be asked to choose between paying creditors and providing health care and pandemic lifelines.

Indeed, some of the world’s poorest countries have benefited from the temporary suspension of sovereign debt payments to official creditors, initiated by the G20. Now we must speed up the implementation of the G20’s Common Framework for debt resolution. The keys are to provide more clarity on how to use the framework and offer incentives to debtors to seek Framework treatment as soon as there are clear signs of deepening debt distress. Early engagement with all creditors, including the private sector, and faster timelines for debt resolution will make a difference in the role and attractiveness of the Common Framework.

Providing help to deal with debt is important, but it’s not enough. Given their massive financing needs, many developing nations will need more support with raising revenue, as well as more grants, concessional financing, and liquidity support. Here the IMF has stepped up in unprecedented ways, including through new financing for 87 countries and a historic allocation of Special Drawing Rights of $650 billion.

Countries have already benefitted from holding the new SDRs as part of their official reserves. And some are using part of their SDRs for priority needs, such as vaccine imports, boosting vaccine production capacity, and supporting the most vulnerable households.

We are now calling on countries with strong external positions to voluntarily provide part of their allocated SDRs to our Poverty Reduction and Growth Trust, increasing our ability to provide zero-interest loans to low-income countries.

Third, commit to a comprehensive package to reach net-zero carbon emissions by mid-century.

New IMF staff analysis projects that increasing energy efficiency and transitioning to renewables could be a net job creator, because renewable technologies tend to be more labor-intensive than fossil fuels. In fact, a comprehensive investment plan with a combination of green supply policies could lift global GDP by about 2 percent this decade—and create 30 million new jobs.

In other words, as we strive to reach net-zero emissions, we can boost prosperity—but only if we act together and help ensure a transition that benefits all. The most vulnerable within societies and among countries will need more help making the structural transformation to a low-carbon economy.

One thing is clear: putting a robust price on carbon lies at the heart of any comprehensive policy package. Here G20 leadership will be critical, particularly when it comes to building support for an international carbon price floor. Moving together could also help overcome political constraints.

Under a proposal put forward by the IMF, a price floor for large carbon emitters would take into account a country’s level of development. It would also allow for equivalent regulations in lieu of an explicit price mechanism like emissions trading. This could jump-start cuts in greenhouse gases at a critical moment for the world.

At COP26 in Glasgow, G20 leaders will have a once-in-a-generation opportunity to move the carbon needle in the right direction and support developing economies. These countries have the fastest growth in population and in demand for energy. But they have the least fiscal firepower to ramp up investment in climate adaptation and emissions reduction—and often lack the technology needed.

At a minimum, this requires richer countries to deliver on their longstanding promise to provide $100 billion per year for green investment in the developing world.

For our part, we are extending a call to channel SDRs to establish the new Resilience and Sustainability Trust that our members strongly endorsed at our Annual Meetings. This will serve the needs of low-income and vulnerable middle‑income countries, including in their transition to a greener economy.

Completing and further strengthening the historic agreement on global minimum corporate tax will also help mobilize revenue for transformative investments.

These and other priorities will be top of mind for global leaders as they gather in La Nuvola.

This futuristic, versatile structure was built through a combination of vision, cooperation, and hard work—exactly what we need from the G20 at this pivotal moment. To secure the recovery and build a better future for all, we must take strong joint action now.



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UST Yield Curve Tumbles To 18-Month Lows Amid Policy Error Panic

UST Yield Curve Tumbles To 18-Month Lows Amid Policy Error Panic

“In stark contrast with the mindset of corporate leaders who are dealing…

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UST Yield Curve Tumbles To 18-Month Lows Amid Policy Error Panic

In stark contrast with the mindset of corporate leaders who are dealing daily with the reality of higher and persistent inflationary pressures, the transitory concept has managed to retain an almost mystical hold on the thinking of many policy makers,” El-Erian wrote in an Oct. 25 op-ed in Bloomberg.

“The longer this persists, the greater the risk of a historic policy error whose negative implications could last for years and extend well beyond the U.S.,” he argued.

It would appear from the accelerating flattening of the yield curve, that the market is believing El-Erian’s narrative.

Expectations for rate-hikes are being pulled forward by the market…

Pushing 2Y Yields above 50bps for the first time since March 2020…

And as rate-hikes are increasingly priced in, the long-end of the curve is tumbling…

Crushing the yield curve to its flattest in 18 months…

We give the last word to El-Erian, who said he fears that Fed officials will double down on the transitory narrative rather than cast it aside, raising the probability of the central bank “having to slam on the monetary policy brakes down the road—the ‘handbrake turn.’”

“A delayed and partial response initially, followed by big catch-up tightening—would constitute the biggest monetary policy mistake in more than 40 years,” El-Erian argued, adding that it would “unnecessarily undermine America’s economic and financial well-being” while also sending “avoidable waves of instability throughout the global economy.”

His warning comes as the Federal Open Market Committee (FOMC) – the Fed’s policy-setting body – will hold its next two-day meeting on November 2 and 3.

Tyler Durden
Wed, 10/27/2021 – 09:25

Author: Tyler Durden

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