Green Piece
Curiouser and curiouser:
Curiouser and curiouser: Hong Kong-based Magic Empire Global Ltd., (ticker: MEGL) marked its debut on the Nasdaq today in style, with a cool 3,888% intraday rally. MEGL, which priced at $4 and opened for trading at $50, reached $235 in early afternoon and settled at $97 to bestow a $1.9 billion market capitalization on the advisory and underwriting firm. As Bloomberg notes today, seven of the ten Hong Kong or mainland-based firms that have listed on U.S. exchanges this year have experienced similarly “unusual” price action.  
Meanwhile, the forces of gravity work slowly on one such specimen. Financial services firm AMTD Digital, Inc. (HKD on the NYSE), which featured in this space on Tuesday, finished the day at $750, off 71% from Tuesday’s peak but up 95-fold from its July 14 IPO price. Fewer than 50,000 shares changed hands today, a fraction of the average 997,000 share daily trading volume over its first 15 days as a NYSE component. 
Exit, Liquidity
Investment-grade bond funds
Investment-grade bond funds attracted a net $1.22 billion over the seven days through Wednesday, Refinitiv Lipper reports. Though a modest sum, investment managers will take it: that influx snaps a streak of 18
consecutive weekly outflows totaling $74 billion. 
One of Wall Street’s brightest lights can empathize. Pacific Investment Management Co. (a.k.a Pimco), the world’s largest credit investment house, suffered a $29.4 billion in net outflows during the three months through June, parent company Allianz disclosed today.  That’s double the withdrawals seen in the first quarter and “significantly higher than expected,” analysts at Citigroup write. Other than the start of the year and the first quarter of 2020, Pimco has enjoyed inflows in each such period going back to the end of 2018. 
Management isn’t panicking, however. Allianz chief financial officer Giulio Terzariol told Bloomberg that once interest rates stabilize, “all those outflows are going to become inflows.” 
Heat Exhaustion
The roof is on fire.
The roof is on fire.  One could describe today’s reading of July non-farm payrolls as scalding, with headline job growth of 528,000 dusting the 250,000 consensus estimate, bringing total payrolls back to their pre-pandemic baseline above 152 million.  Measured unemployment ticked down to just 3.5%, matching its lowest level since the 1960s, while average hourly earnings rose by 5.2% year-over-year instead of the 4.9% economist guess. 
Some details of the release pointed to cooler employment conditions, such as the labor force participation rate declining ten basis points to 62.1% and job growth, as measured by the household survey, continuing to sharply lag the establishment component. Yet the market expresses little doubt as to the Federal Reserve’s next move. Interest rate futures now discount a rise in the federal funds rate to 3.6% early next year, compared to the current range of 2.25% to 2.5%. Likewise, the policy-sensitive two-year note now yields 3.29%, up 31 basis points in the last week and north of the 10-year note by 46 basis points.
How much tightening may be needed to cool a CPI galloping at a 9.1% annual clip?  “You’ve really got to make sure that inflation and inflation expectations have come down and are out of the system,” former Fed Governor and current University of Chicago Booth Business School professor Randall Kroszner commented to Bloomberg Television today. “That’s going to mean keeping interest rates, I would estimate, around 4% for a while.” That view markedly contrasts with last week’s remark from chair Jerome Powell that the current rate is “right in the range of what we think is neutral.”
Nobody said “liftoff” would be easy. For more on the emerging fallout from the decade-plus era of imposed, bite-sized interest rates, see the analysis “Jerome Powell was right” in the July 22 edition of Grant’s Interest Rate Observer
On the bright side, the Fed is not alone in struggling to get a handle on economic and financial crosscurrents.  Yesterday, the Bank of England tightened the base rate by 50 basis points for its most aggressive hike in 27 years, leaving benchmark borrowing costs at 1.75%.  In tandem with that move, the BOE issued an economic forecast as sunny as a typical London December day; penciling in not only a recession beginning later this year that would knock 2% off output by early 2024, but also an acceleration of measured inflation to more than 13% by the fall.  That compares to a May guesstimate that price pressures would top out at around 10% later this year. “It’s hard to recall a bleaker outcome to a central bank meeting,” Nuveen chief investment strategist Brian Nick told Bloomberg. 
That’s not to say that the monetary mandarins have lost confidence in their control over financial events. “We will get back there,” BOE chief economist Huw Pill declared today, referencing the bank's 2% annual inflation target. “But it’s going to be a process. . . there is an inevitable volatility in inflation.” As for those inclined to blame the West’s covid-era stimulus shower for the current surge in prices, BoE Governor Andrew Bailey begged to differ in an interview with the BBC: “I’m sorry, I don’t agree with that point. . . If [quantitative easing] was what was causing inflation today, then it would be the case in my view that domestic demand in this country would be much stronger than it is.” 
Recap Aug. 5
Uncle Sam’s creditors had a rough go following this morning’s data, as Treasurys were hammered across the curve with the short end getting special attention from sellers, while early weakness in stocks was met by a bid as the S&P 500 finished only slightly lower.  Gold pulled back to $1,791 an ounce, WTI crude held at $88 per barrel and the VIX slipped to 21 for its lowest close since late April. 
- Philip Grant
Launch Angle
How the turntables have turned.
How the turntables have turned. The Nasdaq 100 has advanced by 19.5% from its June 16 low through today’s close, putting that tech-heavy gauge on the cusp of bull market territory following the protracted declines to start the year. Against that backdrop, a trio of companies at the vanguard of the pandemic-era party disclosed corporate misfortune this week, with Mr. Market offering a telling response. Let’s review:
Yesterday, Just Eat Takeaway.com N.V. (JET on the London Stock Exchange) announced a $3.1 billion impairment charge for its Grubhub division, some 14 months after the Amsterdam-based food delivery concern shelled out $7.3 billion in stock to acquire its U.S. peer. Needless to say, a bout of indigestion has since followed:  JET continues to search for potential buyers for Grubhub, though bankers guesstimated to The Times, London in late May that the seller would recoup a mere $1.2 billion.  
Investors greeted that news, delivered in tandem with a reported €134 million ($137 million) adjusted Ebitda shortfall against €2.78 billion in revenues over the six months through June, with a 7% rally. JET’s surge left the stock higher by 35% over the past three weeks, narrowing its 52 week loss to 75% in local terms. 
“Our path to profitability is accelerating,” CEO Jitse Groen assured the public (is the path a moving walkway?). Other industry players may not be so sure. In fall 2019, Grubhub co-founder Matt Maloney articulated formidable obstacles to the food-delivery business model’s viability: “Extremely large delivery/logistics companies can generate slim margins, but only because of the hub and spoke efficiencies they gain at substantial scale. The point-to-point nature of our business mostly eliminates that aspect of operating leverage.” Maloney resigned from Just Eat’s board of directors in December after a sub-six month stint. 
From feeding Western homebodies to the “mission of democratizing finance”: On Tuesday, Robinhood Markets, Inc. (HOOD on the Nasdaq) announced layoffs affecting 780 employees, equivalent to just under a quarter of its workforce. Coming three months after CEO Vlad Tenev showed 340 staffers the door, this week’s round of cuts (intimately delivered via Slack instant message) followed what he described as “additional deterioration of the macro environment.”
The proof is in the press release: Robinhood generated a net loss of $295 million during the second quarter against $318 million in revenues, while monthly active users slipped to 14 million from 15.9 million in the first quarter and 21.3 million a year ago.  Robinhood, which went public last summer at a $32 billion valuation (quadruple that of a Series F funding round in May 2020), has seen its shares rip by 58% since mid-June but remain off by 80% from their post-IPO peak. 
HOOD’s meme-stonk aficionados know the struggle: Though net customer deposits grew by $5.2 billion over the three months through June 30, total assets under custody plummeted to $64.2 billion from $93.1 billion over that stretch, thanks to investment losses. 
Meanwhile, torrents of red ink flow from an avatar of the digital gold rush. On Tuesday, MicroStrategy, Inc. (MSTR on the Nasdaq) reported a cool $94.01 per share net loss, triple its shortfall seen a year ago, as the business software provider-turned-bitcoin speculation vehicle swallowed a $918 million impairment charge resulting from the selloff in digital assets. MicroStrategy has amassed some 130,000 bitcoins at an average price of roughly $31,000; a bet that turned sour after the digital ducats’ plunge to sub $23,000 from $65,000 in November. 
Part and parcel with those results, co-founder Michael Saylor announced he will step aside as CEO following a 33-year stint in the big seat, transitioning to an executive chairman role to “focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives.” New CEO Phong Le indicated no course correction is forthcoming: “If we have excess cash, we’ll put it into bitcoin, and we’ll hold.” Investors liked the sound of that, bidding MSTR up by 13% to extend its post June 16 rebound to 96% (shares remain off by 45% this year). 
Management and shareholders alike may be preparing for the digital revolution, but any further damage to the crypto complex could leave a mark, given that the company has financed its shopping spree via generous helpings of debt. Reporting that triple-C-plus rated MicroStrategy sports an adjusted leverage ratio of 22 times, analysts at S&P Global wrote in June that “we believe its business operations cannot support the current capital structure, and that the company’s ability to refinance maturities (the earliest is 2025) is highly dependent on the price of bitcoin.” 
It’s not the outgoing CEO’s first surf on an asset price tidal surge. Saylor oversaw a 3,000% rally in MSTR over the 10 months through mid-March 2000 before suffering a 95% wipeout over the following two months. Following that round trip, Saylor paid a $350,000 civil fine and returned $8.3 million under a disgorgement order to settle SEC allegations that the company “materially overstated” revenues and earnings going back to its public debut in 1997.  
As ever, past is prologue.
QT Progress Report
Reserve Bank Credit dipped $18 billion from a week ago, leaving interest bearing assets on the Fed balance sheet at $8.85 trillion.  Those holdings have declined by $77 billion from the late-March peak but remain higher by $471 billion from the start of the pandemic. 
Recap Aug. 4
Strength in Treasurys headlined a quiet session as the curve “steepened” to the tune of a negative 35 basis point spread between the 10- and two-year yields at 2.68% and 3.03%, respectively, while  stocks finished flat to slightly higher to consolidate their recent rebound.  WTI crude tumbled to $88 per barrel for its weakest finish since Russia invaded Ukraine in February, gold jumped 2% to $1,810 to log a one-month high and the VIX edged below 22. 
- Philip Grant
Bridge Over Troubled Water
International harmony is upon us!
International harmony is upon us!  Western investors have rolled out the red carpet for Hong Kong-based AMTD Digital, Inc. (ticker: HKD), as shares in the financial services cum marketing firm skyrocketed to $742 yesterday from $7.80 on its July 14 New York Stock Exchange IPO price, good for a 9,500% rally over its first dozen sessions as a public company. 
By way of response to that warm welcome, the company issued a press release overnight noting the “significant volatility” in its American depository shares, adding that “there are no material circumstances, events or other matters relating to our company’s business and operating activities since the IPO date.” AMTD management did, however, take an opportunity to append a “thank you note to investors” to its communique.
Evidently pleased by the firm’s exemplary manners, those investors continued their good turn in today’s session:  HKD finished the day at $1,679 per share, up 126% from Monday’s close, to leave the firm’s market capitalization at a cool $310 billion according to Bloomberg. 
Restructured Products
A stress headache rages in the Bosporus.
A stress headache rages in the Bosporus. A pair of dollar-pay bonds issued by Turk Telekomunikasyon A.S., Turkey’s second-largest telecommunications company, have slipped into distressed territory since last week (meaning that their option-adjusted spreads topped 1,000 basis points over comparable U.S. Treasurys). The issues, maturing in June 2024 and February 2025, carry a combined $1 billion face value.  
That slide into the credit danger zone reflects rising risks to the corporate sector. Turkish firms owe some $16 billion of dollar-pay debt by the end of 2024 at a nearly 12% average coupon, according to data from Bloomberg, a less-than ideal arrangement considering the lira has absorbed a 26% selloff against the buck this year and 85% since mid-2016 to sit near its all-time low. 
Accordingly, inflation continues to rage to the tune of 78.6% in June on a year-over-year basis, as measured by government statisticians. The Central Bank of the Republic of Turkey, meanwhile, left benchmark interest rates at 14% last week on orders of easy-money loving President Recep Erdogan, leaving the nation sporting the lowest real interest rates of any country. “The risk is coming from the sovereign and bank foreign exchange liquidity side and the rising risk perception of the whole economy,” Magdalena Polan, lead emerging market economist at PGIM Fixed Income, told Bloomberg. 
On that score, the banking system is increasingly vulnerable to financial mischief. Fitch Ratings slashed its appraisal of 25 Turkish lenders to single-B-minus from single-B last week, citing the country’s “widening current account deficit, pressure on sovereign foreign-exchange reserves position and high deposit dollarization,” as 71% of deposits are linked to foreign currencies. Then, too, the rating agency contended that “the risk of [government] intervention that would prevent banks from servicing their foreign currency obligations remains higher than that of a sovereign default.” 
One thing’s for sure: Turkey’s financial position remains unenviable. Net foreign exchange reserves slipped to a meager $6 billion last week for a fresh 20-year low,  and bankers reckoned to Reuters that the figure tumbles to negative $55 billion after accounting for swap positions. As Fitch estimated in a July 8 report that trimmed the country’s sovereign rating to single-B from single-B-plus, Turkey now sports just 2.7 months of reserve coverage for external payments, compared to an average 3.8 months of coverage among single-B-rated sovereign borrowers. 
More broadly, pronounced strength in the dollar in tandem with tightening financing conditions is beginning to squeeze the ranks of cash-hungry emerging market nations. Citing data from Dealogic, analysts at Standard Chartered report that governments across Africa and the Middle East borrowed $13 billion in syndicated loans from commercial banks in the first six months of the year, double that seen during the same period in 2021. That comes as emerging market borrowers failed to tap the sovereign bond market in July, according to data provider Tellimer, the first monthly shutout since the so-called Taper Tantrum in 2013. 
Typically structured with shorter maturities and at floating rates, those syndicated loans are held on bank balance sheets rather than farmed out to the investing public, a dynamic that can prove costly to those lenders if the EM complex runs into one of its periodic bouts of systemic trouble. 
“History teaches one inescapable lesson,” Lee Buchheit, former partner at Cleary Gottlieb Steen & Hamilton LLP and longstanding sovereign debt expert, tells The Wall Street Journal today. “Whichever creditor group becomes the dominant lender to emerging-market sovereigns will, in a few years’ time, become the dominant sovereign loan restructurer.” 
Recap Aug. 2
Treasurys were hammered after a series of Fed governors suggested the current tightening cycle is far from complete, as the long bond rose eight basis points to 3% while the policy-sensitive two-year note leapt to 3.06% from 2.9% yesterday.  Stocks gave back a morning rally to leave the S&P 500 weaker by 0.7%, while the VIX logged a second straight strong advance to settle near 24.  Gold backed off multi-week highs as $1,779 per ounce, and WTI crude held near $94 a barrel. 
- Philip Grant
Bottoms-Up Analysis
Talk about dry wells. From the U.K.’s Daily Telegraph:
Heineken is preparing to cut beer production at its European manufacturing plants if faced by a severe gas shortage over winter. The brewery giant behind Amstel and Fosters said there was a growing “availability risk of natural gas” in the region.
The Dutch company has lifted prices on drinks by 8.9pc over the past six months in comparison to the same period last year and Heineken said the price of a pint was likely to rise further in the coming months, as it is forced to pass on escalating costs.
Hot Air
A summer thaw, perhaps, in the capital markets:
A summer thaw, perhaps, in the capital markets: Grocery delivery firm Instacart, Inc. plans to forge ahead with an initial public offering this year, The Wall Street Journal reported Friday. That would be a bold move considering the market for new listings has been effectively shut with asset prices in broad retreat (136 separate domestic firms have shelved plans to IPO since January, Bloomberg relays).  
Instacart, which managed a second quarter profit under generally accepted accounting principles, trimmed its internal valuation in May to $24 billion from $39 billion. Outside investors took an even larger markdown, with buy side behemoth Capital Group slashing its appraisal to $14.7 billion last month per Bloomberg.
That retrenchment represents a stark turn in fortune for the firm’s cadre of venture capital investors: that March 2021 round led by the likes of Andreessen Horowitz and Sequoia Capital valuing Instacart at $39 billion represented a 120% premium to a mere five months prior. 
Might a successful listing help revive the suddenly moribund v.c. realm?  As the Financial Times documents today, a series of disasters has forced the industry to lay low. The buy now, pay later outfit Klarna, for instance, had to raise money at a measly $6.7 billion valuation last month, off 87% from a SoftBank-led round in summer 2021 and far below the projected $30 billion level floated by the Journal just weeks before. 
Overall, venture capitalists poured some $330 billion into U.S. tech startups last year, double the previous record set in 2020 and far above the $100 billion figure seen at the peak of the late-90’s Nasdaq bubble. Valuations soared in turn, with late- and early-stage firms achieving average $120 million and $45 million price tags, respectively, according to Pitchbook, with each of those figures roughly double their pre-pandemic levels. With the exit doors now effectively closed, a punishing hangover looms. 
“We’re probably somewhere between anger and bargaining,” Lux Capital co-founder Josh Wolfe quips to the FT, referencing the five stages of grief. Startups reluctant to conduct down rounds may face dire straits sooner than later. “Many companies are going to be in denial about the change in valuations until they run out of capital,” predicts David Cowan, partner at Bessemer Venture Partners. 
Perhaps nowhere is that dynamic more visible than in the “micromobility,” (i.e., scooters and electronic bicycles) category. As Crunchbase documented Friday, v.c. has poured well over $5 billion into such startups over the past five years, with precious little to show for those outlays. Chief among those capital incineration vehicles: Bird Global, Inc. (BRDS on the NYSE), which controls the U.S. market in tandem with privately held peer Lime.  
Bird, which went public last year via special purpose acquisition company Switchback II, pegged the total addressable market for micromobility at $800 billion and projected $400 million in 2022 revenues in its pre-IPO marketing materials. Early returns are less than inspiring, as the company managed a modest $38 million top line through the first three months of the year, generating a cool $97 million operating loss in the process.  Bird now sports a mini-sized $182 million market cap, down 93% from its November listing and 94% south of the $2.9 billion valuation achieved during its 2019 series D funding round. 
Meanwhile, Bird’s primary competition contends with a peculiar problem. Tech publications Mashable and the Verge separately reported Friday that blockchain-based wireless network Helium inaccurately claimed a partnership with Lime and Salesforce, “prominently” displaying each company’s logo on its website (those displays appear to have been removed as of this afternoon). Though Helium “claimed for years that Lime was using its technology for geolocation,” the scooter purveyor contends that it has had no interaction with the infrastructure firm since the summer of 2019.
In mid-February, Helium raised $200 million at a $1.2 billion valuation in a Series D funding round led by Tiger Global and Sam Bankman-Fried’s FTX Ventures. Since then, the market value of its eponymous token has slid to $1.2 billion from $2.8 billion. 
Recap Aug. 1
Stocks consolidated last week’s race higher in low-key trading, with the major averages settling just below unchanged, though the VIX jumped 7% on the day to approach 23. Risk aversion continues to reign in Treaurys as the latest rally on the long end left benchmark 10-year yields at 2.6%, 30 basis points below the policy-sensitive two-year note. WTI crude retreated below $94 a barrel, while gold advanced to $1,788 an ounce for its best finish in nearly a month. 
- Philip Grant
He Said it
Economist fight! Here’s Larry Summers on Bloomberg television, offering a less than enthusiastic review of Jerome Powell’s post-meeting press conference on Wednesday. The key point of contention was the Fed chair’s assertion that the newly established funds rate is “right in the range of what we think is neutral.”
Jay Powell said things that, to be blunt, were analytically indefensible. There is no conceivable way that a 2.5% interest rate, in an economy inflating like this, is anywhere near neutral.
Scar Trek
Uncle Sam isn't mad, he's just disappointed.
Uncle Sam isn’t mad, he’s just disappointed. Regulators called out bankrupt crypto exchange and lending platform Voyager Digital yesterday, as the Federal Deposit Insurance Corporation and Federal Reserve co-signed a letter demanding the company cease and desist from falsely claiming that customer funds were covered by federal deposit insurance. According to the company, cash deposits reside at New York-based lender Metropolitan Commercial Bank, which is under the FDIC umbrella. 
Yet Voyager’s claims of a direct backstop caused no small bit of mischief, the regulators believe, as “these representations likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access” to their cash. 
Indeed, the prospects for recovery look dim. Daniel Saval, partner at law firm Kobre & Kim, explained thus to CNBC last week: “Users may be surprised to learn that, in a bankruptcy scenario, the crypto and funds held in their account may not be considered their own property.” Exchanges routinely pool customers’ cryptos and cash into a single account or wallet, he added. 
Might an industry giant ride to the rescue? Last Friday, crypto honcho Sam Bankman-Fried floated a deal in which his Alameda Research trading outfit would buy Voyager’s assets and loan book. Subsequently, Voyager customers who opt to open an account at his FTX exchange would receive claims on assets now subject to the bankruptcy proceedings.  
“Our joint proposal. . . allows customers to obtain early liquidity and reclaim a portion of their assets without forcing them to speculate on bankruptcy outcomes and take one-sided risks,” Bankman-Fried argued. Voyager then rejected his proposal, terming it a “low-ball bid dressed up as a white-knight rescue.” As “no customer will be made whole,” Bankman-Fried’s trial balloon “is nothing more than a liquidation of cryptocurrency on a basis that advantages Alameda [and] FTX,” Voyager’s lawyers wrote in court documents Sunday.
Deal or no deal, Bankman-Fried’s starring role in the Voyager saga remains secure. The exchange’s largest
shareholder with a 9% equity stake, Alameda is represented on either side of the balance sheet: as unsecured creditor after extending a $75 million line of credit shortly before the bankruptcy and as a debtor to the tune of $376.8 million, at interest rates ranging from 1% to 11.5%, according to the bankruptcy filing. 
How might this peculiar tale shake out? One thing’s for sure, the legions of crypto true believers aren’t easily deterred. Over the past 19 days, the market value of bankrupt Voyager’s eponymous digital ducat has jumped to $111 million from $43 million according to data from CoinMarketCap. Similarly, trading volume over the 24 hours through lunchtime reached $15 million, triple that seen on July 10. 
Recap July 29
The rally rolls on into month-end, as stocks sat well higher as of mid-afternoon (when your correspondent had to leave), leaving the S&P 500 on track to log a 4% advance for the week.  The Treasury curve flattened further in response to hotter than expected consumer income and spending data this morning, as the two-year note’s 2.88% yield now exceeds the 10-year by 25 basis points. WTI crude tested $100 a barrel, gold probed multi-week highs at $1,780 per ounce and the VIX sank to near 21, which would be its lowest finish since April 20. 
- Philip Grant
Flat Tire
From fresh as a daisy to pushing up daisies.
From fresh as a daisy to pushing up daisies. The Financial Times documents the travails of eight-year-old Chinese grocery delivery startup Missfresh, which broke the news to staffers this week that it has run out of cash, leaving it unable to pay employee salaries for June and July and suppliers for previously delivered goods. 
“Our operations are in big trouble,” Xiao Yungui, head of supply chain management at Missfresh, admitted to staffers on a recent call. The company announced it will shut down its network of mini-warehouse distribution centers, marking the end of its “pioneering business model,” in the FT’s words, focused on delivering meats and produce to customers within 30 minutes. 
Missfresh, which completed an IPO on the Nasdaq last June at a $3 billion valuation, boasted a roster of household name investors. Venture capital-cum-hedge fund Tiger Global owned an 11% stake in the firm as of Dec. 31, shelling out $117 million for the privilege over several years. Likewise, Goldman Sachs kicked in $66 million and local tech behemoth Tencent invested seven figures. 
With the business subsequently going pear-shaped, Missfresh told all employees to work from home today, the FT relays, though several staffers found that the company had switched off its IT system. Missfresh executives have gotten out front of the situation, in a manner of speaking, removing their names from registration documents, “a common tactic in China to avoid being slapped with personal spending restrictions by courts over unpaid debt.”
Black Ink Gusher
“Europe has no problem consuming oil and gas,
“Europe has no problem consuming oil and gas, it’s just producing it that is the issue here,” Shell plc CEO Ben van Beurden quipped today. The Old Continent’s largest energy firm has certainly benefited from that dynamic, reporting $11.5 billion in adjusted earnings during the second quarter – a second straight record figure following the first quarter’s $9.1 billion bottom line. Despite that windfall, Shell maintained its capital spending target for 2022 at a range of $23 billion to $27 billion. 
As those results would suggest, heady days are here for fossil fuel purveyors, with natural gas prices on both sides of the Atlantic ascending to their highest levels since 2008 this week.That latest lurch higher comes despite the EU agreement to curtail gas use by 15% beginning next month through March 2023 to reduce reliance on Russian supply as the Ukraine war rages.
Tourmaline Oil Corp. (TOU on the Toronto Exchange), Canada’s largest natural gas producer and a pick-to-click in the March 18 edition of Grant’s Interest Rate Observer, has likewise taken full advantage of the friendly operating environment. This morning, the firm announced second quarter earnings of C$822 million ($641 million) and free cash flow of C$1.35 billion, up 96% and 137% from their year ago levels, respectively, as total production rose to 502,937 barrels of oil equivalent per day, up 14% from its average 2021 output. Free cash flows are now expected to reach C$14.69 per share this year, equivalent to a 19% yield based on the current share price and up from a C$11.73 company-provided estimate three months ago. 
Thanks to that financial bumper crop, Tourmaline declared a C$2 per share special dividend (analysts at Desjardins Securities had expected a C$1.10 per-share payout), bringing its trailing 12-month dividend yield to 8.1%. TOU also committed to C$1.5 billion in capital spending this year, compared to a prior C$1.23 billion figure. 
“Given the simultaneously fossil-fuel-phobic and fossil-fuel-needy state of the world today, we expect that Tourmaline, founded in 2008 by the Canadian oil and gas entrepreneur Michael Rose [himself a Shell alumnus] will prove a more-than-satisfactory, even, possibly, an excellent investment,” Grant’s contended in March. Underpinning that thesis: rising energy prices in tandem with an enviable cost structure, a clean balance sheet (net debt stands at C$470 million, a fraction of this year’s projected C$5 billion in Ebitda) and strong management.
“I’d give him my money and just walk away and wait for the checks to roll in – he’s that good,” effused one oil executive to Grant’s regarding Rose’s operating and capital allocation skills.
Over the four months and change from that bullish analysis, TOU shares are up a cool 55% in dollar terms, inclusive of dividends. That compares to an 8% return for the TSX Energy ETF and negative 8% for the S&P 500 over that stretch. Yet owing to gangbusters operating results, the stock now trades at a modest nine times full-year consensus earnings per share with an enterprise value equivalent to five times 2022 Ebitda guesstimates. 
QT Progress Report
Another week of limited progress saw Reserve Bank Credit tick to $8.865 trillion, down a measly $4 billion over the past seven days.  Interest-bearing assets on the Fed balance sheet are off only $48 billion from their late March peak and remains higher by $4.7 trillion from the onset of the Fed’s stimulus barrage in March 2020. 
Recap July 28
Happy days are here again:  Stocks continued their impressive rally with a 1.2% advance on the S&P 500, as the broad index closed back to within 15% of unchanged for 2022, while the Treasury market continues to look past the current tightening regime as the policy sensitive two-year yield dove eleven basis points to 2.85% and the benchmark 10-year note settled at 2.68%, its lowest since early April.   WTI advanced to $99 a barrel, gold jumped to $1,763 per ounce and the VIX retreated a three-month low near 22. 
- Philip Grant
Open Sesame
It's alive!
It’s alive!  Plastics manufacturer Avient Corp. managed to sell $725 million in double-B-minus rated, eight-year bonds today at a 7.125% coupon, financing its acquisition of Royal DSM N.V.’s fiber operations. Savvy timing was on display, with the issuer having accelerated that planned sale from Friday as the high-yield market has now enjoyed an eight-session winning streak following today’s advance.  Sure enough, pricing came well inside of initial talk at 7.5%, with order books four times oversubscribed.   
Getting to the finish line at all was something of a coup. Month-to-date high-yield supply now crouches at a measly $1.8 billion, the weakest July since at least 2006, while 2022 issuance languishes at $70 billion. For context, primary market activity towered at $300 billion at this time a year ago and has topped $100 billion at this stage every year going back to the aftermath of the financial crisis in 2010. 
High-grade borrowers have likewise been forced to pick their spots in 2022, as the investment-grade corporate bond market has featured zero primary sales on 49 separate trading days so far this year, data from Bloomberg show. That compares to just 12 such occasions over the same stretch in 2021.  
Even a stalwart funding source during this year’s asset price winter is starting to run dry. Bloomberg reported last week that the likes of Blackstone, Apollo and Ares Management are slashing their lending commitments for private credit transactions.  What’s more, those lenders are “asking for, and getting, higher yields on financing packages with less leverage, while commanding stronger investor protections in case borrowers go under.”
Take the El
Dispatches from the deep end of the credit pool:
Dispatches from the deep end of the credit pool: The Republic of El Salvador will buy back $1.6 billion worth of sovereign debt, President Nayib Bukele announced yesterday. Set to commence in roughly six weeks, the operation will target securities maturing in 2023 and 2025 at prevailing market prices. A strong rally duly followed Bukele’s proclamation. with the 2025 notes soaring to 52 cents on the dollar from 36, their highest since mid-April, before pulling back to 49 cents on the dollar for a 39.2% yield-to-worst.  
As those figures might suggest, the Central American nation’s ten-month old experiment with bitcoin as legal tender hasn’t exactly covered it in glory. As to whether El Salvador can actually muster $1.6 billion for that buyback initiative, Nathalie Marshik, managing director of fixed income at Stifel Financial, answered in the negative. “Early indication is that there is about $560 million for the buyback,” she told Bloomberg yesterday. 
On form, Bukele offered a cheerier perspective. “El Salvador has the liquidity not only to pay for all of its commitments when they are due, but also purchase all of its own debt (till 2025) in advance,” the 41-year old, self-described “world’s coolest dictator” assured the public via tweet, adding the following for good measure: “It will be interesting to see if the media will publish hundreds of articles saying El Salvador is repurchasing its own debt, just as they published hundreds of articles saying (without substance) we were heading to a default.”
Might yesterday’s gambit succeed in turning the tide? Count some observers skeptical. “The economic policy of the country is essentially magical thinking,” Frank Muci, a policy fellow at the London School of Economics, told CNBC last month. “This is a country that’s rudderless in terms of economic policy. I mean, they don’t know where they’re going, or what they’re doing. I think it’s a classic case of, ‘one day at a time.’”
The rating agencies are sympathetic to that view. On May 4, Moody’s downgraded El Salvador two notches to Caa3 (the equivalent of triple-C-minus) with a negative outlook, as analysts warned of “increased probability of a credit event. . . with relatively high severity.” If the past is any guide, that stark warning likely fell on deaf ears in the halls of power. Recall that in January, Bukele took to Twitter to declare via a widely-used acronym that his country “doesn’t give a f***” about Moody’s judgment.  
More broadly, investors have been deserting third-world credit in droves, with outflows from emerging market bond funds reaching $50 billion over the first six-and-a-half months of the year. That would mark the worst annual showing in at least 17 years per JPMorgan, easily surpassing the 2015 tremors headlined by China’s surprise currency devaluation. “These assets tend to quite correlated with the economic cycle,” Cristian Maggio, head of emerging markets strategy at TD Securities, told the Financial Times earlier this month.  Among other considerations. 
Recap July 27
Maybe the Fed should hike every day.  Investors greeted the latest 75 basis point increase in the Funds rate with a ripping rally that topped 4% on the Nasdaq 100, leaving that tech-heavy, rate sensitive gauge at its best level since early June. Treasurys likewise caught a bid at the short-end as hopes of a shorter tightening cycle predominate, leaving two- and 30-year yields at 2.96% and 3.03%, respectively.  Gold bounced to $1,734 an ounce, WTI crude topped $98 per barrel and the VIX pulled back two points to settle south of 24.   
- Philip Grant
Spy Hard
From The Wall Street Journal:
China tried to build a network of informants inside the Federal Reserve system, at one point threatening to imprison a Fed economist during a trip to Shanghai unless he agreed to provide nonpublic economic data, a congressional investigation found.
The espionage equivalent of peeking at the perennial D-student’s test answers?
Security Blanket
What's in a name? Plenty.
What’s in a name? Plenty. The Securities and Exchange Commission has opened an official investigation into Coinbase Global (ticker: COIN), Bloomberg reports, probing whether the crypto exchange wrongly facilitated transactions in digital assets that should be designated as securities under the law.  
Precipitating that formal inquiry: Coinbase’s decision last year to expand its crypto offerings beyond the likes of bitcoin and ethereum into more obscure digital assets like dogecoin, which was launched as a joke yet inexplicably retains an $8 billion market value following a 90% pullback from spring 2021.  
Today’s salvo follows Uncle Sam’s leveling of wire fraud and insider trading charges against former Coinbase product manager Ishan Wahi and a pair of co-defendants last week, marking the first such U.S. enforcement action within the crypto industry.  
Prosecutors allege that Wahi acted on advance notice of imminent crypto listings on the platform to garner illicit profits. Part and parcel with that legal action, the SEC contends that seven cryptocurrencies available for trading on Coinbase are unregistered securities. 
“We 100% disagree with the SEC’s assertion that any of the crypto assets we list are securities,” chief legal officer Paul Grewal tweeted Thursday. “We are confident that our rigorous due diligence process – a process the SEC has already reviewed – keeps securities off our platform.”
That’s not the first time that Coinbase management opted for the confrontational route via social media. "Some really sketchy behavior coming out of the SEC recently," co-founder and CEO Brian Armstrong proclaimed last September at the onset of a 21 tweet thread accusing the regulator of obstructing the rollout of Coinbase’s crypto lending platform. Once more, the question at hand was whether cryptocurrencies constitute securities under the SEC’s purview. 
Coinbase may be raising its voice because it feels its business depends on it, to judge by language from risk factors in the company’s May 10-Q filing is any indication: 
If the SEC, state or foreign regulatory authority, or a court were to determine that a supported crypto asset currently offered, sold, or traded on our platform is a security. . . we could be subject to judicial or administrative sanctions for failing to offer or sell the crypto asset in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. 
Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. 
Customers that traded such supported crypto asset on our platform and suffered trading losses could also seek to rescind a transaction that we facilitated as the basis that it was conducted in violation of applicable law, which could subject us to significant liability. We may also be required to cease facilitating transactions in the supported crypto asset other than via our licensed subsidiaries, which could negatively impact our business, operating results, and financial condition.
The course correction in asset prices hasn’t been kind to COIN, with shares off 84% from their mid-November highs. On the bright side, that volatility afforded Coinbase’s c-suite the opportunity to show off its own trading bona fides. Over the past year, management sold upwards of $600 million of stock into the open market (more than all but seven domestic firms in the financial sector over that stretch) at an average price of $289 per share, compared to $53 today. 
Still sporting a $10 billion enterprise value following the selloff, Coinbase will post negative $311 million in adjusted Ebitda this year if the sell side is on the beam, on the way to generating $1.2 billion in that well-groomed earnings figure by 2024. Yet growth has stalled, with first quarter revenues slipping to $1.2 billion from $1.6 billion year-over-year. Meanwhile, non-cash expenses percolate, as stock based compensation expense leapt to $352 million over the three months ending March 31, from $104 million in the prior-year period
What might the future hold for the crypto exchange? After Coinbase warned in a May filing that customers “could be treated as general unsecured creditors” in the event of a corporate restructuring, Armstrong took to Twitter once more to declare that “we have no risk of bankruptcy.”  
Mr. Market harbors his doubts. Coinbase’s double-B-plus/double-B-rated, senior unsecured 3 5/8% notes due 2031 have struggled mightily since their September issuance, changing hands at 64 cents on the dollar yesterday (prior to news of the SEC investigation) for a 690 basis point option-adjusted spread over Treasurys. That compares to a 235 basis point pickup at issuance ten months back and is well wide of the 530 basis points on offer for the single-B-rated segment of the Bloomberg High Yield Corporate Bond Index. 
Recap July 26
Stocks were slapped around ahead of tomorrow’s rate decision from the Federal Open Market Committee, with the Nasdaq 100 sliding nearly 2% to crouch lower by 26% in the year-to-date, while Treasurys finished little changed with two- and 30-year yields nearly equivalent at 3.02% and 3.03%, respectively. WTI fell to $95 per barrel to remain on the back foot, gold finished little changed at $1,716 an ounce and the VIX approached 25 for its most elevated finish in more than a week. 
- Philip Grant
What Goes Up
There’s your tail risk. From The Washington Post:
China’s latest launch of a huge rocket is, once again, raising alarm that the debris will crash into the Earth’s surface in an uncertain location and at great speed.
China rejects accusations of irresponsibility. In response to [similar] concerns about last year’s launch, the Chinese Foreign Ministry said the likelihood of damage was “extremely low.” 
Observe and Report
Time to open the books:
Time to open the books: Second quarter earnings season swings into full gear this week, as 174 S&P 500 members representing nearly half of the broad index’s market capitalization are set to deliver their results.  Accordingly, let’s take inventory of the state of play in corporate America.  
With 21% of S&P 500 component companies having posted results as of last Friday, growth in so-called blended earnings (encompassing both reported results and projected figures for companies yet to report) are trending at a 4.8% year-over-year clip, data from FactSet show. That would represent the slowest such advance since the fourth quarter of 2020, down from the 31.2% bottom-line bonanza across 2021.
Wall Street has largely maintained its typically sunny posture through this year’s stormy financial weather, predicting that year-over-year EPS growth rates will expand back to 9.2% and 8.7%, respectively, during the third and fourth quarters. Yet the sell side’s optimism is beginning to wane a bit: Citi’s Global Earnings Revisions Index, which tracks changes in analyst estimates, has slipped to its weakest level since the early days of the virus. 
More broadly, the anomalously lucrative environment that companies and investors alike have enjoyed in recent years leaves plenty of room for a downshift. S&P 500 net profits as a percentage of revenue will register at 12.4% for the second quarter if analysts are on target. Though south of the 12.7% expected as of March 31 and the 13.5% and 13.4% logged in the third and fourth quarters of 2021, respectively, that current figure sits far above the 8.2% average dating back to 1993.  
Bear market aside, still-generous valuations inform those healthy margins, as the S&P 500 trades at just under 30 times its Shiller 10-year cyclically adjusted earnings ratio, compared to an average 21 times over the past 50 years. Similarly, the stock market – as measured by the Wilshire 5000 -- commands a market cap equivalent to 158% of U.S. GDP, topping the 141% seen at the peak of the first tech bubble. 
Yet punishing inflation threatens that elevated profitability regime: So far this year, the Producer Price Index has advanced at a 10.8% annual rate on average, far above the 8.3% average growth rate in CPI. For context, both of those figures averaged 1.9% per annum over the decade through 2021. 
Unwelcome macroeconomic developments present their own challenges. As the Financial Times documents today, the greenback’s relentless rally relative to its foreign peers (the U.S. Dollar Index sits near 20-year highs, up 19% from May 2021) has crimped the overseas profitability of numerous mega-cap multinational firms, a cohort that derives substantial portions of its revenues from abroad.
The lynchpin technology group, which commands a hefty 28% share of the market cap-weighted S&P 500, has proven particularly vulnerable, as the likes of Microsoft, Salesforce and IBM have each cited unwanted dollar strength as a thorn in their side during recent weeks. “The velocity of the strengthening is the sharpest that we’ve seen in over a decade,” IBM chief financial officer James Kavanaugh said on last week’s earnings call. “It’s kind of, I would say, unprecedented.” The S&P tech sector derives some 59% of its total revenues from outside the U.S., analysts at Goldman Sachs calculate, compared to 29% within the broad index. 
Damage from that dollar momentum could prove to be more than transitory. “Even if the rise of the dollar were to stop here, the strengthening we’ve seen over the past 12 months would be enough to prompt downgrades to earnings estimates just because of foreign exchange headwinds,” HSBC strategist Max Kettner tells the FT
How might investors protect against an ebbing of the earnings tide and a resumption of the rugged conditions that have characterized most of 2022? Perhaps by selling the shares in a chief cornerstone of the bull market edifice that thrived (to say the least) during the pandemic. See the brand new edition of Grant’s Interest Rate Observer dated July 22 for more.  
Recap July 25
Stocks caught a late bid to leave the S&P 500 in the green, though the Nasdaq 100 lagged a bit with a 60 basis point pullback, while Treasurys came under modest pressure as two- and 10-year yields backed up to 3% and 3.04%, respectively. Gold retreated to $1,717 an ounce, WTI crude reversed early losses to settle near $97 per ounce and the VIX crept towards 24. 
- Philip Grant
Slippin' and Slidin'
A stark picture from Lakshman Achuthan, co-founder of the Economic Cycle Research Institute (ECRI), detailing his firm’s bespoke index tracking economic health:
Home Run
Hello, old friend:
Hello old friend: Mega-developer China Evergrande, compared to the ill-starred dirigible Hindenburg in the pages of Grant’s Interest Rate Observer since 2017 and which collapsed under a $300 billion pile of obligations in December, is back in the news, as CEO Xia Haijun and CFO Pan Darong each tendered their resignations at the invitation of the board. 
Today’s management shuffle follows a probe into the company’s practice of pledging its customers’ deposits for loan guarantees, a move which backfired when the banks seized those funds after certain third-party borrowers failed to repay their debts. Precipitating that upheaval, the board determined that those funds were “transferred and diverted back to the [Evergrande Property Services subsidiary] via third parties and used for the general operations of the group.” 
The timing of today’s announcement is notable. Protests and boycotts from angry homeowners refusing to pay for presold, uncompleted dwellings sweep across the world’s second-largest economy.  Such demonstrations spanned 319 projects across 112 cities as of Wednesday, according to crowdsourced website “WeNeedHome,” compared to 280 projects in 80 cities five days prior. 
Construction on 249 million square meters of presold residences has been halted as of Monday, equivalent to 4% of the total, per data from real estate firm E-House. Total outstanding mortgages at halted development projects stood at some RMB 2 trillion ($296 billion), analysts from Deutsche Bank reckoned early this week.  
Any lasting disruption to that lynchpin economic engine could loudly reverberate, as the property realm accounts for roughly a third of Chinese output and 70% of household wealth according to various estimates. Thus, it is no small development that June house prices now sit below their mid-2020 levels in 34 of China’s 70 largest cities, government statisticians admit. China’s distended banking system counted some $56.5 trillion in assets as of March 31, dwarfing the sub-$23 trillion held at U.S. commercial lenders.  
“Chinese homebuyers usually pool the whole family’s resources to buy a home,” National University of Singapore associate professor Alfred Wu told Bloomberg Wednesday. “It is a life-and-death matter for them if their homes become negative assets.”  The Beijing leviathan duly seeks to alleviate the situation, with Premier Li Keqiang instructing local governments yesterday to ensure construction of those unfinished units continues apace.
On the other hand, as ruler Xi Jinping seeks coronation as president for life at this fall’s Communist Party plenum, more heavy-handed responses could be forthcoming. Reuters reported Wednesday that the social media platform Weibo has censored the hashtag “#stopmortgagepayments, with searches for that term yielding a notice noting that “due to related laws and rules, the topic page cannot be displayed.” 
“The Chinese government, after so many years, is experienced in dealing with this kind of public protest,” Tang Wenfang, professor at the Chinese University of Hong Kong Shenzhen, artfully put it to Bloomberg today. 
Meanwhile, cascading distress catalyzed by Evergrande’s demise continues. Shares in Huijing Holding Co. (9968 on the Hang Seng) dove 88% today on 156 times its one-year average trading volume, a day after the Shanghai-based developer completed a bond swap which exchanged $107.6 million of its outstanding 12.5% notes due yesterday for fresh debentures maturing in July 2023. 
A reversion to an ancient form of commerce underscores the dicey state of play. As the Financial Times noted earlier this month, developers have begun accepting culinary staples like garlic, watermelons, wheat and barley rather than cash for down payments on dwellings. 
Misery loves company, and those stricken developers have plenty of it. Following a record 12 consecutive weekly price declines, a gauge of Chinese dollar-pay high-yield corporate debt compiled by Bloomberg now sports a 2,407 basis point option-adjusted spread over U.S. Treasurys.  That’s up from a five-year average of 923 basis points and stands well into distressed territory, typically denoted as a 1,000 basis point pickup to so-called risk-free yields. 
Even Beijing’s credit is beginning to lose its luster overseas. Foreign investors withdrew a net RMB 55.9 billion ($8.3 billion) from China’s sovereign bond market in June, Bloomberg relays today, marking the fifth straight monthly decline to bring total outflows to RMB 200 billion in the year-to-date. For context, that figure was last negative in 2014, when foreign holdings registered at just RMB 221 billion, compared to RMB 2.32 trillion as of June 30. 
How might a deeper retrenchment of China’s debt-laden housing edifice tip an already-rickety global financial balance? See the brand new edition of Grant’s Interest Rate Observer dated July 22 for closer look at China’s morass and attendant investment implications. 
Recap July 22
Diving Treasury yields headlined today’s action, as short-dated securities led the way in bull-steepening fashion to leave the two-year at 2.98% and the long bond at 3%.  Stocks absorbed moderate losses of about 1% on the S&P 500, though the broad index managed a snappy 2.6% advance for the week, while gold edged higher at $1,722 per ounce and WTI crude slipped below $95 a barrel. The VIX consolidated at a three month nadir near 23. 
- Philip Grant
Here, There and Everywhere
Arrivedérci, NIRP.
Arrivedérci, NIRP. The European Central Bank hiked its benchmark refinancing rate to zero from minus 50 basis points this morning, marking its first tightening move in 11 years and, for now at least, wrapping up an eight-year experiment with imposed sub-zero borrowing costs.  As eurozone inflation rages to the tune of an 8.6% annual CPI increase for June, Frankfurt abruptly shifted from previous indications that a quarter-point increase was in the cards today.
While the ECB taketh away the dubious gift of negative rates, the monetary mandarins stand ready to giveth yet another round of quantitative easing. In tandem with today’s increase, the central bank introduced the so-called transmission protection instrument, a newfangled asset purchase program designed to forestall unapproved market moves (i.e., “fragmentation”) among sovereign borrowing costs.  
As Lagarde explained during today’s press conference, the TPI will be open-ended, and able to purchase private assets in addition to member states’ sovereign debt. Political considerations will be at play, as “compliance with the EU fiscal framework” is the primary listed criterion for eligibility. What that means in practice is less clear: “To assess whether you have unwarranted disorderly market dynamics, the Governing Council will take into account, multiple indicators to determine the warranted versus unwarranted,” Lagarde obfuscated in today’s press conference.  
For his part, Mr. Market took a dim view of the ECB’s apparent attempt to simultaneously tighten and ease monetary policy: 10-year spreads between triple-B-rated Italy and triple-A-rated Germany jumped to 232 basis points, up from 213 basis points yesterday and fewer than 100 basis points last fall.  
Of course, political events loom increasingly large, as Italian Prime Minister Mario Draghi formally resigned today after fellow coalition members withdrew support for the former central banker. The timing of that upheaval, which will usher in Italy’s 70th government since the end of World War II, is notable: Nearly ten years ago to the day, Draghi delivered his (in)famous “whatever it takes” speech as ECB President, going on to implement the negative rate-cum-aggressive asset purchase regime that informs the current situation.
Meanwhile, U.S. monetary authorities perform their own delicate dance to contend with similar crosscurrents of high inflation and shaky financial markets. Last Friday, the Federal Reserve published a paper analyzing the state of its balance sheet, as this year’s lurch higher in interest rates has rendered the Covid-era shopping spree of Treasurys and mortgage-backed securities less than remunerative.   
Noting that unrealized losses on its System Open Market Portfolio stood at $330 billion, equivalent to 4% of total par value, on March 31, the authors guesstimate that those unrealized losses will grow to $670 billion, or 8% of the portfolio, by year end under a baseline scenario, with such shortfalls reaching $1.1 trillion, or 16% of par value, in 2023 under a “tail risk” scenario. As current mark-to-market losses easily exceed the Fed’s $41.6 billion capital position, realized losses on those holdings would bar the Fed from paying dividends to the Treasury until it earns its way out of the hole (for more on the implications of Jerome Powell’s red ink bath, see the analysis “Monetary mysteries unraveled” in the June 10 edition of Grant’s Interest Rate Observer). 
Perhaps more enlightening: the seers at the Eccles Building already anticipate a resumption of quantitative easing, even as the current balance sheet runoff regime has hardly begun. Thus, the authors predict that SOMA holdings will trend towards $6.3 trillion in 2024 from $8.37 trillion today, before rising again to $7.6 trillion in 2030 under a baseline scenario and $8.3 trillion under more aggressive assumptions.
As in the Old Continent, might political considerations seep into the monetary sphere? Speaking on Bloomberg Television this afternoon, Senate Banking Committee Chair Sherrod Brown (D-OH) declared himself “open” to new rules limiting the Fed’s ability to conduct further QE. Queried over the potential for hearings on the Fed’s policies, the Senator replied, “sure, I think we [should] do that.”  
QT Progress Report
Not much QT this week as Reserve Bank Credit ticked to $8.87 trillion, up $11 billion from a week ago.  The Fed’s portfolio of interest bearing assets is off a modest $37 billion from its March highs and remains up by 28% over the past two years. 
Recap July 21
Stocks continue to march higher as the S&P 500 gained 1% to extend its four-day rally to 3.5% with one session left in the week. Treasurys likewise caught a bid with the long bond falling to 3.08%, south of the 3.1% on offer for the two-year note, while WTI crude pulled back to $96 a barrel and gold rebounded to $1,719 per ounce. The VIX settled near 23 for its lowest close in nearly three months. 
- Philip Grant
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