From USA Today:

A bald eagle in Missouri that was believed to be injured actually had a peculiar reason for why it was unable to fly: it was too fat.

Officials with the Missouri Department of Conservation captured the bird along the boundary of the Wilson’s Creek National Battlefield and temporarily took it into captivity, park officials said in an Aug. 21 Facebook post.

However, an X-ray taken at the Dickerson Park Zoo, showed that instead of an injury, the bird was suffering from its own success − it had been eating a little too well. . .

Officials suspect the raccoon was roadkill, according to the post. X-rays from the Facebook post show what appears to be a raccoon paw inside the eagle's stomach.

Might the BoJ be obliged to tap the brakes once more? CPI excluding fresh food in Japan’s capital grew at a 2.4% annual pace in August, data released yesterday show, topping the 2.2% consensus expectation and marking its fourth consecutive sequential increase.  That data series typically serves as a leading indicator for broader price pressures in the world’s fourth-largest economy; nationwide CPI data is due on Sept. 19. 

Pointing to transitory factors including expiring government subsidies for utility bills and rice shortages, Norinchukin Research Institute chief economist Takeshi Minami predicted to Reuters that “the underlying inflation trend will continue to moderate in coming months.”   

However, percolating wage growth – with average pay rising 5.2% this year per data compiled by Japanese Trade Union Confederation, the highest in more than three decades – could bolster the Bank of Japan’s appetite for further tightening following the July 31 rate increase to 0.25% from a 0% to 0.1% range, as BoJ chief Kazuo Ueda suggested to parliament last week.  

Considering the acute financial spasm which followed that rate adjustment and accompanying unwind of yen-funded carry trade positions, the prospect of a sequel would presumably be front of mind for Mr. Market. Investors remain confident that such an outcome is in fact far-fetched, with interest rate futures assigning only 9% odds of further tightening at the BoJ’s Oct. 18 meeting. 

Some observers aren’t so sure. “My money is on another rate hike in October,” Moody’s senior economist Stefan Angrick told CNBC Friday, further predicting at least one further uptick early next year. Bloomberg economist Taro Kimura likewise anticipates an October shift to 0.5%, writing that Thursday’s data illustrate “a broad upswing in service prices,” and “increases the risk that the BoJ can’t afford to wait to pare stimulus.” 

Over the past two weeks, the yen continues to change hands at about 145 to the dollar, remaining notably stronger than its 162 to the buck as recently as July 10, even as stocks around the world have fully retraced their early August losses. Indeed, the conditions for an unwelcome reprise to that financial squall remain in place, the Bank for International Settlements argued in a Tuesday bulletin:

The factors behind the volatility spike and large market moves have not changed significantly. Risk-taking in financial markets remains elevated. Only a share of various trades predicated on low volatility and cheap yen funding appear to have been unwound. Some broader trades funded in the yen, potentially involving more illiquid assets, may be unwound more sluggishly. Furthermore, there were already indications that some leveraged positions were quickly being rebuilt. 

More broadly, a number of factors behind the recent turbulence reflect structural features of our financial system, notably the greater heft of market-based finance. 

Of particular concern are the ones that enable the build-up of large positions in periods of calm and necessitate their quick unwinding when volatility rises. The reliance on leverage for many of these positions implies that investors will have to respond more strongly to adverse shocks to avoid significant losses. 

Watch this space. 

Stocks enjoyed a late rip higher ahead of the holiday weekend, with the S&P 500 rising nearly 1% to wrap up August with a near 20% year-to-date gain, while Treasurys came under some pressure with two-year yields rising four basis points to 3.91% and the long bond ticking to 4.2% from 4.15% Thursday. WTI crude fell below $74 a barrel, gold pulled back to $2,502 per ounce, bitcoin slipped below $59,000 and the VIX settled south of 15. 

- Philip Grant

Call it a magnificent seven deadly sin.  From the New York Post:

One employee at Nvidia — the AI chipmaker whose stock surge this year has made it one of the world’s most valuable companies — took to Blind, the app where tech workers can post anonymously, and responded to a question from a Google worker who asked Nvidia engineers “how rich are you?”

“Bought a $100,000 family car in all cash and didn’t have to think about it,” the Nvidia worker wrote on the social media app. “Really depends on your level,” he wrote, adding that their net worth was “only around” $3 million though they “still have [a further $3 million] unvested and [are] very comfortable.”

In response, workers at rival tech firms — including Google and Meta, among the most prestigious in Silicon Valley — are admitting to their envy.

“The more I hear about Nvidia employees and their riches, the more jealous I feel,” a Meta employee wrote on the Blind app.

We’re all going to be rich! Outsized price appreciation in the digital asset realm has served to nearly double the global population of crypto millionaires over the past 12 months, concludes a new study from New World Wealth and Henley & Partners. 

More than 172,000 individuals worldwide now hold more than $1 million worth of such assets, up from 88,200 at this time last year, corresponding with an increase in aggregate crypto capitalization to $2.3 trillion from $1.2 trillion as of summer 2023. 

January’s debut of bitcoin ETFs, with upwards of $50 billion flowing to the vehicles over the past seven-plus months, has served to broaden public participation in the asset class.  Meanwhile, CME Group detailed plans this morning to roll out bite-sized weekly futures in a bid to enlist retail investor participation, with cash-settled Bitcoin Friday Futures (BFF) contracts provisionally priced at one-50th the size of a single coin. The contraptions will debut on Sept. 30, pending regulatory approval. The tally of worldwide cryptocurrency users now stands at 560 million by New World Wealth’s lights, up 32% year-over-year, with the ranks of bitcoin owners similarly rising by 31% to 275 million. 

That gusher of newly minted wealth duly shakes up global migration trends: “We’ve seen a significant uptick in crypto-wealthy clients seeking alternative residence and citizenship options,” Dominic Volek, head of private clients at Henley & Partners, tells CNBC. 

Yet those trends may be garnering unwelcome attention from the crypto enthusiasts’ perspective.   As the Financial Times’ Robin Wigglesworth pointed out yesterday, a Norway-focused study from the National Bureau of Economic Research released earlier this month identifies a noteworthy development for revenue-hungry governments.  After cross-referencing ownership data from exchanges with tax filings (which are public information in the country), the NBER determines that “crypto tax non-compliance is pervasive,” with 88% of alternative-currency hodlers – equivalent to an estimated 6% of the local population – failing to declare their holdings to the Norwegian Tax Authority. 

Indeed, some governments are laying the groundwork for an enhanced pressure campaign on the tax scofflaws. The United Kingdom’s HM Revenue and Customs (HMRC) office recently initiated a letter-writing campaign to persuade local digital asset enthusiasts to fork over their outstanding capital gains payments, with a further round of correspondence set for September.  According to estimates from the U.K. Treasury, the rate of non-compliance among local crypto investors could range as high as 55% to 95%. 

“Many owners of crypto assets may not be fully aware of their obligations and may not have filed a tax return before,” Paul Falvey, partner at accounting firm BDO, told the pink paper. “They could well get a shock when this letter hits the doormat – but the worst thing they could do is ignore it.”  

Noting that taxes may be due even in instances where investors believe they generated no profits, Gary Ashford, chair of the Chartered Institute of Taxation’s crypto assets working group, added that “there’s a lot more data in the hands of the HMRC and other government agencies than the general public realize[s] in this space.” 

Catch them if you can.

Another downward lurch in short rates headlined today’s proceedings, with the two-year yield diving eight basis points to 3.83%, down 110 basis points over the past three months to its lowest finish in more than a year.  Stocks edged higher as moderate recent volatility ebbed ahead of Nvidia numbers tomorrow, while WTI crude fell back below $76 a barrel and gold pushed higher to $2,525 per ounce. Bitcoin slipped below $62,000 and the VIX settled below 15.5, down three quarters of a point. 

- Philip Grant

Elon Musk eats BMW’s dust on the Old Continent:  The legacy German automaker sold 14,869 fully electric vehicles in Europe last month according to research firm Jato Dynamics, outpacing Tesla’s 14,561 figure to mark BMW’s first ever head-to-head victory in the EV hotbed.  

While Tesla’s July sales in the bloc slumped 16% on a year-over-year basis, BMW managed to grow the category more than 33% on the strength of its well-received i4 sedan and iX2 crossover models. That performance is particularly impressive considering a suddenly soggy backdrop for the automotive niche, owing to a one-two punch of downshifting government subsidies and softening resale prices. 

Total EV sales in Europe logged a 6% year-over-year drop despite a 2% rise in total vehicle registrations from July 2023, dropping the category’s market share to 13.5% from 14.6% over that stretch. Reuters likewise relayed last week that industry mainstay Volkswagen has pushed back the planned rollout of a pair of ID.4 electric SUV models to the early 2030s from a prior 2026 target. 

 “The lack of clarity around the incentives for – and future of – EVs continues to present a barrier to consumers,” commented Jato analyst Felipe Munoz. “These factors, alongside the low residual value of EVs, contributed to the decline seen in July.” 

Roadblocks are likewise popping up stateside, as Ford announced yesterday that it will trim EV-related expenditures to 30% of annual capex from a prior 40% target, likewise abandoning plans to produce a three-row electric SUV and pushing back the debut of a pair of pickup trucks to 2027 from 2026. The automaker will swallow up to $1.9 billion in charges related to that strategy pivot. “This is really about us being nimble and listening to responses from our customers,” Ford CFO John Lawler said. 

As Ford’s travails illustrate, sustainable profitability remains a challenge in the face of an influx of lower-cost Chinese competition and sticker-conscious shoppers. New EV registrations in the U.S. rose 3.1% year-over-year in June according to S&P Global Mobility, pushing its market share to 8.9% from 7.9% in the same period last year, though the research outfit cited “pretty strong pricing incentives” behind the uptick. For its part, Tesla’s U.S. sales slumped 6.3% year-on-year in the second quarter per estimates from Cox Automotive, while its domestic market share ebbed to 49.7% of the EV realm from 59.3% in the second quarter of 2023. 

Yet despite lagging the S&P 500 by some 80 percentage points since the fourth quarter of 2022, Grant’s Interest Rate Observer pick-not-to-click Tesla (Sept. 30, 2022 and July 14, 2023) remains the apple of Mr. Market’s eye, changing hands at 93 times consensus 2024 earnings per share.  That compares to less than six times forward earnings estimates for both Ford and BMW.     

The unshakable devotion of Musk’s die-hard fan base may help explain that yawning disparity. Witness Friday’s instructive bulletin from The Wall Street Journal concerning the so-called Cybertruck: 

In recent months, more than two dozen Cybertruck owners have posted on social media about Tesla delivering them dirty trucks, with users noting muddy floors and dusty interiors, as well as sticky residue and unsightly spots on the outer panels. 

Others have posted photos of unusual white streaks in the truck bed and a hazy coating on the windshield that obstructs the view.  Handing over a brand-new vehicle in such a condition is unusual in the car business, where typically automakers and dealers ensure the car is inspected, washed and detailed before the customer arrives, industry analysts and car retailers say. . . 

Nathaniel Durham of Greensboro, N.C., said he arrived at his local service center to find his truck covered in spots and a sticky substance that he later used rubbing alcohol to remove. The floor mats were also visibly dirty, and the staff wasn’t helpful.

“It’s not a Rolls-Royce or a Mercedes. But still, this is the price of a Porsche,” said Durham, who paid around $120,000 for his Cybertruck. “I wasn’t looking for special treatment.”

Still, Durham is pleased with his purchase. He has since had the truck covered in an orange wrap, which he says is evocative of the surface of Mars.

No new highs this time, as stocks saw their first noteworthy down day in more than two weeks as the S&P 500 settled south by roughly 0.8% and the Nasdaq 100 losing double that. Treasurys likewise pulled back with 2- and 30-year yields each rising seven basis points to 3.99% and 4.13%, respectively, while WTI crude bounced off seven-month lows at $73 a barrel and gold retreated to $2,484 an ounce. Bitcoin wrapped up the day at $60,400 and the VIX jumped back above 17.5, up one point and change on the session. 

- Philip Grant

Almost Daily Grant's will resume Monday. 

From the Daily Mail: 

A food truck has become the latest outlet to offer 'seagull insurance' - to give people money back if their food is nicked by a bird. Hawkins BBQ announced the new £1 ($1.30) policy after locals were left 'traumatized' by attacks from the birds targeting their grub.

The business, based on the Isle of Man, said it meant that anyone who took out the 'coverage' could claim a free meal if their food was ruined in a seagull strike. . . 

Speaking about the issue, [owner Kate Carter-Larg] previously said that up to 30 customers a day were being attacked by seagulls - with some left bleeding. She said: “The gulls are super aggressive and actually terrifying.” Like a scene from an Alfred Hitchcock movie, the 'XL gullies' hunt as a team - eyeing up holidaymakers of all ages with an aerial fly-by reconnaissance.

Coming soon, chip default swaps?

As Fed chair Jerome Powell’s annual Jackson Hole address looms this Friday, investor enthusiasm over an imminent drop in borrowing costs reaches a fever pitch. 

Following the one-two punch of a softer than expected July payrolls report alongside the brief but violent Bank of Japan-induced volatility spasm, interest rate futures now point to a 4.11% funds rate as of next January. That’s down 122 basis points from today’s effective rate and well below the market-derived 4.54% guesstimate one month ago.

A welcome downshift in measured inflation likewise looms large, as the June core personal consumption expenditures price index rose 2.6% year-over-year, matching its lowest since March 2021 (the July figures are due on Aug. 30). Though that print in turn represented the lynchpin data series’ 40th consecutive month above the Fed’s self-assigned 2% target, San Francisco Fed president and Federal Open Market Committee voting member Mary Daly told the Financial Times over the weekend that recent developments are “clearly giving me more confidence that we are on our way to price stability.” 

On form, some aren’t inclined to wait. “We’ve seen our positioning sentiment on the U.S. dollar starting to turn much more bearish,” Kristjan Kasikov, global head of FX quantitative investor solutions at Citigroup, told Bloomberg Tuesday. “An environment where people are speculating about rate cuts has fueled risk appetite.”  Citi likewise relays that several customers have initiated new carry trade strategies, borrowing against the greenback to fund wagers in higher-yielding, emerging market currencies such as the Turkish lira and Brazilian real. 

While various punters prepare for widening interest rate differentials, others brace for unwelcome side effects from the Fed’s seemingly imminent course correction. Bloomberg finds that some fund managers are wagering on resurgent inflation, assuming a contrarian stance as the market-based gauge known as the 5-year, 5-year swap rate has ebbed to its lowest level since early 2022. “If inflation proves to be stickier [than anticipated] or goes up again, that could derail your portfolio if you’ve got exposure to duration,” commented Marie-Anne Allier, fixed income fund manager at Carmignac.  Noting that Treasury Inflation Protected Securities (TIPS) across 1- to 10-year maturities have outperformed their nominal peers on a total return basis in 17 of the past 25 calendar years, Fidelity International portfolio manager Tim Foster added that “more often than not, markets fail to price in upside inflation risks. . . if investors are growing complacent about inflation, it wouldn’t be the first time.”

In any event, potent post-pandemic price pressures have already changed the game for the U.S. economy. Citing data from J.D. Power, The Wall Street Journal relays today that average new car prices reached $44,604 in July, up 32.2% from 2019. Nearly 18% of consumers taking out new vehicle loans in the second quarter agreed to fork over $1,000 or more per month, compared to a 4.3% share five years ago. 

Similarly, 8.5% of U.S. homes now sport an estimated price tag of $1 million or above per brokerage Redfin, up from a 7.6% share a year ago and more than double the 3.82% seen a half-decade prior.  The median sales price for U.S. luxury homes – those at or above the 95th percentile of all listings – reached $1.18 million in the second quarter, up 9% from the same period in 2023. “Years ago, if you owned a $1 million home, you would have been considered pretty rich,” Redfin economist Chen Zhao told the WSJ. “Now, that’s the entry point for some markets.”

Stocks edged just lower on the S&P 500, settling less than 20 basis points to the red to barely deny the bulls their longest winning streak in two decades, though Treasurys remained well bid as 2- and 30-year yields settled at 3.99% and 4.07%, respectively, down seven and four basis points on the session. WTI crude remained on the back foot at $73 a barrel, gold settled at $2,516 per ounce after giving back about half of its early gains, bitcoin finished little changed at $59,500 and the VIX rose to near 16, up one point and change on the day. 

- Philip Grant

The more things change. . .  from the Telegraph (hat tip to Paul Isaac): 

A social media boss and his wife used millions of dollars of company funds to pay for their wedding and luxury holidays, US regulators have said. The Securities and Exchange Commission (SEC) is suing Abraham Shafi, the founder of the social media app IRL, and his wife, Barbara Woortmann, for fraud.

IRL, an app aimed at Gen Z smartphone users that enabled them to discover real-life events, raised $170 million (£132m) from investors including SoftBank.

The app was presented as a version of Facebook’s Groups feature for younger users who had abandoned the social network. IRL claimed that a quarter of U.S. teens had downloaded it. However, it was shut down last year when its backers found that the vast majority of its users were fake, according to a separate SoftBank lawsuit.

The SEC said that Mr. Shafi and Mrs. Woortmann had used company credit cards to fund millions in personal expenses.

Call it the Bank of Japan butterfly effect. The central bank’s Wednesday’s rate hike to 0.25% from 0% to 0.1%, along with commentary suggesting more tightening to come, has spurred financial convulsions at home and beyond:  The Tokyo Stock Price Index (Topix) lost an eye-watering 6.2% today following Thursday’s 3% drop to mark its worst two-day showing since the 2011 Tsunami, while the MSCI Asia Pacific Index sank 3.5% Friday, its largest daily decline in three-and-a-half years. 

The violent response to such an ostensibly modest policy tweak is instructive, particularly considering that interest rate futures had priced 70% odds of a hike one week ago. “I didn’t expect stocks to fall this much – it’s a disaster,” Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management, lamented to Bloomberg.  

While the BoJ cited persistent currency weakness as a driving factor in its further foray into positive nominal interest rates, the recent trend reversal reverberates far and wide. Thus, the yen’s explosive, 9% four-week snap back against the dollar, in the wake of a near 60% selloff spanning the start of 2021 through early July, puts the hurt on carry trade positions, in which investors borrow low-yielding yen to invest in higher yielding jurisdictions such as the U.S. 

"It's the rate of change [of interest rate differentials] that matters,” James Malcolm, head of FX strategy at UBS, told Reuters. “And so, if the BoJ are stepping up the pace of rate hikes relative to market pricing, and if the Fed is also becoming in play [for rate cuts] here, then the pressure on the carry trade increases.”

As an influx of income-seeking foreign capital has provided a persistent tailwind for stateside stocks, the unwinding of that dynamic reciprocally presents un-bullish implications. “The now evident vulnerability of U.S. equity prices to a rise in the yen exchange rate warns of the consequences for U.S. asset prices and developed-world asset prices in general from monetary policy changes in the East,” Russell Napier wrote in Tuesday’s latest edition of The Solid Ground.  

Contending that a narrowing interest rate differential – rather than the wholesale repatriation of capital by income seeking Japanese investors – has driven the recent FX snap back, Napier likewise concludes that the sharp share price downdraft “is the shape of things to come and an indicator to investors of how interrelated U.S. equity valuations are with the global financial system.” 

In any event, this mid-summer financial dust-up makes a soothsayer of Convex Strategies CEO David Dredge, who identified the Land of the Rising Sun as a pressure point for the amply-levered global financial edifice at the 2023 Grant’s fall conference: “It’s the last place in the world that’s massively providing liquidity into the system, so that people can buy all of this debt. . . one way or another, Japan is going to trigger a volatility event.”  

Stocks settled lower by 1.9% and 2.4% on the S&P 500 and Nasdaq 100, respectively, as a softer than expected July payrolls print and uninspiring results from Amazon.com further agitated a suddenly skittish Mr. Market, though the averages managed to recoup a portion of their early losses this afternoon. 

Treasurys caught another frenzied bid to leave the two-year yield at 3.88%, down 86 basis points from a month ago, while WTI crude sank to $74 a barrel, gold slipped to $2,437 per ounce after testing $2,475 this morning and bitcoin retreated below $63,000. The VIX settled at 23.5, down from almost 30 as of mid-morning but easily establishing a year-to-date closing high with a near seven point advance for the week. 

- Philip Grant