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Hedge Funds Are Liquidating At A Furious Pace.... And Retail Investors Are Buying It All

Hedge Funds Are Liquidating At A Furious Pace.... And Retail Investors Are Buying It All Over the weekend, and then again on Monday we reported that It had been a catastrophic week for hedge funds: heading into Black Red Friday, losses were staggering with Goldman Prime reporting that many hedge funds were caught off-guard by news of the Omicron variant as they had bought Reopen stocks and sold Stay-at Home names in the past week. As a result, in the week ending Nov 25, GS Equity Fundamental L/S Performance Estimate fell -1.57% between 11/19 and 11/25, driven by alpha of -1.12% which was "the worst alpha drawdown in nearly six months" and beta of -0.45% (from market exposure and market sensitivity combined). It only got worse on Friday and then again Monday, when Moderna - the 3rd most popular short in the hedge fund universe with some $4.5BN of the stock held short by the 2 and 20 crowd... ... exploded higher, resulting in massive double-digits losses for funds who were aggressively short the name... and just in general as the following P&L charts from Goldman Prime show. So having been hammered one too many times in just a few days, perhaps the "smart money" finally learned its lesson, and as the S&P 500 suffered its biggest two-day rout since October 2020, hedge funds went risk off big time, because according to the latest update from Goldman Prime, net leverage fell to a one-year low this week. A similar analysts from BofA also confirmed the deleveraging trend of deleveraging - the firm’s hedge-fund clients dumped more than $2 billion of stocks last week, exiting the market at the fastest pace since April. While it doesn't take a rocket surgeon to figure out why hedge funds were rapidly derisking, among the reasons for the mass exodus were both tax-loss harvesting ahead of the end of the year, as well as locking in profits that despite the recent turmoil remain more than 20% for 2021. But the most proximal catalyst remains the sharp change in tone from the Fed where Powell now appears hell bent to consummate the worst policy mistake since Jean-Claude Trichet's ECB hiked right into a recession: “We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent,”  Powell told lawmakers Wednesday after decommissioning the term transitory to describe higher prices a day earlier. This has led to a rush to reprice assets with the prospect of higher interest rates sooner than investors had been anticipating. Confirming our recent observations, Dennis DeBusschere, founder of 22V Research, told Bloomberg that “many have mentioned hedge fund pain leading to weird internal moves” among speculative tech stocks. “This latest negative omicron news leads to just closing the books up and moving on.” Yet while hedge funds puked stocks, aggressively deleveraging into Wednesday's rout, retail investors did just the opposite and bought what HFs had to sell like there is no tomorrow: as we noted earlier, retail stock purchases rose to a new record on Tuesday of $2.2 billion, after reaching $2.1 billion during Friday’s rout, according to Vanda Research. The firm flagged big retail buying in cyclical stocks like airlines and energy on Friday, versus Tuesday’s tech-heavy flows, and noted that institutional investors did the opposite, selling cyclicals on Friday and then tech on Tuesday. In other words, retail investors were busy bidding up everything hedge funds had to sell. Professional managers are often quicker to sell because of pressure to deliver returns, said Mark Freeman, CIO at Socorro Asset Management LP. After their concentrated bets on expensive technology shares backfired last week, hedge funds now face a fast-closing window to bolster a year of spotty performance. That aversion to risk probably underlined the latest rout in unprofitable tech shares, a group that usually sells off when long-end Treasury  yields spike. On Wednesday, however, 10-year yields slipped and a Goldman basket of extremely expensive software stocks plunged 7.1%. Yet while Vanda sees strong retail demand persisting, and limiting the downside to equities in December, Nomura advises caution when buying this dip. As Bloomberg reports, strategists Chetan Seth and Amit Phillips wrote in a note that investors need to carefully assess if “buy the dip” will prove to be a good strategy, because elevated inflation implies the bar is higher for central banks to suppress volatility by providing policy support, if omicron does become a major threat. A combination of a hawkish Fed and virus uncertainty implies that stocks are likely to be volatile until at least the FOMC's December meeting. But hey, as former Dallas Fed head Richard Fisher warned previously, retail BTFD investors are "getting ahead of itself, because the market is dependent on Fed largesse... and we made it that way...but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put." Fisher went on... "The Fed has created this dependency and there's an entire generation of money-managers who weren't around in '74, '87, the end of the '90s, anbd even 2007-2009.. and have only seen a one-way street... of course they're nervous." "The question is - do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?" Blasphemy? Or perhaps just once, Jay Powell has got religion. And while we would have once upon a time said that hedge funds will have the last laugh, performance from the last decade has made it clear that when it comes to dumb money, there is nobody dumber than those getting paid millions to underperform the market year after year. Or maybe this time will be different: as the last chart shows, have dramatically outperformed hedge funds for much of 2021, the retail favorite stocks are suddenly in danger of wiping out most if not all of their YTD gains... Tyler Durden Thu, 12/02/2021 - 08:25.....»»

Category: personnelSource: nytDec 2nd, 2021

Here"s The One Thing Traders Want To Know After Biggest "Rate Shock" Selloff Since 2016

Here's The One Thing Traders Want To Know After Biggest "Rate Shock" Selloff Since 2016 Just how bad was yesterday's market rout? According to quants at Morgan Stanley, it was worse than every selloff in the past 5 years, including the March 2020 crash. As Morgan Stanley's QDS team notes, flows were aggressively for sale post 2pm when the FOMC Minutes hit, with signs of selling from both institutions and retail:  as shown in the chart below, S&P 500 futures Trade Pressure hit negative $13 billion, the most for sale since at least 2016... ... and QDS also estimates retail supply post 2pm was the 4th largest for that time frame in the last two years, with most of the retail selling in Tech, where daily supply was the biggest of the last year, perpetuating the painful rotations even as the stress spilled into the S&P 500. So while yesterday's selling was clearly panicked, furious and indiscriminate, the question on all traders' minds is simple: is the rout finally over? In response, Morgan Stanley's quants write that whether investors overreacted today or there is more to come will depend on whether yields continue to rise... and if rates do move higher, the drawdowns in equity indices could only be 40 to 50% done if history is a guide.  QDS calculates that in five prior "rate shocks" over the last five years, the S&P 500 typically moved down ~5%, while right now SPX is only 2% off the highs. That said, some corners of the market may be reaching selling exhaustion, notably baskets like MSXXCRWD (crowded longs) and MSXXEVSA (expensive Tech) which are currently down 80 to 85% as much as in prior rate shocks – and that is only accounting for the moves since yields started to rise since mid-December (when MSXXCRWD was already down 18% and MSXXEVSA was already down 24% from the highs), supporting a view that broader indices could have more downside than the underperformers of the last few months (alternatively, the trade here is to short the S&P or Nasdaq while going long the most beaten down stocks). A detailed breakdown of trough-to-peak increases in yields and corresponding drawdowns is shown below. While history suggests more pain at the index level, a similar picture emerges when looking at flows and positioning where there is a risk of further supply from both institutions and retail from here, according to Morgan Stanley's quants. For institutions, QDS estimates systematic strategies will have $15 to $20bn for sale over the next week on the back of yesterday’s gap lower – not a particularly significant amount, but this can build if realized vol rises further (see slide below).  And the continued weakness in crowded longs and long duration Tech (MSXXCRWD -6% YTD, MSXXUPT -11%, MSXXEVSA -12%) is a drag on HF P/L, where according to Goldman, hedge funds had already undergone some of the biggest selling (and degrossing) in the past decade ahead of the FOMC minutes. This matters because as QDS notes, the early year hits to P/L are having a big impact on sentiment and investors’ likelihood of adding or even holding risk, particularly coming off the poor alpha of 2021. This leaves Morgan Stanley concerned about overall equity exposures having to come down, particularly given that US L/S nets came into today in the 70th %ile per the MS PB Content Team even while grosses are at a relatively light 36th 5-year percentile. What about retail traders? Here, flows have been choppy: Tuesday was a strong buy day but retail was light both today and Monday.  This comes on the back of the lightest buying in December since March 2020 (and all of the buying was in ETFs while stocks have been for sale), plus negative P/L in many names retail is active in. And while retail flows can be volatile and could quickly turn positive again - after all JPM's Marko Kolanovic has often turned bullish expecting strong retail inflows -  so far retail flows are not following the normal strong January seasonality, which to MS suggests retail will be slower to buy this dip than they have been historically. One place where there was a surprisingly calm response was in vol: despite the sharp spot moves lower after the Minutes, implied volatility was relatively well behaved, and VIX rose just 2.82 points, relatively in-line with the normal 1.5x ratio of VIX moves vs SPX returns.  One reason for this is that market makers remain short downside vega, a byproduct of cliquet flows, but end user demand for volatility was relatively light so those short vega positions weren’t squeezed. According to QDS, for vol to gap higher the market will likely need sharper moves lower to force a scramble from investors to buy hedges. For now dealer long gamma balances which remain > $5bn / 1% help cushion against sharper moves, but as seen several times last year, that gamma can evaporate quickly in a down market. Putting it all together, Morgan Stanley's QDS says that much will depend on what yields do going forward but at this stage its base case is for modest further downside in SPX and NDX over the next ~2 weeks, and believes that rallies should be sold: "The Fed is steadfast in telegraphing a hawkish tone which is unlikely to change in the very near-term, while there is little in terms of positive catalysts for investors to latch on to" according to the MS quants, which also note that "earnings may provide some respite if growth proves strong enough to pair off against the Fed’s hawkishness (but isn’t too strong…), but again that is still several weeks away." That leaves technical and positioning to play a larger role near-term, and given the negative P/L to start the year, it may be easier for investors (both institutional and retail) to sell rather than buy.   Finally, the QDS desk notes that while near-term technicals are worrisome, returning to the impact of prior rate spikes on equities, the bank notes that all of those events were relatively brief, and also had relatively modest impact on stocks (with the exception of 4Q18, which also coincided with slowing growth expectations and was followed by rate cuts).  So unless growth quickly slows at the same time, QDS expects similar modest drawdowns as equities absorb this rate shock as well, and hence continues to favor put spreads in SPX or NDX to hedge downside over the next few weeks. On the other hand, a slowdown now appears increasingly likely since the US consumer is once again largely tapped out (most if not all excess savings for the middle class have been spent) and we expect this to materialize in economic data, forcing the Fed to comprehensively rethink its tightening bias. Tyler Durden Thu, 01/06/2022 - 15:21.....»»

Category: worldSource: nytJan 6th, 2022

Marko Kolanovic Expects A Massive Short Squeeze Into Year End

Marko Kolanovic Expects A Massive Short Squeeze Into Year End Over the past 4 years, there hasn't been a selloff JPMorgan's head quant (and more recently, head of market strategy) Marko Kolanovic, hasn't loved and the current one is no exception, and remarkably while even the otherwise uber-bullish Goldman Sachs (which has a 5,100 year end 2022 price target) recently pointed to the unprecedented collapse in market breadth in the market and the divergence between generals and all other stocks... .... as a source of major concern (see "Goldman Rings The Alarm On Collapsing Market Breadth") because as the Vampire Squid noted... the amount of concentration is directly proportional to the odds of a major market shock. As Goldman further explains, one measure of market breadth that has historically carried a forward-looking signal for equity market performance compares how far the S&P 500 index and its median constituent trade from their respective 52-week highs. When the index is much closer to its 52-week high than the median stock, this breadth measure plunges and signals that a small number of stocks are driving index returns. This measure of breadth registered more than one standard deviation above average as of April 2021 (highest level since 2014) before falling by 4.5% during the subsequent six months. None of this is a concern to Marko, however, who as always sees the glass as 150% full, and instead of joining Goldman on the cautious side, admitting that "such a divergence is unknown to us", instead flips the argument on its head, and argues that the furious selling in "non-generals" stocks is actually a reason to buy them, in other words the divergence between the handful of overvalued stocks: Over the past 4 weeks, small caps and value stocks entered a correction (sold off more than 10%). High beta stocks have sold off ~30%, entering a bear market. In fact, there is a paradox that on average US stocks are down 28% from highs (most highs were recorded in the first half of the year) and the median stock is down ~21%, while the market is up ~22% for the year (Russell 3000). Such a divergence is unknown to us... ... so far so good, he merely echoes what we - and Goldman - said about the massive collapse in market breadth, but it is what he says next that should make one's head spin, namely that this divergence ... indicates a historically unprecedented overshoot in selling smaller, more volatile, typically value and cyclical stocks in the last 4 weeks. Apparently it does not indicate that the handful of stocks that have not sold off yet remains massively overbought (due to popularity, overrepresented in ETFs, etc), but that all the stocks that have sold off should be going up. And that's why Marko is now in charge of a team meant to boost the public's confidence in markets in general, and JPM's commission-collecting skills in particular, because no matter how unprecedented the news, it's always bullish! Obviously, since his argument would be empty without at least some attempt at justification, Kolanovic does just that next, arguing that the narrative for the selloff "is related to Omicron and the Fed, while actual selling comes largely from de-risking and shorting from equity and macro hedge funds." Which brings us to the crux of the thesis, and in light of recent epic short squeezes duly profiled here, Kolanovic may actually have a point. According to the Croat, "for short-selling campaigns to succeed, there have to be positioning, liquidity and often systematic amplifiers of the selloff." But, as we have seen in recent days when sharp selloffs were followed by even bigger short squeezes... ... as we discussed most recently in "Goldman Prime: Tuesday Was The Biggest Short Squeeze In 6 Months", these conditions are not met according to Kolanovic, who concludes that "this market episode may end up in a short squeeze and cyclical rally into year-end and January." Which, incidentally, is a carbon copy of what Goldman's flow trader Scott Rubner said one week ago when he went all in predicting that A Face-Ripping Santa Rally is on deck.  It is therefore not surprising that Kolanovic lists some of the exact same technical and structural, i.e., positioning and flows, drivers behind his cheerful forecast. These are as follows: Positioning of systematic and discretionary investors has already declined significantly to the bottom third of the historical distribution (~30-35th percentile). CTAs are fully short small cap and many international indices, while S&P 500 positions are not under pressure given the ~25% one-year appreciation of the cap-weighted benchmark. Volatility targeting and risk parity funds started adding exposure, given muted realized volatility and correlations. This is a result of strong value-growth rotations reducing correlation and internally offsetting large stock moves. While he may have a point here, it's worth also noting that for the past year, Kolanovic has been pounding the table on value outperforming value when in reality value has gotten absolutely crushed by growth and tech. So maybe if he had foreseen some of the blow ups experienced by his clients heading into the past week, his forecast would carry some more weight... It's not just positioning but also seasonals, and the JPM quant predicts that there will "also be buying of equities into month- and quarter end – particularly for international, SMid, and cyclical benchmarks that are impacted the most." In short, Kolanovic argues, "this is not a setup similar to 4Q2018 from a fundamental or technical angle", which - as we reminded readers earlier - is when stocks tumbled 20% to force the Fed to halt its tightening plans, and which Morgan Stanley believes will happen again in the next "3-4 months", as such we now have a bearish Morgan Stanley calling for market fire and brimstone in the next 3-4 months in one corner, and JPMorgan (and Goldman Sachs) forecasting a face-ripping short squeeze into year end. And speaking of the aggressive shorting, Kolanovic says that it is "likely in a hope of declines in retail equity position and cryptocurrency holdings – while in fact both of these markets and retail investors have shown resilience in the past weeks." His last point on positioning is that "large short positions likely need to be closed before (the seasonally strong) January, which is likely to see a small-cap, value and cyclical rally. And given that market liquidity is dwindling, the impact of closing shorts may be bigger than the impact of opening them, when liquidity conditions were better." Technicals aside, Kolanovic is also bullish for several fundamental reasons, chief of which is his increasingly optimistic view on Omicron in particular and covid in general (which last week he said will soon be over as the "extremely mild" omicron soon becomes the dominant variant). Indeed, in his latest note he writes that "we retain our positive outlook for COVID. Despite the recent panic about the Omicron variant, global COVID deaths are at the lowest point of the year, and cases actually flat for the past 2 weeks. This is despite the addition of a large number of less severe Omicron cases. In particular, cases in the EU are declining, starting from the east (Russia, Ukraine, Bulgaria, Romania, Austria, Germany, etc.). Even in the UK – where some of the most sensational headlines come from – fatalities declined ~30% over the past month, and are down over 90% from the highs earlier this year." Finally, Kolanovic points to South Africa, where the new strain was first detected, and where deaths are also declining the last few weeks, and down 95% from January highs. And, as shown in the chart above, correlating and lagging COVID cases and deaths in South Africa indicates Omicron’s mortality rate is very low (e.g., an appropriately lagged deaths to cases ratio is ~25 times lower than in the previous peak), which to is consistent with the JPM quant's claim from two weeks ago that "Omicron is a bullish rather than bearish market development." Tyler Durden Fri, 12/17/2021 - 13:49.....»»

Category: blogSource: zerohedgeDec 17th, 2021

"REKT" - Stocks Storming Higher On Massive Hedge Fund Short Squeeze

"REKT" - Stocks Storming Higher On Massive Hedge Fund Short Squeeze When looking at the latest Goldman Prime Broker data, our collective jaws fell to the floor: while perhaps not a huge surprise, Goldman writes that the last two weeks saw that "largest 10-day net selling in US equities since Apr ’20 led by Macro Products as well as Info Tech/Consumer Disc stocks" with the bank elaborating that "North America and to a lesser extent EM regions were the most net sold, while DM Asia was net bought driven by short covers." But what was stunning was Goldman's drilldown into the flow, where GS Prime found that the selling of US stocks - which made up more than 85% of the global $ net selling (-1.4 SDs) - was driven almost entirely by short sales and to a lesser extent long sales (9 to 1). And the piece de resistance - "US equities have been net sold in 7 of the past 10 days. In cumulative $ terms, the net selling in US equities over the past 10 days is the largest since April ’20." Said otherwise, hedge funds were dumping stocks in the past 10 days - with most of the transactions outright shorting than long sales - with retail investors buying for the most part as we noted recently.  Some more remarkable details from the Goldman Prime report: Both Single Names and Macro Products (Index and ETF combined) were net sold and made up 54% and 46% of the $ net selling, respectively.   7 of 11 sectors were net sold led in $ terms by Info Tech, Consumer Disc, Industrials, and Utilities, while Staples, Materials, and Energy were the most net bought. Info Tech stocks were net sold for a fifth straight day (9 of the past 10), driven by short sales outpacing long buys 2 to 1. In cumulative $ terms, the selling in US Info Tech over the past 10 days is the largest in more than five years (-3.2 SDs). Info Tech’s weighting vs. SPX now stands at -4.1% U/W – the lowest level since Nov ’20 and near five-year lows (-4.5%). Reversing the recent trend, selling activity within the sector was driven by Tech Hardware and to a lesser extent Semis & Semi Equip, while Software saw modest net buying driven by long buys outpacing short sales 1.3 to 1. Most $ Net Sold Industries – Tech Hardware, Automobiles, Interactive Media & Svcs, Semis & Semi Equip, Hotels, Restaurants & Leisure, Multi-Utilities, Electrical Equip, Household Products Most $ Net Bought Industries – Food & Staples Retailing, Specialty Retail, Internet & Direct Marketing Retail, Software, Oil, Gas & Consumable Fuels, Chemicals, Metals & Mining, Real Estate Mgmt & Dev The simple take home message from this data, which we posted on twitter late on Monday, is that with everyone shorting aggressively into the recent dump, it was only a matter of time before we had a face-ripping short squeeze higher... Brace for faceripping short squeeze: pic.twitter.com/nq4656wRRW — zerohedge (@zerohedge) December 7, 2021 ... and sure enough, stocks are screaming higher, up 62 points overnight and a whopping 150 points higher from Friday's closing low, amid what appears to be yet another face ripping short squeeze, with treasury curves flattening again, with the front-end offered into Friday's expected "overheating" CPI print, while Omicron severity concerns re-rate lower (despite more Draconian “lockdown playbook” which will likely further fuel supply-chain kinks) while the long-end continues to “get the joke” on the implications of a hawkish Fed on “growth” forwards (and a $1.6B Fed purchase today in 22.5-30y sector at 1030am). Picking up on this short squeeze theme this morning, Nomura's x-asset strategist Charlie McElligott has just one word to describe what is going on: "REKT." Pickingup where we left off, McElligott explains that "equities markets, as the saying goes, are “trading short,” as evidenced by this vapor-trail +3.6% move from late Friday lows in Spooz to this morning’s highs (FWIW, 4650 strike houses ~$2.1B of $Gamma)—which is an incredible understatement…while at the same time, totally rational, when considering the following:" The latest futures positioning data showed that the Asset Manager community was a incredible source of supply over the latest weekly reporting period, selling -$29.3B of US Equities via outlier 1w exposure reduction in S&P and Russell futures (-$25B of SPX / 1%ile 1w change; -$5B of Russell / 0.4%ile 1w change) Goldman PB data showing that the past two weeks have been the largest 10 days of HF selling in US Equities in 20 months, slashing nets via “long” selling and grossing-up of “shorts” US Eq Index / ETF Options $Delta has been absolutely gutted, with SPX / SPY (consolidated) alone from a 100%ile of ~+$660B  on Nov 9th to yesterday’s -$55B, which is just 18.3%ile net $Delta since 2013 CTA Trend model into yesterday estimates an astounding -$94.5B of net exposure reduction across Global Equities futures over the past 2 weeks, which coincided with signals flipping “long to short” of various strength across Russell, Eurostoxx, Nikkei, DAX, FTSE100, CAC40, Hang Seng, Hang Seng CH, ASX, KOSPI and Bovespa; the aggregate net $ exposure in Global Eq futs for CTA Trend is now just 18.4%ile since 2011 Vol Control model estimates -$63.8B of selling in US Equities over the past 2w, with the current $ exposure just 40.9%ile (Equities allocation was over 75%ile 2w ago) following the “crash up” in realized volatility (SPX 1m rVol from 6.0 to 16.0), dictating mechanical de-allocation In addition to the purely flow reversal of recent near-record shorting, there is also a psychological element to the current meltup, which is where the point McElligott always discuss on “vol spikes” clearly “kicks-in", because the post-GFC conditioning kicks-in via: “short vol” behavior looking to harvest “extreme / rich” implieds; and these dynamics further incentivizes monetization of downside hedges at the same time, which are now bleeding and decaying. What do these two vol dynamics above create? The well-known buying panic via a large delta to buy as Vol resets lower (which too in standard lagging-fashion will contribute to ‘target vol / risk control’ re-allocation in Equities in weeks / months ahead), and away we go…. But wait, there's more: as Charlie also notes, the “pain” isn’t on the overall Equities exposure level now, as index explodes higher after so much de-risking / shorting because "the most acute source of performance beat-down within the Equities space over the past month has been via thematic / factor / sector long- and short- “reversal” behavior, where the ongoing dynamic of crowded expensive / unprofitable “Secular Growth Longs” (i.e. “Value Shorts”) getting absolutely vomited relative to huge outperformance in “Quality” and “Low Risk” now actually pivoted to a new & juxtaposed dynamic yesterday, where “Value Longs” (i.e. “Growth Shorts”) added to pain by EXPLOSIVELY rallying as well." What does that mean in practical terms? Think the collapse in momentum stocks as observed by the plunge in the 50 most popular retail stocks (most of which are momentum names)... ... or, as CME puts it, a shock -3.3% / -3 z-score 1d move in long-term “Momentum Factor,” as not only did “Momentum Longs” continue to NOT perform (dead “flat” on the day), but most importantly and as per the prior observation, “Momentum Shorts” RIPPED higher (+3.4%). Indeed, as shown in the chart below, the “Momentum Factor” is now -7.3% in the past 5d (-3.2 z-score move), the largest one week drawdown for the strategy since the week following the US Election, which then too saw chronically underowned “Cyclical Value” explode higher relative to legacy crowded-positioning in “Secular Growth” To a lesser extent, he same effective phenomenon is displayed by the +18.3% return since late Oct / start Nov in “Cyclical Value” vs “HF Crowding,” the largest 1m+ move in the relationship since the performance disaster that was the Jan ‘21-Mar ’21 “meme stock” and “reflation” disaster for HFs, and which clearly evidences how much muscle-memory and survivorship bias PMs continue to hold in “Growth” after a multi-decade bond bull market, while at the same time, how much skepticism that investors continue to express with “Value.” But perhaps the most important message here from the Nomura quant is that, again, at the core of this shocking blast of impulse “reversal” is the assumption that the Fed / the market / the economy cannot withstand an attempt at “policy tightening”, just like “Taper Tantrum” in Summer 2013; just like the “First Hike since the GFC Growth Scare” in late 2015; and just like the “QT Autopilot” / “Long way from Neutral” Tantrum in late 2018. So once-again, the Fed policy-shift “trial balloons” - this time through pivoting to “inflation hawks”- has created the macro shock catalyst a tantrum although not in bonds but rather in stocks (as noted last week). As to whether markets can see it through to any real extent without significant collateral damage is another matter entirely... With all that in mind, before everyone leans in to a resumption of the meltup trade, McElligott notes that there are still tangible risks ahead in coming weeks: Tactically: Op-Ex and Fed next week is always a combustible match-up, while CTA deleveraging “sell triggers” will remain “proximate enough” to spot after this imminent covering squeeze tuckers-out and Despite implied Vols resetting lower here, Skew stays completely “jacked up” and stress-y, while as we see time-and-time again tends to self-fulfill exhibited in powerful blasts of “broken vol market” supply / demand dynamics Strategically: As these US inflation prints are not expected to peak until 1Q21, it is highly probable that “Fed Put” strike is now much lower, because the bar the respond to market “financial conditions” mini-stresses is too high with inflation remaining at the forefront of political conversation—especially with the potentials that global authorities continue to respond to COVID seasonals with lockdown measures that will only exacerbate and extend said inflation pressures from the supply-side—this will mean that if the data further accelerates and crystalizes their “hawkishness” into MORE TIGHTENING REQUIRED, they will likely be powerless to intervene with the usual “market jawboning” to ease potential stress-points through the usual “dovish guidance” One final point: with hedge fund cumulative alpha in 2021 now absolutely catastrophic... ... and with just days left in 2021 as fund managers scramble to catch up to bogeys, while the market remains dreadfully illiquid... ... expect many more fast and furious moves, in both directions, over the year's last trading days. Tyler Durden Tue, 12/07/2021 - 09:04.....»»

Category: smallbizSource: nytDec 7th, 2021

Hedge Funds Are Liquidating At A Furious Pace.... And Retail Investors Are Buying It All

Hedge Funds Are Liquidating At A Furious Pace.... And Retail Investors Are Buying It All Over the weekend, and then again on Monday we reported that It had been a catastrophic week for hedge funds: heading into Black Red Friday, losses were staggering with Goldman Prime reporting that many hedge funds were caught off-guard by news of the Omicron variant as they had bought Reopen stocks and sold Stay-at Home names in the past week. As a result, in the week ending Nov 25, GS Equity Fundamental L/S Performance Estimate fell -1.57% between 11/19 and 11/25, driven by alpha of -1.12% which was "the worst alpha drawdown in nearly six months" and beta of -0.45% (from market exposure and market sensitivity combined). It only got worse on Friday and then again Monday, when Moderna - the 3rd most popular short in the hedge fund universe with some $4.5BN of the stock held short by the 2 and 20 crowd... ... exploded higher, resulting in massive double-digits losses for funds who were aggressively short the name... and just in general as the following P&L charts from Goldman Prime show. So having been hammered one too many times in just a few days, perhaps the "smart money" finally learned its lesson, and as the S&P 500 suffered its biggest two-day rout since October 2020, hedge funds went risk off big time, because according to the latest update from Goldman Prime, net leverage fell to a one-year low this week. A similar analysts from BofA also confirmed the deleveraging trend of deleveraging - the firm’s hedge-fund clients dumped more than $2 billion of stocks last week, exiting the market at the fastest pace since April. While it doesn't take a rocket surgeon to figure out why hedge funds were rapidly derisking, among the reasons for the mass exodus were both tax-loss harvesting ahead of the end of the year, as well as locking in profits that despite the recent turmoil remain more than 20% for 2021. But the most proximal catalyst remains the sharp change in tone from the Fed where Powell now appears hell bent to consummate the worst policy mistake since Jean-Claude Trichet's ECB hiked right into a recession: “We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent,”  Powell told lawmakers Wednesday after decommissioning the term transitory to describe higher prices a day earlier. This has led to a rush to reprice assets with the prospect of higher interest rates sooner than investors had been anticipating. Confirming our recent observations, Dennis DeBusschere, founder of 22V Research, told Bloomberg that “many have mentioned hedge fund pain leading to weird internal moves” among speculative tech stocks. “This latest negative omicron news leads to just closing the books up and moving on.” Yet while hedge funds puked stocks, aggressively deleveraging into Wednesday's rout, retail investors did just the opposite and bought what HFs had to sell like there is no tomorrow: as we noted earlier, retail stock purchases rose to a new record on Tuesday of $2.2 billion, after reaching $2.1 billion during Friday’s rout, according to Vanda Research. The firm flagged big retail buying in cyclical stocks like airlines and energy on Friday, versus Tuesday’s tech-heavy flows, and noted that institutional investors did the opposite, selling cyclicals on Friday and then tech on Tuesday. In other words, retail investors were busy bidding up everything hedge funds had to sell. Professional managers are often quicker to sell because of pressure to deliver returns, said Mark Freeman, CIO at Socorro Asset Management LP. After their concentrated bets on expensive technology shares backfired last week, hedge funds now face a fast-closing window to bolster a year of spotty performance. That aversion to risk probably underlined the latest rout in unprofitable tech shares, a group that usually sells off when long-end Treasury  yields spike. On Wednesday, however, 10-year yields slipped and a Goldman basket of extremely expensive software stocks plunged 7.1%. Yet while Vanda sees strong retail demand persisting, and limiting the downside to equities in December, Nomura advises caution when buying this dip. As Bloomberg reports, strategists Chetan Seth and Amit Phillips wrote in a note that investors need to carefully assess if “buy the dip” will prove to be a good strategy, because elevated inflation implies the bar is higher for central banks to suppress volatility by providing policy support, if omicron does become a major threat. A combination of a hawkish Fed and virus uncertainty implies that stocks are likely to be volatile until at least the FOMC's December meeting. But hey, as former Dallas Fed head Richard Fisher warned previously, retail BTFD investors are "getting ahead of itself, because the market is dependent on Fed largesse... and we made it that way...but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put." Fisher went on... "The Fed has created this dependency and there's an entire generation of money-managers who weren't around in '74, '87, the end of the '90s, anbd even 2007-2009.. and have only seen a one-way street... of course they're nervous." "The question is - do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?" Blasphemy? Or perhaps just once, Jay Powell has got religion. And while we would have once upon a time said that hedge funds will have the last laugh, performance from the last decade has made it clear that when it comes to dumb money, there is nobody dumber than those getting paid millions to underperform the market year after year. Or maybe this time will be different: as the last chart shows, have dramatically outperformed hedge funds for much of 2021, the retail favorite stocks are suddenly in danger of wiping out most if not all of their YTD gains... Tyler Durden Thu, 12/02/2021 - 08:25.....»»

Category: personnelSource: nytDec 2nd, 2021

CDOs: Complex securities backed by loans and other fixed-income assets

Collateralized debt obligations are structured-credit securities that derive their value from pools of loans and other income-generating assets. CDOs played a large role in the global financial crisis.Jose Luis Pelaez Inc/Getty A collateralized debt obligation (CDO) is a structured credit product that pools assets and packages them for sale to institutional investors. The assets that back these securities serve as collateral that give CDOs their value. Research found that CDOs were at the heart of the 2007-2008 financial crisis. Visit Insider's Investing Reference library for more stories. A collateralized debt obligation (CDO) is a type of security that derives its value from underlying assets. These assets could include commercial or residential mortgages, bonds, auto loans, student loans, and other types of debt. The assets are pooled and packaged into a product that can be sold to investors as an income-producing asset. The promised repayment of the underlying debt serves as collateral.How do CDOs work?Investment banks, retail banks, commercial banks, and other financial institutions create CDOs to sell in the secondary market. As these are extremely complex instruments, it takes sophisticated computer modeling and a team of quantitative analysts to package the debt and value the bundles of loans that make up a CDO. Then it takes a number of professionals to get the security to market. The CDO manager selects the debt to serve as collateral, which could be anything from mortgages, student loans and auto loans to credit card or corporate debt. Once the CDO manager selects the debt to be pooled, the investment banks can get to work structuring the security. Rating agencies, like Standard & Poors and Moody's, assign credit ratings to the CDO. Finally, the CDO is sold to institutional investors such as pension funds, insurance companies, investment managers, and hedge funds. These investors often buy CDOs in the hope that they'll offer higher returns than their fixed-income portfolios of similar maturity. CDOs aren't available to retail investors and are typically sold to institutional investors in lots valued in the millions of dollars.Note: CDOs aren't available to retail investors and are typically sold to institutional investors in lots valued in the millions of dollars.How CDOs are StructuredThe market for CDOs exists because these securities guarantee cash flows to the owner. However, these cash flows are dependent on the cash flows from the original borrower. The investor receives interest at the stated coupon rate as well as the principal when the CDO reaches maturity. Most CDOs mature at ten years. CDOs are divided into tranches, each of which reflects a different level of risk. Senior tranches are the least risky, with investment-grade credit ratings and a lower chance of default. If the loan should default, the holders of the senior tranche are first in line to be paid from the underlying collateral. Payment continues according to the tranches' credit ratings, with the lowest-rated tranche the last to be paid.The mezzanine tranche comes between the senior and subordinated debt. Mezzanine tranches are rated from B to BBB. In the case of default, mezzanine is paid before the subordinated (junior) tranches. As with any fixed-income security, the safest tranche will bear the lowest coupon rate, while the junior debt will have a higher coupon rate since it carries the greatest risk of default.Note: CDOs are divided into tranches, each of which reflects its level of risk. Senior tranches are the least risky.Were CDOs responsible for the global financial crisis? The first collateralized debt obligations were created by Drexel Burnham Lambert during the 1980s, when Wall Street was booming. The bank was well known for both its junk bond business and employed Michael Milken, who played a significant role in developing the junk bond market and later was jailed for violating securities laws. Interest in CDOs waned in the 1990s but picked up significantly in the early 2000s. CDO sales went from $30 billion in 2003 to $225 billion in 2006. The US was experiencing a boom in the housing market, and financial institutions were originating mortgage-backed CDOs at a fast pace. Homebuyers were encouraged by low interest rates, easy credit, and little regulation. In 2003-2004, banks turned to subprime mortgages as a new source of collateral.In the subprime market, banks offered mortgages to borrowers who never would have qualified under earlier standards. The underwriting process became so lax that in many cases, complete documentation of income wasn't even required. The adjustable-rate mortgage (ARM) was even more dangerous for subprime borrowers. They offered very low interest rates for the first few years of the mortgage, which could then be increased drastically a few years down the line. CDOs issued prior to the global financial crisis consisted mainly of subprime mortgage-backed securities, and those backed by other CDOs were also common. In 2006, nearly 70% new CDO collateral consisted of subprime mortgages, while 15% were collateralized with other CDOs. By 2006, investment banks were turning to short-term collateralized borrowing to support the CDO business. On average, they were rolling over 25% of their balance sheets every night. When the housing bubble burst, uncertainty around asset pricing led lenders to cut off the nightly borrowing, leaving the banks exposed to falling asset prices with little capital. Trading in CDOs came to a halt, and it was only with the intervention of the Federal Reserve buying CDOs that restored the market.As Dr. Robert Johnson, professor of finance at the Creighton University's Heider School of Business, explains: "CDOs are extremely difficult to analyze and value. Issuer models failed to take into account the correlation between mortgages bundled into CDOs. In an event such as an economic downturn, the mortgages will move in sync." Post-crisis analysis found that CDOs lay at the heart of the financial crisis. Issuers and investors ignored warnings about the ticking CDO timebomb and failed to understand and manage risk. Bank balance sheets were often not transparent, and institutions throughout the industry were deeply interconnected. Trillions of dollars in risky mortgage-backed securities were entrenched throughout the financial system.Everything came to a head in March of 2008, when Bear Stearns found itself almost out of cash. Facing bankruptcy, the firm sold itself to JPMorgan. Lehman Brothers was next to fall. It was only government intervention that saved the financial system and economy from collapse. A government  bailout program benefited some institutions that were considered "too big to fail."Note: Analysis after the global financial crisis found that Issuers and investors ignored warnings about CDOs and failed to understand and manage risk.Pros and cons of CDOsLike all assets, CDOs offer advantages and disadvantages. Johnson cites diversification as one advantage. "CDOs are created by bundling debt and spreading it out over many, many mortgages. Thus the investor is exposed to a range of risk levels," he says.Using CDOs, commercial and retail banks can reduce risk on their balance sheets. They can also exchange illiquid assets for CDOs to gain liquidity. Banks can use the additional liquidity to expand lending and generate revenue.CDOs have two principal disadvantages. The first is their complexity, which makes them extremely challenging to analyze and value. CDOs are also vulnerable to repayment risk, as the original borrower can choose to repay the principal, thus depriving the investor of a cash flow stream that would typically last until maturity,Are CDOs popular today?Following the financial crisis, CDOs underwent heavy scrutiny. The result was the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The law resulted in widespread regulatory reforms aimed at ensuring the country would never experience another crisis like 2007-2008. Among other measures, the Act was designed to protect investors, increase disclosures, require risk retention, and impose capital requirements. It required originators to retain a specified percentage of a CDO issue, in order to have "skin in the game." Investors in asset-backed securities are now required to hold more capital than if they were investing in other asset classes. Following enactment of Dodd Frank, the market has seen a steady increase in CDO issuance since 2011.Attempts were made to weaken the Act in 2017, and in 2018, President Donald Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act. This new law exempted many financial institutions from Dodd-Frank regulations.Note: The Dodd-Frank Act was designed to protect investors, increase disclosures, require risk retention, and impose capital requirements.The financial takeawayCollateralized debt obligations serve several purposes. They allow financial institutions to move debt off their balance sheets to gain liquidity. Investors value the cash flow from coupon payments, and hope the return on CDOs will exceed the return of standard fixed-income portfolios.Investment  in CDOs is limited to institutional investors —insurance companies, pension funds, hedge funds and the like. However, for the retail investor there are mutual funds and exchange-traded funds that include CDOs in their portfolios.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 23rd, 2021

Shocked Goldman Trader Admits "I Could Never Imagine Typing These Large Numbers"

Shocked Goldman Trader Admits "I Could Never Imagine Typing These Large Numbers" Three weeks ago, when stocks were holding on to dear life - and key support levels - amid a wave of bearish sentiment which threatened to drag risk below its July lows, Goldman took the other side of the trade and said it expected a huge market meltup in the coming weeks, a call which it doubled down on one week later. In retrospect, the vampire squid was absolutely correct, with the S&P soaring by 400 points in the past month... ... in the process demolishing the wall of worry, even if the meltup was widely missed by professional speculators - many of them crushed by the turmoil in bond markets - who according to Bloomberg, were going risk-off in stocks, cutting leverage at the fastest pace in months as many bearish bets backfired. To be sure, the past months has been one for the history books; just consider these statistics: The S&P 500 ended October at 32.5 times profits, according to Leuthold Group that uses a five-year normalized earnings estimate; such a multiple was seen only once before this year - during the dot-com era. And yet, the S&P 500 is already 7% above the highest year-end target in a Bloomberg survey of Wall Street strategists that was conducted in January. Stocks rose for a fifth week for their longest rally in 14 months. After taking off amid robust third-quarter earnings, equities got a further boost from a string of dovish pivots from central banks. the Nasdaq 100 just scored two perfect weeks in a row, something that has happened only once before - in 2017. That year also marked the last time when the gauge posted gains in all but two sessions over an 18-day stretch. On that count, the S&P 500 just notched its best run since 1990.  the Nasdaq 100 is up in 16 of the past 18 days - an extremely rare advance, and missing out is costly. And yet, similar runs have come in dismal years for equities - 2007 and 1999, specifically - suggesting to some that a crash may be dead ahead. And yet, it is this temptation to overthink a market by Wall Street veterans who have never seen a meltup such as this one, that has held kept Wall Street pros on the sidelines and is enabling a continued meltup in stocks. “While I turned a bit more cautious at the start of the week, the trend remains your friend,” said Chris Weston, head of research at Pepperstone Financial Pty. “It becomes more of a FOMO trap into year-end.” “Global central bankers recommit to the bubble,” Senyek said. “There’s probably a good bit of performance chasing going on as well. We see more upside from now to year-end.” “Is it time to pull the rip cord or is this what the market is trying to do in order to suck in every last dollar out?” said Alon Rosin, Oppenheimer & Co.’s head of institutional equity derivatives. These are the “things that make you go ‘hmmmm,’ but in the meantime, there is just too much speculation across asset classes that is working and FOMO is fully on here into the year-end chase.” And yet, while institutional investors have mostly sat the recent rally out as Bloomberg describes in "As Stock Markets Set News Records, Hedge-Fund Managers Aren't Buying the Frenzy", the same can not be said for retail investors. Oppenheimer's Alon Rosin,  had the first-hand experience with the retail euphoria. His older sister, who has never traded a stock, just asked about how to buy Tesla shares online. And that made him wonder how far this bull market can go. Today, courtesy of Goldman, we may have the answer, because the same Goldman flow trader - Scott Rubner - who said in mid-October that the meltup is just starting, has a stunning update for what is in stock. And it appears that at this point, going simply on technicals and flows, a 5,000 target on the S&P is not unreasonable. * * * Writing that "the number #1 question to hit my IB this week: Why did retail traders return into the US stonx market like its 1999 this week when stimulus checks have run out?  And “how high (the S&P) actually go before year-end”?", Rubner's answer is - in a word or two - much, much higher. Noting that US Households now own 38% of the $75 Trillion US corporate equity market... .... or 12x the size of the market cap owned by hedge funds... ... and after becoming the largest owner of the stock market, retail is now also the largest trader of stocks as "everyone in the now in the pool" in what may be the biggest distribution phase in human history. What does this mean in quantitative terms? Here is the stunning explanation: I have roughly $15B of non-fundamental US equity demand every day of November and I might be understating the money flows, not including YOLO. In the last two weeks, option trading in the USA has never been greater! After following the retail trading community for the last 18 years, I could never imagine typing these large numbers. Here is the punchline: single stock option notional (140%) now exceeds single stock shares notional, 72% of options traded have an expiry of two-weeks or less (think 2-3-4 days), and activity on the message boards is as high as it has been all year. Here is a breakdown from Rubner of daily single stock option notional traded in the last two-weeks "as we enter the Metaverse" Mon 25-Oct $657bn – TSLA day = +12.66%. This was the retail yolo inflection. Tue 26-Oct $680bn - This is largest single stock option notional traded on a Tuesday. Wed 27-Oct $694bn - This is largest single stock option notional traded on a Wednesday. Thu 28-Oct $711bn Fri 29-Oct $894bn - This is largest single stock option notional traded on a Friday. Mon 01-Nov $664bn - This is largest single stock option notional traded on a Monday. Tue 02-Nov $582bn Wed 03-Nov $655bn – In terms of # of contracts, Wednesday saw the 7th largest number of calls (31.60M) traded in history, going back to 1992. This is where things became broad based. Thur 04-Nov $904bn - This is largest single stock option notional traded of all time. Yesterday saw the 3rd largest number of calls (32.78M)  traded (exceeding January 28/29th). This was not even an expiry today. I expect volumes massive today. What was special about Thursday, a non-expiry day? Nothing. There will be massive volume going through at the close today. A more detailed breakdown of the total single stock option volume on Thursday: (Retail has pivoted into calls on the biggest stocks, which drive the index higher). $234bln TSLA $231bln AMZN $ 71bln NVDA $ 54bln GOOGL $ 25bln AAPL $ 20bln AMD $ 20bln FB $ 16bln GOOG $ 12bln MSFT $ 12bln MRNA $209bln All other underlyings ... or a grand total of $904BN, just shy of $1 trillion in notional option volume! So what comes next? According to Rubner, when he looked at GS Tactical Flow of Funds from November 2020, "it looks like retail activity spiked aggressively into Thanksgiving holidays, “What trades have you made during Thanksgiving Dinner” convo."  In short, the 400 points meltup over the past month is just the beginning; what comes next will blow everyone away (at least until Gartman turns bullish). But wait there's more, because in addition to this epic retail inflow frenzy, November and December have long been the two best months for stocks... ... and as Rubner notes below, we are facing an absolute waterflow of new inflows into year end. For the reasons listed below reveal, the Goldman flow trader is looking for an unloved FOMO led rally From November 1st to “Thanksgiving”, which will add to the already stunning statistics of 2021: S&P has recorded 58th ATH last night which is already the 4 most ever ATH’s recorded in a single full year (77x in 1995, 62x in 1964, and 62x in 2017), that 1 new ATH for every 3.58x trading days this year. So without further ado, here is why Goldman expects nothing but levitating until the end of the month: 1. Corporate Buybacks – November 1st, Monday, re-opens the buyback window and November plus December opens the best two-month period of the year for buyback executions or $~4B per day to close out 2021. Best corporate authorizations on record. a. 11/1 is the GS official start to the buyback window (65% of corporates are in the open window). The GS buyback desk forecasts $887B worth of executions for 2021. This would be the second highest year on record (after 2018). b. There are 42.5 trading days in November and December including major vacation weeks and low liquidity. c. In Q4, the GS buyback desk estimates +$230B repurchases, this is broken down by +$70B in October during the blackout window using 10b5-1 plans and +$160B in November and December. d. The breakdown of executions per quarter is as follows: Q1 - $203B (actual), Q2 - $234B (actual), Q3 - $220B forecast, Q4 - $230B forecast.   e. The $160B of repurchases in the last two months of the year is ~$3.80B per day, every day. This is significantly front loaded into November (and should pace above >$4B). Buybacks by month... Generation Investor ("Gen I") – there is clear evidence that the WFH trader (look at SHIB for example) has returned back into the equity market and time to pay for X-mas gifts. There is a MASSIVE return (and pivot) of retail traders and weekly call options: f. US households own 38% of the $75 Trillion US corporate equity market. This is a 200bp increase since the start of the year. (was 36% on 1/1/21) g. US households increased their equity market cap by 200bps or $1.5 Trillion YTD. This increase is nearly the full size of the HF industry, 300bps. Community meets capital in 2021. h. Retail investors added +$5.6B worth of equity fund demand every day last week, making $28 Billion and accelerating. The single stock numbers are even more staggering. Retail has pivoted into mega-cap tech (TSLA, MSFT) and out of speculative #YOLO (GME, AMC). 3. New month = New inflows. November monthly inflows are massive and have overshoot historical estimates in each of the last 8 months. i. Over the last 30 years, +20bps of new money comes to the market every November, on $28 Trillion in assets, this is >$56 Billion of new $ ~3B per day. 4. 2021 Passively allocated – you give me money = I buy. You ask for money = I sell. Flows have been one-way all year and I expect this to continue. j. Global equities have logged $1.1 Trillion worth of inflows during the last 52 weeks. This is 4x larger than any 1-year period in history. k. I get asked a lot about this market structure dynamic. USA fund assets are now tilting passive with 52% AUM passive vs. 48% AUM active. l. Globally active funds (54% of AUM) still exceed passive funds (46%). The last 4 year have averaged a 150bp change into passive, so in roughly ~2 years, global active and passive should be 50% vs. 50%. 5.  Index Construction is key. Bad Breadth? Here is an ETF example. m) If I allocate $1 into the SPY ETF: This is what happens - 6.3 cents to MSFT, 6 cents to AAPL, 4.4 cents to GOOG/L, 4 cents to AMZN, 2 cents to TSLA, 2 cents to FB/MVRS, 25 cents every $1 “Equity Allocation” goes into these 6 stocks. n) If I allocate $1 into the QQQ ETF: This is what happens - 11 cents to AAPL, 11 cents to MSFT, 8 cents to GOOG/L, 8 cents to AMZN, 6 cents to TSLA, 4 cents to FB/MVRS, 48 cents every $1 “Spicy Growth Equity Allocation” goes into these 6 stocks. ATH's for both SPX and NDX last night. o). Both Mutual Funds and HF get more underweight as these big 6 charge higher. Here is a chart from Goldman's prime services team (the bank is working on the new "FAAMG" acronym, our advice of course is GAMMA) 6. Goldman is calling this “the last dance” data point – Flows follow performance in typical “boo-ya Jim CNBC fashion”. 2022 will be crazy hard. There is some ground needed to catch-up to benchmark performance in the last 2 months here.   p. There have been 15 times since 1928, that the S&P is up >20% or more through October. The median return for the rest of the year (last two months only) is +5.92%, with an 80% hit rate. 2021 would be the 16th time. q. This was the best start to the year since 2013 (taper tantrum time?), +23.16%. There is also some positive follow through in January/Q1. 7. Seasonals are the best of the year. “You are here” and hard to find a better hit rate. Seasonals are also very good during year 1 of the presidential cycle. q. We are entering the strongest month (and best two month period) of the year with a median return of 2.1% and positive hit rate of 71% going back to 1985. 8. There have been a lot of weird moves in micro world during Mutual Fund year-end. In addition, pension Fund selling is now behind us and month-end fears were another “wall-of-worry” removed. r. 801 Equity Mutual Funds report their fiscal year-end today representing +$925B in assets. 24% the number of funds or 18% of AUM. Year-end statements go out to "mom and pop". There have been some random micro moves this week. Selling pressure looked to accelerate in names that were down big on the year before mutual fund year-end. This could be seen in China ADRs for example. s. As of yday's close, our GS model estimates $24bn of US equities to SELL before month end. This ranks in the 64th %ile in absolute $ value over the past 3yrs (89th %ile since Jan 2000), from GS Sales and Trading colleague, Gillian Hood. 9. While the systematic non-fundamental demand impulse has faded, it is still net positive and adds to the daily buying every day t. GS systematic strats team models +$21B to buy over the next 1-week assuming a flat tape or $4.2B of non-fundamental demand per day. 10. #TINA. Happy Trails to Bond Inflows. Happy Trails Cash on the sidelines earning a negative real yield. "Great Rotation" return? u. GS Wedge (+FI + Cash - Equity) = $4 Trillion. Despite the record run into equity funds, the real story has been fixed income inflows. At what level in yields does this slow / stop / reverse? Great-rotation-y. So while it is clear that Goldman expects a historic meltup for at least the next few weeks, the answer what that means quantitatively comes from Goldman managing director Bernhard Rzymelka who notes that the emini has once again broken back inside the wedge as expected: "This opens the market for material upside if it can break above the wedge (currently 4720 but rising daily)." Bottom line: according to Rzymelka, The "late cycle" meltup has started: the chart below shows the inverted S&P on the right axis (orange, log) versus the implied volatility of a 2m 4700 call (blue, left). Vols have started to notably outperform spot and suggesting growing risk of an accelerating melt up higher.  Finally, looking at Monday's action, Rubner writes that "I anticipate a huge activity day on Monday as well from the retail trading community. This is interesting. Prior retail herding events have occurred late in the month, this time it is at the start of the month. What is the duration of activity this time around?  Stay tuned." Tyler Durden Mon, 11/08/2021 - 06:50.....»»

Category: blogSource: zerohedgeNov 8th, 2021

Futures Slide, Nasdaq Plunges As Yields Surge And Oil Tops $80

Futures Slide, Nasdaq Plunges As Yields Surge And Oil Tops $80 For much of 2021, a vocal contingent of market bulls had claimed that there is no way the broader market could sell off as long as the gigacap tech "general" refused to drop. Well, it looks like that day is finally upon us because this morning US equity futures are sliding again, continuing their Monday drop as yields from the US to Germany again, the 10Y TSY rising as high as 1.55%, driven to an extent by Fed tapering fears but mostly by the surge in oil which has pushed Brent above $80, the highest price since late 2018. The dollar gained amid the deteriorating global supply crunch from oil to semiconductors. The surge in oil sparked a new round of stagflation fears, sending Nasdaq futures down 240 points or 1.3% as the yield on the benchmark 10-year U.S. Treasury climbed sharply. S&P 500 and Dow Jones futures also retreated, with spoos sliding below 4,400 as to a session low of 4,390. Rising bond yields prompted a shift from growth to cyclical stocks in the United States, in a move that analysts expect could become more permanent after a prolonged period of supressed bond yields. The premarket selloff was led by semiconductor stocks which tracked similar falls for European peers, as a rising 10-year Treasury yield puts pressure on the tech sector. Applied Materials Inc. led a slump in chip stocks in New York premarket trading while Nvidia was down 2.6%, AMD -2.1%, Applied Materials -2.9%, Micron -1.6%. Meanwhile retail trader favorite meme stock Naked Brand Group, an underwear and swimwear retailer, rises again after having surged 40% in the past two trading sessions after Chairman Justin Davis-Rice said in a letter to shareholders that he believes the company has found a “disruptive” potential acquisition in the clean technology sector. Frequency Electronics also soared after being awarded a contract by the Office of Naval Research to develop an atomic clock. Chinese stocks listed in the U.S. were mixed and semiconductor stocks declined. Here are some of the other notable U.S. movers today: iPower (IPW US) shares rise as much as 61% in U.S. premarket trading after the online hydroponics equipment retailer posted 4Q and FY21 earnings Alibaba (BABA US) rises 2.5% in U.S. premarket trading after the company’s shares listed in Hong Kong rose, adding to the Hang Seng Tech Index’s gains Frequency Electronics (FEIM US) soars 20% in U.S. premarket trading after being awarded a contract by the Office of Naval Research to develop an atomic clock Concentrix (CNXC) jumped 5.9% in Monday after hours trading after setting its first dividend payment and buyback program since being spun off from from Synnex in December Brookdale Senior Living (BKD US) shares fell in extended trading on Monday after announcing a $200 million convertible bond offering Altimmune (ALT US) rose as much as 4.2% in Monday postmarket trading on plans to announce results for an early stage study of ALT-801 in overweight people on Tuesday Ziopharm Oncology (ZIOP US) fell in extended trading after company said it cut about 60 positions, or a more than 50% reduction in personnel, to extend its cash runway into 1H 2023 Montrose Environmental Group (MEG US) was down 2.8% Monday postmarket after offering shares via JPMorgan, BofA Securities, William Blair The main catalyst for the stock selloff was the continued drop in Treasurys which sent the 10-year Treasury rising as high as 1.55% while shorter-dated rates surged toward pre-pandemic levels. This in turn was driven by the relentless meltup in commodities: overnight Brent roared above $80 a barrel - on its way to Goldman's revised $90 price target - on louder signs that demand is running ahead of supply and depleting inventories as the world finds itself in an unprecedented energy crisis. The international crude benchmark extended a recent run of gains to hit the highest since October 2018, while West Texas Intermediate also climbed. Oil’s latest upswing has come with a flurry of bullish price predictions from banks and traders, forecasts for surging demand this winter, and speculation the industry isn’t investing enough to maintain supplies. The jump to $80 also is adding inflationary pressure to the global economy at a time when prices of energy commodities are soaring. European natural gas, carbon permits and power rose to fresh records Tuesday, with little sign of the rally slowing. As Bloomberg notes, traders have begun reassessing valuations amid multiplying global risks, while Fed officials have communicated increasingly hawkish signals in recent days as supply-chain bottlenecks threaten to keep inflation elevated. China’s growth slowdown which saw Goldman lower its q/q Q3 GDP forecast to a flat 0.0%, and a debt crisis in the nation’s property market.have also fueled the risk-off shift. "Central bankers have set out how they want to normalize monetary policy for some time,” Chris Iggo, chief investment officer for core investments at AXA Investment Managers, said in a note. “That process could start soon. The realization of this has the potential to provoke some volatility in rates and equities." Elsewhere, European stocks also declined with the Stoxx Europe 600 dragged down most by technology shares. Europe’s Stoxx Tech Index drops as much as 2.8% to a five-week low after falling 1.5% on Monday having previously touched its highest level since 2000 earlier in the month. Single-stock downgrades also weighed. Stocks which performed particularly well this year are among the biggest fallers, with chip equipment makers BE Semi -4.6% and ASML -4.4%, and chipmaker Nordic Semi down 4.2%. Among other laggards, Logitech drops as much as 8.5% after being downgraded to underweight at Morgan Stanley. Earlier in the session, Asian stocks fell for the first time in four days as declines in technology names overshadowed a rally in energy shares.  The MSCI Asia Pacific Index dropped as much as 0.7%, with a jump in U.S. Treasury yields weighing on richly-valued tech stocks. That’s even as the region’s oil and gas shares climbed amid signs of a global energy crunch. Chipmakers Taiwan Semiconductor Manufacturing and Samsung Electronics were the biggest drags on the Asian benchmark. “The climb in yields led to the selling of growth stocks that have been strong, with investors rotating into names that are sensitive to business cycles - not unlike what happened in U.S. equities,” said Shutaro Yasuda, an analyst at Tokai Tokyo Research Center.  Asian equities have been recovering after being whipsawed by concerns over any fallout from China Evergrande Group’s debt troubles. As worries over the distressed property developer abate, the pace of rise in Treasury yields and global inflation data are being closely watched for clues on the U.S. Federal Reserve’s policy stance. Australia’s equity benchmark was among the biggest losers in Asia Tuesday, dragged down by losses in mining and healthcare stocks. Still, broad-based gains in oil explorers and refiners helped mitigate the Asian market’s retreat. In South Korea, importers and distributors of liquefied petroleum gas and liquefied natural gas rallied as the price of natural gas jumped. The future of Evergrande is being forensically scrutinized by investors after the company last Friday did not meet a deadline to make an interest payment to offshore bond holders. Evergrande has 30 days to make the payment before it falls into default and Shenzen authorities are now investigating the company's wealth management unit. Without making reference to Evergrande, the People's Bank of China (PBOC) said Monday in a statement posted to its website that it would "safeguard the legitimate rights of housing consumers". Widening power shortages in China, meanwhile, halted production at a number of factories including suppliers to Apple Inc and Tesla Inc and are expected to hit the country's manufacturing sector and associated supply chains. Analysts cautioned the ongoing blackouts could affect the country's listed industrial stocks. "What we see in China with the developers and the blackouts is going to be a negative weight on the Asian markets," Tai Hui, JPMorgan Asset Management's Asian chief market strategist told Reuters. "Most people are trying to work out the potential contagion effect with Evergrande and how far and wide it could go. We keep monitoring the policy response and we have started to see some shift towards supporting homebuyers which is what we have been expecting." In rates, as noted above, the selloff in Treasuries gathered pace in Asia, early Europe session leaving yields cheaper by 3.5bp to 5.5bp across the curve with 20s and 30s extending above 2% and 10-year through 1.50%. Treasury 10-year yields traded around 1.53%, cheaper by 4.5bp on the day after topping at 1.55%, highest since mid-June; in front- and belly, 2- and 5-year yields remain near cheapest levels in at least 18 months; in 10-year sector, gilts lag by 3bp vs. Treasuries while German yields are narrowly richer. Gilts underperformed further, where long-end yields are cheaper by up to 7.5bp on the day. Treasury futures volumes over Asia, early European session were at more than twice usual levels, with most activity seen in 10-year note contract; eurodollar futures volumes were also well above recent average. With recent aggressive move higher in yields, threat of convexity hedging has exacerbated moves as rate hike premium continues to filter into the curve after last week’s FOMC. Auctions conclude Tuesday with 7-year note sale, while busy Fed speaker slate includes Fed Chair Powell. In FX, the Bloomberg dollar index reached the highest level in more than a month as rising energy costs drove up Treasury yields for a fourth session. The dollar gained against all its peers; Japan’s currency slid for a fifth day against the greenback before a speech Tuesday from Fed Chair Jerome Powell who will say inflation is elevated and is likely to remain so in coming months, according to prepared remarks. Treasury two-year yields rose to the highest since March 2020. “Dollar-yen saw the clearest expression of Treasury yield increases and we attributed this divergence to the surge in energy prices,” says Christopher Wong, senior foreign-exchange strategist at Malayan Banking in Singapore. U.S. natural gas futures soared to their highest since February 2014 on concern over tight inventories. Brent oil topped $80 a barrel amid signs demand is outrunning supply. The euro slipped to hit its lowest level since Aug. 20, nearing the year-to-date low of $1.1664. The Treasury yield curve bear steepened; euro curves followed suit, with the yield on U.K. 10-year notes soaring past 1% for the first time since March 2020 on the prospects for Bank of England policy tightening. In commodities, Crude futures extend Asia’s gains. WTI rises as much as 1.6% to highs of $76.67 before stalling. Brent holds above $80. Spot gold trades around last week’s lows near $1,740/oz. Base metals are mixed: LME aluminum outperforming, rising as much as 1.1%; nickel and copper are in the red. Looking at the day ahead, one of the main highlights will be the appearance of Fed Chair Powell, and Treasury Secretary Yellen at the Senate Banking Committee. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Schnabel, Panetta and Kazimir, along with the BoE’s Mann and the Fed’s Evans, Bowman and Bostic. US data highlights include the US Conference Board’s consumer confidence indicator for September and the FHFA house price index for July. Market Snapshot S&P 500 futures down 0.7% to 4,403.50 STOXX Europe 600 down 1.2% to 456.83 MXAP down 0.4% to 200.06 MXAPJ down 0.4% to 641.05 Nikkei down 0.2% to 30,183.96 Topix down 0.3% to 2,081.77 Hang Seng Index up 1.2% to 24,500.39 Shanghai Composite up 0.5% to 3,602.22 Sensex down 1.4% to 59,209.94 Australia S&P/ASX 200 down 1.5% to 7,275.55 Kospi down 1.1% to 3,097.92 Brent Futures up 0.8% to $80.15/bbl Gold spot down 0.4% to $1,742.61 U.S. Dollar Index up 0.20% to 93.57 German 10Y yield rose 2.7 bps to -0.196% Euro down 0.1% to $1.1681 Top Overnight News from Bloomberg Chinese authorities are striving to signal to traders that whatever happens to China Evergrande Group, its debt crisis won’t spiral out of control or derail the economy Brent oil roared above $80 a barrel, the latest milestone in a global energy crisis, on signs that demand is running ahead of supply and depleting inventories As the dust settles on Germany’s election, control over the finances of Europe’s largest economy could fall to a 42-year-old former tech entrepreneur who wants to lower taxes and tighten spending Wells Fargo agreed to pay $37 million in penalties and forfeiture to settle U.S. claims that it overcharged almost 800 commercial customers that used its foreign exchange services, the latest in a series of scandals at the bank A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mixed following on from a Wall Street lead where value outperformed growth and tech suffered as yields rose. ASX 200 (-1.5%) was the laggard with losses in healthcare, gold miners and tech frontrunning the declines which dragged the index beneath 7300. Nikkei 225 (-0.2%) was lacklustre and briefly approached 30k to the downside but then bounced off worse levels amid a softer currency, while the KOSPI (-1.1%) also declined following a suspected North Korean ballistic missile launch and with a recent South Korean court order to sell seized Mitsubishi Heavy assets as compensation for wartime forced labour, threatening a flare up of tensions between Japan and South Korea. Hang Seng (+1.2%) and Shanghai Comp. (+0.5%) were underpinned after the PBoC continued to inject liquidity ahead of the approaching National Day holidays and with Hong Kong led higher by strength in property names after the PBoC stated it will safeguard legitimate rights and interests of housing consumers which also provided Evergrande-related stocks further reprieve from their recent sell-off. Finally, 10yr JGBs retreated on spillover selling from T-notes after yields rose on the back of further Fed taper rhetoric and with prices not helped by the uninspiring 2yr and 5yr auctions stateside, while weaker results at the 40yr JGB auction also provided a headwind for prices. Top Asian News Top-Performing Global Luxury Stock Seen Cooling After 680% Gain China Power Price Hike Sought Amid Supply Crunch: Energy Update Macau Evacuates Airport Quarantine Hotel After Outbreak Iron Ore Dips Again as China Power Crisis Adds to Steel Curbs Bourses in Europe extended on the losses seen at the cash open and trade lower across the board (Euro Stoxx 50 -1.7%; Stoxx 600 -1.7%) as sentiment retreated from a mixed APAC handover as month-end looms alongside tier 1 data and a slew of central bank speakers. US equity futures have also succumbed to the mood in Europe alongside the surge in global yields – which takes its toll on the NQ (-1.5%) vs the ES (-0.8%), YM (-0.4%) and RTY (-0.3%). From a more technical standpoint, ESZ1 fell under its 50 DMA (4,431) and tested the 4,400 level to the downside, whilst NQZ1 briefly fell under 15k and the YMZ1 inches towards its 100 DMA (34,489). Back to Europe, the FTSE 100 (-0.4%) sees losses to a lesser extent vs its European peers as energy prices and yields keep the index oil giants and banks supported – with some of the top gainers including Shell (+2.8%), BP (+2.1%). Sectors in Europe are predominantly in the red, but Oil & Gas buck the trend. Sectors also portray more of a defensive bias, whilst the downside sees Tech, Real Estate, and Travel & Leisure at the foot of the bunch, with the former hit by the rise in yields, which sees the US 10yr further above 1.50%, the 20yr above 2.00% and the UK 10yr hitting 1.00% for the first time since March 2020. In terms of individual movers, Smiths Group (+3.8%) is at the top of the Stoxx 600 following encouraging earnings. ING (+0.3%) holds onto gains after sources noted SocGen's (-0.6%) interest in ING's retail banking arm. Finally, chip-maker ASM International (-3.5%) has succumbed to the broader tech weakness despite upping its guidance and announcing capacity expansion by early 2023. Top European News U.K. 10-Year Yield Rises Past 1% for First Time Since March 2020 Goldman’s Petershill Unit Valued at $5.5 Billion in U.K. IPO Go-Ahead Sinks as U.K. Takes Over Southeastern Rail Franchise Hedge Funds and Private Equity Are Targeting European Soccer In FX, It took a while for the index to breach resistance ahead of 93.500, but when US Treasuries resumed their bear-steepening run and the intensity of the moves in futures and cash picked up pace the break beyond the half round number was relatively quick and decisive. Indeed, the DXY duly surpassed its post-FOMC peak (93.526) and a prior recent high from August 19 (93.587) on the way to reaching 93.619 amidst almost all round Dollar gains, as 5, 10, 20 and 30 year yields all rallied through or further above psychological levels (such as 1%, 1.5% and 2% in the case of the latter two maturities). However, petro and a few other commodity currencies are displaying varying degrees of resilience in the face of general Greenback strength that is compounded by buy signals for September 30 rebalancing on spot month, quarter and half fy end. Ahead, trade data, consumer confidence, more regional Fed surveys, speakers and the 7 year auction. NZD/CHF/JPY/AUD - The Kiwi was already losing altitude above 0.7000 vs its US counterpart and 1.0400 against the Aussie on Monday, so the deeper retreat is hardly surprising to circa 0.6975 and 1.0415 awaiting some independent impetus that may come via NZ building consents tomorrow. Meanwhile, the Franc has recoiled towards 0.9300 in advance of comments from SNB’s Maechler and the Yen continues to suffer on the aforementioned rampant yield and steeper curve trajectory on top of a more pronounced 1+ sd portfolio hedge selling requirement vs the Buck, with Usd/Jpy meandering midway between 110.94-111.42 parameters irrespective of renewed risk aversion due to same bond rout dynamic. Back down under, Aud/Usd has faded from around 0.7311 to the low 0.7260 area, though holding up a bit better in wake of not quite as weak as forecast final retail sales overnight. CAD/EUR/GBP - All softer against their US rival, but the Loonie putting up a decent fight with ongoing help from WTI crude that has now topped Usd 76.50/brl, and Usd/Cad also has decent option expiry interest to keep an eye on given 1.2 bn rolling off at 1.2615 and an even heftier 3 bn at 1.2675 compared to current extremes spanning 1.2693-1.2652. Elsewhere, the Euro has lost its battle to stay afloat of multiple sub-1.1700 lows even though EGBs are tumbling alongside USTs and the same goes for Sterling in relation to the 1.3700 handle irrespective of the 10 year Gilt touching 1% for the first time since March 2020. SCANDI/EM - Brent’s advances on Usd 80 brl have been offset to an extent by soft Norwegian retail sales data, as the Nok pares more of its post-Norges Bank gains, while the Sek looks somewhat caught between stalls following a recovery in Swedish consumption, but big swing in trade balance from surplus to larger deficit. However, the Try is taking no delight from the costlier price of oil or remarks from Turkey’s Deputy Finance Minister contending that interest rates can move lower by reducing the current account and budget deficits, or conceding that Dollarisation is a problem and steps need to be taken to enhance confidence in the Lira. Conversely, the Cnh and Cny are still holding a firm line following another net injection of 2 week funds from the PBoC and the Governor saying that China will lengthen the period for the implementation of normal monetary policy, adding that it has conditions to keep a normal and upward yield curve, as it sees no need to purchase assets at present. In commodities, WTI and Brent futures have extended on the gains seen during APAC hours, which saw the Brent November contract topping USD 80/bbl, albeit the volume and open interest has migrated to the December contract – which topped out just before the USD 80/bbl mark. WTI November meanwhile advanced past the USD 76/bbl mark to a current peak at USD 76.67/bbl (vs low USD 75.21/bbl). Desks have been attributing the leg higher to tight supply – with the UK fuel situation further deteriorating amid a shortage of drivers coupled with panic buying. It's worth bearing in mind that the demand side of the equation has also seen supportive, with the US announcing the lifting of international travel curbs recently alongside the economic resilience to the Delta variant heading into the winter period. Traders would also be keeping an eye on the electricity situation in China, which in theory would provide tailwinds for diesel demand via generators, although this could be offset by a slowdown in economic activity due to power outages. There has also been growing noise for OPEC+ to hike output beyond the monthly plan of 400k BPD, with some African nations also struggling to ramp up production due to maintenance issues and lack of investments. Ministers recently noted that the plan would be maintained at next week's confab. As a reminder, the OPEC World Oil Outlook is set to be released at 13:30BST/08:30EDT, although the findings may be stale given the recent developments in crude dynamics. Major banks have also provided commentary on Brent following Goldman Sachs' bullish call recently, with Barclays upping its forecast for both benchmarks due to supply deficits, whilst Morgan Stanley maintained its forecast but suggested that the USD 85/bbl Brent scenario clearly exists. MS also noted that oil inventories continue to draw at high rates and suggest that the market is more undersupplied than generally perceived; the analysts see the market undersupplied into 2022 amid its expectation for further OPEC discipline. Nat gas also remains in focus, with prices +11% at one point, whilst Russia's Kremlin said Russia remains the safeguard of natural gas to Europe and Gazprom is ready to discuss new gas supply contracts with increased volumes to meet rising European demand. It's also worth being aware of the increasing likelihood of state intervention at these levels as nations attempt to save or at least cushion consumers and company margins. Elsewhere, precious metals are under pressure as the Buck remains buoyant, with spot gold still under USD 1,750/oz as it inches closer to the 11th August low of USD 1,722/oz. Spot silver remains within recent ranges above USD 22/oz. Overnight Chinese nickel and tin prices extended losses with traders citing subdued demand, whilst coking coal and coke futures leapt on tight supply. US Event Calendar 8:30am: Aug. Advance Goods Trade Balance, est. -$87.3b, prior -$86.4b, revised -$86.8b 8:30am: Aug. Retail Inventories MoM, est. 0.5%, prior 0.4%; Wholesale Inventories MoM, est. 0.8%, prior 0.6% 9am: July S&P CS Composite-20 YoY, est. 20.00%, prior 19.08% 9am: July S&P/CS 20 City MoM SA, est. 1.70%, prior 1.77% 9am: July FHFA House Price Index MoM, est. 1.5%, prior 1.6% 10am: Sept. Conf. Board Consumer Confidence, est. 115.0, prior 113.8 Expectations, prior 91.4 Present Situation, prior 147.3 10am: Sept. Richmond Fed Index, est. 10, prior 9 Central Bank Speakers 9am: Fed’s Evans Makes Welcome Remarks at Payments Conference 10am: Powell and Yellen Appear Before Senate Banking Panel 1:40pm: Fed’s Bowman Speaks at Community Bank Event 3pm: Fed’s Bostic Discusses the Economic Outlook 7pm: Fed’s Bullard Discusses U.S. Economy and Monetary Policy DB's Jim Reid concludes the overnight wrap What a difference a week makes. You hardly hear the word Evergrande now. We asked in a flash poll last week whether we would still be talking about it in a month or whether it would be a distant memory by then. Maybe we should have narrowed the time frame to a week! We’ve quickly moved on to rate hikes and rising bond yields as the topic de jour. A further rise in the Bloomberg Commodity Spot Index (+1.87%) to a fresh high for the decade helped reinforce the move. Indeed, sovereign bond yields moved higher once again yesterday amidst a sharp rise in inflation expectations, with those on 10yr Treasury yields rising +3.6bps to 1.487%, their highest level in over 3 months. Meanwhile the 2yr yield rose +0.8bps to 0.278%, its highest level since the pandemic began, which comes on the back of last week’s Fed meeting that prompted investors to price in an initial rate hike from the Fed by the end of 2022. The moves in Treasury yields were almost entirely driven by higher inflation breakevens, with 10yr breakevens up +3.7bps. That echoed similar moves in Europe, where the German 10yr breakeven (+4.7bps) hit a post-2013 high of 1.653%, and their Italian counterparts (+3.9bps) hit a post-2011 high. The biggest move was in the UK however, where the 10yr breakeven (+13.2bps) reached its highest level since 2008, which comes amidst a continued fuel shortage in the country, alongside another rise in UK natural gas futures, which were up +8.20% yesterday to £190/therm, exceeding the previous closing peak set a week earlier. We were waiting for the wind to blow in this country to get alternatives back on stream and boy did it blow yesterday but with no impact yet on gas prices. Lower real rates dampened the rise in yields across the continent, though yields on 10yr bunds (+0.5bps), OATs (+0.9bps), BTPs (+1.3bps) and gilts (+2.7bps) had all moved higher by the close of trade. Those spikes in commodity prices were evident more broadly yesterday, with energy prices in particular seeing a major increase. Brent crude oil prices were up +1.84% to $79.53/bbl, marking their highest closing level since late-2018, and this morning in trading they have now exceeded the $80/bbl mark with a further +0.94% increase. It was much the same story for WTI (+1.99%), which closed at $75.45/bbl, which was its own highest closing level since 2018 too. And those pressures in UK natural gas prices we mentioned above were seen across Europe more broadly, where futures were up +8.92%. With yields moving higher and inflationary pressures growing stronger, tech stocks struggled significantly yesterday, with the NASDAQ down -0.52%. The megacap tech FANG+ index fell -0.15% on the day, but was initially down as much as -1.7% in early trading. The NASDAQ underperformed the S&P 500, which was only down -0.28%, but that masked significant sectoral divergences, with interest-sensitive growth stocks struggling, just as cyclicals more broadly posted fresh gains. More specifically, energy (+3.43%), bank (+2.29%) and autos (+2.19%) led the S&P, while biotech (-1.65%) and software (-1.39%) shares were among the largest laggards. European equities were also pretty subdued, with the STOXX 600 down -0.19%, though the DAX was up +0.27% following the results of the German election, which removed the tail risk outcome of a more left-wing coalition featuring the SPD, the Greens and Die Linke. Staying on the political scene, we are now less than 72 hours away from a potential US government shutdown as it stands. As was expected, Republicans in the Senate blocked the House-passed measure to fund the government for another 2 months and raise the debt ceiling for 2 years. While Democrats have not put forward their alternative strategy if Republicans refuse to vote to lift the debt ceiling, their only option would be to attach it to the budget reconciliation plan that currently makes up much of the Biden economic agenda. In an effort to keep all party members on board, Speaker Pelosi moved the vote on the $550bn bipartisan infrastructure bill to Thursday in order to give all sides more time to finish the larger budget bill and pass both together. It is a going to be a very busy Thursday, since Congress will have to also pass the funding bill that day. Republicans and Democrats already agree on a funding bill to keep the government open that does not include the debt ceiling increase so it is just a matter of how exactly the debt ceiling provision goes through without a Republican Senate vote. Overnight in Asia, equity indices are seeing a mixed performance. On the one hand, most of the region including the Nikkei (-0.24%) and KOSPI (-0.80%) are trading lower as investors begin to price in tighter monetary policy from the Fed. However, the Hang Seng (+1.50%), Shanghai Composite (+0.53%) and CSI (0.38%) have all advanced after the People’s Bank of China said that they would ensure a “healthy property market”. Looking forward, US equity futures are pointing to little change, with those on the S&P 500 down just -0.05%, and 10yr Treasury yields have risen +1.9bps this morning to trade above 1.50% again. Back to the German election, where the aftermath yesterday saw various party leaders assess the results and stake their claims to participate in a new coalition. As a reminder, the SPD came in first place with 25.7%, but the CDU/CSU weren’t far behind on 24.1%, making it mathematically possible for either to form a government in a coalition with the Greens and the FDP. The SPD’s chancellor candidate, Finance Minister Olaf Scholz, appealed for the Greens and FDP to join him in forming a government, and told the media that he wanted to form a coalition before Christmas. Meanwhile Green co-leader Robert Habeck said that “Of course there is a certain priority for talks with the SPD and the FDP”, but said that this didn’t mean they wouldn’t speak with the CDU/CSU either. As the SPD were calling for an alliance, the tone sounded more negative from the CDU’s leadership, even though Armin Laschet said that he had not given up on the idea of forming a government. Notably, Laschet said that no party was able to draw a clear mandate from the result, including the SPD, and this echoed remarks from the CSU leader Markus Söder, who said that the conservatives had no mandate to form a government, though they could “make an offer out of a sense of responsibility for the country.” Meanwhile, attention will turn to the FDP and the Greens to see which way they’re leaning when it comes to forming a government. FDP leader Lindner said that he would hold preliminary talks with the Greens, after which they would be open to invitations from either the SPD or the CDU/CSU for further discussions. Back on the UK, there was an interesting speech from BoE Governor Bailey yesterday, where he echoed the line from the MPC minutes last week, saying that “all of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainable over the medium-term”. However, he also said that their view was that “the price pressures will be transient”, and that “monetary policy will not increase the supply of semi-conductor chips … nor will it produce more HGV drivers.” He then further added that tighter policy “could make things worse in this situation by putting more downward pressure on a weakening recovery of the economy”. So a bit of a mixed message of backing rate hike expectations but warning about its impact on growth. Over in the US we heard from a host of Fed speakers with Governor Brainard saying that while “employment is still a bit short of the mark” of “substantial further progress”, she expects that the labour market will recover enough to start tapering asset purchases soon. Separately on the inflation debate, Minneapolis Fed President Kashkari argued that this year’s pickup in US inflation has been a byproduct of the supply disruptions associated with Covid and that policy makers should not react to it just yet. He cited the need to get US employment back up as the Fed’s “highest priority”. New York Fed President Williams agreed with his colleague, saying that “this process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede.” And Chicago Fed President Evans is even worried about downside inflation risks, as he is " more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much.” Lastly, news came out yesterday that Boston Fed President Rosengren will retire this week due to health concerns. He was due to step down in June regardless as there is a mandatory retirement age of 65. Dallas Fed President Kaplan also announced his retirement yesterday, which will take effect October 8th. Both officials have drawn scrutiny in recent days stemming from their recent disclosure of trading activity over the last year, though the activity did not violate the Fed’s ethics code even as Fed Chair Powell announced an official review of those rules. The Boston Fed President will be a voting member on the FOMC next year, and the Dallas Fed President in 2023. Running through yesterday’s data, the preliminary reading for US durable goods orders in August showed growth of +1.8% (vs. +0.7% expected), and the previous month was also revised up to show growth of +0.5% (vs. -0.1% previously). Meanwhile core capital goods orders grew by +0.5% (vs. +0.4% expected), and the previous month’s growth was revised up two-tenths. Finally, the Dallas Fed’s manufacturing activity index for September came in at 4.6 (vs. 11.0 expected) – its lowest reading since July 2020. To the day ahead now, and one of the main highlights will be the appearance of Fed Chair Powell, and Treasury Secretary Yellen at the Senate Banking Committee. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Schnabel, Panetta and Kazimir, along with the BoE’s Mann and the Fed’s Evans, Bowman and Bostic. US data highlights include the US Conference Board’s consumer confidence indicator for September and the FHFA house price index for July. Tyler Durden Tue, 09/28/2021 - 07:52.....»»

Category: blogSource: zerohedgeSep 28th, 2021

Europe"s Spendthrifts Are Stuck In Irreversible Debt-Traps

Europe's Spendthrifts Are Stuck In Irreversible Debt-Traps Authored by Alasdair Macleod via GoldMoney.com, A Euro Catastrophe Could Collapse It This article looks at the situation in the euro system in the context of rising interest rates. Central to the problem is role of the ECB, which through monetary inflation embarked on a policy of transferring wealth from fiscally responsible member states to the spendthrift PIGS and France. The consequences of these policies are that the spendthrifts are now ensnared in irreversible debt traps. Even in a Keynesian context, the ECB’s monetary policy is no longer to stimulate the economy but to keep the spendthrifts afloat. The situation has deteriorated so that Eurozone commercial banks appear to have credit restricted in New York, evidenced by the reluctance of the US banks to enter into repo transactions with them, leading to the market failure in September 2019 when the Fed had to intervene. An examination of the numbers strongly suggests that even Eurozone banks, insurance companies and pension funds are no longer net buyers of Eurozone government debt. It could be because the terms are unattractive. But if that is the case it is an indictment of the ECB’s asset purchase programmes deliberately suppressing rates to the point where they are unattractive, even to normally compliant investors. Consequently, without any savings offsets, the ECB has gone full Rudolf Havenstein, and is following similar inflationary policies to those that impoverished Germany’s middle classes and starved its labourers and the elderly in 1920-1923. That the German people are tolerating such an obvious destruction of their currency for the third time in a hundred years is simply astounding. Institutionalised Madoff Schemes to pilfer from people without their knowledge always end in disaster for the perpetrators. Central banks using their currency seigniorage are no exception. But instead of covering it up like an institutionalised Madoff they use questionable science to justify their openly fraudulent behaviour. The paradox of thrift is such an example, where penalising savers by suppressing interest rates supposedly for the wider economic benefit conveniently ignores the theft involved. If you can change the way people perceive reality, you can get away with an awful lot. The mass discovery by the people of the fraud perpetrated on the people by those supposedly representing the people is always the reason behind a cycle of crises and wars. It can take a long period of suffering before an otherwise supine population refuses to continue submitting unquestionably to authority. But the longer the condition exists, the more oppressive the methods that the state uses to defer the inevitable crisis become. Until something finally gives. In the case of the euro, we have seen the system give savers no interest since 2012, while the quantity of money and credit in circulation has debased it by 63% (measured by M3 euro money supply). Furthermore, prices can be rigged to create an illusion of price stability. The US Fed increased its buying of inflation-linked Treasury bonds (TIPS) since March 2020 at a faster pace than they were issued by the US Treasury, artificially pushing TIPS prices up and creating an illusion that the market is unconcerned about price inflation. But that is not all. Government statisticians are not above fiddling the figures or presenting figures out of context. We believe the CPI inflation figures are a true reflection of the cost of living, despite the changes over time in the way prices are input. We believe that GDP is economic growth — a questionable concept — and not growth in the quantity of money. We even believe that monetary inflation has nothing to do with prices. Statistics are designed to deceive. As Lord Canning said 200 years ago, “I can prove anything with statistics but the truth”. And that was before computers, which have facilitated an explosion in the quantity of questionable statistics. Can’t work something out? Just look at the stats. A further difference between Madoff and the state is that the state forces everyone to submit to its monetary frauds by law. And since as law-abiding citizens we respect the law, we even despise those with the temerity to question it. But in the process, we hand enormous power to the monetary authorities, so should not be surprised when that power is abused, as is the case with interest rates and the dilution of the state’s currency. And it follows that the deeper the currency fraud, when something gives, the greater is the ensuing crisis. The best measure of market distortions from deliberate actions of the monetary authorities we have is the difference between actual bond yields and an estimate of what they should be. In other words, assessments of the height of negative real yields. But any such assessment is inherently subjective, with markets and statistics either distorted, rigged, or unable to provide the relevant yardstick. But it makes sense to assume that the price impact, that is the adjustment to bond prices as markets normalise, is greatest for those where nominal bond yields are negative. This means our focus should be directed accordingly. And the major jurisdictions where this applies is Japan and the Eurozone. The eurozone’s banking instability A critique of Japan’s monetary policy must be reserved for a later date, in order to concentrate on monetary and economic conditions in the Eurozone. The ECB first reduced its deposit rate to 0% in July 2012. That was followed by its initial introduction of negative deposit rates of -0.1% in June 2014, followed by -0.2% later that year, -0.3% in 2014, -0.4% in 2016 and finally -0.5% in September 2019. The last move coincided with the repo market blow-up in New York, the day that the transfer of Deutsche Bank’s prime dealership to the Paris based BNP was completed. We can assume with reasonable certainty that the coincidence of these events showed a reluctance of major US banks to take on either of these banks as repo counterparties, as hedge and money funds with accounts at Deutsche decided to move their accounts elsewhere, which would have blown substantial holes in Deutsche’s and possibly BNP’s balance sheets as well, thereby requiring repo cover. The reluctance of American banks to get involved would have been a strong signal of their reluctance to increasing their counterparty exposure to Eurozone banks. We cannot know this for sure, but it is the logical explanation for what happened. In which case, the repo crisis in New York was an important advance warning of the fragility of the Eurozone’s monetary and banking system. A look at the condition of the major Eurozone global systemically important banks (G-SIBs) in Table A, explains why. Balance sheet gearing for these banks is roughly double that of the major US banks, and except for Ing Group, deep price-to-book discounts indicate a market assessment of these banks’ credit risk as exceptionally high. Other Eurozone banks with international counterparty business deemed not significant enough to be labelled as G-SIBs but still capable of transmitting systemic risk could be even more highly geared. The reasons for US banks to limit their exposure to the Eurozone banking system on these grounds alone are compelling. And the persistence of price inflation today is a subsequent development, likely to expose these banks as being riskier still because of higher interest rates on their exposure to Eurozone government and commercial bonds, and defaulting borrowers. The euro credit cycle has been suspended When banks buy government paper, it is usually because they see it as the risk-free alternative to expanding credit to non-financial private sector actors. In the normal course of an economic cycle, it is inherently cyclical. Both Basel and national regulations enhance the concept that government debt is risk-free, giving it a safe-haven status in times of heightened risk. In a normal bank credit cycle, banks will tend to hold government bills and bonds with less than one year’s maturity and depending on the yield curve will venture out along the curve to five years at most. These positions are subsequently wound down when the banks become more confident of lending conditions to non-financial borrowers when the economy improves. But when economic conditions become stagnant and the credit cycle is suspended due to lack of recovery, banks can accumulate positions with longer maturities. Other than the lack of alternative uses of bank credit, this is for a variety of reasons. Trading desks increasingly seek the greater price volatility in longer maturities, central banks encourage increased commercial bank participation in government bond markets, and yield curve permitting, generally longer maturities offer better yields. The more time that elapses between investing in government paper and favouring credit expansion in favour of private sector borrowers, the greater this mission creep becomes. As we have seen above, the ECB introduced zero deposit rates nearly 10 years ago, and private sector conditions have not generated much in the way of bank credit funding. Lending from all sources including securitisations and bank credit to a) households and b) non-financial corporations since 2008 are shown in Figure 1. Before the Covid pandemic, total lending to households had declined from $9 trillion equivalent in 2008 to $7.4 trillion in 2019 Q4. And for non-financial corporations, total lending declined marginally over the same period as well. Admittedly, this period included a credit slump and recovery, but on a net basis lending conditions stagnated. But bank credit for these two sectors will have contracted, allowing for net bond issuance of collateralised consumer debt and by corporations securing cheap finance by issuing corporate bonds at near zero interest rates, which are contained in Figure 1. Following the start of the pandemic, lending conditions expanded under government direction and borrowing by both sectors increased substantially. Meanwhile, over the same period bond issuance to governments increased, particularly since the pandemic started, illustrated in Figure 2. The charts in Figures 1 and 2 support the thesis that credit expansion and bond finance had, until recently, disadvantaged the non-financial private sector. The expansion of government borrowing has been entirely through bonds bought by the ECB, as will be demonstrated when we look at the euro system balance sheet. They confirm that zero and negative rates have not stimulated the Eurozone’s economies as Keynesians theorised. And the increased credit during the pandemic reflects financial support and not a renewed attempt at Keynesian stimulation. The purpose of debt expansion is important because the moment the supposed stimulus wears off or interest rates rise, we will see bank credit for households and businesses begin to contract again. Only this time, there will be a heightened risk for banks of collateral failure. And higher interest rates will also undermine mark-to-market values for government and corporate bonds on their balance sheets, which could rapidly erode the capital of Eurozone banks, given their exceptionally high gearing shown in Table A above. Figure 3 charts the euro system’s combined balance sheet since August 2008, the month Lehman failed, when it stood at €1.43 trillion. Greece’s financial crisis ran from 2012-2014, during which time the balance sheet expanded to €3.09 trillion, before partially normalising to €2.01 trillion. In January 2015, the ECB launched its expanded asset purchase programme (APP — otherwise referred to as quantitative easing) to prevent price inflation remaining too low for a prolonged period. The fear was Keynesian deflation, with the HICP measure of price inflation falling to -0.5% at that time, despite the ECB’s deposit rate having been already reduced to -0.2% the previous September. Between March 2015 and September 2016, the combined purchases by the ECB of public and private sector securities amounted to €1.14 trillion, corresponding to 11.3% of euro area nominal GDP. The APP was “recalibrated” in December 2015, extended to March 2017 and beyond, if necessary, at €60bn monthly. And the deposit rate was lowered to -0.3%. Not even that was enough, with a further recalibration to €80bn monthly in March 2016, with it intended to be extended to the end of the year when it would be resumed at the previous rate of €60bn per month. The expansion of the ECB’s balance sheet led to the rate of price inflation recovering to 1% in 2017, as one would expect. With the expansion of credit for the non-financial private sector going nowhere (Figures 1 and 2 above), the Keynesian stimulus simply failed in this objective. But when in March 2020 the US Fed reduced its funds rate to 0% and announced QE of $120bn monthly, the ECB did what it had learned to do when in a monetary hole: continue digging even faster. March 2020 saw the ECB increase purchases under the asset purchase programme (APP) and adopt a new programme, the pandemic emergency purchase programme (PEPP). These measures are the reason why the volumes of the Eurosystem’s monthly monetary policy net purchases are higher than ever before, driving its balance sheet total to over €8.5 trillion today. The ECB’s bond purchases closely matched the funding requirements of national central banks, both being €4 trillion between January 2015 and June 2021. The counterpart to these purchases is an increase in the amount of circulating cash. In other words, the ECB has gone full Rudolf Havenstein. There is no difference in the ECB’s objectives compared with those of Havenstein when he was President of the Reichsbank following the First World War; a monetary policy that impoverished Germany’s middle classes and pushed the labouring class and elderly into starvation by collapsing the paper-mark. Except that today, German society is paying through the destruction of its savings for the spendthrift behaviour of its Eurozone partners rather than that of its own government. The ECB now has an additional problem with price inflation picking up globally. Producer input prices in Europe are rising strongly with the overall Eurozone HICP rate for November at 4.9% annualised, and doubtless with more rises to come. Oil prices have risen over 50% in a year, and natural gas over 60%, the latter even more on European markets due to a supply crisis of its governments’ own making. Increasingly, the policy purpose of the ECB is no longer to stimulate the economy, but to ensure that spendthrift member state deficits are financed as cheaply as possible. But how can it do that when on the back of soaring consumer prices, interest rates are now going to rise? Clearly, the higher interest rates go, the faster the ECB will increase its balance sheet because it is committed to not just covering every Eurozone member state’s budget deficit but the interest on their borrowings as well. But there’s more. In a speech on 12 October, Christine Lagarde, the President of the ECB indicated that it stands ready to contribute to financing the transition to carbon neutral. And in a joint letter to the FT, the President of France and Italy’s Prime Minister called for a relaxation of the EU’s fiscal rules so that they could spend more on key investments. This is a flavour of what they said: "Just as the rules could not be allowed to stand in the way of our response to the pandemic, so they should not prevent us from making all necessary investments," the two leaders wrote, while noting that "debt raised to finance such investments, which undeniably benefit the welfare of future generations and long-term growth, should be favoured by the fiscal rules, given that public spending of this sort actually contributes to debt sustainability over the long run." The rules under the Stability and Growth Pact have in fact been suspended, and are planned to be reapplied in 2023, But clearly, these two high spenders feel boxed in. The Stability and Growth Pact will almost certainly be eased — being a charade, rather like the US’s debt ceiling. The trouble is Eurozone governments are too accustomed to inflationary finance to abandon it. If the ECB could inflate the currency without the consequences being apparent, there would be no problem. But with prices soaring above the mandated 2% target that is no longer true. Up to now, the ECB has been in denial, claiming that price pressures will subside. But we know, or should know, that a rise in the general level of prices is due to monetary expansion, the excessive plucking of leaves from the magic money tree, particularly at an enhanced rate since March 2020 which is yet to be reflected fully at the consumer level. And in its duty to fund the PIGS government deficits, the ECB’s balance sheet expansion through bond purchases is sure to continue. Furthermore, if bond yields do rise, it will threaten to undermine the balance sheets of the highly geared commercial banks. The commercial banks position With the economies of Eurozone member states stifled by the ECB’s management of monetary affairs since the Lehman crisis in 2008 and by more recent covid lockdowns, the accumulation of bad debts at the commercial banks is a growing threat to the entire financial system. Table A above, of the Eurozone G-SIBs’ operational gearing and their share ratings, gives testament to the problem. So far, bad debts in Italian and other PIGS banks have been reduced, not by their being resolved, but by them being used as collateral for loans from national central banks. Local bank regulators deem non-performing loans to be performing so they can be hidden from sight in the ECB’s TARGET2 settlement system. Together with the ECB’s asset purchases conducted through national central banks, these probably account for most of the imbalances in the TARGET2 cross-border settlement system, which in theory should not exist. The position to last October is shown in Figure 4. Liabilities owed to the Bundesbank are increasing again at record levels, while the amounts owed by the Italian and Spanish central banks are also increasing. These balances were before global pressures for rising interest rates materialised. Given the sharp increase in bank lending to households and non-financial corporations since March last year (see Figure 1), bad debts seem certain to accumulate at the banks in the coming months. This is likely to undermine collateral values in Europe’s repo markets, which are mostly conducted in euros and almost certainly exceed €10 trillion, having been recorded at €8.3 trillion at end-2019.[vi] The extent to which national central banks have taken in repo collateral themselves will then become a major problem. It is against the background of negative Euribor rates that the repo market has grown. It is not clear what role negative rates plays in this growth. While one can see a reason for a bank to borrow at sub-zero rates, it is harder to justify lending at them. And in a repo, the collateral is returned on a pre-agreed basis, so it’s removal from a bank’s books is temporary. Nonetheless, this market has grown to be an integral part of daily transactions between European banks. The variations in collateral quality are shown in Figure 5. This differs materially from repo markets in the US, which is almost exclusively for short-term liquidity purposes and uses high quality collateral only (US Treasury bills and bonds and agency debt). Bonds rated BBB and worse made up 27.7% of the total collateral in December 2019. In Europe and particularly the Eurozone rising interest rates can be expected to undermine collateral ratings, which with increasing Euribor rates will almost certainly contract the size of the market. This heightens the risk of a liquidity-driven systemic failure, as repo liquidity is withdrawn from banks that depend upon it. Government finances are out of control The first column in Table B shows government debt to GDP, which is the conventional yardstick of government debt measurement relative to the economy. The second column shows the proportion of government spending in the total economy relative to GDP, enabling us to derive the third column. The base for government revenue upon which paying down its debt ultimately rests is the private sector, and the third column shows the extent to which and where this true burden lies. It exposes the impossible position of countries such as Greece, Italy, France, and Belgium, Portugal and Spain, where, besides their own private sector debt burdens, citizens earning their livings without being paid by their governments are assumed by markets to be responsible for underwriting their governments’ debts. The hope that these countries can grow their way out of their debt is demolished in the context of the actual tax base. It is now widely recognised that will already high levels of taxation further tax increases will undermine these economies. We can dismiss as hogwash the alterative, the vain hope that yet more stimulus in the form of a further increase in deficits will generate economic recovery, and that higher tax revenues will follow to normalise public finances. It is a populist argument amongst some free marketeers today, citing Ronald Reagan’s and Margaret Thatcher’s successful economic policies. But in those times, the US and UK governments were not nearly so indebted and their economies were able to respond positively to lower taxes. Furthermore, price inflation was declining then while it is increasing today. And as a paper by Carmen Reinhart and Ken Rogoff pointed out, a nation whose government debt exceeds 90% of GDP has great difficulty growing its way out of it.[vii]Seven of the Eurozone nations already exceed this 90% Rubicon, and their debts are still growing considerably faster than their GDP. At 111% the entire Euro area itself is well above it. Taking account of the smaller proportion of private sector activity relative to those of their governments highlights the difference between the current situation and that of nations that managed to pay down even higher debt levels after the Second World War by gently inflating their way out of a debt trap while their economies progressed in the post-war environment. Additionally, we should bear in mind future government liabilities, whose net present values are considerably greater than their current debt. Over time, these must be financed. And with rising price inflation, hard costs such as healthcare escalate them even further. The position gets progressively worse as these mandated costs become realised. There is a solution to it, and that is to cut government spending so that its budget always balances. But for socialising politicians, slashing departmental budgets is the equivalent of eating their own children. It is a reversal of everything they stand for. And it requires welfare legislation to be rescinded to stop the accumulation of future welfare costs. There is no democratic mandate for that. Conclusion Rising interest rates globally will affect all major currencies, and for some of them expose systemic risks. An examination of the existing situation and how higher interest rates will affect it points to the Eurozone as being the most likely global weak spot. The Eurozone’s debt position pitches the entire global financial and economic system further towards a debt crisis than generally realised. Particularly for Greece, Italy, France, Belgium, Portugal, and Spain in that order of indebtedness, the problem is most acute. They only survive because the ECB ensures they can pay their bills by funding them totally through inflation of the quantity of euros in circulation. The ECB’s entire purpose has become to transfer wealth from the more fiscally prudent member states to the spendthrifts by debasing the currency. In the process, based on figures provided by the Bank for International Settlements the banking system is contracting credit to the private sector, and it is not even accumulating government bonds, which is a surprise.  Much like banks in the US, Eurozone banks have become increasingly distracted into financial activities and speculation. The difference is the high level of operational gearing, up to thirty times in the case of one major French bank, while most of the US’s G-SIBs are geared about 11 times on average. This article points to these disparities between US and EU banking risks having been a factor in the US repo market failure in September 2019. And we can assume that the Americans remain wary of counterparty exposure to Eurozone banks to this day. That the ECB is funding net government borrowing in its entirety indicates that even investing institutions such as pension funds and insurance companies, along with the banks are sitting on their hands with respect to government debt. It means that savings are not offsetting the inflationary effects of government bond issues. It represents a vote to stay out of what has become a highly troubling and inflationary situation. The question arises as to how long this extraordinary situation can continue. It must come to an end some time, and by destabilising a highly leveraged banking system the end will be a crisis. With its GDP being similar in size to China’s (which is seeing a more traditional property crisis unfolding at the same time) a banking crisis in the Eurozone could be the trigger for dominoes falling everywhere. As for the euro’s future, it seems unlikely that the ECB has the capability of dealing with the crisis that will unfold. It has cheated the northern states, particularly Germany, the Netherlands, Finland, Ireland, the Czech Republic, and Luxembourg to the benefit of spendthrifts, particularly the political heavyweights of France, Italy and Spain. It is a rift likely to end the euro system and the ECB itself. The deconstruction of this shabby arrangement should prove the end of the euro and possibly of the European Union itself. Tyler Durden Sun, 01/16/2022 - 07:00.....»»

Category: dealsSource: nytJan 16th, 2022

Howard Marks January 2022 Memo: Selling Out

Howard Marks memo to Oaktree clients for the month of January 2022, titled, “Selling Out.” Q4 2021 hedge fund letters, conferences and more As I’m now in my fourth decade of memo writing, I’m sometimes tempted to conclude I should quit, because I’ve covered all the relevant topics. Then a new idea for a memo […] Howard Marks memo to Oaktree clients for the month of January 2022, titled, “Selling Out.” if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2021 hedge fund letters, conferences and more As I’m now in my fourth decade of memo writing, I’m sometimes tempted to conclude I should quit, because I’ve covered all the relevant topics. Then a new idea for a memo pops up, delivering a pleasant surprise. My January 2021 memo Something of Value, which chronicled the time I spent in 2020 living and discussing investing with my son Andrew, recounted a semi-real conversation in which we briefly discussed whether and when to sell appreciated assets. It occurred to me that even though selling is an inescapable part of the investment process, I’ve never devoted an entire memo to it. The Basic Idea Everyone is familiar with the old saw that’s supposed to capture investing’s basic proposition: “buy low, sell high.” It’s a hackneyed caricature of the way most people view investing. But few things that are important can be distilled into just four words; thus, “buy low, sell high” is nothing but a starting point for discussion of a very complex process. Will Rogers, an American film star and humorist of the 1920s and ’30s, provided what he may have thought was a more comprehensive roadmap for success in the pursuit of wealth: Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it. The illogicality of his advice makes clear how simplistic this adage – like many others – really is. However, regardless of the details, people may unquestioningly accept that they should sell appreciated investments. But how helpful is that basic concept? Origins Much of what I’ll write here got its start in a 2015 memo called Liquidity. The hot topic in the investment world at that moment was the concern about a perceived decline in the liquidity provided by the market (when I say “the market,” I’m talking specifically about the U.S. stock market, but the statement has broad applicability). This was commonly attributed to a combination of (a) the licking investment banks had taken in the Global Financial Crisis of 2008-09 and (b) the Volcker Rule, which prohibited risky activities such as proprietary trading on the part of systemically important financial institutions. The latter constrained banks’ ability to “position” securities, or buy them, when clients wanted to sell. Maybe liquidity in 2015 was less than it had previously been, and maybe it wasn’t. However, looking beyond the events of the day, I closed that memo by stating my conviction that (a) most investors trade too much, to their own detriment, and (b) the best solution for illiquidity is to build portfolios for the long term that don’t rely on liquidity for success. Long-term investors have an advantage over those with short timeframes (and I think the latter describes the majority of market participants these days). Patient investors are able to ignore short-term performance, hold for the long run, and avoid excessive trading costs, while everyone else worries about what’s going to happen in the next month or quarter and therefore trades excessively. In addition, long-term investors can take advantage if illiquid assets become available for purchase at bargain prices. Like so many things in investing, however, just holding is easier said than done. Too many people equate activity with adding value. Here’s how I summed up this idea in Liquidity, inspired by something Andrew had said: When you find an investment with the potential to compound over a long period, one of the hardest things is to be patient and maintain your position as long as doing so is warranted based on the prospective return and risk. Investors can easily be moved to sell by news, emotion, the fact that they’ve made a lot of money to date, or the excitement of a new, seemingly more promising idea. When you look at the chart for something that’s gone up and to the right for 20 years, think about all the times a holder would have had to convince himself not to sell. Everyone wishes they’d bought Amazon at $5 on the first day of 1998, since it’s now up 660x at $3,304. But who would have continued to hold when the stock hit $85 in 1999 – up 17x in less than two years? Who among those who held on would have been able to avoid panicking in 2001, as the price fell 93%, to $6? And who wouldn’t have sold by late 2015 when it hit $600 – up 100x from the 2001 low? Yet anyone who sold at $600 captured only the first 18% of the overall rise from that low. This reminds me of the time I once visited Malibu with a friend and mentioned that the Rindge family is said to have bought the entire area – all 13,330 acres – in 1892 for $300,000, or $22.50 per acre. (It’s clearly worth many billions today.) My friend said, “I’d like to have bought all of Malibu for $300,000.” My response was simple: “you would have sold it when it got to $600,000.” The more I’ve thought about it since writing Liquidity, the more convinced I’ve become that there are two main reasons why people sell investments: because they’re up and because they’re down. You may say that sounds nutty, but what’s really nutty is many investors’ behavior. Selling Because It’s Up “Profit-taking” is the intelligent-sounding term in our business for selling things that have appreciated. To understand why people engage in it, you need insight into human behavior, because a lot of investors’ selling is motivated by psychology. In short, a good deal of selling takes place because people like the fact that their assets show gains, and they’re afraid the profits will go away. Most people invest a lot of time and effort trying to avoid unpleasant feelings like regret and embarrassment. What could cause an investor more self-recrimination than watching a big gain evaporate? And what about the professional investor who reports a big winner to clients one quarter and then has to explain why the holding is at or below cost the next? It’s only human to want to realize profits to avoid these outcomes. If you sell an appreciated asset, that puts the gain “in the books,” and it can never be reversed. Thus, some people consider selling winners extremely desirable – they love realized gains. In fact, at a meeting of a non-profit’s investment committee, a member suggested that they should be leery of increasing endowment spending in response to gains because those gains were unrealized. I was quick to point out that it’s usually a mistake to view realized gains as less transient than unrealized ones (assuming there’s no reason to doubt the veracity of the unrealized carrying values). Yes, the former have been made concrete. However, sales proceeds are generally reinvested, meaning the profits – and the principal – are put back at risk. One might argue that appreciated securities are more vulnerable to declines than new investments in assets currently deemed to be attractively priced, but that’s far from a certainty. I’m not saying investors shouldn’t sell appreciated assets and realize profits. But it certainly doesn’t make sense to sell things just because they’re up. Selling Because It’s Down As wrong as it is to sell appreciated assets solely to crystalize gains, it’s even worse to sell them just because they’re down. Nevertheless, I’m sure many people do it. While the rule is “buy low, sell high,” clearly many people become more motivated to sell assets the more they decline. In fact, just as continued buying of appreciated assets can eventually turn a bull market into a bubble, widespread selling of things that are down has the potential to turn market declines into crashes. Bubbles and crashes do occur, proving that investors contribute to excesses in both directions. In a movie that plays in my head, the typical investor buys something at $100. If it goes to $120, he says, “I think I’m onto something – I should add,” and if it reaches $150, he says, “Now I’m highly confident – I’m going to double up.” On the other hand, if it falls to $90, he says, “I’m going to think about increasing my position to reduce my average cost,” but at $75, he concludes he should reconfirm his thesis before averaging down further. At $50, he says, “I’d better wait for the dust to settle before buying more.” And at $20 he says, “It feels like it’s going to zero; get me out!” Just like those who are afraid of surrendering gains, many investors worry about letting losses compound. They might fear their clients will say (or they’ll say to themselves), “What kind of a lame-brain continues to hold a security after it’s gone from $100 to $50? Everyone knows a decline like that can foreshadow further declines. And look – it happened.” Do investors really make behavioral errors such as those I’ve described? There’s plenty of anecdotal evidence. For example, studies have shown that the average mutual fund investor performs worse than the average mutual fund. How can that be? If she merely held her positions, or if her errors were unsystematic, the average fund investor would, by definition, fare the same as the average fund. For the studies’ findings to occur, investors have to on balance reduce the amount of capital they have in funds that subsequently do better and increase their allocation to funds that go on to do worse. Let me put that another way: on average, mutual fund investors tend to sell the funds with the worst recent performance (missing out on their potential recoveries) in order to chase the funds that have done the best (and thus likely participate in their return to earth). We know that “retail investors” tend to be trend-followers, as described above, and their long-term performance often suffers as a result. What about the pros? Here the evidence is even clearer: the powerful shift in recent decades toward indexing and other forms of passive investing has taken place for the simple reason that active investment decisions are so often wrong. Of course, many forms of error contribute to this reality. Whatever the reason, however, we have to conclude that, on average, active professional investors held more of the things that did less well and less of the things that outperformed, and/or that they bought too much at elevated prices and sold too much at depressed prices. Passive investing hasn’t grown to cover the majority of U.S. equity mutual fund capital because passive results have been so good; I think it’s because active management has been so bad. Back when I worked at First National City Bank 50 years ago, prospective clients used to ask, “What kind of return do you think you can make in an equity portfolio?” The standard answer was 12%. Why? “Well,” we said (so simplistically), “the stock market returns about 10% a year. A little effort should enable us to improve on that by at least 20%.” Of course, as time has shown, there’s no truth in that. “A little effort” didn’t add anything. In fact, in most cases, active investing detracted: most equity funds failed to keep up with the indices, especially after fees. What about the ultimate proof? The essential ingredient in Oaktree’s investments in distressed debt – bargain purchases – has emanated from the great opportunities sellers gave us. Negativity reaches a crescendo during economic and market crises, causing many investors to become depressed or fearful and sell in panic. Results like those we target in distressed debt can only be achieved when holders sell to us at irrationally low prices. Superior investing consists largely of taking advantage of mistakes made by others. Clearly, selling things because they’re down is a mistake that can give the buyers great opportunities. When Should Investors Sell? If you shouldn’t sell things because they’re up, and you shouldn’t sell because they’re down, is it ever right to sell? As I previously mentioned, I described the discussions that took place while Andrew and his family lived with Nancy and me in 2020 in Something of Value. That experience truly was of great value – an unexpected silver lining to the pandemic. That memo evoked the strongest reaction from readers of any of my memos to date. This response was probably attributable to (a) the content, which mostly related to value investing; (b) the personal insights provided, and especially my confession regarding my need to grow with the times; or (c) the recreated conversation that I included as an appendix. The last of these went like this, in part: Howard: Hey, I see XYZ is up xx% this year and selling at a p/e ratio of xx. Are you tempted to take some profits? Andrew: Dad, I’ve told you I’m not a seller. Why would I sell? H: Well, you might sell some here because (a) you’re up so much; (b) you want to put some of the gain “in the books” to make sure you don’t give it all back; and (c) at that valuation, it might be overvalued and precarious. And, of course, (d) no one ever went broke taking a profit. A: Yeah, but on the other hand, (a) I’m a long-term investor, and I don’t think of shares as pieces of paper to trade, but as part ownership in a business; (b) the company still has enormous potential; and (c) I can live with a short-term downward fluctuation, the threat of which is part of what creates opportunities in stocks to begin with. Ultimately, it’s only the long term that matters. (There’s a lot of “a-b-c” in our house. I wonder where Andrew got that.) H: But if it’s potentially overvalued in the short term, shouldn’t you trim your holding and pocket some of the gain? Then if it goes down, (a) you’ve limited your regret and (b) you can buy in lower. A: If I owned a stake in a private company with enormous potential, strong momentum and great management, I would never sell part of it just because someone offered me a full price. Great compounders are extremely hard to find, so it’s usually a mistake to let them go. Also, I think it’s much more straightforward to predict the long-term outcome for a company than short-term price movements, and it doesn’t make sense to trade off a decision in an area of high conviction for one about which you’re limited to low conviction. . . . H: Isn’t there any point where you’d begin to sell? A: In theory there is, but it largely depends on (a) whether the fundamentals are playing out as I hope and (b) how this opportunity compares to the others that are available, taking into account my high level of comfort with this one. Aphorisms like “no one ever went broke taking a profit” may be relevant to people who invest part-time for themselves, but they should have no place in professional investing. There certainly are good reasons for selling, but they have nothing to do with the fear of making mistakes, experiencing regret and looking bad. Rather, these reasons should be based on the outlook for the investment – not the psyche of the investor – and they have to be identified through hardheaded financial analysis, rigor and discipline. Stanford University professor Sidney Cottle was the editor of the later versions of Benjamin Graham and David L. Dodd’s Security Analysis, “the bible of value investing,” including the edition I read at Wharton 56 years ago. For that reason, I knew the book as “Graham, Dodd and Cottle.” Sid was a consultant to the investment department at First National City Bank in the 1970s, and I’ve never forgotten his description of investing: “the discipline of relative selection.” In other words, most of the portfolio decisions investors make are relative choices. It’s patently clear that relative considerations should play an enormous part in any decision to sell existing holdings. If your investment thesis seems less valid than it did previously and/or the probability that it will prove accurate has declined, selling some or all of the holding is probably appropriate. Likewise, if another investment comes along that appears to have more promise – to offer a superior risk-adjusted prospective return – it’s reasonable to reduce or eliminate existing holdings to make room for it. Selling an asset is a decision that must not be considered in isolation. Cottle’s concept of “relative selection” highlights the fact that every sale results in proceeds. What will you do with them? Do you have something in mind that you think might produce a superior return? What might you miss by switching to the new investment? And what will you give up if you continue to hold the asset in your portfolio rather than making the change? Or perhaps you don’t plan to reinvest the proceeds. In that case, what’s the likelihood that holding the proceeds in cash will make you better off than you would have been if you had held onto the thing you sold? Questions like these relate to the concept of “opportunity cost,” one of the most important ideas in financial decision-making. Switching gears, what about the idea of selling because you think a temporary dip lies ahead that will affect one of your holdings or the whole market? There are real problems with this approach: Why sell something you think has a positive long-term future to prepare for a dip you expect to be temporary? Doing so introduces one more way to be wrong (of which there are so many), since the decline might not occur. Charlie Munger, vice chairman of Berkshire Hathaway, points out that selling for market-timing purposes actually gives an investor two ways to be wrong: the decline may or may not occur, and if it does, you’ll have to figure out when the time is right to go back in. Or maybe it’s three ways, because once you sell, you also have to decide what to do with the proceeds while you wait until the dip occurs and the time comes to get back in. People who avoid declines by selling too often may revel in their brilliance and fail to reinstate their positions at the resulting lows. Thus, even sellers who were right can fail to accomplish anything of lasting value. Lastly, what if you’re wrong and there is no dip? In that case, you’ll miss out on the ensuing gains and either never get back in or do so at higher prices. So it’s generally not a good idea to sell for purposes of market timing. There are very few occasions to do so profitably and very few people who possess the skill needed to take advantage of these opportunities. Before I close on this subject, it’s important to note that decisions to sell aren’t always within an investment manager’s control. Clients can withdraw capital from accounts and funds, necessitating sales, and the limited lifespan of closed-end funds can require managers to liquidate holdings even though they’re not ripe for selling. The choice of what to sell under these conditions can still be based on a manager’s expectations regarding future returns, but deciding not to sell isn’t among the manager’s choices. How Much Is Too Much to Hold? Certainly there are times when it’s right to sell one asset in favor of another based on the idea of relative selection. But we mustn’t do this in a mechanical manner. If we did, at the logical extreme, we would put all of our capital into the one investment we consider the best. Virtually all investors – even the best – diversify their portfolios. We may have a sense for which holding is the absolute best, but I’ve never heard of an investor with a one-asset portfolio. They may overweight favorites to take advantage of what they think they know, but they still diversify to protect against what they don’t know. That means they sub-optimize, potentially trading off some of their chance at a maximal return to increase the likelihood of a merely excellent one. Here’s a related question from my reconstructed conversation with Andrew: H: You run a concentrated portfolio. XYZ was a big position when you invested, and it’s even bigger today, given the appreciation. Intelligent investors concentrate portfolios and hold on to take advantage of what they know, but they diversify holdings and sell as things rise to limit the potential damage from what they don’t know. Hasn’t the growth in this position put our portfolio out of whack in that regard? A: Perhaps that’s true, depending on your goals. But trimming would mean selling something I feel immense comfort with based on my bottom-up assessment and moving into something I feel less good about or know less well (or cash). To me, it’s far better to own a small number of things about which I feel strongly. I’ll only have a few good insights over my lifetime, so I have to maximize the few I have. All professional investors want good investment performance for their clients, but they also want financial success for themselves. And amateurs have to invest within the limits of their risk tolerance. For these reasons, most investors – and certainly most investment managers’ clients – aren’t immune to apprehension regarding portfolio concentration and thus susceptibility to untoward developments. These considerations introduce valid reasons for limiting the size of individual asset purchases and trimming positions as they appreciate. Investors sometimes delegate the decision on how to weight assets in portfolios to a process called portfolio optimization. Inputs regarding asset classes’ return potential, risk and correlation are fed into a computer model, and out comes the portfolio with the optimal expected risk-adjusted return. If an asset appreciates relative to the others, the model can be rerun, and it will tell you what to buy and sell. The main problem with these models lies in the fact that all the data we have regarding those three parameters relates to the past, but to arrive at the ideal portfolio, the model needs data that accurately describes the future. Further, the models need a numerical input for risk, and I absolutely insist that no single number can fully describe an asset’s risk. Thus, optimization models can’t successfully dictate portfolio actions. The bottom line: we should base our investment decisions on our estimates of each asset’s potential, we shouldn’t sell just because the price has risen and the position has swelled, there can be legitimate reasons to limit the size of the positions we hold, but there’s no way to scientifically calculate what those limits should be. In other words, the decision to trim positions or to sell out entirely comes down to judgment . . . like everything else that matters in investing. The Final Word on Selling Most investors try to add value by over- and underweighting specific assets and/or through well-timed buying and selling. While few have demonstrated the ability to consistently do these things correctly (see my comments on active management on page 4), everyone’s free to have a go at it. There is, however, a big “but.” What’s clear to me is that simply being invested is by far “the most important thing.” (Someone should write a book with that title!) Most actively managed portfolios won’t outperform the market as a result of manipulation of portfolio weightings or buying and selling for purposes of market timing. You can try to add to returns by engaging in such machinations, but these actions are unlikely to work at best and can get in the way at worst. Most economies and corporations benefit from positive underlying secular trends, and thus most securities markets rise in most years and certainly over long periods. One of the longest-running U.S. equity indices, the S&P 500, has produced an estimated compound average return over the last 90 years of 10.5% per year. That’s startling performance. It means $1 invested in the S&P 500 90 years ago would have grown to roughly $8,000 today. Many people have remarked on the wonders of compounding. For example, Albert Einstein reportedly called compound interest “the eighth wonder of the world.” If $1 could be invested today at the historic compound return of 10.5% per year, it would grow to $147 in 50 years. One might argue that economic growth will be slower in the years ahead than it was in the past, or that bargain stocks were easier to find in previous periods than they are today. Nevertheless, even if it compounds at just 7%, $1 invested today will grow to over $29 in 50 years. Thus, someone entering adulthood today is practically guaranteed to be well fixed by the time they retire if they merely start investing promptly and avoid tampering with the process by trading. I like the way Bill Miller, one of the great investors of our time, put it in his 3Q 2021 Market Letter: In the post-war period the US stock market has gone up in around 70% of the years... Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is the key to building wealth in the stock market. (October 18, 2021. Emphasis added) What are the “sharp bursts” Miller talks about? On April 11, 2019, The Motley Fool cited data from JP Morgan Asset Management’s 2019 Retirement Guide showing that in the 20-year period between 1999 and 2018, the annual return on the S&P 500 was 5.6%, but your return would only have been 2.0% if you had sat out the 10 best days (or roughly 0.4% of the trading days), and you wouldn’t have made any money at all if you had missed the 20 best days. In the past, returns have often been similarly concentrated in a small number of days. Nevertheless, overactive investors continue to jump in and out of the market, incurring transactions costs and capital gains taxes and running the risk of missing those “sharp bursts.” As mentioned earlier, investors often engage in selling because they believe a decline is imminent and they have the ability to avoid it. The truth, however, is that buying or holding – even at elevated prices – and experiencing a decline is in itself far from fatal. Usually, every market high is followed by a higher one and, after all, only the long-term return matters. Reducing market exposure through ill-conceived selling – and thus failing to participate fully in the markets’ positive long-term trend – is a cardinal sin in investing. That’s even more true of selling without reason things that have fallen, turning negative fluctuations into permanent losses and missing out on the miracle of long-term compounding. * * * When I meet people for the first time and they find out I’m in the investment business, they often ask (especially in Europe) “what do you trade?” That question makes me bristle. To me, “trading” means jumping in and out of individual assets and whole markets on the basis of guesswork as to what prices will do in the next hour, day, month or quarter. We don’t engage in such activity at Oaktree, and few people have demonstrated the ability to do it well. Rather than traders, we consider ourselves investors. In my view, investing means committing capital to assets based on well-reasoned estimates of their potential and benefitting from the results over the long term. Oaktree does employ people called traders, but their job consists of implementing long-term investment decisions made by portfolio managers based on assets’ fundamentals. No one at Oaktree believes they can make money or advance their career by selling now and buying back after an intervening decline, as opposed to holding for years and letting value lift prices if fundamental expectations prove out. When Oaktree was formed in 1995, the five founders – who at that point had worked together for nine years on average – established an investment philosophy based on what we’d successfully done in that time. One of the six tenets expressed our view on trying to time markets when buying and selling: Because we do not believe in the predictive ability required to correctly time markets, we keep portfolios fully invested whenever attractively priced assets can be bought. Concern about the market climate may cause us to tilt toward more defensive investments, increase selectivity or act more deliberately, but we never move to raise cash. Clients hire us to invest in specific market niches, and we must never fail to do our job. Holding investments that decline in price is unpleasant, but missing out on returns because we failed to buy what we were hired to buy is inexcusable. We’ve never changed any of the six tenets of our investment philosophy – including this one – and we have no plans to do so. January 13, 2022 Updated on Jan 14, 2022, 12:38 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkJan 14th, 2022

Retail And Hedge Funds Bought The Dip

Retail And Hedge Funds Bought The Dip There was a bit of confusion earlier this week when just as JPMorgan head of global strategy, Marko Kolanovic, was telling one set of bank clients to "buy the dip" (even as his boss Jamie Dimon was predicting a dramatic and risk swoon-inducing tightening in financial conditions, expecting more than 4 rate hikes), another veteran JPMorgan advisor, Bob Michele, who is the asset management group's fixed-income chief, said just the opposite and urged the bank's clients to "hide in cash", warning that the Fed put could be as much as 30% lower in the S&P: “The Fed would let the markets drop much further if their primary concern was battling inflation,” Michele said. “The strike of any put is likely to be declines of 15%–30% in equities, not 2%–3%.” And while Michele may well be right, it is now clear that most retail and hedge fund investors agreed with Kolanovic, and rushed to buy the dip both last week around the time of the uberhawkish FOMC Minutes, and in the days following, while institutional investors were actively selling their holdings. As Bank of America quant Jill Carey Hall wrote overnight, the bank's clients were "net buyers of US equities the first week of 2022($0.5B), during which the S&P 500 fell 1.9%. Clients bought both ETFs and stocks." As she further observes, retail and hedge funds clients led the buying last week even as institutional clients began the year with their biggest weekly outflows since mid-January of last year. Drilling down, the bank's clients bought stocks across all three size segments (large/mid/small). A breakdown of total client activity by sector. What is notable, and as Goldman recently observed, is that retail clients have typically been aggressive buyers in January while other groups have been sellers. According to Hall, January has been the strongest month, on average, for US equity inflows by BofA clients, and has seen net buying in 10 of the last 14 years. This confirms what we reported yesterday, citing JPM quant strategist Peng Cheng, who noted that retail bought $1.07 Billion on Tuesday, the third consecutive day of greater than $1 billion buying; and in the 93rd percentile of all days. Putting this in context, Black Friday net buying was $1.6bn, which was the highest on record. And while retail and hedge funds were BTFD, corporations were just as busy waving it in, and according to Bank of America, buybacks by corporate clients began the year strong, above early Jan. levels for the last few years including 2019 (pre-COVID), led by Tech, Health Care and Financials. Expect more buybacks: they typically accelerate in Jan/Feb during earnings (chart below) after seasonal weakness at year-end – though Dec’21 was stronger than usual (likely pull-forward ahead of potential tax reform risk in 2022), suggesting potentially less of a pick-up. Tyler Durden Wed, 01/12/2022 - 18:40.....»»

Category: blogSource: zerohedgeJan 13th, 2022

Sam Bankman-Fried says a tidal wave of institutions could jump into crypto in 2022, if they get clear regulatory guidance

Regulatory clarity will open the door for some large investment banks and pension funds to enter the industry this year, the crypto billionaire said. Sam Bankman-Fried.FTX; Marianne Ayala/Insider FTX CEO Sam Bankman-Fried said institutional adoption of cryptocurrencies could accelerate in 2022. The pace of adoption depends on the level of regulatory clarity in the US and globally, he told Bloomberg Monday. A lot of the level of activity in the crypto industry in 2021 was "preparatory," the billionaire said. Sign up here for our daily newsletter, 10 Things Before the Opening Bell. Cryptocurrencies can expect to see more institutional adoption in 2022 — but whether it's a tidal wave or a trickle will depend on what happens on the regulatory front, according to FTX boss Sam Bankman-Fried.The crypto exchange CEO predicted that regulatory clarity will open the door for some large investment banks and pension funds to enter the industry this year. But he said developments in digital asset regulation will dictate the pace of adoption by financial institutions."Especially if we feel like they're getting clarity, that could come in a tidal wave, it could come in a trickle," he said in an interview released Monday.Still, he doesn't expect a rapid inflow within the next six months at least as it takes time for institutions to onboard new platforms and assets."It's going to be a long process probably stretched out over a few years," he said, adding that the size of the market could be "really enormous.""I've talked to every large bank, every large investment bank, pension funds — they're all eyeing the sector. Many of them have started breaking ground on their activities in it, but it's just slow and it takes time."A growing number of financial institutions, including BlackRock, Mastercard, and Visa,  have already introduced crypto-related offerings. Some financial advisors have recommended digital assets should be part of a portfolio, no matter what your age.Bankman-Fried, who launched crypto exchange FTX in 2019, pointed to activity in the crypto industry last year, saying that was just the foundation for what is to come. "I do think that there's going to be a lot happening this year," he said. "We've already seen what happened last year. But a lot of that has been preparatory."In 2021, cryptocurrencies such as bitcoin and ether gained in value, as some investors looked for a hedge against the high inflation seen around the world. Rising mainstream interest drove soaring retail demand across the market, with data showing global crypto adoption rose by more than 880% in the year.But cryptocurrencies overall have fallen back in recent weeks. Asked whether he sees bitcoin staging a comeback in 2022, Bankman-Fried was somewhat upbeat."The things that make me optimistic basically are more regulatory clarity in the US and globally, which I think could help a ton, and institutional adoption," he said. "I think those are also related to each other."The crypto billionaire also gave his take on when developments in a regulatory framework for digital assets can be expected."I think that you're probably going to see the first batch of it coming out in 2022," he said, adding that the stablecoin sector in particular could get some ground rules.Bankman-Fried also touched on the metaverse — a futuristic virtual landscape in which people can interact, buy non-fungible tokens, or even date — which has attracted high interest from Wall Street institutions. He said the metaverse could take time to materialize and become a full-blown technology."I expect that we might see a cooling off at least relatively speaking of some of the pure NFT activity that we've seen recently — unless and until we see large names of players and partners come into the space," he said. "But I do expect that to happen, and that will be supercharging the next piece of Web3 growth."Read More: A Wall Street veteran trader-turned crypto expert breaks down how bitcoin and ethereum could potentially reach $80,000 and $7,500 — and shares the 6 major trends on his radar in the year aheadRead the original article on Business Insider.....»»

Category: personnelSource: nytJan 5th, 2022

Traders Puzzled By Bizarre Mystery As Turkish Central Bank Inexplicably Posts "Unprecedented" $10 Billion Profit On Last Day Of 2021

Traders Puzzled By Bizarre Mystery As Turkish Central Bank Inexplicably Posts "Unprecedented" $10 Billion Profit On Last Day Of 2021 In a world where central banks now openly engage in helicopter money paradrops and monetizing debt and deficits as far as the eye can see (knowing well that such actions always end in hyperinflationary tears but plowing on nonetheless), i.e., funding their respective governments, the literal printing of money by central banks to fill Treasury coffers is not nearly as exciting as it used to be. However, one place where money transfers from the central bank to the government (which in this particular case is represented by just one particular kleptocrat) are those in Turkey due to the absolute banana republic nature of the country, and which is closer than any other semi-developed nation to sliding into the hyperinflationary abyss; as such as all of its bizarre actions are scrutinized by a small group of fascinated onlookers who then try to extrapolate the Turkish experience to every other insolvent nation. Well, speaking of bizarre actions, an especially egregious one took place on the final day of 20021, when Turkey’s central bank posted an extraordinary and unexplained daily profit of around $10 billion, sparking questions on what caused this overnight boon that will trickle down to the nation’s Treasury. According to Bloomberg, the monetary authority disclosed an annual loss of around 70 billion liras ($5.2 billion) on Dec. 30 but just one day later, ended the year with 60 billion liras of profit, an unprecedented change of fortunes in a single day, according to its daily balance sheet. In February, the Ministry of Treasury and Finance -- as the central bank’s biggest stakeholder -- will begin collecting much of that sum as dividends. The biggest winner? Recep Tayyip Erdogan himself - after all he is the de facto government of Turkey - because in February, the Ministry of Treasury and Finance both of which are populated with Erdogan cronies and are the central bank’s biggest stakeholders, will begin collecting much of that sum as dividends. The bizarre and unexplained "profit" came after President Erdogan unveiled measures meant to compensate lira investors for any losses, a move which sparked a furious surge in the lira which however was also catalyzed by a huge buying spree by the central bank which rushed to stabilize the lira, effectively leaving itself without net FX reserves. Even with this gross manipulation the Turkish currency slid 44% against the dollar last year, largely as the central bank - egged on by Erdogan - slashed its benchmark rate by 500 basis points since September, a move which we contend is part of Erdogan's master plan to leave the Turkish economy in ruins so that his own personal embezzlement of billions can not be traced. Meanwhile, as discussed yesterday, the lira’s collapse fueled an explosion in inflation, with Turkey's CPI ending the year above 36%, the highest level since September 2002. The result has been a plunge of Erdogan’s popularity as 2023 elections approach, and speculation among some that Erdogan is rushing to pillage the rest of Turkey's wealth before he disappears forever. According to Bloomberg, the central bank declined to comment on the dramatic move on its balance sheet, which was first reported on Monday by the bank’s former deputy governor Ibrahim Turhan and ex-banker Kerim Rota, both members of the opposition Future Party. According to Turhan, one possible explanation for the sizable overnight profit boost could lie in the sale of foreign-exchange reserves to the Treasury, in other words, the central bank is giving dollars to Erdogan. The lira’s depreciation makes foreign reserves more valuable in local currency, but that can’t be logged in the profit column until the reserves are sold, he said. The same amount of dollars would then have to be bought back to maintain the reserves level, Turhan said. In other words, the central bank will have to purchase billions of dollars, a move which would send the lira crashing, but that of course assumes that Erdogan has some interest in preserving normalcy in his fiefdom, which by now everyone knows he does not. Erdogan, who has attacked elevated borrowing costs as a brake on economic growth, pledged to remove the “bubble” from inflation in a speech on Tuesday, calling exchange-rate fluctuations and “excessive” price increases “thorns” on Turkey’s path. His policy of cutting rates to bring down inflation goes against mainstream economic thinking.  Meanwhile, even with "guaranteed" returns on lira deposits, Turkish investors are still holding on to foreign currencies, undermining the Turkish leader’s plan to support the lira without raising interest rates. According to a separate Bloomberg report, companies boosted their foreign-currency holdings by around $1.6 billion in the seven days through Dec. 24, taking advantage of a rally that saw the lira almost double in value that week. While households trimmed their positions by just over $100 million, it hardly put a dent in total foreign-currency deposits, which rose to a record $239 billion, according to the latest central bank data. This dash for dollars in Turkey (and gold, and bitcoin) is a symptom of a monetary policy that for years has remained far too loose to put a lid on inflation and as a result debased the lira, but more importantly it highlights the challenges authorities face in convincing investors to shift their savings into the local currency, which has lost more than 85% of its value against the dollar since 2012. “The reason why people accumulated foreign-currency up until today was distrust, and the trust issue is still there,” said Evren Kirikoglu, an independent strategist based in Istanbul. As a reminder, instead of raise rates to lure savers into lira accounts, the government came up with some Frankenstein quasi hike according to which it will compensate lira holders for any currency losses that exceed the interest rate on their short-term deposits -- currently languishing around 19% points below headline inflation. Of course, good luck trying to make sense of such a purposefully opaque mechanism. And while the official narrative has been that this new financial instrument is a game changer - because it will sap demand for dollars and euros that has weighed on the currency, and at the same time allow for rates to remain low and spur growth - the reality is just the opposite, and while appetite for Erdogan's bizarre product remains virtually non-existent with just 84 billion liras ($6.3 billion) out of a total of 5.2 trillion liras of deposits moving into new foreign-currency linked deposits, the bulk of funds continues to flow out of lira and into foreign FX accounts. “People don’t seem to understand the new product and they are afraid that some future changes could prevent them from buying back the FX they sold,” Kirikoglu said, referring to dollars and euros they parted with to place money in these new lira accounts. Instead, as Bloomberg reports echoing what we said in December, the latest official reserves data suggest interventions in the currency market may have played a far larger role in spurring the recent advance in the local currency. In other words, if it wasn't for the continued drain of dollars by the central bank, the lira would be trading at hyperinflationary levels. As we extensively documented, last month the lira surged by as much as 79% from a record low of 18.3633 on Dec. 20 to a more than one-month high of 10.2512. That coincided with a previously noted $3.53 billion drawdown in the central bank’s net currency reserves in the week that ended Dec. 24, taking a drop since the end of November to $16 billion. Alas, none of these tactical short squeeze attempts change the dire fundamental picture: with inflation running at over 36% and Turkey’s official reserves dwindling, the question for some is how much longer policy makers can stand in the way of dollar demand. The size of recent interventions is reminiscent of operations carried out between 2018 and 2020, when state lenders routinely flooded the market with dollars unannounced to support the lira. The government has denied reports of so-called backdoor sales. Luckily, at the current pace of interventions, the central bank will soon be out of manipulation firepower. Turkey’s gross reserves stand at $110.9 billion. Yet net reserves, which many economists use as a gauge of how much firepower policy makers have at their disposal, is now just $8.6 billion, meaning that Erdogan has at most 2-3 weeks left before he loses all control of the lira. “I assume people won’t be rushing to dollars anymore but the key point is to attract FX holders to the system, otherwise the central bank cannot continue to meet citizens’ FX demand with its reserves,” Kirikoglu said. Tyler Durden Tue, 01/04/2022 - 17:05.....»»

Category: blogSource: zerohedgeJan 4th, 2022

New Year Brings Cheers for Bank Investors as Stocks Rise: 3 Picks

Stocks like Northern Trust (NTRS), East West Bancorp (EWBC) and Webster Financial (WBS) will keep benefiting from favorable developments in the banking industry this year. 2022 has begun on a positive note for the bank stocks. Both the Dow Jones Industrial Average and the S&P 500 closed on new highs on the first day of trading, with the spotlight firmly on banking stocks.Continuing with the stellar performance of 2021, the KBW Nasdaq Bank Index and the S&P Banks Select Industry Index rallied 2.6% and 2.1%, respectively, during yesterday’s trading session. This seems to be the opportune time to capitalize on the banking industry’s consistently strong performance. So, today, we bring — Northern Trust Corporation NTRS, East West Bancorp EWBC and Webster Financial Corporation WBS — for you to add to your investment portfolio.Before we discuss these three stocks’ fundamentals and prospects, let’s first understand why investors are bullish on the banking industry and what happened yesterday that led to a further optimistic stance.Hawkish Federal ReserveIn the December 2021 FOMC meeting, the central bank outlined plans to fast-track the speed to taper its bond purchases. Thus, this will wind up the quantitative easing program a few months earlier than expected.Owing to inflation at nearly a four-decade high and the unemployment rate reaching the pre-pandemic levels, the Fed continues to take a more hawkish stance. Per the Fed’s statement in the meeting, “In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities”.With this, the central bank has doubled the taper moves announced in November. A faster end to the bond-buying efforts will position the Fed to hike the interest rates sooner than expected this year (possibly thrice). All 18 Fed officials pointed out in their so-called “dot-plot” that there might be at least one rate hike before 2022 end.Strong Economic ProjectionsDuring the meeting, the central bank raised its economic growth projections. Per the Fed’s latest Summary of Economic Projections, the U.S. economy is expected to grow at a 4% rate for 2022, up from the previously anticipated 3.8%. The pace of growth is then likely to slow down over the next two years, with 2.2% growth for 2023 and 2% for 2024.Based on the updated economic projections, the central bank now anticipates inflation to be 2.6% this year, above its target of 2% and higher than the previously stated 2.2%. The unemployment rate in 2022 is predicted to be 3.5%, down from the prior mentioned 3.8%.Rising Treasury YieldsFor the major part of 2021, Treasury yields on longer-term bonds rose. The yield on the 10-year U.S. Treasury Bond was 1.51% at 2021-end, up 59 basis points from 0.92% at the end of 2020.Continuing the same pace, on Monday, Treasury yields jumped to the six-week high for 30-year, 20-year, 10-year and 5-year notes. The improved confidence that the Omicron variant might be less harmful to the global economy than previously thought led the traders to bet that there won’t be any shift to the central bank’s policy in the upcoming months.Here’s How These Developments are Setting the Stage for BanksOwing to the Fed’s accommodative monetary policy stance and near-zero interest rates since March 2020, banks have been witnessing pressure on the net interest margin (NIM). Hence, the faster-than-expected interest rate hikes will come as a breather for banks and will improve margins and net interest income (NII), which accounts for a major portion of the revenues.Further, the steepening of the yield curve (the difference between short and long-term interest rates), robust economic growth and a gradual rise in loan demand are set to drive margins and NII. Banks are taking initiatives to restructure operations to diversify their footprint and revenue base. Efforts to focus more on non-interest income are likely to bolster banks’ top-line growth.Banks are also undertaking measures to align their businesses for technology-driven clients by spending substantially on technology to upgrade and add advanced features. This is expected to lower costs and improve operating efficiency, going forward.At present, the Zacks Finance sector, of which banks constitute a major part, is ranked #1 out of all 16 sectors. Investing in the top sectors and industries offers a tailwind to your investment portfolio.Our PicksOn the back of these developments, investing in bank stocks will help generate solid returns. Short-listed banks have an earnings growth rate of 5% or more over the next 12 months, and a market cap of not less than $5 billion. Further, shares of these banks rallied in yesterday’s session as well.All three banks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Northern Trust, based in Chicago, provides services from sovereign wealth funds to the wealthiest families across the globe. NTRS is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals.Organic growth is Northern Trust’s key strength. Revenues witnessed a CAGR of 5.3% over the last five years (2016-2020) on rising non-interest as well as NII, with some annual volatility. The trend continued in the first nine months of 2021.NTRS' innovative technology-driven hedge fund administration capabilities brought to the marketplace via Northern Trust Hedge Fund Services provide an attractive proposition to the clients. The company is eyeing opportunities to expand its private capital space. The implementation of the Target2-Securities (T2S) strategy to provide better services to its clients is commendable.For supporting the new investment activities, management is taking steps to tackle expense growth and reinstate operating leverage over the upcoming quarters. Northern Trust, which has a market cap of $25.1 billion, continues to pursue meaningful additional efforts to improve productivity and deliver financial benefits beyond original targets.Northern Trust has a solid balance sheet. It maintains investment-grade senior debt ratings of A+/A2/A+ and a stable outlook from Fitch, Moody’s and S&P Global, respectively.Northern Trust’s earnings are expected to jump 13.9% over the next 12 months. In yesterday’s trading, the stock rallied almost 1%.Headquartered in Pasadena, CA, East West Bancorp serves as a financial bridge between the United States and China by providing various consumer and commercial banking services to the Asian-American community. EWBC operates through more than 120 locations in the United States and China.East West Bancorp is focused on its organic growth strategy. Though the company’s NII, which is the primary source of its revenues, declined in 2020, the same witnessed a CAGR of 5.1% over the last four years (2017-2020). The momentum persisted in the first nine months of 2021 as well. Improvement in loans and deposits is expected to further support NII.East West Bancorp has a solid balance sheet. Also, investment-grade credit ratings of BBB and a stable outlook from both S&P Global and Fitch Ratings render EWBC favorable access to the debt markets.East West Bancorp’s capital deployment activities seem impressive. In January 2021, the company hiked its quarterly dividend by 20% to 33 cents per share. EWBC has a share repurchase plan in place. As of Sep 30, 2021, $354.1 million worth of shares were left to be repurchased under the buyback plan.Growth in loans and deposits, along with a strong balance sheet position, is likely to keep supporting East West Bancorp’s financials. The stock, with a market cap of $11.3 billion, gained 1.4% yesterday. EWBC’s earnings are projected to rise 6.4% over the next 12 months.Waterbury, CT-based Webster Financial provides business and consumer banking, mortgage lending, financial planning, trust and investment services through its 130 banking centers and 254 ATMs, primarily in southern New England and Westchester County, NY. WBS has a market cap of $5.2 billion.WBS has an impressive revenue growth story. NII and non-interest income witnessed a CAGR of 5.5% and 2%, respectively, over the last five years (2016-2020) with some annual volatility. The company’s pending merger deal with Sterling Bancorp (likely to conclude on or around Feb 1, 2022) is expected to further aid top-line growth and be accretive to earnings and lead to cost savings.Webster Financial continues to make progress with its plan launched in fourth-quarter 2020 to drive incremental revenues and cost savings. Consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction and other organizational actions will aid in reducing its operating expenses.Solid deposit and loan balances, which support Webster Financial’s strong capital position, are poised to grow further on the back of an improving economic backdrop. Per management, the loan pipeline (across all business lines) remains robust.Revenue growth, along with strong balance sheet and business restructuring initiatives, will keep supporting Webster Financial and improve operating efficiency. The stock rose 3.4% yesterday. WBS’s earnings are projected to increase 9.5% over the next 12 months. Zacks Top 10 Stocks for 2022 In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022? From inception in 2012 through November, the Zacks Top 10 Stocks gained an impressive +962.5% versus the S&P 500’s +329.4%. Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Northern Trust Corporation (NTRS): Free Stock Analysis Report Webster Financial Corporation (WBS): Free Stock Analysis Report East West Bancorp, Inc. (EWBC): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJan 4th, 2022

Sam Bankman-Fried says a tidal wave of institutions could jump into crypto in 2022, if they get clear regulations

Regulatory clarity will open the door for some large investment banks and pension funds to enter the industry this year, the crypto billionaire said. Sam Bankman-Fried.FTX; Marianne Ayala/Insider FTX CEO Sam Bankman-Fried said institutional adoption of cryptocurrencies could accelerate in 2022. The pace of adoption depends on the level of regulatory clarity in the US and globally, he told Bloomberg Monday. A lot of the level of activity in the crypto industry in 2021 was "preparatory," the billionaire said. Sign up here for our daily newsletter, 10 Things Before the Opening Bell. Cryptocurrencies can expect to see more institutional adoption in 2022 — but whether it's a tidal wave or a trickle will depend on what happens on the regulatory front, according to FTX boss Sam Bankman-Fried.The crypto exchange CEO predicted that regulatory clarity will open the door for some large investment banks and pension funds to enter the industry this year. But he said developments in digital asset regulation will dictate the pace of adoption by financial institutions."Especially if we feel like they're getting clarity, that could come in a tidal wave, it could come in a trickle," he said in an interview released Monday.Still, he doesn't expect a rapid inflow within the next six months at least as it takes time for institutions to onboard new platforms and assets."It's going to be a long process probably stretched out over a few years," he said, adding that the size of the market could be "really enormous.""I've talked to every large bank, every large investment bank, pension funds — they're all eyeing the sector. Many of them have started breaking ground on their activities in it, but it's just slow and it takes time."A growing number of financial institutions, including BlackRock, Mastercard, and Visa,  have already introduced crypto-related offerings. Some financial advisors have recommended digital assets should be part of a portfolio, no matter what your age.Bankman-Fried, who launched crypto exchange FTX in 2019, pointed to activity in the crypto industry last year, saying that was just the foundation for what is to come. "I do think that there's going to be a lot happening this year," he said. "We've already seen what happened last year. But a lot of that has been preparatory."In 2021, cryptocurrencies such as bitcoin and ether gained in value, as some investors looked for a hedge against the high inflation seen around the world. Rising mainstream interest drove soaring retail demand across the market, with data showing global crypto adoption rose by more than 880% in the year.But cryptocurrencies overall have fallen back in recent weeks. Asked whether he sees bitcoin staging a comeback in 2022, Bankman-Fried was somewhat upbeat."The things that make me optimistic basically are more regulatory clarity in the US and globally, which I think could help a ton, and institutional adoption," he said. "I think those are also related to each other."The crypto billionaire also gave his take on when developments in a regulatory framework for digital assets can be expected."I think that you're probably going to see the first batch of it coming out in 2022," he said, adding that the stablecoin sector in particular could get some ground rules.Bankman-Fried also touched on the metaverse — a futuristic virtual landscape in which people can interact, buy non-fungible tokens, or even date — which has attracted high interest from Wall Street institutions. He said the metaverse could take time to materialize and become a full-blown technology."I expect that we might see a cooling off at least relatively speaking of some of the pure NFT activity that we've seen recently — unless and until we see large names of players and partners come into the space," he said. "But I do expect that to happen, and that will be supercharging the next piece of Web3 growth."Read More: A Wall Street veteran trader-turned crypto expert breaks down how bitcoin and ethereum could potentially reach $80,000 and $7,500 — and shares the 6 major trends on his radar in the year aheadRead the original article on Business Insider.....»»

Category: topSource: businessinsiderJan 4th, 2022

Futures Surge To A Record Above 4,800 As Euphoria Grips Global Markets

Futures Surge To A Record Above 4,800 As Euphoria Grips Global Markets US stock futures, European bourses and Asian markets all rose, extending the blistering start to 2022 (just as Goldman predicted in its $125 billion January inflow case), with more strategists cementing their bullish projections as investors shrugged off worries Omicron could choke the global economic recovery as data on U.S. manufacturing and job openings due today will further show the world’s largest economy is resilient against the spread of omicron. Nasdaq 100 futures rose 0.4% and contracts on the S&P 500 climbed 0.3% to a new all time high above 4,800 after the underlying gauge closed at a record on Monday. European stocks also gained. Waning demand for haven assets pushed the yen to a five-year low, while oil fluctuated ahead of an OPEC+ meeting. The dollar and U.S. treasury yields extended their surge - with the 10Y last yielding 1.6630% - after Monday’s worst start to a year since 2009. JPMorgan Chase & Co. strategists advised staying bullish on global stocks, saying positive catalysts are not exhausted, while Credit Suisse reiterated a bullish view on U.S. stocks. In premarket trading, Apple shares rose as much as 0.5%, putting the iPhone maker on track to reclaim $3 trillion in market cap as appetite for risk returns. Meanwhile, Jowell Global plunged 11% after a volatile trading session for the Chinese e-commerce stock on Monday that saw it plunge 59%. Travel stocks rallied for a second day even as the U.S. reported a record of over 1 million Covid cases, amid growing evidence that the omicron variant leads to milder infections. The S&P Supercomposite Airlines Index rose 3.3% Monday to the highest since Nov. 24 and appears set for further gains Tuesday. Most airline companies rose about 1% in premarket trading, while cruise lines were also higher with Carnival +1.8%, Royal Caribbean +1%, Norwegian +1.4%. General Electric rose after the stock was raised to outperform at Credit Suisse and Hewlett Packard Enterprise climbed with an overweight rating from Barclays. Here are some other notable pre-market movers today: Coca-Cola (KO US) sits in a stronger position following a transition year in 2021, Guggenheim Securities writes in note upgrading to buy after almost exactly a year with a neutral stance. Shares up 1% in premarket. Stryker (SYK US) and Globus Medical (GMED US) both upgraded to overweight at Piper Sandler, which says in a note that the two stocks have momentum to continue delivering above-average share performance this year. Stryker up 1.4% premarket. Tiny U.S. biotech stocks gain in high premarket volume amid a broader return of risk appetite and following positive updates on studies. Oragenics (OGEN US) +23%, Indaptus Therapeutics (INDP US) +7%. Intra-Cellular Therapies (ITCI US) falls 7% in premarket after launching a $400 million share sale. AFC Gamma (AFCG US) falls 11% premarket after launching a stock offering. Core & Main (CNM US) dropped 7.6% postmarket after holders offered a stake. In Europe, the Euro STOXX 600 gained as much as 0.9% in early trading, pushing beyond its all-time high of 489.99 points scaled a day earlier, with the FTSE 100 and CAC 40 up over 1.25%. Travel and leisure stocks jumped 2.7%, with Ryanair adding 8% and British Airways-owner IAG gaining over 9%, reflecting expectations Omicron's impact on the industry would be less severe than initially feared. Euro Stoxx 50 added as much as 1% with travel, autos and banks the best performing sectors so far. Investors have set aside worries about the highly infectious omicron variant as they continue to trade on the economic recovery from the pandemic which may soon be ending thanks to Omicron which could make covid endemic. “Globally, there is a lot of news regarding the rising omicron cases, but there is also a lot of news that the cases are not as deadly as the previous variants of Covid,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “And investors prefer focusing on a glass half full rather than a glass half empty at the start of the year.” "The chief reason behind the return of investor confidence is Omicron," said Jeffrey Halley, an analyst at Oanda. Yes, the virus variant is much more contagious, but it is not leading to a proportionally larger number of hospital admissions... (so) it won't stop the global economic recovery." This, incidentally, is precisely what we said over a month ago. That said, markets anticipate an uptick in volatility as they navigate through the omicron variant, supply-chain disruptions and more central banks winding back pandemic stimulus. More than one million people in the U.S. were diagnosed with Covid-19 on Monday, a new global daily record, and yet markets barely winced. Asian stocks gained behind rallies in Japan and Australia on their first trading sessions of 2022, with much of the region tracking the strong performance in the U.S. as investors maintained growth optimism despite a worsening pandemic.  The MSCI Asia Pacific Index rose as much as 1%, the most in two weeks, lifted by technology and financial shares. Metals and mining stocks gave the Australian benchmark gauge a boost, while a weaker yen allowed exporters to provide support for Japan’s Topix. Chinese stocks bucked the regional trend to suffer their weakest start to a year since 2019. The CSI 300 Index fell 0.5% as some investors took profit and assessed developments in the property sector while renewable energy and health-care firms paced declines. Also souring the mood, the People Bank of China cut its net injection of short-term cash to the markets, prompting concerns over support for the financial system. Tuesday’s activities in Asia also showed some traders setting aside their worries over the rapid spread of omicron strain for now to bet on resilience in the global economy.  While the omicron variant will be a negative factor in the short term, Chinese equities will likely help drive emerging markets higher in 2022 as monetary and fiscal stimulus spur economic growth, said Kristina Hooper, chief global market strategist at Invesco.  The Philippine Stock Exchange had to cancel trading following a system glitch, according to a statement by bourse President Ramon Monzon Japanese equities rose in their first trading session of the year, helped by the yen’s drop to a five-year low and a tailwind from U.S. peers’ climb to fresh all-time highs. Electronics and auto makers were the biggest boosts to the Topix, which gained 1.9%, the most in four weeks. All industry groups advanced except papermakers and energy explorers. Tokyo Electron and Advantest were the largest contributors to a 1.8% rise in the Nikkei 225.  The S&P 500 rose to a record and Treasury yields climbed Monday as traders braced for the start of a potentially volatile year and three expected rate hikes from the Federal Reserve. The White House is likely to nominate economist Philip Jefferson for a seat on the Fed board of governors, according to people familiar with the matter. “It’s gradually coming to light who will be the new members of the FRB and it looks like they will be those with quite a dovish stance, which very supportive factor for stocks,” said Hiroshi Matsumoto, senior client portfolio manager at Pictet Asset Management in Tokyo.  Australian stocks jumped themost in over a year, with fresh records in sight. The S&P/ASX 200 index rose 2% to 7,589.80, marking its best session since October 2020. The benchmark closed about 40 points away from the all-time high it reached in August as all sectors gained. Pilbara Minerals was among the top performers, jumping to a record. St. Barbara was among the worst performers after giving an update on its Simberi mine. In New Zealand, the market was closed for a holiday. India’s Sensex rallied for a third day as the outlook for lenders improved on the back of a continued recovery in the economy.  The S&P BSE Sensex rose 1.1% to 59,855.93 in Mumbai, while the NSE Nifty 50 Index rallied 1%. All but three of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by a gauge of power companies. The S&P BSE Bankex added 1.3% to stretch its rally to a fourth day, its longest streak of gains since Oct. 26.   Financial stocks in India offer an attractive entry point after foreign funds sold more than $3 billion of sector stocks over Nov.-Dec., Jefferies analyst Prakhar Sharma wrote in a note. He expects improved growth, stable asset quality and manageable omicron impact to aid a re-rating of the sector. “Markets are currently following their global counterparts while the domestic factors are showing mixed indications,” Religare Broking analyst Ajit Mishra said in a note.  Reliance Industries contributed the most to the Sensex’s gain on Tuesday, increasing 2.2%. Out of 30 shares in the index, 25 rose and five fell. In FX, Bloomberg Dollar Spot Index trades notably higher for the second day in a row, with AUD and CHF top the G-10 leader board, while the JPY lags pushing through Asia’s worst levels near 116.31/USD.  The euro was confined in a narrow range around $1.13 while the greenback weakened versus all of its Group-of-10 peers apart from the yen and risk-sensitive currencies were the best performers. The pound edged higher, continuing its ascent over the holiday period that was based on firmer global risk sentiment and bets the U.K. economy won’t be derailed by omicron. Gilts slumped as traders caught up with Monday’s jump in U.S. and euro-area yields after the U.K. was closed for a holiday. Australia’s government bonds and the nation’s currency both rose amid speculation the global economic recovery will weather the surge in omicron infections. New Zealand’s markets remained shut for New Year holidays. Purchasing managers’ index for the Australia’s manufacturing sector declined for the first time in four months in December, Markit data showed. The yen dropped to a five-year, with the USDJPY rising above 116 as speculation the global economic recovery will weather omicron saps demand for haven assets. Japanese bonds declined before debt auctions later this week. Options pricing suggests there may be more gains for the dollar in a rally against the yen that’s already taken it to the strongest since 2017. In rates, 10-year Treasury yield spiked to 1.66% after surging 12 basis points on Monday, the biggest jump to start a year since 2009. The two-year rate was at 0.77%. Treasury yields were cheaper by up to 1.5bp across front- and belly of the curve with long-end yields slightly richer vs. Monday close. IG dollar issuance includes a number of bank names headed by NAB 5-part offering. Three-month dollar Libor +0.69bp at 0.21600%. Bunds richen 1.5bps across the belly with a mixed peripheral complex with expectations for a busy issuance slate ahead. Gilts underperform, playing catch up to Monday’s move in bunds and treasuries, cheapening as much as 10bps across the curve with 10s near 1.07%. Looking beyond the current risk-on momentum, traders expect Fed tightening to further boost yields and reset equity valuations. This week’s U.S. December payroll data and minutes from the Fed’s meeting last month may throw more light on the pace of such shift. “We expect 2022 to be far more challenging from an investment perspective,” Heather Wald, vice president at Bel Air Investment Advisors, said in an emailed note. “Rarely has a market delivered three consecutive years of double-digit returns, as we have seen from 2019-2021. With the Federal Reserve set to accelerate tightening and a fairly valued stock market, we anticipate more muted returns for the S&P next year but still expect equities to remain attractive versus other liquid asset classes.” In commodities, crude futures flip a short-lived dip to rise ~0.7%. WTI trades near best levels of the session close to $76.70, Brent near $79.50 ahead of today’s OPEC+ gathering. Spot gold trades a tight range, holding above $1,800/oz. Base metals are mixed, LME copper underperforms. U.S. economic data slate includes the December ISM manufacturing survey, which will show the early impact of the variant on supply chains, while the JOLTS data will show the balance between job openings and unemployment numbers; also this week brings ADP employment change, durable goods orders and December jobs report. Market Snapshot S&P 500 futures up 0.3% to 4,799 STOXX Europe 600 up 0.5% to 492.53 German 10Y yield little changed at -0.13% Euro little changed at $1.1307 MXAP up 0.9% to 194.72 MXAPJ up 0.6% to 633.00 Nikkei up 1.8% to 29,301.79 Topix up 1.9% to 2,030.22 Hang Seng Index little changed at 23,289.84 Shanghai Composite down 0.2% to 3,632.33 Sensex up 1.1% to 59,815.19 Australia S&P/ASX 200 up 1.9% to 7,589.76 Kospi little changed at 2,989.24 Brent Futures up 0.4% to $79.26/bbl Gold spot up 0.3% to $1,806.40 U.S. Dollar Index little changed at 96.18 Top Overnight News from Bloomberg Treasury traders are betting the rapid spread of omicron will increase inflationary pressures in the U.S. economy, rather than weaken them Global central banks are set to spend 2022 diverging, as some take on the menace of inflation and others stay focused on boosting economic growth French inflation stabilized in December, indicating price pressures may be near a peak in the euro area after surging on energy costs in the past few months OPEC and its allies are poised to revive more halted oil production when they meet on Tuesday after predicting a tighter outlook for global markets A more detailed breakdown of global markets courtesy of Newsquawk Asia-Pac stocks eventually traded mixed on the first trading session of the year for most bourses, with the region catching some tailwinds from the positive Eurozone and US sessions on Monday. On Wall Street, the Nasdaq outpaced with gains of 1.2% as Apple became the first-ever public company to reach USD 3tln in market value, whilst Tesla shares were catapulted 13.5% after beating Q4 delivery expectations despite the chip shortage and in spite of last week's mass recall. US equity futures overnight resumed trade with a mild positive bias and thereafter drifted higher - with the US ISM Manufacturing PMI, FOMC Minutes, US labour market report and Fed speakers all on this week’s docket. The ASX 200 (+2.0%) saw gains across its Energy, Mining, Tech and Financial sectors. The Nikkei 225 (+1.8%) briefly dipped under 29k before rising to session highs – with Autos among the top gainers amid a similar performance Stateside, whilst the softer JPY underpinned the index. The KOSPI (U/C) was flat in early trade but thereafter swung between gains and losses. In China, the Shanghai Comp (-0.2%) gave up early gains on its first trading day of 2022 following a CNY 260bln daily liquidity drain by the PBoC, whilst reports also suggested that China is facing USD 708mln cash demand this month, +18% Y/Y according to calculations, amid maturing debt and seasonal demand for cash ahead of the Lunar New Year on 1st February. The Hang Seng (+0.1%) kicked off its second day of trade the year in the green after Monday’s losses. China Evergrande shares resumed trade with gains of 5% after it yesterday suspended its Hong Kong shares in a bid to raise cash and following the order to demolish 39 buildings. Meanwhile, Hong Kong-listed and US-blacklisted AI firm SenseTime shares rose another 20% to almost triple its IPO price. In fixed income, US 10yr Mar'22 futures saw some light buying in early trade, with some suggested regional Asia demand following the heavy cheapening on Monday, albeit this early mild upside faded. Top Asian News Amazon Plays Down Reports It’s Pulling Kindle From China H.K. Finds One Prelim. Local Case With Unknown Source: HK01 China High-Yield Dollar Bonds Fall 1-2 Cents; Developers Lead China South City USD Bonds Slump; Firm Denies Debt-Swap Report European equities trade on a firmer footing with the Stoxx 600 (+0.8%) once again at a record high. The FTSE 100 leads the charge within the region; however, this is largely on account of a catch-up play from yesterday’s bank holiday. Initially to the downside resided the SMI (+0.1%) as the only major bourse in the red amid losses in index-heavyweight Roche (-1.4%); however, this has abated modestly throughout the morning. The lead from the APAC region was a mixed one as the Nikkei 225 (+1.8%) benefited from a softer JPY, the ASX 200 (+1.95%) was lifted by gains in Energy, Mining, Tech and Financial sectors, whilst Chinese bourses (Hang Seng +0.1%, Shanghai Comp. -0.2%) were kept subdued by a PBoC liquidity drain and unable to benefit from an unexpected expansion in the December Chinese Caixin Manufacturing PMI. Stateside, futures are modestly firmer across the board (ES +0.4%, NQ +0.4%, RTY +0.5%) after yesterday’s session which was characterised by Nasdaq outperformance, +1.2%, as Apple became the first-ever public company to reach USD 3tln in market value, whilst Tesla shares were catapulted 13.5% after beating Q4 delivery expectations. In a recent note, analysts at JP Morgan stated they are of the view that there is further upside for stocks as the Omicron variant appears to be milder than previous strains and the impact on mobility is more manageable than previous ones. Furthermore, the bank suggests that there are signs that constraints in supply chains are passing their peak and power prices are easing. Sectors in Europe are mostly firmer with Travel & Leisure names clearly top of the pile UK as airline names benefit from ongoing optimism about the Omicron variant’s impact on mobility and a December passenger update from Wizz Air which has sent its shares higher by 10.1%. Of note for the European banks (which are also a notable gainer on the session), Citigroup is “overweight” on the sector for the upcoming year, citing profit growth, interest rate hikes and potential for capital returns. In terms of specific names, BNP Paribas, Lloyds and UBS were flagged as top picks. Elsewhere, other cyclically-led sectors such as Autos, Oil & Gas and Basic Resources are also trading on a firmer footing. To the downside, Healthcare names sit in the red amid aforementioned losses in Roche, whilst Sanofi (-0.7%) are also seen lower after flagging that Q4 2021 vaccine sales are expected to be lower on a Y/Y basis. Finally, Rolls-Royce (+3.6%) is seen higher on the session after concluding the sale of Bergen Engines. Top European News Italy Starts Search for New President With Draghi as Contender U.K. Mortgage Approvals Fall to 66,964 in Nov. Vs. Est. 66,000 Ukraine Says Russia Reinforced Military Units in Occupied Donbas European Gas Prices Jump a Second Day as Russian Shipments Drop In FX, the Dollar index looks comfortable enough above 96.000 within a 96.336-146 range after eclipsing yesterday’s best (96.328) marginally, but the technical backdrop remains less constructive given its failure to end last week (and 2021) above a key chart level at 96.098. Nevertheless, the most recent spike in US Treasury yields has given the Greenback sufficient impetus to claw back losses, and in DXY terms fresh incentive to rebound firmly or extend gains against funding currencies in particular ahead of the manufacturing ISM and the remainder of a hectic first week of the new year that culminates in NFP and a trio of scheduled Fed speakers, but also comprises minutes of the December FOMC taper and more hawkishly aligned tightening policy meeting. JPY/AUD - As noted above, low yielders are underperforming or lagging in the current environment, and the Yen is also succumbing to the increasingly divergent BoJ vs Fed trajectory that is exacerbating technical forces behind the rally in Usd/Jpy to new 5 year highs just shy of 115.90. Stops are said to have been triggered during the latest leg up and there is little of significance in terms of resistance ahead of 116.00, while option expiry interest is relatively light until 1.13 bn at the half round number above. Conversely, the Aussie has been boosted by higher coal prices overnight and an unexpected return to growth from contraction in China’s Caixin manufacturing PMI, with Aud/Usd trying to establish a base around 0.7200 in wake of an upward revision to the final manufacturing PMI. GBP/NZD/EUR/CHF/CAD - The Pound is next best major, but mainly due to Gilts playing catch-up following Monday’s UK Bank Holiday and only in part on the back of an upgrade to the final manufacturing PMI allied to better than forecast BoE data including consumer credit, mortgage lending and approvals. Cable is probing 1.3500 and Eur/Gbp is edging towards 0.8360 even though the Euro has regained some poise against the Buck to retest 1.1300 with some traction gleaned from stronger than anticipated German retail sales and jobs metrics. Back down under, the Kiwi is trying to keep tabs on 0.6800 in the face of Aud/Nzd headwinds as the cross climbs over 1.0600, while the Franc is holding above 0.9200 post-Swiss CPI that was close to consensus and the Loonie is meandering between 1.2755-23 parameters pre-Canadian PPI and Markit’s manufacturing PMI against the backdrop of firmer crude prices. In commodities, WTI and Brent are firmer this morning and have been grinding towards fresh highs throughout the European session after slightly choppy APAC trade; currently, the peaks are USD 76.82/bbl and USD 79.67/bbl respectively. Newsflow has been fairly slow throughout the morning with catch-up action occurring for participants. Today’s focal point for the space is very much the OPEC+ gathering; albeit, this is expected to result in a continuation of the existing quota adjustments of 400k BPD/month. Thus far, the JTC has reviewed market fundamentals and other developments determining that the Omicron variant’s impact is expected to be both mild and short-term. For reference, today’s timings are 12:00GMT/07:00EST for the JMMC and 13:00GMT/08:00EST for OPEC+ - though, as always with OPEC, these serve only as guidance. While the main decision is expected to be a straightforward one, there is the possibility that underproduction by certain members could cause some tension. Elsewhere, spot gold and silver are contained with a modest positive-bias but are yet to stray too far from the unchanged mark with spot gold, for instance, in a sub-USD 10/oz range just above USD 1800/oz. Separately, coal futures were notable bid in China following reports that Indonesia, a large supplier to China, has banned exports for the month, given domestic power concerns. US Event Calendar 10am: Nov. JOLTs Job Openings, est. 11.1m, prior 11m 10am: Dec. ISM Employment, est. 53.6, prior 53.3 ISM New Orders, est. 60.4, prior 61.5 ISM Prices Paid, est. 79.2, prior 82.4 ISM Manufacturing, est. 60.0, prior 61.1         Tyler Durden Tue, 01/04/2022 - 07:59.....»»

Category: blogSource: zerohedgeJan 4th, 2022

2021 Greatest Hits: The Most Popular Articles Of The Past Year And A Look Ahead

2021 Greatest Hits: The Most Popular Articles Of The Past Year And A Look Ahead One year ago, when looking at the 20 most popular stories of 2020, we said that the year would be a very tough act to follow as there "could not have been more regime shifts, volatility moments, and memes than 2020." And yet despite the exceedingly high bar for 2021, the year did not disappoint and proved to be a successful contender, and if judging by the sheer breadth of narratives, stories, surprises, plot twists and unexpected developments, 2021 was even more memorable and event-filled than 2020. Where does one start? While covid was the story of 2020, the pandemic that emerged out of a (Fauci-funded) genetic lab team in Wuhan, China dominated newsflow, politics and capital markets for the second year in a row. And while the biggest plot twist of 2020 was Biden's victory over Trump in the presidential election (it took the pandemic lockdowns and mail-in ballots to hand the outcome to Biden), largely thanks to Covid, Biden failed to hold to his biggest presidential promise of defeating covid, and not only did he admit in late 2021 that there is "no Federal solution" to covid waving a white flag of surrender less than a year into his presidency, but following the recent emergence of the Xi, pardon Omicron variant, the number of covid cases in the US has just shattered all records. The silver lining is not only that deaths and hospitalizations have failed to follow the number of cases, but that the scaremongering narrative itself is starting to melt in response to growing grassroots discontent with vaccine after vaccine and booster after booster, which by now it is clear, do nothing to contain the pandemic. And now that it is clear that omicron is about as mild as a moderate case of the flu, the hope has finally emerged that this latest strain will finally kill off the pandemic as it becomes the dominant, rapidly-spreading variant, leading to worldwide herd immunity thanks to the immune system's natural response. Yes, it may mean billions less in revenue for Pfizer and Moderna, but it will be a colossal victory for the entire world. The second biggest story of 2021 was undoubtedly the scourge of soaring inflation, which contrary to macrotourist predictions that it would prove "transitory", refused to do so and kept rising, and rising, and rising, until it hit levels not seen since the Volcker galloping inflation days of the 1980s. The only difference of course is that back then, the Fed Funds rate hit 20%. Now it is at 0%, and any attempts to hike aggressively will lead to a horrific market crash, something the Fed knows very well. Whether this was due to supply-chain blockages and a lack of goods and services pushing prices higher, or due to massive stimulus pushing demand for goods - and also prices - higher, or simply the result of a record injection of central bank liquidity into the system, is irrelevant but what does matter is that it got so bad that even Biden, facing a mauling for his Democratic party in next year's midterm elections, freaked out about soaring prices and pushed hard to lower the price of gasoline, ordering releases from the US Strategic Petroleum Reserve and vowing to punish energy companies that dare to make a profit, while ordering Powell to contain the surge in prices even if means the market is hit. Unfortunately for Biden, the market will be hit even as inflation still remain red hot for much of the coming year. And speaking of markets, while 2022 may be a year when the piper finally gets paid, 2021 was yet another blockbuster year for risk assets, largely on the back of the continued global response to the 2020 covid pandemic, when as we wrote last year, we saw "the official arrival of global Helicopter Money, tens of trillions in fiscal and monetary stimulus, an overhaul of the global economy punctuated by an unprecedented explosion in world debt, an Orwellian crackdown on civil liberties by governments everywhere, and ultimately set the scene for what even the World Economic Forum called simply "The Great Reset." Yes, the staggering liquidity injections that started in 2020, continued throughout 2021 and the final tally is that after $3 trillion in emergency liquidity injections in the immediate aftermath of the pandemic to stabilize the world, the Fed injected almost $2 trillion in the subsequent period, of which $1.5 trillion in 2021, a year where economists were "puzzled" why inflation was soaring. This, of course, excludes the tens of trillions of monetary stimulus injected by other central banks as well as the boundless fiscal stimulus that was greenlighted with the launch of helicopter money (i.e., MMT) in 2020. It's also why with inflation running red hot and real rates the lowest they have ever been, everyone was forced to rush into the "safety" of stocks (or stonks as they came to be known among GenZ), and why after last year's torrid stock market returns, the S&P rose another 27% in 2021 and up a staggering 114% from the March 2020 lows, in the process trouncing all previous mega-rallies (including those in 1929, 1938, 1974 and 2009)... ... making this the third consecutive year of double-digit returns. This reminds us of something we said last year: "it's almost as if the world's richest asset owners requested the covid pandemic." A year later, we got confirmation for this rhetorical statement, when we calculated that in the 18 months since the covid pandemic, the richest 1% of US society have seen their net worth increase by over $30 trillion. As a result, the US is now officially a banana republic where the middle 60% of US households by income - a measure economists use as a definition of the middle class - saw their combined assets drop from 26.7% to 26.6% of national wealth as of June, the lowest in Federal Reserve data, while for the first time the super rich had a bigger share, at 27%. Yes, the 1% now own more wealth than the entire US middle class, a definition traditionally reserve for kleptocracies and despotic African banana republics. It wasn't just the rich, however: politicians the world over would benefit from the transition from QE to outright helicopter money and MMT which made the over monetization of deficits widely accepted in the blink of an eye. The common theme here is simple: no matter what happens, capital markets can never again be allowed to drop, regardless of the cost or how much more debt has to be incurred. Indeed, as we look back at the news barrage over the past year, and past decade for that matter, the one thing that becomes especially clear amid the constant din of markets, of politics, of social upheaval and geopolitical strife - and now pandemics -  in fact a world that is so flooded with constant conflicting newsflow and changing storylines that many now say it has become virtually impossible to even try to predict the future, is that despite the people's desire for change, for something original and untried, the world's established forces will not allow it and will fight to preserve the broken status quo at any price - even global coordinated shutdowns - which is perhaps why it always boils down to one thing - capital markets, that bedrock of Western capitalism and the "modern way of life", where control, even if it means central planning the likes of which have not been seen since the days of the USSR, and an upward trajectory must be preserved at all costs, as the alternative is a global, socio-economic collapse. And since it is the daily gyrations of stocks that sway popular moods the interplay between capital markets and politics has never been more profound or more consequential. The more powerful message here is the implicit realization and admission by politicians, not just Trump who had a penchant of tweeting about the S&P every time it rose, but also his peers on both sides of the aisle, that the stock market is now seen as the consummate barometer of one's political achievements and approval. Which is also why capital markets are now, more than ever, a political tool whose purpose is no longer to distribute capital efficiently and discount the future, but to manipulate voter sentiments far more efficiently than any fake Russian election interference attempt ever could. Which brings us back to 2021 and the past decade, which was best summarized by a recent Bill Blain article who said that "the last 10-years has been a story of massive central banking distortion to address the 2008 crisis. Now central banks face the consequences and are trapped. The distortion can’t go uncorrected indefinitely." He is right: the distortion will eventually collapse especially if the Fed follows through with its attempt rate hikes some time in mid-2020, but so far the establishment and the "top 1%" have been successful - perhaps the correct word is lucky - in preserving the value of risk assets: on the back of the Fed's firehose of liquidity the S&P500 returned an impressive 27% in 2021, following a 15.5% return in 2020 and 28.50% in 2019. It did so by staging the greatest rally off all time from the March lows, surpassing all of the 4 greatest rallies off the lows of the past century (1929,1938, 1974, and 2009). Yet this continued can-kicking by the establishment - all of which was made possible by the covid pandemic and lockdowns which served as an all too convenient scapegoat for the unprecedented response that served to propel risk assets (and fiat alternatives such as gold and bitcoin) to all time highs - has come with a price... and an increasingly higher price in fact. As even Bank of America CIO Michael Hartnett admits, Fed's response to the the pandemic "worsened inequality" as the value of financial assets - Wall Street -  relative to economy - Main Street - hit all-time high of 6.3x. And while the Fed was the dynamo that has propelled markets higher ever since the Lehman collapse, last year certainly had its share of breakout moments. Here is a sampling. Gamestop and the emergence of meme stonks and the daytrading apes: In January markets were hypnotized by the massive trading volumes, rolling short squeezes and surging share prices of unremarkable established companies such as consoles retailer GameStop and cinema chain AMC and various other micro and midcap names. What began as a discussion on untapped value at GameStop on Reddit months earlier by Keith Gill, better known as Roaring Kitty, morphed into a hedge fund-orchestrated, crowdsourced effort to squeeze out the short position held by a hedge fund, Melvin Capital. The momentum flooded through the retail market, where daytraders shunned stocks and bought massive out of the money calls, sparking rampant "gamma squeezes" in the process forcing some brokers to curb trading. Robinhood, a popular broker for day traders and Citadel's most lucrative "subsidiary", required a cash injection to withstand the demands placed on it by its clearing house. The company IPOed later in the year only to see its shares collapse as it emerged its business model was disappointing hollow absent constant retail euphoria. Ultimately, the market received a crash course in the power of retail investors on a mission. Ultimately, "retail favorite" stocks ended the year on a subdued note as the trading frenzy from earlier in the year petered out, but despite underperforming the S&P500, retail traders still outperformed hedge funds by more than 100%. Failed seven-year Treasury auction:  Whereas auctions of seven-year US government debt generally spark interest only among specialists, on on February 25 2021, one such typically boring event sparked shockwaves across financial markets, as the weakest demand on record hit prices across the whole spectrum of Treasury bonds. The five-, seven- and 10-year notes all fell sharply in price. Researchers at the Federal Reserve called it a “flash event”; we called it a "catastrophic, tailing" auction, the closest thing the US has had to a failed Trasury auction. The flare-up, as the FT put it, reflects one of the most pressing investor concerns of the year: inflation. At the time, fund managers were just starting to realize that consumer price rises were back with a vengeance — a huge threat to the bond market which still remembers the dire days of the Volcker Fed when inflation was about as high as it is today but the 30Y was trading around 15%. The February auaction also illustrated that the world’s most important market was far less liquid and not as structurally robust as investors had hoped. It was an extreme example of a long-running issue: since the financial crisis the traditional providers of liquidity, a group of 24 Wall Street banks, have pulled back because of higher costs associated with post-2008 capital requirements, while leaving liquidity provision to the Fed. Those banks, in their reduced role, as well as the hedge funds and high-frequency traders that have stepped into their place, have tended to withdraw in moments of market volatility. Needless to say, with the Fed now tapering its record QE, we expect many more such "flash" episodes in the bond market in the year ahead. The arch ego of Archegos: In March 2021 several banks received a brutal reminder that some of family offices, which manage some $6 trillion in wealth of successful billionaires and entrepreneurs and which have minimal reporting requirements, take risks that would make the most serrated hedge fund manager wince, when Bill Hwang’s Archegos Capital Management imploded in spectacular style. As we learned in late March when several high-flying stocks suddenly collapsed, Hwang - a former protege of fabled hedge fund group Tiger Management - had built up a vast pile of leverage using opaque Total Return Swaps with a handful of banks to boost bets on a small number of stocks (the same banks were quite happy to help despite Hwang’s having been barred from US markets in 2013 over allegations of an insider-trading scheme, as he paid generously for the privilege of borrowing the banks' balance sheet). When one of Archegos more recent bets, ViacomCBS, suddenly tumbled it set off a liquidation cascade that left banks including Credit Suisse and Nomura with billions of dollars in losses. Conveniently, as the FT noted, the damage was contained to the banks rather than leaking across financial markets, but the episode sparked a rethink among banks over how to treat these clients and how much leverage to extend. The second coming of cryptos: After hitting an all time high in late 2017 and subsequently slumping into a "crypto winter", cryptocurrencies enjoyed a huge rebound in early 2021 which sent their prices soaring amid fears of galloping inflation (as shown below, and contrary to some financial speculation, the crypto space has traditionally been a hedge either to too much liquidity or a hedge to too much inflation). As a result, Bitcoin rose to a series of new record highs that culminated at just below $62,000, nearly three times higher than their previous all time high. But the smooth ride came to a halt in May when China’s crackdown on the cryptocurrency and its production, or “mining”, sparked the first serious crash of 2021. The price of bitcoin then collapsed as much as 30% on May 19, hitting a low of $30,000 amid a liquidation of levered positions in chaotic trading conditions following a warning from Chinese authorities of tighter curbs ahead. A public acceptance by Tesla chief and crypto cheerleader Elon Musk of the industry’s environmental impact added to the declines. However, as with all previous crypto crashes, this one too proved transitory, and prices resumed their upward trajectory in late September when investors started to price in the launch of futures-based bitcoin exchange traded funds in the US. The launch of these contracts subsequently pushed bitcoin to a new all-time high in early November before prices stumbled again in early December, this time due to a rise in institutional ownership when an overall drop in the market dragged down cryptos as well. That demonstrated the growing linkage between Wall Street and cryptocurrencies, due to the growing sway of large investors in digital markets. China's common prosperity crash: China’s education and tech sectors were one of the perennial Wall Street darlings. Companies such as New Oriental, TAL Education as well as Alibaba and Didi had come to be worth billions of dollars after highly publicized US stock market flotations. So when Beijing effectively outlawed swaths of the country’s for-profit education industry in July 2021, followed by draconian anti-trust regulations on the country's fintech names (where Xi Jinping also meant to teach the country's billionaire class a lesson who is truly in charge), the short-term market impact was brutal. Beijing’s initial measures emerged as part of a wider effort to make education more affordable as part of president Xi Jinping’s drive for "common prosperity" but that quickly raised questions over whether growth prospects across corporate China are countered by the capacity of the government to overhaul entire business models overnight. Sure enough, volatility stemming from the education sector was soon overshadowed by another set of government reforms related to common prosperity, a crackdown on leverage across the real estate sector where the biggest casualty was Evergrande, the world’s most indebted developer. The company, whose boss was not long ago China's 2nd richest man, was engulfed by a liquidity crisis in the summer that eventually resulted in a default in early December. Still, as the FT notes, China continues to draw in huge amounts of foreign capital, pushing the Chinese yuan to end 2021 at the strongest level since May 2018, a major hurdle to China's attempts to kickstart its slowing economy, and surely a precursor to even more monetary easing. Natgas hyperinflation: Natural gas supplanted crude oil as the world’s most important commodity in October and December as prices exploded to unprecedented levels and the world scrambled for scarce supplies amid the developed world's catastrophic transition to "green" energy. The crunch was particularly acute in Europe, which has become increasingly reliant on imports. Futures linked to TTF, the region’s wholesale gas price, hit a record €137 per megawatt hour in early October, rising more than 75%. In Asia, spot liquefied natural gas prices briefly passed the equivalent of more than $320 a barrel of oil in October. (At the time, Brent crude was trading at $80). A number of factors contributed, including rising demand as pandemic restrictions eased, supply disruptions in the LNG market and weather-induced shortfalls in renewable energy. In Europe, this was aggravated by plunging export volumes from Gazprom, Russia’s state-backed monopoly pipeline supplier, amid a bitter political fight over the launch of the Nordstream 2 pipeline. And with delays to the Nord Stream 2 gas pipeline from Russia to Germany, analysts say the European gas market - where storage is only 66% full - a cold snap or supply disruption away from another price spike Turkey's (latest) currency crisis:  As the FT's Jonathan Wheatley writes, Recep Tayyip Erdogan was once a source of strength for the Turkish lira, and in his first five years in power from 2003, the currency rallied from TL1.6 per US dollar to near parity at TL1.2. But those days are long gone, as Erdogan's bizarre fascination with unorthodox economics, namely the theory that lower rates lead to lower inflation also known as "Erdoganomics", has sparked a historic collapse in the: having traded at about TL7 to the dollar in February, it has since fallen beyond TL17, making it the worst performing currency of 2021. The lira’s defining moment in 2021 came on November 18 when the central bank, in spite of soaring inflation, cut its policy rate for the third time since September, at Erdogan’s behest (any central banker in Turkey who disagrees with "Erdoganomics" is promptly fired and replaced with an ideological puppet). The lira recovered some of its losses in late December when Erdogan came up with the "brilliant" idea of erecting the infamous "doom loop" which ties Turkey's balance sheet to its currency. It has worked for now (the lira surged from TL18 against the dollar to TL12, but this particular band aid solution will only last so long). The lira’s problems are not only Erdogan’s doing. A strengthening dollar, rising oil prices, the relentless covid pandemic and weak growth in developing economies have been bad for other emerging market currencies, too, but as long as Erdogan is in charge, shorting the lira remains the best trade entering 2022. While these, and many more, stories provided a diversion from the boring existence of centrally-planned markets, we are confident that the trends observed in recent years will continue: coming years will be marked by even bigger government (because only more government can "fix" problems created by government), higher stock prices and dollar debasement (because only more Fed intervention can "fix" the problems created by the Fed), and a policy flip from monetary and QE to fiscal & MMT, all of which will keep inflation at scorching levels, much to the persistent confusion of economists everywhere. Of course, we said much of this last year as well, but while we got most trends right, we were wrong about one thing: we were confident that China's aggressive roll out of the digital yuan would be a bang - or as we put it "it is very likely that while 2020 was an insane year, it may prove to be just an appetizer to the shockwaves that will be unleashed in 2021 when we see the first stage of the most historic overhaul of the fiat payment system in history" - however it turned out to be a whimper. A big reason for that was that the initial reception of the "revolutionary" currency was nothing short of disastrous, with Chinese admitting they were "not at all excited" about the prospect of yet one more surveillance mechanism for Beijing, because that's really what digital currencies are: a way for central banks everywhere to micromanage and scrutinize every single transaction, allowing the powers that be to demonetize any one person - or whole groups - with the flick of a switch. Then again, while digital money may not have made its triumphant arrival in 2021, we are confident that the launch date has merely been pushed back to 2022 when the rollout of the next monetary revolution is expected to begin in earnest. Here we should again note one thing: in a world undergoing historic transformations, any free press must be throttled and controlled, and over the past year we have seen unprecedented efforts by legacy media and its corporate owners, as well as the new "social media" overlords do everything in their power to stifle independent thought. For us it had been especially "personal" on more than one occasions. Last January, Twitter suspended our account because we dared to challenge the conventional narrative about the source of the Wuhan virus. It was only six months later that Twitter apologized, and set us free, admitting it had made a mistake. Yet barely had twitter readmitted us, when something even more unprecedented happened: for the first time ever (to our knowledge) Google - the world's largest online ad provider and monopoly - demonetized our website not because of any complaints about our writing but because of the contents of our comment section. It then held us hostage until we agreed to implement some prerequisite screening and moderation of the comments section. Google's action was followed by the likes of PayPal, Amazon, and many other financial and ad platforms, who rushed to demonetize and suspend us simply because they disagreed with what we had to say. This was a stark lesson in how quickly an ad-funded business can disintegrate in this world which resembles the dystopia of 1984 more and more each day, and we have since taken measures. One year ago, for the first time in our 13 year history, we launched a paid version of our website, which is entirely ad and moderation free, and offers readers a variety of premium content. It wasn't our intention to make this transformation but unfortunately we know which way the wind is blowing and it is only a matter of time before the gatekeepers of online ad spending block us again. As such, if we are to have any hope in continuing it will come directly from you, our readers. We will keep the free website running for as long as possible, but we are certain that it is only a matter of time before the hammer falls as the censorship bandwagon rolls out much more aggressively in the coming year. That said, whether the story of 2022, and the next decade for that matter, is one of helicopter or digital money, of (hyper)inflation or deflation: what is key, and what we learned in the past decade, is that the status quo will throw anything at the problem to kick the can, it will certainly not let any crisis go to waste... even the deadliest pandemic in over a century. And while many already knew that, the events of 2021 made it clear to a fault that not even a modest market correction can be tolerated going forward. After all, if central banks aim to punish all selling, then the logical outcome is to buy everything, and investors, traders and speculators did just that armed with the clearest backstop guarantee from the Fed, which in the deapths of the covid crash crossed the Rubicon when it formally nationalized the bond market as it started buying both investment grade bonds and junk bond ETFs in the open market. As such it is no longer even a debatable issue if the Fed will buy stocks after the next crash - the only question is when. Meanwhile, for all those lamenting the relentless coverage of politics in a financial blog, why finance appears to have taken a secondary role, and why the political "narrative" has taken a dominant role for financial analysts, the past year showed vividly why that is the case: in a world where markets gyrated, and "rotated" from value stocks to growth and vice versa, purely on speculation of how big the next stimulus out of Washington will be, the narrative over Biden's trillions proved to be one of the biggest market moving events for much of the year. And with the Biden stimulus plan off the table for now, the Fed will find it very difficult to tighten financial conditions, especially if it does so just as the economy is slowing. Here we like to remind readers of one of our favorite charts: every financial crisis is the result of Fed tightening. As for predictions about the future, as the past two years so vividly showed, when it comes to actual surprises and all true "black swans", it won't be what anyone had expected. And so while many themes, both in the political and financial realm, did get some accelerated closure courtesy of China's covid pandemic, dramatic changes in 2021 persisted, and will continue to manifest themselves in often violent and unexpected ways - from the ongoing record polarization in the US political arena, to "populist" upheavals around the developed world, to the gradual transition to a global Universal Basic (i.e., socialized) Income regime, to China's ongoing fight with preserving stability in its gargantuan financial system which is now two and a half times the size of the US. As always, we thank all of our readers for making this website - which has never seen one dollar of outside funding (and despite amusing recurring allegations, has certainly never seen a ruble from the KGB either, although now that the entire Russian hysteria episode is over, those allegations have finally quieted down), and has never spent one dollar on marketing - a small (or not so small) part of your daily routine. Which also brings us to another critical topic: that of fake news, and something we - and others who do not comply with the established narrative - have been accused of. While we find the narrative of fake news laughable, after all every single article in this website is backed by facts and links to outside sources, it is clearly a dangerous development, and a very slippery slope that the entire developed world is pushing for what is, when stripped of fancy jargon, internet censorship under the guise of protecting the average person from "dangerous, fake information." It's also why we are preparing for the next onslaught against independent thought and why we had no choice but to roll out a premium version of this website. In addition to the other themes noted above, we expect the crackdown on free speech to accelerate in the coming year when key midterm elections will be held, especially as the following list of Top 20 articles for 2021 reveals, many of the most popular articles in the past year were precisely those which the conventional media would not touch out of fear of repercussions, which in turn allowed the alternative media to continue to flourish in an orchestrated information vacuum and take significant market share from the established outlets by covering topics which the public relations arm of established media outlets refused to do, in the process earning itself the derogatory "fake news" condemnation. We are grateful that our readers - who hit a new record high in 2021 - have realized it is incumbent upon them to decide what is, and isn't "fake news." * * * And so, before we get into the details of what has now become an annual tradition for the last day of the year, those who wish to jog down memory lane, can refresh our most popular articles for every year during our no longer that brief, almost 11-year existence, starting with 2009 and continuing with 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019 and 2020. So without further ado, here are the articles that you, our readers, found to be the most engaging, interesting and popular based on the number of hits, during the past year. In 20th spot with 600,000 reads, was an article that touched on one of the most defining features of the market: the reflation theme the sparked a massive rally at the start of the year courtesy of the surprise outcome in the Georgia Senate race, where Democrats ended up wining both seats up for grabs, effectively giving the Dems a majority in both the House and the Senate, where despite the even, 50-seat split, Kamala Harris would cast the winning tie-breaker vote to pursue a historic fiscal stimulus. And sure enough, as we described in "Bitcoin Surges To Record High, Stocks & Bonds Battered As Dems Look Set To Take Both Georgia Senate Seats", with trillions in "stimmies" flooding both the economy and the market, not only did retail traders enjoy unprecedented returns when trading meme "stonks" and forcing short squeezes that crippled numerous hedge funds, but expectations of sharply higher inflation also helped push bitcoin and the entire crypto sector to new all time highs, which in turn legitimized the product across institutional investors and helped it reach a market cap north of $3 trillion.  In 19th spot, over 613,000 readers were thrilled to read at the start of September that "Biden Unveils Most Severe COVID Actions Yet: Mandates Vax For All Federal Workers, Contractors, & Large Private Companies." Of course, just a few weeks later much of Biden's mandate would be struck down in courts, where it is now headed to a decision by SCOTUS, while the constantly shifting "scientific" goal posts mean that just a few months later the latest set of CDC regulations have seen regulators and officials reverse the constant drone of fearmongering and are now even seeking to cut back on the duration of quarantine and other lockdown measures amid a public mood that is growing increasingly hostile to the government response. One of the defining political events of 2021 was the so-called "Jan 6 Insurrection", which the for America's conservatives was blown wildly out of proportion yet which the leftist media and Democrats in Congress have been periodically trying to push to the front pages in hopes of distracting from the growing list of failures of the Obama admin. Yet as we asked back in January, "Why Was Founder Of Far-Left BLM Group Filming Inside Capitol As Police Shot Protester?" No less than 614,000 readers found this question worthy of a response. Since then many more questions have emerged surrounding this event, many of which focus on what role the FBI had in organizing and encouraging this event, including the use of various informants and instigators. For now, a response will have to wait at least until the mid-term elections of 2022 when Republicans are expected to sweep one if not both chambers. Linked to the above, the 17th most read article of 2021 with 617,000 views, was an article we published on the very same day, which detailed that "Armed Protesters Begin To Arrive At State Capitols Around The Nation." At the end of the day, it was much ado about nothing and all protests concluded peacefully and without incident: perhaps the FBI was simply spread too thin? 2021 was a year defined by various waves of the covid pandemic which hammered poor Americans forced to hunker down at home and missing on pay, and crippled countless small mom and pop businesses. And yet, it was also a bonanza for a handful of pharma companies such as Pfizer and Moderna which made billions from the sale of "vaccines" which we now know do little if anything to halt the spread of the virus, and are instead now being pitched as palliatives, preventing a far worse clinical outcome. The same pharma companies also benefited from an unconditional indemnity, which surely would come in useful when the full side-effects of their mRNA-based therapies became apparent. One such condition to emerge was myocarditis among a subset of the vaxxed. And while the vaccines continue to be broadly rolled out across most developed nations, one place that said enough was Sweden. As over 620,000 readers found out in "Sweden Suspends Moderna Shot Indefinitely After Vaxxed Patients Develop Crippling Heart Condition", not every country was willing to use its citizens as experimental guniea pigs. This was enough to make the article the 16th most read on these pages, but perhaps in light of the (lack of) debate over the pros and cons of the covid vaccines, this should have been the most read article this year? Moving on to the 15th most popular article, 628,000 readers were shocked to learn that "Chase Bank Cancels General Mike Flynn's Credit Cards." The action, which was taken by the largest US bank due to "reputational risk" echoed a broad push by tech giants to deplatform and silence dissenting voices by literally freezing them out of the financial system. In the end, following widespread blowback from millions of Americans, JPMorgan reversed, and reactivated Flynn's cards saying the action was made in error, but unfortunately this is just one example of how those in power can lock out any dissenters with the flick of a switch. And while democrats cheer such deplatforming today, the political winds are fickle, and we doubt they will be as excited once they find themselves on the receiving end of such actions. And speaking of censorship and media blackouts, few terms sparked greater response from those in power than the term Ivermectin. Viewed by millions as a cheap, effective alternative to offerings from the pharmaceutical complex, social networks did everything in their power to silence any mention of a drug which the Journal of Antibiotics said in 2017 was an "enigmatic multifaceted ‘wonder’ drug which continues to surprise and exceed expectations." Nowhere was this more obvious than in the discussion of how widespread use of Ivermectin beat Covid in India, the topic of the 14th most popular article of 2021 "India's Ivermectin Blackout" which was read by over 653,000 readers. Unfortunately, while vaccines continue to fail upward and now some countries are now pushing with a 4th, 5th and even 6th vaccine, Ivermectin remains a dirty word. There was more covid coverage in the 13th most popular article of 2021, "Surprise Surprise - Fauci Lied Again": Rand Paul Reacts To Wuhan Bombshell" which was viewed no less than 725,000 times. Paul's reaction came following a report which revealed that Anthony Fauci's NIAID and its parent, the NIH, funded Gain-of-Function research in Wuhan, China, strongly hinting that the emergence of covid was the result of illicit US funding. Not that long ago, Fauci had called Paul a 'liar' for accusing him of funding the risky research, in which viruses are genetically modified or otherwise altered to make them more transmissible to humans. And while we could say that Paul got the last laugh, Fauci still remains Biden's top covid advisor, which may explain why one year after Biden vowed he would shut down the pandemic, the number of new cases just hit a new all time high. One hope we have for 2022 is that people will finally open their eyes... 2021 was not just about covid - soaring prices and relentless inflation were one of the most poignant topics. It got so bad that Biden's approval rating - and that of Democrats in general - tumbled toward the end of the year, putting their mid-term ambitions in jeopardy, as the public mood soured dramatically in response to the explosion in prices. And while one can debate whether it was due to supply-issues, such as the collapse in trans-pacific supply chains and the chronic lack of labor to grow the US infrastructure, or due to roaring demand sparked by trillions in fiscal stimulus, but when the "Big Short" Michael Burry warned that hyperinflation is coming, the people listened, and with over 731,000 reads, the 12th most popular article of 2021 was "Michael Burry Warns Weimar Hyperinflation Is Coming."  Of course, Burry did not say anything we haven't warned about for the past 12 years, but at least he got the people's attention, and even mainstream names such as Twitter founder Jack Dorsey agreed with him, predicting that bitcoin will be what is left after the dollar has collapsed. While hyperinflation may will be the endgame, the question remains: when. For the 11th most read article of 2021, we go back to a topic touched upon moments ago when we addressed the full-blown media campaign seeking to discredit Ivermectin, in this case via the D-grade liberal tabloid Rolling Stone (whose modern incarnation is sadly a pale shadow of the legend that house Hunter S. Thompson's unforgettable dispatches) which published the very definition of fake news when it called Ivermectin a "horse dewormer" and claimed that, according to a hospital employee, people were overdosing on it. Just a few hours later, the article was retracted as we explained in "Rolling Stone Issues 'Update' After Horse Dewormer Hit-Piece Debunked" and over 812,000 readers found out that pretty much everything had been a fabrication. But of course, by then it was too late, and the reputation of Ivermectin as a potential covid cure had been further tarnished, much to the relief of the pharma giants who had a carte blanche to sell their experimental wares. The 10th most popular article of 2021 brings us to another issue that had split America down the middle, namely the story surrounding Kyle Rittenhouse and the full-blown media campaign that declared the teenager guilty, even when eventually proven innocent. Just days before the dramatic acquittal, we learned that "FBI Sat On Bombshell Footage From Kyle Rittenhouse Shooting", which was read by over 822,000 readers. It was unfortunate to learn that once again the scandal-plagued FBI stood at the center of yet another attempt at mass misinformation, and we can only hope that one day this "deep state" agency will be overhauled from its core, or better yet, shut down completely. As for Kyle, he will have the last laugh: according to unconfirmed rumors, his numerous legal settlements with various media outlets will be in the tens if not hundreds of millions of dollars.  And from the great US social schism, we again go back to Covid for the 9th most popular article of 2021, which described the terrifying details of one of the most draconian responses to covid in the entire world: that of Australia. Over 900,000 readers were stunned to read that the "Australian Army Begins Transferring COVID-Positive Cases, Contacts To Quarantine Camps." Alas, the latest surge in Australian cases to nosebleed, record highs merely confirms that this unprecedented government lockdown - including masks and vaccines - is nothing more than an exercise in how far government can treat its population as a herd of sheep without provoking a violent response.  The 8th most popular article of 2021 looks at the market insanity of early 2021 when, at the end of January, we saw some of the most-shorted, "meme" stocks explode higher as the Reddit daytrading horde fixed their sights on a handful of hedge funds and spent billions in stimmies in an attempt to force unprecedented ramps. That was the case with "GME Soars 75% After-Hours, Erases Losses After Liquidity-Constrained Robinhood Lifts Trading Ban", which profiled the daytrading craze that gave an entire generation the feeling that it too could win in these manipulated capital markets. Then again, judging by the waning retail interest, it is possible that the excitement of the daytrading army is fading as rapidly as it first emerged, and that absent more "stimmies" markets will remain the playground of the rich and central banks. Kyle Rittenhouse may soon be a very rich man after the ordeal he went through, but the media's mission of further polarizing US society succeeded, and millions of Americans will never accept that the teenager was innocent. It's also why with just over 1 million reads, the 7th most read article on Zero Hedge this year was that "Portland Rittenhouse Protest Escalates Into Riot." Luckily, this is not a mid-term election year and there were no moneyed interests seeking to prolong this particular riot, unlike what happened in the summer of 2020... and what we are very much afraid will again happen next year when very critical elections are on deck.  With just over 1.03 million views, the 6th most popular post focused on a viral Twitter thread on Friday from Dr Robert Laone, which laid out a disturbing trend; the most-vaccinated countries in the world are experiencing  a surge in COVID-19 cases, while the least-vaccinated countries were not. As we originally discussed in ""This Is Worrying Me Quite A Bit": mRNA Vaccine Inventor Shares Viral Thread Showing COVID Surge In Most-Vaxxed Countries", this trend has only accelerated in recent weeks with the emergence of the Omicron strain. Unfortunately, instead of engaging in a constructive discussion to see why the science keeps failing again and again, Twitter's response was chilling: with just days left in 2021, it suspended the account of Dr. Malone, one of the inventors of mRNA technology. Which brings to mind something Aaron Rogers said: "If science can't be questioned it's not science anymore it's propaganda & that's the truth." In a year that was marked a flurry of domestic fiascoes by the Biden administration, it is easy to forget that the aged president was also responsible for the biggest US foreign policy disaster since Vietnam, when the botched evacuation of Afghanistan made the US laughing stock of the world after 12 US servicemembers were killed. So it's probably not surprising that over 1.1 million readers were stunned to watch what happened next, which we profiled in the 5th most popular post of 2021, where in response to the Afghan trajedy, "Biden Delivers Surreal Press Conference, Vows To Hunt Down Isis, Blames Trump." One person watching the Biden presser was Xi Jinping, who may have once harbored doubts about reclaiming Taiwan but certainly does not any more. The 4th most popular article of 2021 again has to do with with covid, and specifically the increasingly bizarre clinical response to the disease. As we detailed in "Something Really Strange Is Happening At Hospitals All Over America" while emergency rooms were overflowing, it certainly wasn't from covid cases. Even more curiously, one of the primary ailments leading to an onslaught on ERs across the nation was heart-related issues, whether arrhytmia, cardiac incidents or general heart conditions. We hope that one day there will be a candid discussion on this topic, but until then it remains one of the topics seen as taboo by the mainstream media and the deplatforming overlords, so we'll just leave it at that. We previously discussed the anti-Ivermectin narrative that dominated the mainstream press throughout 2021 and the 3rd most popular article of the year may hold clues as to why: in late September, pharma giant Pfizer and one of the two companies to peddle an mRNA based vaccine, announced that it's launching an accelerated Phase 2/3 trial for a COVID prophylactic pill designed to ward off COVID in those may have come in contact with the disease. And, as we described in "Pfizer Launches Final Study For COVID Drug That's Suspiciously Similar To 'Horse Paste'," 1.75 million readers learned that Pfizer's drug shared at least one mechanism of action as Ivermectin - an anti-parasitic used in humans for decades, which functions as a protease inhibitor against Covid-19, which researchers speculate "could be the biophysical basis behind its antiviral efficiency." Surely, this too was just another huge coincidence. In the second most popular article of 2021, almost 2 million readers discovered (to their "shock") that Fauci and the rest of Biden's COVID advisors were proven wrong about "the science" of COVID vaccines yet again. After telling Americans that vaccines offer better protection than natural infection, a new study out of Israel suggested the opposite is true: natural infection offers a much better shield against the delta variant than vaccines, something we profiled in "This Ends The Debate' - Israeli Study Shows Natural Immunity 13x More Effective Than Vaccines At Stopping Delta." We were right about one thing: anyone who dared to suggest that natural immunity was indeed more effective than vaccines was promptly canceled and censored, and all debate almost instantly ended. Since then we have had tens of millions of "breakout" cases where vaccinated people catch covid again, while any discussion why those with natural immunity do much better remains under lock and key. It may come as a surprise to many that the most read article of 2021 was not about covid, or Biden, or inflation, or China, or even the extremely polarized US congress (and/or society), but was about one of the most long-suffering topics on these pages: precious metals and their prices. Yes, back in February the retail mania briefly targeted silver and as millions of reddit daytraders piled in in hopes of squeezing the precious metal higher, the price of silver surged higher only to tumble just as quickly as it has risen as the seller(s) once again proved more powerful than the buyers. We described this in "Silver Futures Soar 8%, Rise Above $29 As Reddit Hordes Pile In", an article which some 2.4 million gold and silver bugs read with hope, only to see their favorite precious metals slump for much of the rest of the year. And yes, the fact that both gold and silver ended the year sharply lower than where they started even though inflation hit the highest level in 40 years, remains one of the great mysteries of 2021. With all that behind us, and as we wave goodbye to another bizarre, exciting, surreal year, what lies in store for 2022, and the next decade? We don't know: as frequent and not so frequent readers are aware, we do not pretend to be able to predict the future and we don't try despite endless allegations that we constantly predict the collapse of civilization: we leave the predicting to the "smartest people in the room" who year after year have been consistently wrong about everything, and never more so than in 2021 (even the Fed admitted it is clueless when Powell said it was time to retire the term "transitory"), which destroyed the reputation of central banks, of economists, of conventional media and the professional "polling" and "strategist" class forever, not to mention all those "scientists" who made a mockery of the "expertise class" with their bungled response to the covid pandemic. We merely observe, find what is unexpected, entertaining, amusing, surprising or grotesque in an increasingly bizarre, sad, and increasingly crazy world, and then just write about it. We do know, however, that after a record $30 trillion in stimulus was conjured out of thin air by the world's central banks and politicians in the past two years, the attempt to reverse this monetary and fiscal firehose in a world addicted to trillions in newly created liquidity now that central banks are freaking out after finally getting ot the inflation they were hoping to create for so long, will end in tears. We are confident, however, that in the end it will be the very final backstoppers of the status quo regime, the central banking emperors of the New Normal, who will eventually be revealed as fully naked. When that happens and what happens after is anyone's guess. But, as we have promised - and delivered - every year for the past 13, we will be there to document every aspect of it. Finally, and as always, we wish all our readers the best of luck in 2022, with much success in trading and every other avenue of life. We bid farewell to 2021 with our traditional and unwavering year-end promise: Zero Hedge will be there each and every day - usually with a cynical smile - helping readers expose, unravel and comprehend the fallacy, fiction, fraud and farce that defines every aspect of our increasingly broken system. Tyler Durden Sun, 01/02/2022 - 03:44.....»»

Category: personnelSource: nytJan 2nd, 2022

Positive Side of Inflation, Exciting 2022

In his Daily Market Notes report to investors, while commenting on the positive side of inflation, Louis Navellier wrote: Q3 2021 hedge fund letters, conferences and more Positive Side of Inflation The Labor Department announced last week that the Producer Price Index (PPI) surged 0.8% in November. Excluding food, energy, and trade margins, the core PPI […] In his Daily Market Notes report to investors, while commenting on the positive side of inflation, Louis Navellier wrote: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Positive Side of Inflation The Labor Department announced last week that the Producer Price Index (PPI) surged 0.8% in November. Excluding food, energy, and trade margins, the core PPI rose 0.7% in November so it is no longer just related to higher food and energy prices, suggesting that inflation is no longer “transitory.” The positive side of this inflation is that the bull markets in residential real estate and stocks remain the best way to protect yourself against inflation, so growth stocks and dividend growth stocks are expected to remain an oasis for investors. Since the market began to recover after its initial decline in March 2020, millions of new investors have opened brokerage accounts as these investors increasingly are turning to stocks to protect themselves against the highest inflation rates we’ve seen in 39 years (since 1982). The net result is that 2021 has been a great year for most markets, but fears still exist due to Elon Musk and other billionaires selling a record number of shares. The bears are insinuating that if “smart money” is selling, then a stock market correction must be imminent. However, The Wall Street Journal pointed out that in the third quarter, stock buy-backs rose to $234.5 billion, an all-time record. This may explain why companies continue to post better-than-expected earnings since stock buy-backs tend to boost the underlying earnings per share. As far as a correction being “imminent,” we already had a 5% decline in the S&P 500 (intraday) between Thanksgiving week and December 3rd, when the stock market overreacted to the Covid-19 Omicron variant, as well as unnecessary fears of Fed tapering. NASDAQ fell almost 8% in the same time frame, then it successfully retested those December 3rd lows on Friday, December 17th. This retest occurred on light trading volume, which tells me that it should be safe to invest in the stock market, since most of the risk has been wrung out. As I have mentioned several times, the last week of the year (between Christmas and New Year’s) is an excellent time to invest, since most year-end tax selling has been exhausted. Fortunately, the Treasury Department recently conducted successful Treasury securities auctions and although intermediate yields rose slightly, but briefly, the 10-year Treasury and other long bond yields remain remarkably stable. Due to robust international demand for Treasury securities, the Fed will continue to taper and further reduce its quantitative easing. As we close out 2021, the U.S. dollar remains very strong, as international investors increasingly turn to the U.S., since we have positive interest rates (versus flat-to-negative interest rates in Japan and most of Europe) and a strong currency. Our economy is also in better shape than Europe’s or Japan’s. The ISM service index is at a record high, and the ISM manufacturing index remains robust, so fourth-quarter GDP growth is shaping up to make 2022 a year for the record books. Since approximately half the sales for the S&P 500 are outside of the U.S., a strong U.S. dollar should help create record sales and boost earnings. Looking forward to 2022, I expect that growth stocks and dividend growth stocks will prosper. Why? First, although year-over-year earnings comparisons will become more difficult in 2022, a narrower market is good news for growth stocks and dividend growth stocks and bad news for the “index fund” crowd, since growth stocks and dividend growth stocks have traditionally prospered in a narrowing, more selective, stock market environment like this. Second, the Fed will likely remain reasonably accommodative after winding down its quantitative easing by March and perhaps raising key interest rates, starting in March – but in a gradual manner. Third, inflation will eventually decelerate, but it will likely remain above the Fed’s target rate through 2022. Inflation may fall under 3% by late 2022, which the stock market will likely celebrate. Fourth, the leadership of both the House of Representatives and the Senate are expected to change due to the mid-term elections, so Wall Street will finally get the divided government that it craves. One other big change is that the pandemic accelerated technological change and boosted productivity in the U.S., so companies can now make more money with fewer workers. Investors can profit in artificial intelligence (with companies like Nvidia); cybersecurity (Crowdstrike and Fortinet); 5G (Alphabet, Cadence Design System, EPAM Systems, and Keysight Technologies); electric vehicles (Ford, Panasonic, and VW Group); and semiconductor industries (KLA Corporation and United Microelectronics). These and a few other companies are leading this new wave of higher productivity. Investors have a lot to be excited about. Retail Sales Disappointed - But the Fed is Still Accelerating the "Taper" Last Wednesday, the Commerce Department announced that retail sales rose just 0.3% in November. Overall, the November retail sales report was very disappointing and will undoubtedly lead to downward fourth-quarter GDP revisions. It appears that higher gas prices are “zapping” consumer buying power and may be impacting consumer sentiment. The other big news on Wednesday was that the Federal Open Market Committee (FOMC) statement was surprisingly dovish in the wake of that morning’s disappointing retail sales report. Specifically, even though the FOMC statement implied that there would be three key interest rates hikes of 0.25% each for the federal funds rate in 2022, these rate hikes would not commence until the Fed ended its tapering. The Labor Department on Thursday announced that new claims for unemployment in the latest week rose to 206,000. Continuing unemployment claims fell to 1.845 million. New unemployment claims remain near a 52-year low, and the fact that continuing unemployment claims keep declining is very good news. In my opinion, the Fed has fulfilled its unemployment mandate and can now concentrate on fighting inflation. Navellier & Associates owns Nvidia (NASDAQ:NVDA), Crowdstrike Holdings (NASDAQ:CRWD), Fortinet Inc. (NASDAQ:FTNT), Alphabet (NASDAQ:GOOGL), Cadence Design System (NASDAQ:CDNS), EPAM Systems (NYSE:EPAM), Keysight Technologies, (NYSE:KEYS), Ford, (NYSE:F), Panasonic Corp (OTCMKTS:PCRFY), VW Group (OTCMKTS:VWAGY), KLA Corporation (NASDAQ:KLAC), and United Microelectronics (NYSE:UMC), in managed accounts. Louie Navellier and his family personally own Nvidia (NVDA), Alphabet (GOOGL), Cadence Design System (CDNS), EPAM Systems (EPAM), Keysight Technologies, (KEYS), Ford, (F), Panasonic Corp (PCRFY), VW Group (VWAGY), and United Microelectronics (UMC), via a Navellier managed account, but do not own Crowdstrike Holdings (CRWD), KLA Corporation (KLAC), or Fortinet Inc. (FTNT). Coffee Beans A tiny book measuring just 5 millimeters - about .2 inch - on each side, which was expected to sell for up to $1,700, surprised auctioneers in Brussels by selling for $4,739.11. The book, which contains the Catholic Lord's Prayer printed in Dutch, English, American English, French, German, Spanish and Swedish, was one of a few hundred published by the Gutenberg Museum in Mainz, Germany, in 1952. Source: UPI Updated on Dec 21, 2021, 2:07 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkDec 21st, 2021

Turkish Lira Explodes Higher After Erdogan Comments

Turkish Lira Explodes Higher After Erdogan Comments Update (1315ET): Having done nothing but insist on the continuation a religion-driven rate-cutting environment overnight, sending the lira above 18/USD, Turkish President Erdogan made another appearance this afternoon announcing extraordinary measures to bolster the Turkish lira, including the introduction of a new program that will, in his words, protect savings from fluctuations in the local currency. The government will make up for losses incurred by holders of lira deposits should the lira’s declines against hard currencies exceed interest rates promised by banks, Erdogan said after chairing a cabinet meeting in Ankara. “From now on, none of our citizens will need to switch their deposits from the Turkish lira to foreign currencies because of their concerns that the exchange rate” fluctuations might wipe out gains from interest payments, Erdogan said. The measures are intended to mitigate retail investors’ demand for dollars. While the fact that to do this, he would need to print more money seem to have been ignored, the Lira suddenly exploded higher in what appears to be nothing more than a well-engineered short-squeeze for now:   This is one of the biggest bounces in the Lira on record (larger at its peak that during the August 2018 crisis and the biggest intraday bounce since 1994) Below is a summary from Bloomberg of other steps announced by Erdogan on Monday: Authorities will offer non-deliverable forwards to help exporters mitigate foreign-exchange risks emanating from the elevated levels of volatility. “Turkey has neither the intention nor the need to take the slightest step back from the free market economy and the foreign-exchange regime,” Erdogan said. Withholding tax for investments in lira notes issued by the government will be reduced to 0% from 10% currently. Government will match 30% of all contributions made by private-sector workers to the optional pension system, up from the current level of 25%. The exporters-specific NDFs may backfire and create a bifurcated currency system, forcing demand for a black-market dollar exchange (we have seen this before). We suggest not reading too much into this rip - how many times did the Venezuelan Peso react before heading to hyperinflation.  *  *  * Update: as expected, moments after the first circuit breaker was lifted, the furious selling returned, sending the Borsa Istanbul down 7.1%, and triggering a second circuit breaker for the day. The local market collapse is an ominous signal because until Friday, stocks had generally offset the collapse in the lira, reaching all time highs before the relationship suddenly snapped over the past two trading days. Meanwhile, in USD terms Turkish stocks have continued to drift lower and are now back to levels last seen in 2004, confirming that the stock market is not a viable store of value during hyperinflation. * * * Turkish stocks crashed again following Friday’s historic rout, prompting a fresh automatic marketwide trading halt after the lira slid to a record low following Erdogan's latest comments that he would not allow rates to rise. The Borsa Istanbul 100 Index tumbled 5%, after climbing as much as 3.1% earlier. Trading was set to restart at 4:23 p.m. Istanbul time, according to the bourse’s statement. This was the second session in a row that Turkish equities’ trading is halted due to sharp losses. The index plunged as much as 9.1% on Friday, triggering automatic circuit breakers during the second-steepest selloff of the year. The slump was made worse by high levels of margin trading among local investors who have borrowed funds to join a recent rally in stocks. Margins calls “led to snowballing losses” on Friday, turning a price correction into “panic selling,” said Tuna Cetinkaya, assistant general manager at the Info Yatirim brokerage, according to Bloomberg. While the exchange has since reopened, it is now down -6.7% and on pace for a second consecutive circuit breaker of the day. Meanwhile, the plunge in the lira continued, dropping to a fresh all time low of 17.84 against the dollar as of this post, after Turkish President Recep Tayyip Erdogan pledged to continue cutting interest rates, referring to Islamic proscriptions on usury as a basis for his policy. The lira’s 58% decline this year in the wake of 500 basis points of central bank rate cuts has sent local investors flocking to stocks to shield their savings, making Istanbul among the best-performing markets of 2021 in local currency terms, but the worst when measured in U.S. dollars.   Tyler Durden Mon, 12/20/2021 - 13:25.....»»

Category: blogSource: zerohedgeDec 20th, 2021

"Santa Rally Is Finally Here": Futures Hit All Time High Day After Powell Goes Full Jean-Claude Trichet

"Santa Rally Is Finally Here": Futures Hit All Time High Day After Powell Goes Full Jean-Claude Trichet One day before what everyone knew would be a hawkish pivot by the Fed, the mood was dour with tech names tumbling and futures hanging one for dear life. One day after, Jerome Powell confirmed he would go full Jean-Claude Trichet as the Fed would not only turbo-taper into a sharply slowing economy, ending its QE program by March but then proceed with hiking rates as many as 3 times in 2022 (more than the 2 hike consensus), with the BOE shocking markets moments ago with a surprise rate hike and even the ECB trimming its turbo QE, and futures are.... at all time highs. That's right - eminis are higher by 140 points in 24 hours because the Fed was more hawkish than consensus expected.  At 8:00 a.m. ET, Dow e-minis were up 215 points, or 0.61%, S&P 500 e-minis were up 27.25 points, or 0.57%, and Nasdaq 100 e-minis were up 100 points, or 0.61%. Treasury yields jumped alongside European bonds after the BOE became the first major central bank to raise rates since the pandemic, while the dollar fell and the pound jumped. The Euro also hit session highs after the ECB seemed to turn ever so slightly more hawkish as its monthly QE is set to shrink in the coming year. "The market likes facts it can digest. With the uncertainty now gone, it finds relief,” said Frederik Hildner, a portfolio manager at Salm-Salm & Partner. Gradual rising rates “provides more firepower for the next downturn, as it displays the ability normalize monetary policy.” On Wednesday, Jerome Powell said the U.S. economy no longer needed increasing amounts of policy support as annual inflation has been running at more than double the central bank's target in recent months, while the economy nears full employment. Recent readings on surging producer and consumer prices as well as the fast-spreading Omicron variant of the coronavirus have fueled anxiety as the benchmark S&P 500 inches closer to a record high. "Is the Santa Rally finally here? Markets certainly seem to have a spring in their step... the prospect of three interest rate hikes in 2022 would suggest the central bank has a clear plan to not let inflation get out of control," Russ Mould, investment director at AJ Bell wrote in a client note. "Equally, it isn't being too aggressive to trip up the economy. This sense of balance is exactly what investors want, and an upbeat tone from the Fed certainly seems to have rubbed off on markets" Bell said, clearly goalseeking his narrative to the market's response as just 24 hours later he would be saying just the opposite when futures were tanking of hawkish Fed fears. Big tech stocks and banks led gains in premarket trading. Shares in Tesla, Microsoft, Meta and Amazon.com rose between 0.7% and 2.4%, with the lift pushing Apple shares nearer to an historic market value of $3 trillion. Bank stocks including JPMorgan, Morgan Stanley, Bank of America, Wells Fargo and Citigroup all gained between 0.7% and 0.8%. Here are some of the biggest U.S. movers today: Apple (APPL) and other big U.S. tech stocks rise after the Federal Reserve said that it would speed up its taper, joining in with a broader relief rally across risk assets. Apple shares are up 0.6%, with the stock drawing nearer to an historic market capitalization of $3 trillion. Also Thursday, Goldman Sachs said lead times for Apple’s iPhone have declined in the latest week. Assertio (ASRT US) shares rise 4% after the company announced the $44 million acquisition of the Otrexup device from Antares Pharma. Blue Bird (BLBD US) dropped 6% after the school bus-maker provided a weaker-than-expected sales outlook. The company also offered $75m shares at $16/share in a private placement. Danimer Scientific (DNMR) falls 10% after announcing that it plans to offer $175 million of convertible senior notes. Delta Air Lines (DAL) is up 2% after saying it expects to report a profit for the fourth quarter, citing a strong demand for travel over the winter holiday period and a decline in jet fuel prices. Other airline stocks are also higher. DocuSign (DOCU) falls 2% as Morgan Stanley issued a downgrade, saying third-quarter results changed the firm’s view regarding the durability of growth through tough post-pandemic comparables. Freyr Battery (FREY) gains 14% after executing its inaugural offtake agreement for at least 31 GWh of low-carbon battery cells. IronNet (IRNT US) slumps 25% after the cybersecurity company’s results fell short of expectations, prompting a Street-low target from Jefferies. Lennar Corp. (LEN US) declined 6% after it reported a forecast for purchase contracts that was weaker than expected. Plug Power (PLUG) gains 5% after signing an agreement with Korean electric-vehicle manufacturer Edison Motors to develop an electric city bus powered by hydrogen fuel cells. Syndax Pharmaceuticals (SNDX) falls 8% after pricing 3.2 million shares at $17.50 each. Tesla (TSLA) is up 2%, rising with other electric vehicle stocks amid a broader gain in technology stocks and U.S. futures on hopes that the Federal Reserve’s policy tightening will fight high inflation without hampering economic growth. Wayfair (W) falls 2% after BofA downgraded the stock to underperform, citing weak near-term data and difficult comparisons through the first quarter of 2022 for the online furniture retailer. European equities rally with Euro Stoxx 50 up as much as 2.1% before drifting off best levels. The U.K.’s exporter-heavy FTSE 100 Index pared some gains after the BOE decision, while European dipped modestly after the European Central Bank’s meeting.  Miners, tech and autos are the best performers, utilities and media names lag. Equities have whipsawed in recent weeks as investors attempted to price in the prospect of rate hikes, while assessing risks from the spread of the omicron variant. The market’s early response to the Fed signals some relief arising from policy clarity, and optimism that the rebound from pandemic lows can weather the pivot away from ultra-loose monetary settings. “The market is breathing a sigh of relief that the FOMC meeting suggested that it is taking inflation risks in the United States more seriously,” Ann-Katrin Petersen, an investment strategist at Allianz Global Investors, said in an interview with Bloomberg TV. “The question really will be whether the Fed will dare to do even more in order to taper the inflation risk.” Asian stocks rose, halting a four-day slide, as confidence in Federal Reserve policy allowed investors to take on riskier assets. The MSCI Asia Pacific Index climbed as much as 0.8%, buoyed by energy and technology shares. Japan was Asia’s top performer, aided by a weaker yen. Hong Kong and China stocks eked out gains amid ongoing concern over U.S. sanctions. Australian equities declined for a third day. Asia’s benchmark advanced for the first time this week on hopes the Fed will effectively combat surging prices without choking off economic growth. The U.S. central bank said it will double the pace of its asset tapering program to $30 billion a month and projected three interest-rate increases in 2022. In the run-up to the Fed’s decision, Asia’s equity gauge slumped almost 2% over the past four days, keeping it below the 50-day moving average.    The short-term boost to stock market sentiment is from Fed Chair Jerome Powell’s comments about wage inflation not being the main issue for now, and expectations that there’ll be full employment next year, said Ilya Spivak, head of Greater Asia at DailyFX. However, there’s a “meaningful risk” that the Fed’s latest policy stance will trigger liquidation as Asia stock portfolios are de-risked, Spivak said. Japan’s stocks rose for a second day after the yen weakened and U.S. stocks rallied amid speculation the Federal Reserve will combat surging prices without choking off economic growth. The Topix index climbed 1.5% to close at 2,013.08 in Tokyo, while the Nikkei 225 Stock Average advanced 2.1% to 29,066.32. Keyence Corp. contributed the most to the Topix’s gain, increasing 2.5%. Out of 2,181 shares in the index, 1,674 rose and 421 fell, while 86 were unchanged. “It wouldn’t be strange to see the discount on Japanese equities narrowing following the FOMC meeting results, with market interest centered around electronics, machinery, automakers and marine transportation stocks,” said Takashi Ito, an equity market strategist at Nomura Securities. Electronics firms and automakers helped lift the Topix as the yen headed for a four-day slump against the dollar, with the currency falling 0.1% to 114.19 Australia's S&P/ASX 200 index fell 0.4% to close at 7,295.70, extending its losing streak to a third day.  CSL was the worst performer after the benchmark’s second-biggest company by weighting completed a placement to fund its Vifor acquisition. Mesoblast was the top performer after saying it plans to conduct an additional U.S. Phase 3 trial of rexlemestrocel-L in patients with chronic low back pain.  Investors also digested November jobs data. Australian employment soared last month, smashing expectations and pushing the jobless rate lower as virus restrictions eased on the east coast. In New Zealand, the S&P/NZX 50 index fell 0.7% to 12,777.54 In rates, cash USTs bull steepened, bolstered by a large curve steepener that blocked in early London. Bunds are soft at the back end, peripherals slightly wider ahead of today’s ECB meeting. Gilts bear steepen slightly, white pack sonia futures are lower by 2-3.5 ticks. In FX, the dollar slipped for a second day and oil rose; cable snapped to best levels of the week after the BOE unexpectedly hiked rates.  The Bloomberg Dollar Spot Index fell for a second day as the greenback weakened against all its Group-of-10 peers apart from the yen; Tresury yields fell, led by the belly of the curve. Commodity currencies were the best G-10 performers, led by the krone, which reversed an earlier loss after Norway’s central bank raised its interest rate for the second time this year and flagged another increase in March as officials acted to cool the rebounding economy despite renewed coronavirus concerns. The Australian and New Zealand dollars reversed earlier losses amid upbeat stock markets; the Aussie earlier weakened as RBA Governor Lowe hinted at the prospect of no rate hikes next year. The yen fell as the Federal Reserve’s decision reaffirmed yield differentials ahead of the Bank of Japan’s outcome on Friday. Bonds rose after a solid auction. Elsewhere in FX, NOK outperforms in G-10 after Norges Bank rate action, other commodity currencies are similarly well bid. In commodities, Crude futures hold a narrow range around best levels of the session. WTI is up 1.1% near $71.70, Brent near $74.70. Spot gold grinds higher, adding ~$9 near $1,786/oz. LME copper outperforms in a well-bid base metals complex To the day ahead now, and the main highlights will be the aforementioned policy decisions from the ECB and the BoE. On the data side, we’ll also get the flash PMIs for December from around the world, the Euro Area trade balance for October, and in the US there’s November data on industrial production, housing starts and building permits, as well as the weekly initial jobless claims. Finally, EU leaders will be meeting for a summit in Brussels. Market Snapshot S&P 500 futures up 0.5% to 4,734.25 STOXX Europe 600 up 1.2% to 476.39 MXAP up 0.8% to 193.11 MXAPJ up 0.5% to 623.76 Nikkei up 2.1% to 29,066.32 Topix up 1.5% to 2,013.08 Hang Seng Index up 0.2% to 23,475.50 Shanghai Composite up 0.8% to 3,675.02 Sensex up 0.1% to 57,851.57 Australia S&P/ASX 200 down 0.4% to 7,295.66 Kospi up 0.6% to 3,006.41 Brent Futures up 1.0% to $74.59/bbl Gold spot up 0.5% to $1,786.03 U.S. Dollar Index down 0.36% to 96.16 German 10Y yield little changed at -0.36% Euro up 0.2% to $1.1316 Top Overnight News from Bloomberg The greenback is set for its biggest annual gain in six years and its rally appears to be far from over, market participants say. The prime mover: a hawkish Federal Reserve that’s drawn a roadmap of interest-rate increases over the next three years, while other central banks look much more reticent to withdraw stimulus The ECB is poised to unveil a gradual withdrawal from extraordinary pandemic stimulus in the face of soaring inflation whose path is further clouded by the omicron coronavirus variant The “phenomenal pace” at which the new Covid-19 omicron strain is spreading across the U.K. will trigger a surge in hospital admissions over the holiday period, according to Boris Johnson’s top medical adviser The Swiss National Bank kept both the deposit and the policy rate at -0.75%, as widely predicted by economists. With the global economic recovery on shaky footing due to the omicron variant, President Thomas Jordan and fellow policy makers also reiterated their pledge to supplement subzero rates with currency interventions as needed France will impose tougher rules on people traveling from the U.K., including a ban on non-essential trips and a requirement to self-isolate, as it tries to slow the spread of the omicron variant IHS Markit said its index tracking output across the U.K. economy fell to 53.2 this month from 57.6 in November, reflecting weaker-than-expected growth in service industries including hotels, restaurants and travel-related businesses. Business-to-business services stalled European power prices soared to records after Electricite de France SA said that two nuclear reactors will stop unexpectedly and two will have prolonged halts -- just as the continent heads for a cold snap with already depleted gas inventories Hungary’s central bank increased the effective base interest rate for the fifth time in as many weeks to tackle the fastest inflation since 2007 and shore up the battered forint A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mixed as the region digested the FOMC meeting. The ASX 200 (-0.4%) was negative with heavy losses in the healthcare sector and as COVID infections remained rampant. There were also notable comments from RBA Governor Lowe that the board discussed tapering bond purchases in February and ending it in May or could even end purchases in February if economic progress is better than expected, although it is also open to reviewing bond buying again in May if the data disappoints. The Nikkei 225 (+2.1%) outperformed and reclaimed the 29k level after the Lower House recently passed the record extra budget stimulus and with the latest trade data showing double-digit percentage surges in Imports and Exports, despite the latter slightly missing on expectations. The Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were varied with Hong Kong pressured by losses in the big tech names amid ongoing frictions between the world’s two largest economies and as US lawmakers proposed a bill to allow the US oversight of China audits, although the mainland was kept afloat amid further speculation of a potential LPR cut this month, as well as reports that China will boost financial support for small businesses and offer more longer-term loans to manufacturers. Finally, 10yr JGBs were indecisive despite the constructive mood in Tokyo and with price action stuck near the 152.00 focal point, while demand was also sidelined amid mixed results at the 20yr JGB auction and as the BoJ kickstarts its two-day meeting. Top Asian News Indonesia Reports First Omicron Case in Jakarta Facility Asia Stocks Snap Four-Day Drop as Traders Take on Risk After Fed Shimao Group Shares Set for Best Day in Month Money Manager Vanishes With $313 Million From China Builder Equities in Europe have taken their cue from the post-FOMC rally seen across Wall Street (Euro Stoxx 50 +1.6%; Stoxx 600 +1.1%) following somewhat mixed APAC trade. As a reminder, markets saw relief with one of the major risk events out of the way, and with Chair Powell refraining from throwing hawkish curveballs. That being said, the forecast does see three rate hikes next year, whilst the Fed Board next year will also be more hawkish – at least within the rotating voters - with George, Mester and Bullard poised to vote from 2022. Nonetheless, US equity future continues grinding higher with all contracts in the green and the RTY (+1.3%) outperforming vs the NQ (+0.7%), ES (+0.6%), and YM (+0.5%). Bourses in Europe also experience broad-based gains with no real outliers, although the upside momentum somewhat waned amid some softer-than-expected PMI metrics ahead of ECB. Sectors in Europe paint a clear pro-cyclical bias. Tech outperforms following a similar sectorial performance seen on Wall Street. Basic Resources and Oil & Gas follow a close second, with Autos and Travel & Leisure also among the biggest gainers. The downside sees Personal & Household Goods, Telecoms and Food & Beverages. Healthcare meanwhile fares better than its defensive peers as Novartis (+4%) is bolstered after commencing a new USD 15bln buyback, highlighting confidence in growth and pipeline. On the flip side, EDF (-12%) shares have slipped after it narrowed FY EBITDA forecasts and highlighted some faults with some nuclear reactors amid corrosion. Top European News Britain’s Covid Resurgence Cuts Growth to Slowest Since Lockdown SNB Says Franc Is Highly Valued as Omicron Clouds Outlook Norway Delivers Rate Hike That Omicron Had Threatened to Derail Erdogan Approves Third Capital Boost for State Banks Since 2019 In FX, not much bang for the Buck fits the bill accurately as it is panning out in the FOMC aftermath even though market expectations were matched and arguably exceeded in terms of dot plots showing three hikes in 2022 vs two anticipated by most and only one previously, while the unwinding of asset purchases will occur in double quick time to end in March next year instead of June. However, there appears to be enough in the overall statement, SEP and Fed chair Powell’s post-meeting press conference to offset the initial knee-jerk spike in the Dollar and index that lifted the latter very close to its current y-t-d peak at 96.914 vs 96.938 from November 24. Indeed, the terminal rate was maintained at 2.5%, no decision has been taken about whether to take a break after tapering before tightening, and the recovery in labour market participation has been disappointing to the point that it will now take longer to return to higher levels. In response, or on further reflection, the DXY has recoiled to 96.141 and through the 21 DMA that comes in at 96.238 today. NZD/AUD/CAD/GBP/EUR/CHF - All on the rebound vs their US counterpart, with the Kiwi back on the 0.6800 handle and also encouraged by NZ GDP contracting less than feared in Q3, while the Aussie is hovering around 0.7200 in wake of a stellar jobs report only partly tempered by dovish remarks from RBA Governor Lowe who is still not in the 2022 hike camp and non-committal about ending QE next February or extending until May. Elsewhere, the Loonie has clawed back a chunk of its losses amidst recovering crude prices to regain 1.2800+ status ahead of Canadian wholesale trade that is buried between a raft of US data and survey releases, Sterling is flirting with 1.3300 in advance of the BoE that is likely to hold fire irrespective of significantly hotter than forecast UK inflation, the Euro is pivoting 1.1300 pre-ECB that is eyed for details of life after the PEPP and the Franc is somewhat mixed post-SNB that maintained rates and a highly valued assessment of the Chf with readiness to intervene as required. Note, Usd/Chf is meandering from 0.9256 to 0.9221 vs Eur/Chf more elevated within a 1.0455-30 band. JPY - The Yen is underperforming on the eve of the BoJ and looking technically weak to compound its yield and rate disadvantage after Usd/Jpy closed above a key chart level on Wednesday (at 114.03). As such, Fib resistance is now exposed at 114.38 vs the circa 114.25 high, so far, while decent option expiry interest may be influential one way or the other into the NY cut given around 1.3 bn at the 114.25 strike, 1.7 bn at 114.30 and 1.2 bn or so at 114.50. In commodities, WTI and Brent front-month futures are taking advantage of the risk appetite coupled with the softer Buck. WTI Jan trades on either side of USD 71.50/bbl (vs low USD 71.39/bbl) while Brent Feb sees itself around USD 74.50/bbl (vs low USD 74.28/bbl). Complex-specific news has again been on the quiet end, with prices working off the macro impulses for the time being, and with volumes also light heading into Christmas trade. Elsewhere spot gold and silver ebb higher – in tandem with the Dollar, with the former eyeing a group of DMAs to the upside including the 100 (1,788/oz), 21 (1,789/oz) 200 (1,794/oz) and 50 (1,796/oz). Turning to base metals, LME copper has been catapulted higher amid the risk and weaker Dollar, with prices re-testing USD 9,500/t to the upside. Meanwhile, a Chinese government consultancy has said that China's steel consumption will dip 0.7% on an annual basis in 2022 amid policies for the real estate market and uncertainties linked to COVID-19 curb demand. US event calendar 8:30am: Dec. Initial Jobless Claims, est. 200,000, prior 184,000; Continuing Claims, est. 1.94m, prior 1.99m 8:30am: Nov. Housing Starts MoM, est. 3.1%, prior -0.7% 8:30am: Nov. Housing Starts, est. 1.57m, prior 1.52m 8:30am: Nov. Building Permits MoM, est. 0.5%, prior 4.0%, revised 4.2% 8:30am: Nov. Building Permits, est. 1.66m, prior 1.65m, revised 1.65m 8:30am: Dec. Philadelphia Fed Business Outl, est. 29.6, prior 39.0 9:15am: Nov. Manufacturing (SIC) Production, est. 0.7%, prior 1.2%; Industrial Production MoM, est. 0.6%, prior 1.6% 9:45am: Dec. Markit US Manufacturing PMI, est. 58.5, prior 58.3 9:45am: Dec. Markit US Services PMI, est. 58.8, prior 58.0 DB's Jim Reid concludes the overnight wrap Yesterday’s biggest story was obviously the Fed. In line with our US economists call (their full recap here), the FOMC doubled the pace of taper to $30bn a month, which would bring an end to QE in mid-March. The new dot plot showed three rate hikes in 2022, up from the Committee being split over one hike in September. Farther out, the median dot had 3 additional hikes in 2023 and 2 hikes in 2024, bringing fed funds just below their estimate of the longer-term rate. Notably, all 18 Committee members have liftoff occurring next year, and 10 have 3 hikes penciled in, suggesting consensus behind the recent hawkish turn was strong. Short-end market pricing increased in line and now has around 2.9 hikes priced for 2022. The first hike is fully priced for the June meeting, but notably, meetings as early as March are priced as live, more on that in a bit. In the statement, the Committee admitted that inflation had exceeded target for some time (dropping ‘transitory’ completely), and that liftoff would be tied to the economy reaching full employment. By the sounds of the press conference, progress toward full employment has proceeded pretty rapidly. Chair Powell noted that while labour force participation progress has been disappointing, almost every other measure of labour market strength shows a very strong labour market, and could create upside risks to inflation should wage growth start to increase beyond productivity. It is within that context that he framed the decision to taper faster, it will leave the Fed in a position to react as needed, providing optionality. In that vein, he stressed a few times that the lag between the end of taper and liftoff need not be as long as it was in the last cycle, and that the Fed will raise rates after taper is done whenever needed, hence meetings as early as March being live. Notably on Omicron, the Chair, like the rest of us, recognises we don’t know much about the variant yet, but seemed optimistic about the economy’s ability to withstand subsequent Covid shocks, regardless of Omicron’s specifics. While Covid shocks can tighten supply chains, discourage labour participation, and reduce demand, as more people get vaccinated those impacts should dwindle over time, so his argument went. Hammering the point home, he sounded confident that the economy can handle whatever Omicron brings without any additional QE, justifying the accelerated taper path despite Covid risks. The hawkish turn had been well forecast through Fed speakers since the last meeting, not least of which the Chair himself during Congressional testimony, which served to dull the market impact. Treasury yields were slightly higher, (2yr Tsys +0.6bps and 10yr Tsys +1.5 bps) but were quite docile for an FOMC afternoon. The dollar initially strengthened on the statement release before reversing course and ending the day -0.24% lower. Stocks were the real outperformers, as the S&P 500 rallied through the FOMC events, gaining +1.63%, the best daily performance in two months, while the Nasdaq increased +2.15%. The Russell 2000 matched the S&P, gaining +1.65%. Obviously the market was anticipating the change in policy, but if doubling taper and adding three rate hikes in the next year isn’t enough to tighten financial conditions, what is? The Chair was asked about that in so many words in the press conference, where he responded by noting financial conditions could change on a dime. Indeed, they will have to tighten from historically easy levels if the Fed is to bring inflation back to target through policy. The Fed may be out of the way now, but the central bank excitement continues today as both the ECB and the BoE announce their own policy decisions later on. We’ll start with the ECB, who like the Fed have faced much higher than expected inflation lately, with the November flash estimate coming in at +4.9%, which is the highest since the formation of the single currency. Whilst Omicron has cast a shadow of uncertainty, with Commission President von der Leyen saying yesterday that it was likely to become dominant in Europe by mid-January, our European economics team doesn’t think there has been anything concrete enough to alter the ECB from their course (like the Fed). In our European economists’ preview (link here) they write the ECB appears on track to initiate a transition to a monetary policy stance based more on policy rates and rates guidance and less on liquidity provision. The ECB is set to confirm that PEPP net purchases will end in March, but will cushion the blow by working flexibility into the post-PEPP asset purchase arrangement. They are also set to make the policy framework more flexible to better respond to inflation uncertainties. One thing to keep an eye out for in particular will be the latest inflation projections, with a report from Bloomberg suggesting that they’ll show inflation beneath the 2% target in both 2023 and 2024. So if that’s true, that could offer a route to arguing against a tightening of monetary policy for the time being, since the ECB’s forward guidance has been that it won’t raise rates until it sees inflation at the target “durably for the rest of the projection horizon”. Today’s other big decision comes from the BoE, where our UK economist is expecting that there’ll be a 15bps increase in Bank Rate, taking it up to 0.25% although they suggest it’s a very close call. See here for the rationale. Ahead of that decision later on, we received a very strong UK inflation print for November, with CPI rising to +5.1% (vs. +4.8% expected), up from +4.2% in October and the fastest pace in a decade. That’s running ahead of the BoE’s own staff forecasts in the November Monetary Policy Report, which had seen inflation at just +4.5% that month, so six-tenths beneath the realised figure. We’ll get their decision at 12:00 London time, 45 minutes ahead of the ECB’s. In terms of the latest on the Omicron variant, there are continued signs of concern in South Africa, with cases coming in at a record 26,976 yesterday, whilst the number in hospital at 7,339 is up +73% compared to a week ago. Meanwhile the UK recorded their highest number of cases since the pandemic began, at 78,610. England’s Chief Medical Officer, Chris Whitty, said that a lot of Covid records would be broken in the coming weeks, and also that a majority of cases in London were now from the Omicron variant. Separately, the French government is set to hold a meeting tomorrow on Covid measures, and EU leaders will be discussing the pandemic at their summit today. When it comes to Omicron’s economic impact, we could see some light shed on that today as the December flash PMIs are released from around the world. Overnight we’ve already had the numbers out of Australia and Japan where hints of a slowdown are apparent. Japan's Manufacturing PMI came out at 54.2 (54.5 previous) and the Composite at 51.8 (53.3 previous) while Australia’s Manufacturing and Composite came in at 57.4 and 54.9 respectively (59.2 and 55.7 previous). Overnight in Asia stocks are trading mostly higher led by the Nikkei (+1.78%) followed by the Shanghai Composite (+0.28%), and KOSPI (+0.22%). However the CSI (-0.07%) and Hang Seng (-0.81%) are losing ground on concerns of US sanctions on Chinese tech companies. In Australia, the November employment report registered a strong beat by adding 366.1k jobs against 200k consensus. This is being reflected in a +12.75 bps surge in Australia's 3y bond. Elsewhere, in India wholesale inflation for November rose +14.2% year on year, levels last seen in 2000 against a consensus of +11.98% on the back of higher food and input prices. DM futures are indicating a positive start to markets today with S&P 500 (+0.19%) and DAX (+1.04%) contracts both higher as we type. Ahead of the Fed, European markets had put in a fairly steady performance yesterday, with the STOXX 600 up +0.26%. That brought an end to a run of 5 successive declines, with technology stocks in particular seeing an outperformance. Sovereign bond markets were also subdued ahead of the ECB and BoE meetings later, with yields on 10yr bunds (+0.9bps), OATs (+0.5bps) and gilts (+1.2bps) only seeing modest moves higher. In DC, despite optimistic sounding talks earlier in the week, the latest yesterday was President Biden and Senator Manchin remained far apart on the administration’s build back better bill, imperiling its chances of passing before Christmas. Elsewhere, reports suggested the President would have more nominations for the remaining Fed Board vacancies this week. Looking at yesterday’s other data, US retail sales underwhelmed in November with growth of just +0.3% (vs. +0.8% expected), and measure excluding gas and motor vehicles was also up just +0.2% (vs. +0.8% expected). Also the NAHB’s housing market index for December moved up to a 10-month high of 84, in line with expectations. To the day ahead now, and the main highlights will be the aforementioned policy decisions from the ECB and the BoE. On the data side, we’ll also get the flash PMIs for December from around the world, the Euro Area trade balance for October, and in the US there’s November data on industrial production, housing starts and building permits, as well as the weekly initial jobless claims. Finally, EU leaders will be meeting for a summit in Brussels. Tyler Durden Thu, 12/16/2021 - 08:29.....»»

Category: blogSource: zerohedgeDec 16th, 2021

5 ETFs That Gained More Than 40% in 2021

Solid corporate earnings and an improving economy have been driving the markets higher though inflation fear is weighing on investors' sentiment. Wall Street has been on a smooth ride this year, with the major bourses near record highs. Solid corporate earnings and an improving economy have been driving the markets higher though inflation fear is weighing on investors’ sentiment.While there have been winners in many corners of the space, we highlight five ETFs from different segments that have outperformed and gained more than 40% in 2021. These are First Trust ISE-Revere Natural Gas Index Fund FCG, VanEck Vectors Rare Earth/Strategic Metals ETF REMX, North Shore Global Uranium Mining ETF URNM, Invesco S&P SmallCap Value with Momentum ETF XSVM and SPDR S&P Homebuilders ETF XHB. These funds are expected to continue outperforming, provided the fundamentals remain intact.Reopening of businesses and economies, the largest vaccination drive, an unprecedented stimulus, and a huge infrastructure package are acting as catalysts for stocks. Overall, the economy is on firmer footing with increased consumer confidence, pick-up in hiring and higher wages. While inflation has surged at the fastest pace in nearly four decades, retail sales remain robust. Further, the U.S. service sector activity gauge hit a record high in November as businesses expedited hiring.These have resulted in economic recovery from the pandemic lows and powered activities across all sectors and categories, resulting in increased consumer spending. Additionally, solid corporate profits bode well for the stock market rally. However, consistently high inflation, a resurgence in pandemic, taper talks, the potential for high corporate tax rates and signs of a slowdown in China economy have kept the stock market edgy throughout the year (read: 5 Top-Ranked ETFs to Buy At Bargain Prices).With just a couple of weeks left in the year, the S&P 500 is up about 23.4%, while the Dow Jones and the Nasdaq have gained 16.1% and 18.2%, respectively.We have profiled the above-mentioned ETFs in detail below:First Trust ISE-Revere Natural Gas Index Fund (FCG) – Up 92.6%Natural gas is surging on tightening supplies and low inventories, providing upside to the natural gas stocks and ETFs. First Trust ISE-Revere Natural Gas Index Fund offers exposure to U.S. companies involved in the exploration and production of natural gas. It follows the ISE-REVERE Natural Gas Index and holds 40 stocks in its basket.First Trust ISE-Revere Natural Gas Index Fund has amassed $464.4 million in its asset base while charging 60 bps in annual fees. Volume is good, with 1.5 million shares exchanged per day on average. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook.VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) – Up 73%Rare earth metals are getting a boost from an accelerating shift to new technologies such as electric vehicles. About 27% of rare metals are used in the production of neomagnets, which are the essential components in electric vehicles (EVs). VanEck Vectors Rare Earth/Strategic Metals ETF offers exposure to companies engaged in producing, refining and recycling rare earth and strategic metals and minerals. It follows the MVIS Global Rare Earth/Strategic Metals Index, holding 20 stocks in its basket.VanEck Vectors Rare Earth/Strategic Metals ETF has AUM of $1.1 billion and an average daily volume of 193,000 shares. From a country look, Chinese firms dominate the portfolio with a 34.1% share, closely followed by Australia (29.5%) and the United States (14.8%). The product charges 59 bps in annual fees.North Shore Global Uranium Mining ETF (URNM) – Up 69.4%Uranium stocks have been on a tear buoyed by growing social media attention, the restart of nuclear reactors in Japan after 10 years and the growing uranium supply deficit, being accelerated by COVID-19 pandemic related production cuts. North Shore Global Uranium Mining ETF provides exposure to companies involved in the mining, exploration, development and production of uranium, as well as companies that hold physical uranium or other non-mining assets. It follows the North Shore Global Uranium Mining Index and charges investors 85 bps in annual fee.North Shore Global Uranium Mining ETF holds 35 stocks in its basket and has accumulated $779.2 million in its asset base. It trades in a good volume of 404,000 shares per day on average.Invesco S&P SmallCap Value with Momentum ETF (XSVM) – Up 49.7%Small caps have been performing well thanks to an improving economy, cheap valuation and a value tilt amid inflation fears and resurgence in COVID-19 cases. Invesco S&P SmallCap Value with Momentum ETF offers exposure to the companies having the highest "value scores" and "momentum scores" by tracking the S&P 600 High Momentum Value Index. XSVM holds a basket of 117 stocks, each making up for less than 2.5% share. Invesco S&P SmallCap Value with Momentum ETF has a double-digit allocation each in financials, consumer discretionary and industrials (read: 5 ETFs That Deserve Special Thanks in 2021).Invesco S&P SmallCap Value with Momentum ETF has AUM of $498.8 million and an average daily volume of 116,000 shares. XSVM charges 39 bps in annual fees and has a Zacks ETF Rank #3 (Hold).SPDR S&P Homebuilders ETF (XHB) – Up 45.6%The housing market has been on a tear buoyed by lower mortgage rates, skyrocketing demand and limited supplies. The thirst for home buying is rising even in the face of increasing housing prices, thus providing huge profits to homebuilders. SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space with AUM of $2.4 billion and charges 35 bps in annual fees. The product has a Zacks ETF Rank #2 with a High risk outlook (read: 5 ETFs Trading At New Highs). Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report SPDR S&P Homebuilders ETF (XHB): ETF Research Reports First Trust Natural Gas ETF (FCG): ETF Research Reports VanEck Rare EarthStrategic Me (REMX): ETF Research Reports Invesco S&P SmallCap Value with Momentum ETF (XSVM): ETF Research Reports North Shore Global Uranium Mining ETF (URNM): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksDec 15th, 2021