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The Squeeze Is Over: Goldman Prime Sees A Flood Of New Hedge Fund Shorts

The Squeeze Is Over: Goldman Prime Sees A Flood Of New Hedge Fund Shorts The bear market rally from the mid-June lows was triggered by three key drivers: gradual bullish reversal by the systematic crowd, accelerating buybacks, and a sudden retail frenzy back into the market. But the real catalyst for the meltup was the "apocalyptic" bearish positioning by institutional and hedge fund investors, who were forced to FOMO chase the "most hated rally" higher, accelerating the meltup as they did. This unprecedented bearish bias prompted none other than Michael Hartnett to correctly turn bullish in mid-July citing "Record Pessimism", "Full Investor Capitulation." But far more remarkable was Hartnett's bearish reversal earlier this week, when the BofA chief investment officer correctly timed the spoos peak to within half a tick, urging clients (and ZH readers) to short at 4,328 (which was also the 200DMA). This is what happened then. Well, there's a reason why we call Hartnett (unlike so many of his broken record competitors) Wall Steet's most accurate analyst. But while we hope that readers saved some cash (or made a profit) by timing the bear-market top (for now), it appears that another batch of investors also decided to start shorting... again. According to Goldman Prime, after 4 weeks of relentless short covering unwinds, hedge funds are starting to play more bearish offense, layering new shorts as the GS prime book saw the largest notional net selling in three weeks (1-Year Z score -0.7), driven by short sales outpacing long buys 3 to 1. Here are some more details from the note available to pro subscribers: Overall gross trading activity saw the largest 1-day increase since 6/16 (when SPX fell to YTD lows). While one day does not make a trend, yesterday's activity suggests hedge funds could be starting to play a bit more offense following four straight weeks of risk unwinds. Macro Products (Index and ETF combined) saw the largest notional net selling since mid-July driven entirely by short sales.  US-listed ETF shorts rose +2.0%, the largest 1-day increase in more than two months:  Large Cap Equity, Technology, and Small Cap Equity ETFs were among the most shorted. Single Stocks saw little net activity overall, but flows were risk-on with long buys offset by roughly the same notional amount of short sales.  Consumer Discretionary (short covers), Financials (long buys), and Health Care (long buys) were the most notionally net bought sectors; Comm Svcs (long sales), Info Tech (short sales), and Industrials (short sales) were the most notionally net sold. JPMorgan agree, and in a note from the bank's prime brokerage, writes that following a massive burst of short covering from mid-June, it has suddenly stopped in the past 2 days... oddly around the time Hartnett said to resume shorting. And now that a bunch of potentially bearish events are on deck, we expect the shorting to only accelerate over the next two weeks, at least until through the Jackson Hole symposium next weekend, and the next batch of data on CPI and employment in early September. “Hedge funds may view the June-to-August rally as too far, too fast, and now are licking their chops for another round of downside,” said Mike Bailey, director of research at wealth management firm FBB Capital Partners. “Tactically, markets look a bit feeble at the moment, as investors price in good inflation and Fed news.” Ironically, so hated was this bear market rally, that the new round of shorting takes place even as the previous bearish bets have not been fully unwound, and according to Morgan Stanley there are still a lot of bearish positions outstanding: the bank's data show that in the cash market, while $50 billion has been covered since June, the net amount of added shorts remains elevated, sitting at $165 billion this year. Short interest among single stocks stands in the 84th percentile of a one-year range. “The short base in US equities is still not cleaned up though,” Morgan Stanley wrote in a note. “With short leverage still high, there is more potential for hedge fund short covering.” “Nobody trusts the rally,” said Benjamin Dunn, president of Alpha Theory Advisors. “We could be in for a period of weakness, but by the same token, a lot of people who want to sell have already sold,” he added. “That’s been the problem the last several months in this market. It’s nothing but positioning, almost nothing fundamental.” Still, as Bloomberg notes, shorts unwinding amplified the market upside during the summer lull, but all the caution suggests that the downside risk is likely limited, and as we noted last night... And they're back: "HFs pressing shorts again... US equities saw the largest 1-day increase in gross trading flow since 6/16 driven by short sales" - GS here we go again — zerohedge (@zerohedge) August 19, 2022 ... it sets the stage for the next short covering squeeze the moment the market views Powell's next comments as "pivotish." Tyler Durden Fri, 08/19/2022 - 14:19.....»»

Category: worldSource: nytAug 19th, 2022

Bill Hwang Released After Posting $100 Million Bail, Says He "Lost His Passport"

Bill Hwang Released After Posting $100 Million Bail, Says He "Lost His Passport" Update (3:30pm ET): Bill Hwang may have blown through tens of billions of personal money, but he still had at least $100 million left, because that's how much he just paid to post bail and be freed after pleading not guilty. This means only one thing: Hwang is about to get on a private jet (conveniently, he lives just 10 minutes away from Teterboro where he can find a plethora of one way tickets to purchase) and next week's megaparty featuring Hwang and Jho Low will be superlit. In his first appearance since being arrested at 6 a.m. Wednesday, Hwang agreed to fork over $5 million in cash and pledged two properties including his personal home to secure his bond, Bloomberg reported. Wearing a face mask, green shirt and tan pants, Hwang agreed not to travel outside of the New York-New Jersey-Connecticut area. Hwang told prosecutors that he lost his passport, so his wife will surrender her passport instead, Bloomberg reports. His co-defendant, Chief Financial Officer Patrick Halligan, also pleaded not guilty and will be freed on $1 million bail and have limited travel. Both men will be released Wednesday. They are due back in court in lower Manhattan on May 19. The size of Hwang's bail matches some of the more high-profile white-collar cases of the past year. Trump ally Tom Barrack was freed from jail for $250 million and Nikola Corp. founder Trevor Milton was released for $100 million. While those levels are high, the highest U.S. bail is believed to be $3 billion, set in 2003 by a Texas judge for real estate heir Robert Durst, after he already jumped bail once. An appeals court later slashed the amount to $450,000. In addition, Galleon Group LLC’s Raj Rajaratnam was freed on $100 million bail in 2009 and junk bond king Michael Milken faced a quarter-billion dollar demand in 1989. Bernie Madoff’s bail was set at $10 million and he struggled to meet it, unable to find four people to co-sign for him. And while Bill - passport in tow - is about to flee, one of his accomplices is about to get a knock on the door. According to Bloomberg, as Bill Hwang’s Archegos Capital Management piled up billions in an attempt to squeeze shorts in a handful of highly shorted names, he coordinated trades with an old acolyte atop another hedge fund, according to U.S. prosecutors. Sometimes Hwang allegedly enlisted his help to sidestep bank policies threatening to end the buying spree. Well, according to Bloomberg, that mystery fund manager, identified only as “Adviser-1” in Hwang’s indictment unsealed Wednesday, is Tao Li, the head of Teng Yue Partners, a New York-based hedge fund that oversaw $4 billion as of last year, according to people with knowledge of the investigation. Li and Teng Yue haven’t been accused of wrongdoing by U.S. authorities. Teng Yue didn’t respond to messages seeking comment. Hwang was arrested Wednesday on charges of fraud for allegedly manipulating markets and deceiving banks that lost billions of dollars. Lawrence Lustberg, an attorney for Hwang, said his client is “entirely innocent.” Bloomberg previously reported that by January of last year Li had taken an intense interest in GSX, amassing a position that was unusually big even among Teng Yue’s concentrated bets. At one point that month, as the stock rocketed, GSX accounted for about 40% of the fund’s portfolio, according to people familiar with the holdings. GSX later changed its name to Gaotu Techedu Inc. While we doubt that Toi won't be accused for long, many were relieved (or maybe disappointed) to find out that this mystery accomplice was not Cathie Wood, head of the infamous ARK Invest, and who we already knew was quite close with Hwang. * * * After the spectacular collapse of Archegos Capital Management, the SEC announced last October that they were investigating whether the firm engaged in market manipulation. On Wednesday, owner Bill Hwang and his former CFO, Patrick Halligan, were arrested at their homes and charged with racketeering conspiracy, securities fraud and wire fraud in connection with a scheme to manipulate the share prices of public companies in order to boost profits, according to Bloomberg. They said the plan, which relied heavily on leverage, helped pump up the firm’s portfolio from $1.5 billion to $35 billion in a single year. -Bloomberg Bill Hwang's RIDICULOUS year, as officially documented by the U.S. DOJ: Hwang's personal fortune grew from $1.5 bln to **$35 billion** within a year. The total size of Archegos's market position with the use of leverage increased from $10 billion to **$160 billion** at its PEAK. pic.twitter.com/7jmL51SgjU — Sridhar Natarajan (@sridinats) April 27, 2022 According to the 40-page indictment, Hwang engaged in a "fraudulent scheme" that included "interlocking deceptive acts and misconduct, through false and misleading statements to security-based swap ("SBS") counterparties and prime brokers and manipulative trading designed to artificially move the market, which, in tandem, increased Archegos’s assets under management from around $4 billion to over $36 billion in just under six months." From March 2020 until its collapse in March 2021, Archegos, at Hwang’s direction, underwent a period of rapid and exponential growth, achieved largely through the entry into SBSs with about a dozen Counterparties, which subjected Archegos to significant exposure to rising and falling share prices of the issuers referenced in its SBSs. Archegos’s growth thus presented the firm with a predicament. To continue growing, and otherwise maintain the gains it had achieved through its ramp-up of exposures, Archegos needed to ensure that (1) the value of those exposures would continue to appreciate, and (2) its Counterparties would continue to extend credit margin and trading capacity necessary for Archegos to enter into even more SBSs. In order to overcome this issue, Archegos "chose not to rely on ordinary market forces," and instead "engaged in a brazen scheme to manipulate the market for the securities of the issuers that represented Archegos’s top 10 holdings" by purchasing both securities and SBSs related to those issuers. Archegos, through Hwang and Tomita, effected this scheme by dominating the market for its Top 10 Holdings, as well as by “setting the tone” (i.e., engaging in large pre-market trading), bidding up prices by entering incrementally higher limit orders throughout the trading day, and “marking the close” (i.e., engaging in large trading in the last 30 minutes of the trading day) and by other non-economic trading, all with the goal of artificially inflating the share prices of its Top 10 Holdings. To fuel the alleged manipulation, Archegos used margin extended by counterparties - which Hwang and crew 'deliberately misled', because had they answered truthfully after they began asking questions, it "would have led Archegos to exhaust the finite trading resource that its Counterparties provided." As part of the scheme, Archegos knowingly provided these Counterparties with false assurances concerning its portfolio composition, its concentrated exposure, and its liquidity  profile. As Archegos intended, these deceptions fraudulently convinced its Counterparties that Archegos’s overall positioning was less concentrated and more liquid than it actually was. These deceptions induced Archegos’s Counterparties to continue to transact with it and extend leverage beyond what the Counterparties’ risk tolerance would have otherwise permitted had they known the truth – thus allowing Archegos to continue to grow its positions and, thereby, drive up and sustain the stock prices of the Top 10 Holdings. Eventually, the weight of Defendants’ fraudulent and manipulative scheme was too much for Archegos to bear, and over the course of less than a week in late March 2021, the house of cards collapsed. Price declines in some of Archegos’s Top 10 Holdings triggered significant margin calls that Archegos was unable to meet. In turn, without its trading activity to artificially inflate the prices of the Top 10 Holdings, those stock prices collapsed. And, Archegos’s subsequent default resulted in billions of dollars in credit losses among its Counterparties and significant losses to the market participants who invested in the stocks at inflated prices. Hwang's plan was to spark massive rolling short squeezes. He was inspired by SoftBank's gamma squeeze in August 2020 and starting Sept 2020 used tens of billions in TRS to bid up and squeeze the most heavily shorted names. Only problem is by the end he had nobody to sell to. pic.twitter.com/n7ICkpW4Bf — zerohedge (@zerohedge) April 27, 2022 As a reminder, Archegos amassed a concentrated portfolio of stocks well in excess of $100 billion by using borrowed money in the form of TRS, which kept the exposure on the books of the various prime brokers working with Archegos, thus allowing Hwang to hide his full exposure. His funded imploded in March as some of the stocks tumbled, triggering margin calls from banks, which then dumped Hwang’s holdings. The pain was especially acute for the fund's prime brokers such as Credit Suisse, Nomura and Morgan Stanley, who collectively lost more than $10 billion, prompting internal investigations and the forced departures of senior executives. Remember when we used to speculate about where all the buying power was coming from? pic.twitter.com/TwDfcLSw9B — FlowPoint Partners, LLC (@cppinvest) April 27, 2022 Credit Suisse came under fire last May for the paltry fees they received from Archegos, which FT said at the time "raises further questions about the risks the lender was prepared to shoulder in pursuit of relationships with ultra-wealthy clients," adding that "the low level of fees and high risk exposure have caused concern among the board and senior executives, who are investigating the arrangement, according to two people with knowledge of the process." It also caused a flood of layoffs and terminations as the bank belatedly looked at its books and realized just how massive its exposure had been. As Risk.net first reported, Credit Suisse demanded a margin of only 10% for the equity swaps it traded with Archegos and allowed the family office 10-times leverage on some transactions. That was about double the leverage offered by fellow prime broker Goldman Sachs, which took minimal losses when unwinding its positions. In 2012, Hwang pleaded guilty to insider trading in Chinese bank stocks, and paid $44 million to settle the SEC's charges when he was head of Tiger Asia Management and Tiger Asia Partners. Hwang shorted three Chinese bank stocks based on insider information they received in private placement offerings. Tiger Asia became one of the largest Asia-focused hedge funds after its 2001 founding - running more than $5 billion at its peak. It was dealt a major blow in 2008 after Volkswagen AG's share price savaged short sellers. Hwang is a former protégé of hedge-fund titan Julian Robertson, who founded Tiger Management in 1980, which as the Wall Street Journal reports, turned $8.8 million into nearly $22 billion. Several investors trained by Robertson became known as the "Tiger cubs." I dont think Hwang will just "carry on " Julian pic.twitter.com/WaYn1Ssg3L — Marc Cohodes (@AlderLaneEggs) April 27, 2022 More on Hwang's indictment: According to the complaint, once Archegos would approach 5% position in a stock, Bill Hwang would allegedly require any additional exposure be limited to total return swap to avoid any public disclosures — Rebecca Jarvis (@RebeccaJarvis) April 27, 2022 The central aim of Bill Hwang/ Archegos was to control the price and artificially increase the value of securities in Archegos portfolio, according to the charges these securities included the following stocks: pic.twitter.com/iwWOSYMgTI — Rebecca Jarvis (@RebeccaJarvis) April 27, 2022 According to charges, Hwang and others working at Archegos would routinely buy/sell more than 10-15% of a stock’s daily trading volume knowing this would influence the price. — Rebecca Jarvis (@RebeccaJarvis) April 27, 2022 And read the entire indictment below: Tyler Durden Wed, 04/27/2022 - 15:50.....»»

Category: personnelSource: nytApr 27th, 2022

JPMorgan Prime Advises Institutions To Keep Shorting Even As The Bank Hikes Its S&P Price Target

JPMorgan Prime Advises Institutions To Keep Shorting Even As The Bank Hikes Its S&P Price Target One wouldn't know it from reading the "house view" research distributed for broad retail and media consumption, and to a large extent for political motives, but behind the cheerful and bullish facade spun by JPMorgan's equity strategists, the bank is quietly telling a subset of its top clients that they should keep shorting the market. This should come as a surprise - after all just a few weeks ago, with many Wall Street firms scaling back their stock market outlooks for the rest of the year, JPMorgan was adamantly bullish and in a recent note, the bank's chief US equity strategist Dubravko Lakos-Bujas said the bank is confident that strong growth lies ahead despite concerns that the recent downshift in economic and business cycle momentum will weigh on stocks. He also raised his year-end S&P 500 price target to 4,700 from 4,600, representing a 6% gain from current levels, and predicted that the index would hit 5,000 at some time in 2022. So in light of this euphoric optimism, we found it strange that JPM's "positioning intelligence" team, a group which operates under the umbrella of the bank's Prime Brokerage team which in turn directly interfaces with institutional investor clients and provides them with ideas and insights from "top-ranked analysts, to high-touch sales and trading services, to world-class algorithmic and electronic trading capabilities" is far less enthused about the market's near-term perspective. In fact, in its latest note, the team of JPM wonder traders whose views rarely if ever make it to the broader public is advising clients on "5 Reasons Why Shorts Can Continue to Work in the Medium Term." Seems a bit strange to pitch shorts when your chief strategist sees stocks surging over 300 points in under three months? Or perhaps, JPM is playing both sides of the trade: getting its retail clients and less privileged institutions to keep buying, helping a handful of select top accounts to short into a rising tide. Then again, JPMorgan would never do something that duplicitous, would it? Rhetorical questions aside, here is the thesis presented by the JPM prime folks; needless to say this would never make its way into a bullish "house view" research report: During the recent drawdown, one element that’s helped HF performance is that shorts have generally worked. When compared to what we saw early this year, this is a welcome development and potentially a sign that HFs relative returns could appear better if the markets were to continue to correct. However, with the recent declines, the US High Short Interest stocks (JPTASHTE basket) are back to the mid-May lows in absolute terms and are back to relative lows on a YTD basis…  So a key question as we approach year-end could be will these rip higher once again? In general, we think shorts are not set up for a sharp reversal higher (i.e. they can continue to work), unless we see a very strong “risk on” market come back into vogue. Digging deeper into this argument, and before getting into the main reasons for why JPM Prime thinks shorts can continue to perform better relative to the market going forward, it’s worth taking a quick step back to look at what’s happened this year on the short side. First, when we look at short “alpha” (i.e. the performance of shorts relative to the market), it suggests that shorts rallied much faster than the market and faster than longs at the start of this year, particularly among Equity L/S funds (left chart). Everyone remembers the reason: the hedge fund inspired squeeze of "meme stonks" by millions of retail investors, who made hedge fund like Senvest which was long Gamestop well ahead of the short squeeze frenzy and which leaked its GME squeeze thesis to the reddit message boards, the best performing hedge fund of the year. And yet WallStreetBets still thinks it is somehow "socking" it to the billionaire hedge funds, little do they know that they were merely pawns in a far bigger game which made one of said hedge funds, the one that precipitated the squeeze, fabulously wealthy as we explained in "The Curious Case Of The Hedge Fund That Made $700 Million On GameStop." But we digress. Again in late May to early June, we saw another period of fairly strong outperformance (i.e. negative alpha). Both of these periods were tied to greater activity among the retail community, especially among so-called “meme” stocks, with the timing coinciding with Joe Biden's stimmies hitting bank accounts. However, and this did surprise us, JPM notes that since the peaks in Feb/Mar of this year, shorts have been underperforming the broader market and are actually underperforming on a YTD basis. Second, looking at short activity (i.e. short additions vs. covering), we had seen sharp covering in 4Q20 as markets rallied into year-end and this persisted into Jan of this year, but the trend since then has been mostly one of shorts being added back. That said, the short additions on a cumulative basis still lag the long additions by a wide margin on a YTD, 2-year, or 4-year basis. Third, High Short Interest stocks (e.g. the “tip of the spear”) clearly rallied very sharply — both in absolute and relative terms — in both Jan and late May. However, with the recent declines, these stocks are back to the mid-May lows in absolute terms and are back to relative lows on a YTD basis…so a key question according to JPM prime - again, these are the guys that institutions listen to, not the generic tripe distributed by "chief equity strategists" which is just fodder for CNBC talking heads, as we approach year-end is will these rip higher once again? Below we get into some of the multiple reasons why JPM Prime thinks it’s less likely that we experience another Jan or late May “squeeze” - for what it's worth we disagree completely and are confident that accumulating some of the most shorted names will soon pay off in droves, more on that in a subsequent post - however, one key factor (pun intended) that JPM wanted to emphasize up front is that it seems far less likely that “risky” factors will drive shorts higher going forward. Thus, this suggests that the worst for High SI stocks (and the short book more generally) is likely behind us, given the regime backdrop could remain more favorable going forward. Put simply, a rally in “risky” factors drove a lot of the outperformance of High SI stocks from the Covid lows to this past Feb.  Importantly, the magnitude and duration of the factor moves is already in line with what we saw coming out of the low in the early 2000s and the 2009 low. Thus, JPM's crack in house traders believe that "there’s a much lower likelihood that we get a repeat of what we saw from last March to mid-Feb of this year." And again, we believe JPM is dead wrong... again. With that in mind, here is what JPMorgan really thinks: 5 reasons why shorts can continue to work in the medium term: ETFs still make up relatively high % of the short book; thus, there’s room for a continued shift back to single-names Short Leverage is still low; it’s at a 1-year low for the All Strategies composite and only the 24th %-tile since 2017 Lack of evidence that HFs are strongly pressing shorts in High SI stocks; there has been some increase recently, which may lead to some near term risk of a bounce higher due to covering, but this is quite different from the build-up into mid-May Distribution of shorts suggests fewer extreme names; there are still many fewer stocks that have SI/float at elevated levels (e.g. 0 stocks in the Russell 3000 with SI/float > 50% vs. 10 of these at the start of the year), Factors have mattered a lot, but they shouldn’t nearly as much going forward; from a regime perspective, “risky” factors – i.e. high trading activity, high vol, high earnings variability, high leverage – tend to outperform over the 12-18 months from a market low. Given the move we saw from the COVID lows was similar in both magnitude and duration to what we saw post other major market lows, it suggests that the risk of a persistent outperformance on the short side is less likely to occur We drill down into these starting at the top: 1. ETFs as % of Short Book in N. America – Still Elevated Among Equity L/S funds, the % of shorts in ETFs is down from the highs earlier this year (17-18% recently vs. high of 19% at end of Jan 2021). That said, the recent level is still elevated on a longer lookback and well above the ~14% it was pre-COVID and early 2021. Among non-ELS funds, ETF shorts have been trending lower to 10-11% of the book, from a high of 12% in 1Q21. However, the level is still higher than it was in early Jan 2021 or early 2020. 2. Short Leverage – Still Low Among All Strategies, short leverage (i.e. short exposure as a % of equity) remains near ~1yr lows and is only at the 24th %-tile since 2017. Among ELS funds, it has been trending higher lately, but is still well below pre-COVID levels — it’s at the 52nd %-tile. One thing to note is that short leverage changes due to multiple factors including the relative performance of shorts, how it relates to HF performance (i.e. equity changes), and also includes derivative exposures. Thus, some of the decline among All Strategies is likely due to a) shorts performing better, b) performance holding up reasonably well lately, and c) some derivative exposures declining after quadruple witching in Sep. This is why it appears to be at odds with the recent flows that show a continuation of shorts being actively added. 3. High SI Stock Flows vs. Performance – Not pressing High SI Shorts High SI stocks saw material outperformance at the start of 2021 amidst retail squeeze behavior and very large covering. In Mar to mid-May, we saw HFs re-engage and add shorts among these stocks as they underperformed, but ultimately this was reversed again as the names squeezed in 2H May into early June. More recently, JPM has seen relatively less shorting of the High SI stocks despite their relative performance dropping back to mid-May lows. On a related point, JPM notes that since the flows are for the stocks that already have High SI, i.e. these stocks were likely shorted prior to getting into the basket, it’s not too unusual to see a lack of further short adds, but the recent flows also suggest that there’s not a strong pressing into these names. 4. Distribution of shorts suggests fewer extreme names In Jan 2021, the large covering of High Short Interest names caused a material reduction in the # of stocks in the Russell 3000 that had very high SI. In particular, the number of stocks with >50% SI/float went from 10 to 1, and was down from 19 at the end of 2019. However, the “belly” of the distribution has been rising as the number of stocks with 3-10% SI/float has been rising in the past few quarters. Given there are still relatively fewer stocks with 15%+ SI/float, the risk of a short squeeze having much broader market impacts seems relatively low. This is exemplified by the fact that in recent months, retail still seems to occasionally cause squeezes in one-off names, but a) they  often come back down and b) there haven’t been broader impacts as the High SI stocks have generally underperformed the market. 4. Distribution of shorts suggests fewer extreme names According to JPM, in Jan 2021, the large covering of High Short Interest names caused a material reduction in the # of stocks in the Russell 3000 that had very high SI. In particular, the number of stocks with >50% SI/float went from 10 to 1, and was down from 19 at the end of 2019. However, the “belly” of the distribution has been rising as the number of stocks with 3-10% SI/float has been rising in the past few quarters. As such the bank believes Given there are still relatively fewer stocks with 15%+ SI/float, the risk of a short squeeze having much broader market impacts seems relatively low. This is exemplified by the fact that in recent months, retail still seems to occasionally cause squeezes in one-off names, but a) they often come back down and b) there haven’t been broader impacts as the High SI stocks have generally underperformed the market. Again, we disagree with JPM here, and remain confident it's just a matter of time before hedge funds - not retail - orchestrate the next squeeze wave. 5. Factor Matters (or to put it more clearly, Factors HAVE Mattered a lot, but they shouldn’t nearly as much going forward) The performance of High SI stocks broadly correlates with the broader short book JPM Prime sees (although it generally hasn’t performed as well). However, understanding what caused the massive outperformance from the March 2020 lows to mid-Feb 2021 can help understand what’s likely going forward. So what’s the main takeaway? From a factor standpoint, the High SI stocks’ relative returns tend to be very positively correlated to a number of “risky” factors – i.e. stocks with high trading activity, high vol, high earnings variability, high leverage – and negatively correlated to stocks with lower risk – i.e. large caps, highly profitable stocks. Put simply, HFs are often shorting lower quality, highly volatile (and liquid), smaller cap stocks. When JPM takes the average return across these factors, it sees a very strong relationship to the relative returns of the High SI stocks. Looking at the chart since the start of 2020 (right chart below), the average factor driver line has been extremely correlated to the High SI stocks relative returns, except for Jan 2021 and then late May 2021, arguably as large HF covering drove these stocks to diverge from the factor drivers for a period of time. So what is JPM's the view going forward, and why does it differ so much from the "house view"? As the Prime folks explain, the magnitude and duration of the factor moves, which have tended to drive the High SI stocks to outperform post a market low, are already in line with what we saw coming out of the low in the early 2000s and the 2009 low. Thus, the bank believes that there’s a much lower likelihood that we get a repeat of what we saw from last March to mid-Feb of this year. For those curious about more details, the charts below on the left show the relative returns of the High SI stocks since 2014 against the various factors that seem to influence them. The right charts show these various factors vs. the SPX since 2000. Finally, JPM takes a brief look at some other questions on this topic. First, how does retail’s role figure into this? Here the House of Morgan is confident that there is less potential for retail to drive broader risk propagation due to 1) more awareness among HFs of what retail is trading, 2) less concentrated shorts (see prior reasons 3 & 4 in particular), 3) retail trading shifting more towards ETFs lately. Second, how does this look in other regions? Short performance has generally been less extreme in other regions, compared to what we saw in the US in 2H20 to early 2021. While there was some outperformance of top shorts in Europe in 4Q20 to Jan 2021, the volatility of the relative returns has generally been much lower. Additionally, in Japan and China there has not been as strong a move in the last year towards shorts outperforming. Finally, where does JPM see shorts relatively low or high vs. history? On a global basis, it’s mostly Defensive sectors that appear to have relatively low short exposure vs. history (e.g. FBT, Utilities, Food Retail, Telcos, Household & Pers. Products). On the flip side, a number of Cyclicals and Financials generally have higher short exposure vs. history. And while we thank JPM's elite trading forces for this stern defense of institutional shorting, we wonder just how all of this jives with the bank's overarching bullishness which has maintained JPM's equity strategists such as Lakos-Bujas and Kolanovic at or near the top of the highest S&P price targets. As for who will be right in their "medium-term" outlook on the market, whether it is the bullish JPMorgan urging smaller retail investors and less important institutions to buy or the bearish JPMorgan telling its high margin prime brokerage clients to press their shorts here, we eagerly look forward to getting the answer over the next few weeks. Tyler Durden Sun, 10/10/2021 - 07:35.....»»

Category: smallbizSource: nytOct 10th, 2021

Futures Flat In Muted End To Turbulent Week With All Eyes On Payrolls

Futures Flat In Muted End To Turbulent Week With All Eyes On Payrolls US futures dropped on Friday, ending a third straight week of declines, as investors eyed a key jobs report that will be pivotal for this month’s Fed rate hike decision. S&P futures fell 0.2% at 730 a.m. ET, with the underlying cash index down 2.2% this week. Nasdaq 100 futures fell 0.3%, with the tech-heavy index down 2.6% in the previous four days. The dollar index slipped from a record high and the euro strengthened. 10Y yield traded slightly lower, at 3.25%, following yesterday's spike. In pre-market trading, Lululemon jumped 10% after raising its full-year outlook. Meanwhile, Bed Bath & Beyond fell as much as 6%, putting the home-goods retailer on track for a weekly loss following its survival plan earlier in the week.  Analysts raise PTs on the stock, though some flag higher inventory levels as a note of bearishness. Here are other notable movers: Procept BioRobotics (PRCT US) initiated at overweight by Wells Fargo, highlighting the potential of the company’s AquaBeam Robotic System, a therapy for prostate gland enlargement JPMorgan cuts its ratings on Dow and LyondellBasell (LYB US) to neutral from overweight, saying the petrochemicals companies are “probably not the best places to put new money to work.” Shares in Addentax (ATXG US), a Chinese garment-maker, drop as much as 40% in US premarket trading, set to extend yesterday’s 95% plunge into a second day. US semiconductor- related stocks could be active on Friday after Broadcom gave a robust sales forecast for the current quarter, calming worries that spending on infrastructure is slowing The outlook for stocks has soured since mid-August after traders ramped up bets that the Fed will continue its aggressive monetary tightening, hurting the economy in the process. The S&P 500 has erased $2 trillion in market capitalization in the past five days, and has given up half of its gains made in the summer rally. Meanwhile, tech stocks have succumbed to rising rates, which are a headwind to the expensive growth sector. “We don’t have a lot of reasons to be bullish in this type of environment for the next couple of weeks and months,” Meera Pandit, global market strategist at JPMorgan Asset Management, said on Bloomberg Television. “Yet when we think about the longer term perspective and the longer term investor, these are the types of level that can be fruitful in the long run.” US stocks had outflows of $6.1 billion in the week to Aug. 31 - the biggest exodus in 10 weeks - according to a Bank of America's Michael Hartnett, adding that investors expect  “fast inflation shock, slow recession shock” as nominal growth continues to be boosted by surging consumer prices, fiscal stimulus, large household savings and the impact of the war in Ukraine. Next up on investor minds is the August jobs report in under an hour, which is expected to show healthy payrolls growth following a stronger-than-expected US manufacturing report. This is how Goldman traders framed what to expect (full preview here): "we are still in a bad is good and vice versa set up for US stocks as Fed has made it clear that they want to see some froth exit the labor market in tandem with cooling inflation: i) Strong print here will clearly make 75bps much more likely on 9/21; ii) Inline print of 300k(ish) will keep pressure on this tape...anything close to last month’s shocking print of 528k would lead to real risk unwind into the wknd (I think at least a 200bp sell off). iii) Sweet spot for stocks tomorrow is a 0 – 100k headline reading...should get a 100+bp rally for S&P in this scenario after this recent drawdown. If we happen to get a negative number an even sharper rally", and the pivot will be right back on the Q1 calendar. “The risk of having another additional 75-basis-points hike is high and also to have a big rally on the real rates” depending on the outcome of the jobs report, said Claudia Panseri, a global equity strategist at UBS Global Wealth Management. “Volatility in the equity market will remain quite high until the picture on inflation becomes more clear than it is right now,” she told Bloomberg Television. In Europe, the Euro 50 rose 0.9%, with Germany's DAX outperforming peers, adding 1.5%, IBEX lags, rising 0.2%. Autos, financial services and energy are the strongest-performing sectors. Here are the biggest Europen movers: Nokia shares are up as much as 1.4% on Friday, adding to a weekly gain and outperforming the wider markets decline as the communications company will join the Euro Stoxx 50 benchmark Ashmore shares gain as much as 5.5%, reversing a small decline at the open, with Panmure Gordon upgrading the emerging markets fund manager to buy from hold following its FY results Smith & Nephew rises as much as 4.9%, extending a weekly gain. RBC says investors are viewing stock’s “historically low valuation” against orthopedic peers as a “buying opportunity.” Segro and Tritax Big Box gain 2.5% and 2.2%, respectively, after Shore Capital upgrades the REITs, saying downside risks for Segro are “fairly priced,” and the risk- reward balance for Tritax is more even UK homebuilders fall and are among the worst performers in the Stoxx 600 after HSBC cut its ratings on seven stocks, saying the UK is on the “cusp of a housing downturn” Sectra shares are down as much as 6.6% after the Swedish medical technology company presented its latest earnings, which included a drop in operating profit Alliance Pharma falls as much 11%, most since July, as the UK’s competition watchdog seeks to disqualify seven of the firm’s directors, including CEO Peter Butterfield Proximus falls to fresh record low, declining as much as 4.3% after Morgan Stanley resumes at underweight in note citing structural market headwinds and an unsupportive valuation Kofola CeskoSlovensko shares drop 2.5% after rising costs prompted the Czech producer of soft beverages to reduce its dividend proposal and rein in guidance Compleo Charging Solutions falls as much as 4% after Berenberg downgrades to hold and lowers its price target by 80%, citing resignation of the company’s co-founder Checrallah Kachouh Earlier in the session, Asian stocks fell, on course for their worst week in more than two months, as the dollar hit a new high amid worries about the Federal Reserve’s aggressive rate-hike path and as lockdowns continued in China.  The MSCI Asia Pacific Index declined as much as 0.7%, set for a weekly loss of nearly 4%. TSMC and other tech stocks contributed the most to the benchmark’s drop as Treasury yields climbed, sending the Bloomberg Dollar Spot Index to a record high.  Equity gauges in Hong Kong led declines in the region, dragged by the banking and tech sectors. Meanwhile, shares in Japan fell as the yen slipped to a 24-year-low against the dollar.  Fresh lockdowns in China are also weighing on sentiment, putting the Asian stock benchmark on track for its third-straight weekly decline. The sell-off reflects broad concerns of an economic slowdown amid weaker manufacturing data in the region’s major tech exporters. “Dollar momentum sees no sign of breaking,” Saxo Capital Markets strategists including Redmond Wong wrote in a note. “Fresh Covid lockdowns in China, in particular, the full lockdown of Chengdu and extended restriction in Shenzhen, have caused some demand concerns.”  Investors will keep a keen eye on the US August jobs report due later Friday to gauge the Fed’s next move in its September meeting.  While weak sentiment has kept Asian shares hovering near their two-year lows, hedge-fund giant Man Group said Asian stocks are set to outshine peers next year. The investment firm is betting on defensive stocks in India and Southeast Asia, Andrew Swan, Man GLG’s head of Asia ex-Japan equities, said in an interview Japanese stocks fell as investors awaited key US employment figures and assessed the yen’s decline to a 24-year low against the dollar. The Topix Index dropped 0.3% to 1,930.17 as of the market close in Tokyo, while the Nikkei 225 was virtually unchanged at 27,650.84. Sony Group contributed the most to the Topix’s decline, decreasing 1.1%. Out of 2,169 stocks in the index, 738 rose and 1,307 fell, while 124 were unchanged. “The US jobs report won’t be very positive no matter what’s out,” said Tatsushi Maeno, a senior strategist at Okasan Asset Management. “If it’s strong, the FOMC will lean toward a 0.75% rate hike and on the other hand, if it’s weak, there could be talk of a recession." India’s benchmark equities index closed slightly higher, after swinging between gains and losses several times throughout the session, as investors tried to gauge the impact of the US Federal Reserve’s hawkish stance in a week marked by volatility.     The S&P BSE Sensex rose 0.1% to 58,803.33 in Mumbai, but ended lower for a second consecutive week. The NSE Nifty 50 Index was little change on Friday. Housing Development Finance Corp and HDFC Bank provided the biggest support to the Sensex, which saw 19 of its 30 member stocks ending lower.  Thirteen of the 19 sector indexes compiled by BSE Ltd. declined, led by a measure of oil and gas companies.  “The effect of Jackson Hole is still revolving across financial markets, with a soaring dollar and falling equities as the main themes,” Prashanth Tapse, an analyst at Mehta Securities, wrote in a note.  In FX, the greenback fell against all of its Group-of-10 peers except the yen. The euro rose a fourth day in five against the greenback, to edge above parity. The pound languished near the lowest since March 2020 versus the dollar. Investors awaited the results of a vote to choose the country’s next prime minister on Monday, with expected winner Liz Truss aiming to cut taxes and increase borrowing. The Norwegian krone outperformed, and rebounded from a six-week low versus the greenback, amid a recovery in oil prices before an OPEC+ meeting on supply at which Saudi Arabia could push for output cuts. The yen weakened past 140 per dollar after a slight rally in Asian trading faded. In rates, treasuries were little changed while European bonds slipped. The 10-year Treasury yield held steady near 3.26%; while gilts 10-year yield is up 2.6bps around 2.90% and bunds 10-year yield is up 2bps to 1.58%. In commodities, WTI crude futures rebound 3% to around $89, within Thursday’s range; oil pared gains after news that the Group of Seven most industrialized countries is poised to agree to introduce a price cap for global purchases of Russian oil, while Russia looks set to resume gas supplies through its key pipeline. Gold rose $6 to around $1,704.  Meanwhile, zinc headed for its biggest weekly loss in over a decade on concern Chinese demand will be hamstrung by new virus restrictions. Bitcoin has reclaimed the USD 20k mark but the upward move is yet to gain any real traction amid the broader contained price action. Looking to the day ahead now, the main highlight will be the US jobs report for August. Otherwise on the data side, there’s US factory orders for July and Euro Area PPI for July. Market Snapshot S&P 500 futures little changed at 3,969.25 Gold spot up 0.4% to $1,704.52 MXAP down 0.5% to 154.28 MXAPJ down 0.5% to 506.44 Nikkei little changed at 27,650.84 Topix down 0.3% to 1,930.17 Hang Seng Index down 0.7% to 19,452.09 Shanghai Composite little changed at 3,186.48 Sensex up 0.4% to 59,025.66 Australia S&P/ASX 200 down 0.2% to 6,828.71 Kospi down 0.3% to 2,409.41 STOXX Europe 600 up 0.7% to 410.47 German 10Y yield little changed at 1.58% Euro up 0.3% to $0.9980 U.S. Dollar Index down 0.25% to 109.42 Top Overnight News from Bloomberg Under pressure from central bankers determined to quash inflation even at the cost of a recession, global bonds slumped into their first bear market in a generation. The Bloomberg Global Aggregate Total Return Index of government and investment-grade corporate bonds has fallen more than 20% from its 2021 peak, the biggest drawdown since its inception in 1990 The ECB remains behind the curve on tackling record euro- zone inflation and will have to act more forcefully than previously envisaged to wrest control of prices, according to a survey of economists Consumers’ expectations for inflation in three years rose to 3% in July from 2.8% in June, European Central Bank says in statement summarizing the results of its monthly survey. Russia looks set to resume gas supplies through its key pipeline to Europe, a relief for markets even as fears persist about more halts this winter. Grid data indicate that flows will resume on Saturday at 20% of capacity as planned German exports and imports both fell in July as surging prices and the war in Ukraine threaten to send Europe’s largest economy into a recession. The trade surplus shrank to 5.4 billion euros ($5.4 billion) from 6.2 billion euros in June, as exports dropped by 2.1% and imports by 1.5% A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were indecisive with price action relatively rangebound after the mixed lead from the US and with the region lacking firm commitment as participants await the upcoming US NFP jobs data. ASX 200 was lacklustre as earnings releases quietened and with strength in financials offset by losses across the commodity-related sectors. Nikkei 225 traded subdued amid underperformance in large industrials although losses in the index were stemmed by retailers after several reported strong August sales. Hang Seng and Shanghai Comp were mixed as Hong Kong underperformed amid notable losses in developers and with the mainland choppy but ultimately kept afloat after the PBoC recently cut rates on its Standing Lending Facility by 10bps from August 15th and after several officials pledged measures. Top Asian News PBoC official Ruan said monetary policy is to further improve cross-cyclical adjustments and maintain stable and moderate credit development, while they will keep liquidity reasonably ample. PBoC will also better coordinate structural and aggregate policy tools but will avoid flood-like stimulus and keep prices stable. Furthermore, the PBoC said China has not taken excessive monetary policy stimulus since the pandemic, leaving room for subsequent policy adjustments and that balanced consumer prices also create favourable conditions for monetary policy adjustments, according to Reuters. PBoC adviser Wang said banks need to increase financial support for infrastructure and that infrastructure is restricted by local government debt levels, while Wang added that they need to ensure property companies' financing needs are met, according to Reuters. China's securities regulator official said they will promote new legislation for overseas listings and will implement the China-US audit agreement, as well as continue strengthening communication with foreign institutional investors, according to Reuters. China's banking regulator official said they will steadily resolve the risks faced by small and medium-sized financial institutions, while they will improve monitoring and disposal of debt risks of large companies, according to Reuters. Japanese Finance Minister Suzuki said it is important for currencies to move stably reflecting economic fundamentals, while he noted that recent FX moves are big and they will take appropriate action on FX if necessary. Suzuki also stated that they are watching FX with a sense of urgency and will brief the media after the G7 finance ministers meeting tonight. European bourses are firmer across the board as hawkish yield action in the EZ has eased from yesterday's recent peaks, Euro Stoxx 50 +0.8%. Stateside, futures are contained and flat with all focus on the NFP report. Alphabet's Google (GOOG) is planning to accept the use of third-party payment services on its smartphone app in national such as Japan and India but not the US, according to the Nikkei Top European News British Chambers of Commerce said the UK is already in the midst of a recession and it expects the UK economy to decline for two more periods following the contraction in Q2, while it also sees inflation to reach 14% later this year EU warned UK Foreign Secretary Truss against triggering Article 16 and said they will refuse to engage in serious talks on reforms to the post-Brexit deal unless she takes the “loaded gun” of unilateral legislation off the table German Economy Gets Another Growth Warning as Trade Volumes Drop Russian Gas Link Set to Restart as Traders Weigh Further Halts ECB Says Consumers Now See Inflation in Three Years at 3% A Hot Jobs Report Could Send Bitcoin to $15,000, Hedge Fund Says Citi Favors Bets on 75Bps Hikes at Each of Next Two ECB Meetings FX DXY's overnight pullback has picked up pace in early European hours. The EUR stands as the best performer alongside reports that Nord Stream 1 flows are expected to resume on Saturday. Non-US dollars are all modestly firmer to varying degrees, whilst JPY fails to benefit from the dollar weakness. Yuan shrugged off another notably firmer-than-expected CNY fixing overnight. Fixed Income Comparably contained session overall thus far though Bunds are holding at the lower end of a 85 tick range in limited newsflow pre-NFP. Currently, the Bund low is circa. 10 ticks above 147.00, with yesterday’s 146.78 trough in focus and then 145.97/87 thereafter. Gilts and USTs are very similar thus far in that both benchmarks are essentially unchanged. Commodities WTI Oct and Brent Nov futures are firmer on the day amid a softer Dollar and narrowing prospects of an imminent Iranian Nuclear deal. Spot gold edges higher as the Dollar remains weak, with the yellow metal back on a 1,700/oz+. Base metals are mixed LME copper softer around the USD 7,500/t. US Event Calendar 08:30: Aug. Change in Nonfarm Payrolls, est. 298,000, prior 528,000 Change in Private Payrolls, est. 300,000, prior 471,000 Change in Manufact. Payrolls, est. 15,000, prior 30,000 Unemployment Rate, est. 3.5%, prior 3.5% Labor Force Participation Rate, est. 62.2%, prior 62.1% Underemployment Rate, prior 6.7% Average Hourly Earnings YoY, est. 5.3%, prior 5.2% Average Hourly Earnings MoM, est. 0.4%, prior 0.5% Average Weekly Hours All Emplo, est. 34.6, prior 34.6 10:00: July Durable Goods Orders, est. 0%, prior 0%; July -Less Transportation, est. 0.3%, prior 0.3% 10:00: July Factory Orders, est. 0.2%, prior 2.0% 10:00: July Cap Goods Orders Nondef Ex Air, prior 0.4% 10:00: July Factory Orders Ex Trans, est. 0.4%, prior 1.4% DB's Jim Reid concludes the overnight wrap If I'm not here on Monday it's not impossible that I've been eaten by a snake or a small crocodile, or poisoned by a tarantula. For our twins' 5th birthday party this weekend we've hired a professional reptile handler to come round and show 30-40 overexcitable kids some interesting animals. If I'm not eaten or bitten I'm a bit worried he won't do the full register on the way out and I'll be left with a huge lizard hiding in my bed. All I can say is that for my 5th birthday party we just had pin the tail on the donkey and a few stale sandwiches. Life was so much simpler then. Markets are pretty complicated at the moment with investors not being quite able to decide whether the newsflow was bad or good yesterday for risk assets. We went to both extremes with the US rallying back into positive territory by the close (S&P 500 +0.30% having been -1.23% just after Europe logged off). As the US starts it's day a bit later we'll have a fresh payroll print to throw into the mix which could be the swing factor between 50 and 75bps at the September Fed meeting. Last month’s strong print ratcheted up expectations that the Fed could hike by 75bps for a third meeting in a row, and markets are still pricing that as the more likely outcome than 50bps, with futures now pricing in +67.7bps worth of hikes. In terms of what to expect today, our US economists are looking for +300k growth in nonfarm payrolls, which should be enough to keep the unemployment rate at its current 3.5%. Ahead of that, the US labour market data we got yesterday was pretty good, continuing the run of decent releases over recent days. Initial jobless claims for the week through August 27 unexpectedly fell back to 232k (vs. 248k expected), and the previous week was also revised down by -6k. That’s the third week in a row that the jobless claims have fallen, marking a change from the mostly upward trend we’ve seen since late March. On top of that, the ISM manufacturing release also surpassed expectations, remaining at 52.8 (vs. 51.9 expected), with the employment component at a 5-month high of 54.2 (vs. 49.5 expected). Treasuries lost significant ground on the day, even before the data, with the 2yr yield rising +1bps to hit another post-2007 high of 3.50%, whilst the 10yr yield rose +6bps to 3.25%. The moves were driven by higher real yields across the curve, with the 5yr real yield hitting a 3-year high of 0.849%. It was a similar story in Europe too, where yields on 10yr bunds (+2.2bps), OATs (+2.5bps) and BTPs (+3.3bps) rose. Those European moves came as investors grew increasingly confident that the ECB would hike by 75bps at some point this year, which was aided by the latest data that showed Euro Area unemployment fell to a new low of 6.6% in July. That’s the lowest level since the single currency’s formation, and means that the latest data is showing that the Euro Area simultaneously has the highest inflation and the lowest unemployment of its existence. As discussed at the top, US equities turned round late in the session with the Nasdaq nearly making it back into the green (-0.26%) as well as the S&P after being -2.28% at 6pm London time. This was too late to save the European session as the STOXX 600 (-1.80%) took a significant hit. Sentiment was pretty downbeat from the outset after the lockdown of the Chinese city of Chengdu (population 21m) risked further disruption to supply chains and global economic demand. That said, the energy situation continued to develop in a positive direction, with German power prices for next year coming down by a further -9.11% to €523.40 per megawatt-hour. In fact they have halved since their intraday peak on Monday when they hit €1050, which just shows how amazingly volatile this market is right now. The EU is considering various interventions to deal with the current turmoil, including price caps and windfall taxes, and Commission President Von der Leyen is set to outline the measures in her State of the Union address on September 14. Staying on commodities, the decline in oil prices continued yesterday thanks to fears of further Chinese lockdowns and hawkish central banks. Brent crude was down -4.28% to $92.36/bbl, which is a substantial decline since its closing level on Monday of $105.09/bbl. As we go to print, crude oil prices are showing some recovery with Brent futures +1.91% higher at $94.12/bbl. There was a similar negative pattern among industrial metals, with copper (-2.96%) down for a 5th day running on the back of those same fears about demand. Meanwhile in the precious metal space, gold (-0.79%) slipped below $1700/oz, while hitting its lowest since July intraday as markets priced higher interest rates, thus raising the opportunity cost of holding a non-interest-bearing asset. Over in the FX space, a number of new milestones were reached yesterday, most notably a rise in the dollar index (+0.91%) to levels not seen since 2002. The greenback was supported yesterday by the strong data that added to expectations the Fed would keep hiking into next year, although the reverse picture was that the Euro fell back beneath parity against the dollar, and the Japanese yen fell to 140 per dollar for the first time since 1998. In Asia’ morning trade, the Japanese yen further weakened, touching 140.26 per US dollar. Here in the UK, sterling also fell just beneath the $1.15 mark in trading for the first time since March 2020. In Asia this morning, the Nikkei (-0.21%), the Hang Seng (-0.58%), and the CSI (-0.20%) are trading lower with the Shanghai Composite (+0.28%) bucking the trend. Elsewhere, the Kospi (+0.04%) is struggling to gain traction after South Korea’s headline inflation slowed after six months of accelerating (more below). Moving ahead, US stock futures are fairly flat with contracts on the S&P 500 (-0.08%) and NASDAQ 100 (-0.04%) treading water. Early morning data showed that Korea’s inflation eased to +5.7% y/y in August (v/s +6.1% expected) from +6.3% in July as energy prices eased. MoM prices dropped -0.1% in August (v/s +0.3% expected) after rising +0.5% in the prior month thus providing some comfort to the Bank of Korea (BoK) in its yearlong tightening cycle. Rounding off yesterday's data, there was plenty to digest from the global manufacturing PMIs, although they mostly confirmed the picture from the flash readings we’d already got. In the Euro Area, the reading came in at 49.6 (vs. flash 49.7), and the US had a 51.5 reading (vs. flash 51.3). The UK had a stronger revision up to 47.3 (vs. flash 46), but it was still in contractionary territory and the lowest since May 2020. Elsewhere, German retail sales grew by +1.9% (vs. -0.1% expected). To the day ahead now, and the main highlight will be the US jobs report for August. Otherwise on the data side, there’s US factory orders for July and Euro Area PPI for July.   Tyler Durden Fri, 09/02/2022 - 07:52.....»»

Category: blogSource: zerohedgeSep 2nd, 2022

The Squeeze Is Over: Goldman Prime Sees A Flood Of New Hedge Fund Shorts

The Squeeze Is Over: Goldman Prime Sees A Flood Of New Hedge Fund Shorts The bear market rally from the mid-June lows was triggered by three key drivers: gradual bullish reversal by the systematic crowd, accelerating buybacks, and a sudden retail frenzy back into the market. But the real catalyst for the meltup was the "apocalyptic" bearish positioning by institutional and hedge fund investors, who were forced to FOMO chase the "most hated rally" higher, accelerating the meltup as they did. This unprecedented bearish bias prompted none other than Michael Hartnett to correctly turn bullish in mid-July citing "Record Pessimism", "Full Investor Capitulation." But far more remarkable was Hartnett's bearish reversal earlier this week, when the BofA chief investment officer correctly timed the spoos peak to within half a tick, urging clients (and ZH readers) to short at 4,328 (which was also the 200DMA). This is what happened then. Well, there's a reason why we call Hartnett (unlike so many of his broken record competitors) Wall Steet's most accurate analyst. But while we hope that readers saved some cash (or made a profit) by timing the bear-market top (for now), it appears that another batch of investors also decided to start shorting... again. According to Goldman Prime, after 4 weeks of relentless short covering unwinds, hedge funds are starting to play more bearish offense, layering new shorts as the GS prime book saw the largest notional net selling in three weeks (1-Year Z score -0.7), driven by short sales outpacing long buys 3 to 1. Here are some more details from the note available to pro subscribers: Overall gross trading activity saw the largest 1-day increase since 6/16 (when SPX fell to YTD lows). While one day does not make a trend, yesterday's activity suggests hedge funds could be starting to play a bit more offense following four straight weeks of risk unwinds. Macro Products (Index and ETF combined) saw the largest notional net selling since mid-July driven entirely by short sales.  US-listed ETF shorts rose +2.0%, the largest 1-day increase in more than two months:  Large Cap Equity, Technology, and Small Cap Equity ETFs were among the most shorted. Single Stocks saw little net activity overall, but flows were risk-on with long buys offset by roughly the same notional amount of short sales.  Consumer Discretionary (short covers), Financials (long buys), and Health Care (long buys) were the most notionally net bought sectors; Comm Svcs (long sales), Info Tech (short sales), and Industrials (short sales) were the most notionally net sold. JPMorgan agree, and in a note from the bank's prime brokerage, writes that following a massive burst of short covering from mid-June, it has suddenly stopped in the past 2 days... oddly around the time Hartnett said to resume shorting. And now that a bunch of potentially bearish events are on deck, we expect the shorting to only accelerate over the next two weeks, at least until through the Jackson Hole symposium next weekend, and the next batch of data on CPI and employment in early September. “Hedge funds may view the June-to-August rally as too far, too fast, and now are licking their chops for another round of downside,” said Mike Bailey, director of research at wealth management firm FBB Capital Partners. “Tactically, markets look a bit feeble at the moment, as investors price in good inflation and Fed news.” Ironically, so hated was this bear market rally, that the new round of shorting takes place even as the previous bearish bets have not been fully unwound, and according to Morgan Stanley there are still a lot of bearish positions outstanding: the bank's data show that in the cash market, while $50 billion has been covered since June, the net amount of added shorts remains elevated, sitting at $165 billion this year. Short interest among single stocks stands in the 84th percentile of a one-year range. “The short base in US equities is still not cleaned up though,” Morgan Stanley wrote in a note. “With short leverage still high, there is more potential for hedge fund short covering.” “Nobody trusts the rally,” said Benjamin Dunn, president of Alpha Theory Advisors. “We could be in for a period of weakness, but by the same token, a lot of people who want to sell have already sold,” he added. “That’s been the problem the last several months in this market. It’s nothing but positioning, almost nothing fundamental.” Still, as Bloomberg notes, shorts unwinding amplified the market upside during the summer lull, but all the caution suggests that the downside risk is likely limited, and as we noted last night... And they're back: "HFs pressing shorts again... US equities saw the largest 1-day increase in gross trading flow since 6/16 driven by short sales" - GS here we go again — zerohedge (@zerohedge) August 19, 2022 ... it sets the stage for the next short covering squeeze the moment the market views Powell's next comments as "pivotish." Tyler Durden Fri, 08/19/2022 - 14:19.....»»

Category: worldSource: nytAug 19th, 2022

2022 Has Been The Worst Year Ever For Hedge Funds, Who Are Now Massively Shorting To Chase Stocks Lower

2022 Has Been The Worst Year Ever For Hedge Funds, Who Are Now Massively Shorting To Chase Stocks Lower Some were stunned to see stocks surge in the last hour of trading on Friday in the illiquid vacuum that saw the S&P earlier tumble into a bear market, sliding more than 21% from its January all time high (a level that equates with 3,855 in the e-mini) briefly before bouncing back above 3900, and rejecting the third attempt to enter a bear market in the past week. We were not, and the reason why is that as has been the case every time a short base builds up, there was a sharp short squeeze. And how did we know that enough of a short pile up had been built up to be toppled by even the smallest spike higher? Why the latest Goldman Prime Brokerage data (full report available to zh pro subscribers). Here are the highlights: US equities on the GS Prime book were net sold for the first time in 4 days driven by short sales and to a lesser extent long sales (2.5 to 1). Wednesday's net selling on the Prime book, driven by short sales, was relatively modest (1-Year Z score -1.4) compared to the sharp market losses (SPX -4%, largest drop in nearly 2 years), suggesting that hedge funds collectively were not the main driver of the price declines; and also suggesting that they had been already substantially short heading into the -4% abyss. At the same time, quantitative measures tracked by Goldman Research indicates retail investors have become sellers in the past few months, reversing ~26% of the cumulative positions net bought in SPX stocks since Jan ’19 (link ). Looking at the composition of trades, Goldman Prime finds that both single stocks and macro products (Index and ETF combined) were net sold and made up 67% and 33% of the $ net selling, driven by short sales. Furthermore, single stocks saw the largest $ net selling in the past month (1-Year Z score -1.4). 9 of 11 sectors were net sold led in $ terms by Info Tech, Comm Svcs, Industrials, Health Care, and Materials. Which is not to say that hedge funds refuse to take profits: indeed, Consumer Discretionary and Consumer Staples - the worst performing sectors on Wednesday  - were both modestly net bought on the Prime book, driven by long buys and short covers, respectively. On the other hand, long-suffering Info Tech stocks were net sold for a second straight day – following 5 straight days of net buying from 5/10 to 5/16 – and saw the largest $ net selling in the past month (1-Yearr Z score -1.2), driven by short sales and to a lesser extent long sales (3.2 to 1) But the easiest way to visualize the growing bearish sentiment is by looking at the red line in the top left chart (US equities trading flows) , which is now at the lowest level (most shorts) in 2022: Ok, so we now that hedge funds have been piling up shorts (not to mention puts), which also explains the lack of a violent VIX surge or a capitulation lower in stocks. What may be just as notable is that despite the rise in short positions, both gross and net hedge funds exposures have collapsed. Indeed, the latest Goldman PB data reflects some of the largest reduction of leverage on record (more in the full latest Goldman prime broker weekly note available to pro subscribers).  According to Goldman's Tony Pasquariello, the huge underperformance of implied volatility traces back to this point (which, he calls an "immense oddity" - over the past 15 years, there have been 36 daily selloffs of 4% or more, and the VIX was never as low as it was on Wednesday). Finally, here are the five top highlights from the latest quarterly Hegde Fund Tracker report from Goldman (also available to professional zero hedge subs in the usual place): PERFORMANCE: Both alpha and beta have posed large headwinds to hedge fund returns so far in 2022. The worst start to a year for the S&P 500 since 1932 has created a challenging beta environment. In terms of alpha, Goldman's Hedge Fund VIP basket of the most popular long positions (GSTHHVIP) has lagged the S&P 500 by 28 pp since early 2021, its worst stretch on record. Funds have fared better with shorts; the most concentrated short positions are down 31% YTD, lagging both the S&P 500 and VIPs. Nonetheless, the median S&P 500 stock still carries short interest equivalent to just 1.5% of market cap, a 25-year low. LEVERAGE AND FLOWS: As noted above, the decline in hedge fund net leverage that began in 2021 has accelerated in recent months. Exposure data calculated by Goldman Sachs Prime Services show net leverage in the 30th percentile vs. the past 5 years compared with record highs in spring 2021. Despite recent selling pressures, equity allocations across a number of investor groups - most notably households - still appear elevated, suggesting the potential for more selling pressure if the macro outlook does not become more friendly for equities. HEDGE FUND VIPS: Despite the sell-off in technology stocks, FAAMG remains atop Goldman's list of the most popular hedge fund long positions. MSFT maintains its position as #1. The VIP list contains the 50 stocks that appear most often among the top 10 holdings of fundamental hedge funds. Four new Energy stocks entered the basket (CHK, VAL, OXY, and LNG) and the sector now has a 10% weight. The basket has outperformed the S&P 500 in 58% of quarters since 2001 with an average quarterly excess return of 40 bp. 16 new constituents: ANTM, APO, ATVI, CHK, CHNG, CRWD, EQT, FIVN, GPN, HUM, MRVL, OXY, PLAN, T, VAL, Z. GROWTH STOCKS: Hedge funds continued to reduce exposures to Growth sector and stocks. Rising real interest rates and  declining leverage have weighed in particular on the valuations of long-duration stocks with extremely high multiples. SECTORS: Hedge funds added to Industrials and Materials while cutting exposures to former favorite Growth sectors. Fund tilts to Information Technology and Consumer Discretionary are now at the lowest levels in at least a decade. “Big Tech” drove much of the reduction in positions across Tech and Discretionary, with funds incrementally rotating away from AAPL, AMZN, and TSLA. Putting it all together, Goldman's Ben Snider summarizes that "a plummeting equity market and the even worse performance of the most popular long positions have led to the worst start of a year  on record for hedge fund returns. HFR data show the average equity hedge has returned -9% YTD and GS Prime Services estimates an asset-weighted decline of -17%. As a result of these struggles, in recent months hedge funds have accelerated the reduction in leverage and rotation away from Growth stocks they began several quarters ago" while at the same time piling up shorts.  However, as Goldman notes, this adjustment has not been quick enough and despite four Energy stocks entering Goldman's Hedge Fund VIP list of the most popular long positions (CHK, VAL, OXY, and LNG), Tech still represents over a third of the basket’s 50 constituents. The five FAAMG companies remain at the top of the list. The basket has declined by -27% YTD vs. -18% for the S&P 500 after underperforming the S&P 500 by 17 pp in 2021. During this period, hedge fund VIPs have effectively given back all the excess return they had generated since 2014. Concluding, Goldman writes that the sharp recent reduction in hedge fund length and rotation in long portfolios reflects a broader asset reallocation taking place across the market. In recent years, low interest rates have supported the investment philosophy that There Is No Alternative to equities (“TINA”). Long-duration Growth stocks have benefited most as both institutional and household investors lifted their equity exposures. Today, in contrast, positive real interest rates, growing recession fears, and declining equity prices have signaled to investors that There Are Reasonable Alternatives to stocks (“TARA”). Investors have been reallocating accordingly. This ongoing adjustment is reflected in household and institutional flows away from equities broadly and from Growth stocks in particular. For hedge funds, this has exacerbated the vicious cycle of falling share prices, declining leverage, and poor liquidity that has created such a challenging market environment this year. All reports mentioned above are available to zero hedge professional subs. Tyler Durden Sun, 05/22/2022 - 20:05.....»»

Category: blogSource: zerohedgeMay 22nd, 2022

Hedge Fund Net Leverage At All Time Highs As No Dips Are Sold

Hedge Fund Net Leverage At All Time Highs As No Dips Are Sold Two weeks ago, JPMorgan's prime desk wrote about 2 main themes among the hedge fund community: elevated leverage levels and low exposure to cyclicals/value that tend to do better when rates are rising. However, over the past week, both of these things have come into sharper focus as US equities suffered one of their larger pullbacks in a while and rates globally jumped higher towards the end of this week.  So what has the largest bank's prime brokerage desk seen in the past week?  According to the latest weekly Positioning Intelligence report published by the bank, at a high level, it seems that HFs are not that concerned about the broader market (nor is anyone else for that matter) with the bank finding that over the past few months, there’s been limited willingness to sell dips.  In line with this, the bank saw neutral flows globally over the past week with small buying on Monday, alongside retail BTFDers, even as professional sentiment tracked by AAII turned the most bearish since last October... ... followed by small selling on Thursday.  But more generally, net flows globally have remained neutral to skewed towards buying in the past 2 weeks with Asia the only region to see some selling. Furthermore, as has been the case for much of 2011, net leverage remains near highs with little change in the past few weeks—net at 98th percentile (of all time) across All Strategies. While gross leverage has come down a little to the 76th percentile, that appears to be more derivatives related and there could be an element of Quadruple Witching that might be impacting this as the largest gross leverage reductions were among Multi-Strat funds. According to JPM, one reason why leverage and flows among HFs might be more neutral this month is that performance has held in relatively well MTD: long-short spreads have been improving over the past few months.  Looking at this month, longs are holding up well, while shorts are down in line with the market. This leaves HFs up slightly MTD, according to JPM estimates. Back to the topic of leverage, FINRA just came out with its latest statistics on Margin Debt which showed them at a new ATH. Given it is up almost 60% since the start of 2020, it begs the question Bank of America asked one month ago: should we be concerned? Not surprisingly, JPM dismisses this indicator and thinks "this alone is not something that is concerning when one breaks down the changes and behavior to account for how the market has been performing." Furthermore the JPM prime desk notes that "this appears to be very different from the peaks in 2000 and 2007 when Margin Debt rose about 50% faster than the S&P 500 over a 12-month period." Instead, to JPM the recent moves seem more reminiscent to what happened in the early 90s. At a more micro level, cyclicals / value / inflation / travel related stocks have all been doing better recently as COVID are falling once more, some travel restrictions are getting lifted, and rates are rising globally.  In line with this, JPM continued to see buying of NA Financials, something that has been noted over the past few weeks, but this week JPM saw Banks getting bought (vs. more Insurance and Div. Fins in prior weeks).  COVID recovery stocks have also been bought but there’s room for more to go as positioning and valuations remain low in many cases (especially among the US COVID – Domestic Recovery basket, JPAMCRDB).  EMEA Travel & Leisure stocks saw strong buying in the past week as the US prepares to drop its ban for transatlantic travel, and net positioning is getting a bit elevated vs. history; however, EMEA Airlines still has low positioning.  Finally, not everything cyclical is getting bought—HFs have continued to sell Energy into strength - despite the recent surge in oil and all other commodities - and have also sold Materials.  Below we share some more details on each of these core themes Main theme #1: Global Flows and Leverage: HFs Don’t Seem Too Concerned While markets have been volatile over the past week, due to the myriad concerns, HF flows remained quite calm.  The reason is that hedge funds have been reluctant to sell dips and that appeared to be the case again last Fri/this Mon as global flows were quite neutral.  However, at the same time, HFs are also not chase the rally as the JPM Prime net flows were fairly neutral on Wed and skewed towards selling on Thurs when markets rallied back. A notable observation is that there appears to be some strategy differences in the past 2 weeks as Equity L/S and Quant funds have been buyers while Multi-Strats have been net sellers across JPM prime.  The selling among Multi-Strats comes as gross and net leverage have started to pull back from peak levels.  The gross reductions among some Multi-Strat funds have been the main driver of the broader “All Strategies” gross leverage figure lower WoW.  However, net leverage was basically unchanged. Furthermore, it appears derivative positions might be driving some of the changes as notional LMV and SMV increased WoW while delta adjusted LMV and SMV fell.   Among Equity L/S funds, who have been moderate net buyers of equities most days MTD, net leverage actually rose slightly WoW and it’s now at the 93rd %-tile since Mar 2017.   #2:  US Margin Debt: New ATHs at End of Aug…Should We Be Concerned? FINRA just released the latest monthly stats on “Margin Debt” which showed a fairly large increase, following a decrease in July.  As Margin Debt is at new All-Time-Highs and is now up almost 60% since the start of 2020, it’s worth asking -as BofA did one month ago -  if this is something we should be concerned about.   In order to answer this, we’ve looked at the relationship between Margin Debt and the markets over time, augmenting the data FINRA has on it’s website with NYSE Margin Debt data that goes back to 1959.  What this shows is that while there is a very big increase recently, it is 1) in line with the markets and 2) seems to be following the general pattern of the past 60+ years.   Similar to discussions of rate-driven VaR shocks, JPM argues that it’s not so much the level of Margin Debt that one should be focused on, but rather the rate of change. On this point, the bank measured the 12M change in Margin Debt and the S&P 500 over the past ~60 years and what this shows is that there is typically a fairly strong correlation over time. In particular, this correlation has been very strong since the GFC, but there were a couple notable divergences in 2000 and 2007 when Margin Debt rose much faster than the market. In its attempt to mitigate concerns about record margin debt, JPM then notes that increases in Margin Debt (i.e. investors taking on more leverage) that exceed the market returns by a wide margin could indicate greater potential for future stress because it might suggest that investors are adding leverage at market highs, but not actually making much money while doing so. Thus, when markets start to pull back, the recent investments start to lose money more quickly than if they had been added when the markets weren’t at highs. Addressing this point, JPM notes that when looking at what’s happened in the past 2 years, we have seen Margin Debt increase faster than the markets on a 12M rolling basis with the difference reaching +28% at its recent high.  However, the recent high in the 12M difference metric was reached in January of this year (perhaps due to the fact that HFs had performed very well in 2020 and had been adding risk throughout 2H20 in particular). Thus, this difference has been falling for much of the past 7 months.  Furthermore, the recent rise follows a period when Margin Debt had generally lagged the market increases; since the start of 2018, margin debt is only up ~40% vs. the S&P up ~70% in price terms. When it looks back even further, JPM notes that there were periods in the 70s-80s when large increases in Margin debt were followed by market weakness, suggesting this isn’t only a 2000 and 2007 phenomenon (left chart below).  Furthermore, one could reasonably ask why the relatively large increase in the early 90s didn’t result in a market pullback.  While there are likely other contributing factors as well, one thing to note about Margin Debt was that it had gone through a period of relatively slower growth in the late 80s, so the rise in the early 90s was somewhat of a “catch-up” period for it.  Similarly, JPM argues that the rise into Jan of this year could also be considered a bit of a “catch-up” period, which appears to be different from 2000 and 2007 when Margin Debt was reaching new highs, even when measuring it relative to the S&P changes.   In light of the above it's hardly a surprise that JPM thinks that while there are many potential reasons one could cite for market caution, "the level and changes in Margin Debt do not appear to be setting us up for extreme market drawdowns like we saw in 2000 and 2007." #3:  Reopening/Recovery Trades Back in Focus? With COVID cases appeared to be on the decline globally, and travel restrictions getting lifted in some places, reopening/recovery themes have been more topical as they’ve started to perform better. On the HF side, JPM Prime has seen net buying over the past 2-3 weeks in both the Domestic Recovery basket (JPAMCRDB) and the International Recovery Basket (JPAMCRIB).  Positioning in both groups remains low on a YTD basis and very low on a multi-year basis for the Domestic basket.  In addition, JPM’s U.S. Equity Research Strategist, Dubravko, recently wrote about this in a recent note where he showed that the COVID Recovery – Domestic basket had seen relative valuations fall back to multi-year lows while COVID Beneficiaries were back near highs. In a similar vein, Travel & Leisure stocks have seen strong performance this week in both N. America and EMEA, along with HF buying as the US said it would remove its ban on EU travel for vaccinated passengers starting in November. The recovery in performance, relative to the market, still has more to go before getting back to  where we were earlier this year. In terms of where the recent buying and outperformance leaves HF positioning, net exposures are nearing average levels among US Travel & Leisure stocks, but are a bit closer to highs in EMEA. Where there appears to be more potential upside for positioning in EMEA is among the Airlines stocks where net exposures is still about 1z below average and JPM has yet to see shorts covered in the group, after persistent additions for the past 6 months. Among US stocks, the rise in rates was accompanied by further buying of Inflation Winners and Rising Bond Yield Winners. Despite the recent buying, net exposure to the Inflation winners remains quite low with net exposures about 1 std dev below average and for the Rising Bond Yield Winners, the net exposure is still slightly below average.   Similarly, a couple weeks ago JPM wrote about how positioning and flows in Value vs. Growth had done a “180” in the past few months as Value had underperformed. Perhaps not surprisingly, US Value seems to be getting a revival recently as the Value factor has been bought in the past 2 weeks. This is coming from both Value Longs getting bought and Value Shorts being sold/shorted.  In line with this, Growth stocks have seen some selling. #4:  Performance – HFs Holding Well in Sep With a risk-on backdrop of cyclicals outperforming defensives, small caps rallying, and rising rates this week (Rising Bond Yield Winners up +5% WTD), Hedge Funds find themselves in the rare position of outperforming broader equity market indices MTD. And with WSB's short squeeze hunts fading, shorts are not detracting from performance as they are generally down in-line with the market; whereas, longs have fared better and protected to the downside.  Among Global Equity L/S funds, net returns continue to track positively with gains of +60-70bps MTD, outperforming MSCI ACWI (which is down -1.2%). The long-short spread has continued to improve since mid-August, driven more recently by shorts selling off faster in September than the market (down -1.3% on wgtd avg basis) and longs holding up relatively well (only down -15bps MTD). Non-Equity L/S funds are also up MTD and outperforming global equity indices, up between +30-85bps. In terms of alpha, longs have outperformed shorts throughout most of September (some reversion over the past 2 days). At a regional level, N. America L/S funds are flat to slightly up MTD, up around +0-30bps and are thus outpacing the SPX. The long-short spread has continued to improve steadily since mid-August but slowed yesterday as shorts outperformed. In EMEA, net returns among L/S funds are positive MTD, gaining around +0.5-1.3% and outperforming the headline European index. Tyler Durden Sat, 09/25/2021 - 20:30.....»»

Category: dealsSource: nytSep 25th, 2021

Why Are Solar Stocks Rallying

Clean energy equities have been on a rise with some shares up nearly 100% in just a few weeks. The surge in solar stocks was fueled by the introduction of the Inflation Reduction Act (IRA) last month. The newly-introduced bill is likely to fuel the demand for solar panels with some companies in this sector […] Clean energy equities have been on a rise with some shares up nearly 100% in just a few weeks. The surge in solar stocks was fueled by the introduction of the Inflation Reduction Act (IRA) last month. The newly-introduced bill is likely to fuel the demand for solar panels with some companies in this sector being the clear beneficiaries. The IRA offers U.S. manufacturers credits to produce solar panels and wind turbine parts of up to $7,500, while also offering credits for the purchase of electric vehicles (EVs) manufactured in the home market. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2022 hedge fund letters, conferences and more   “There are many facets of this bill but, EVs and clean energy we think are going to be the two main winners based on where the dollars are being allocated,” said Jay Jacobs, Head of Thematic and Active Equity ETFs at Blackrock. “I think it’s really going to be felt across the entire value chain. It's not going to be one winner. We think that there's going to be many winners in this space,” he added. Companies that received a significant boost from the bill include solar providers Sunrun and First Stolar. Other companies that benefited from IRA include fuel cell developers like Ballard Power Systems and Plug Power. Plug Power’s Chief Executive Officer Andy Marsh expects the boost to push the company’s road to profitability by six months “into early 2024.” The IRA significantly “changed the landscape for both our company and others,” Marsh added. Shares of Plug Power are up over 80% in the past month. Analysts Increasingly More Bullish on Solar stocks Wall Street analysts have been raising their ratings on clean energy stocks over the past few weeks. Wall Street giant JPMorgan recently upgraded First Solar (NASDAQ:FSLR) and TPI Composites (NASDAQ:TPIC), both of which are set to receive production tax credits at their U.S. factories. JPMorgan upgraded both stocks to Overweight. However, Bloomberg Intelligence’s Rob Barnett warned that the IRA will not make an instant impact but will rather “unfold over the course of 5 to ten years.” Barnett also warned investors that even though some of the clean energy stocks saw unprecedented price jumps in the last month, their traditional valuation metrics look quite stretched. "I think from a demand perspective the fundamentals look good. But if you’re looking at traditional valuation metrics, they’re very stretched for a lot of these companies." He also questioned whether investors should be comfortable with the high valuation of these companies if they are going through a period of rapid growth. The rising cost of production of solar equipment generally makes solar stocks a higher risk, higher yield trade. But Goldman Sachs isn’t deterred. In fact, goldman Sachs analysts described the IRA bill as a big boost for the entire solar sector, which explains the significant leg higher in solar companies’ shares. The bank’s research department believes that solar stocks with U.S. leverage and production facilities based in the U.S. are sitting in the best position going forward, with roughly 40% return potential among some of the stocks preferred by the banking giant. Goldman Sachs analysts double-upgraded First Solar and Maxeon Solar Technologies Ltd (NASDAQ:MAXN) from Sell to Buy while downgrading the likes of Shoals and Canadian Sollar citing smaller exposure to upside benefits from the bill. Analysts said that solar stocks could stage another 50% rally despite strong gains made in recent weeks. Solar companies like Sunrun Inc (NASDAQ:RUN) and Array Technologies Inc (NASDAQ:ARRY) are also seen as businesses carrying the highest upside potential as these are likely to benefit immediately from the IRA. On the other hand, Goldman sees MAXN as well-positioned to cash in on solar cell and panel credits if the company manages to add 3GW more capacity in the U.S. in 2025. Other potential beneficiaries include Enphase and SolarEdge, which are likely to leverage inverter manufacturing credits. With the IRA as a major boost for the entire sector, the solar market is expected to grow at a compound annual growth rate (CAGR) of over 20% in the next five years, according to multiple market research firms. One of those firms, Fortune Business Insights, projects the global solar market to hit $1 trillion at the end of 2028. Summary Solar stocks are witnessing rapid ascendance in recent weeks on the back of the IRA passage. Analysts are adjusting their ratings to reflect stronger demand for solar panels as investors look to take advantage of a significant positive catalyst that could see some shares double their valuations in just a few months. Get Smarter on Crypto and Macro. Get the 5-minute newsletter that keeps investors in the loop. Five Minute Finance is an independently run newsletter covering the latest and most important trends in crypto, macro, and global markets......»»

Category: blogSource: valuewalkSep 12th, 2022

Housing, Retail And Hospitality Stay Weak But Energy And Defence Gain On Truss Win

Weakness persists for inflation hit stocks after Truss becomes Prime Minister Worries tax cuts will lead to higher interest rates sees housing shares decline further Supermarkets remain under pressure as imports are set to stay expensive due to the weak pound Banking shares slid amid the bleak outlook for the UK economy Defence stocks gain […] Weakness persists for inflation hit stocks after Truss becomes Prime Minister Worries tax cuts will lead to higher interest rates sees housing shares decline further Supermarkets remain under pressure as imports are set to stay expensive due to the weak pound Banking shares slid amid the bleak outlook for the UK economy Defence stocks gain amid expectations of higher military spending Energy stocks boosted by higher oil price and expectations of no fresh windfall tax Liz Truss Becomes UK’s New Prime Minister The new Prime Minister’s in-tray is overflowing with problems marked urgent, but none is more pressing than the cost-of-living catastrophe facing companies and consumers. 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 Our Activist Investing Case Study! Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below! (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2022 hedge fund letters, conferences and more   Expectations that a Trussenomics solution will be found by slashing taxes and spending big is fuelling worries that inflation will not easily be brought under control and that the Bank of England will be forced to keep raising rates and keep them elevated for longer. Truss and her preferred candidate for Chancellor, Kwasi Kwarteng, are much more relaxed about higher levels of borrowing than their predecessors and that continues to cause jitters in financial markets. The pound is still hovering near 2.5 year lows at $1.148 while the yields on UK 10 year government debt are little changed at 2.93%. Yields have registered the biggest monthly rise since 1986 as Liz Truss hurtled towards Downing Street, throwing out promises of slash and spend on the campaign trail, which threaten to cause fresh problems for UK economy. The weaker pound makes imports more expensive and with no immediate solution ahead to the painful rises in costs and the terrible squeeze on households’ budgets, supermarkets are under pressure. Ocado Group PLC (LON:OCDO) in the FTSE 100 dropped by 2.7% and both Tesco PLC (LON:TSCO) and J Sainsbury plc (LON:SBRY) also fell back. Despite expectations of a cut to VAT to help struggling firms, the bleak outlook for the UK economy has kept the hospitality sector in the red. As well as fears consumers will be strapped for cash in the months to come, soaring gas prices add more pain for companies, who are waiting in limbo for a package of support to be unveiled. The Restaurant Group PLC (LON:RTN), the owner of Wagamama, fell by 4%, J D Wetherspoon plc (LON:JDW) dropped by 2% and Whitbread fell by1%. Weakness In Housing Stocks Weakness is persisting for housing stocks, given worries that mortgage repayments will become unaffordable for homeowners who were lulled into a false sense of security during the era of cheap money. Rightmove Plc (LON:RMV) was down by more than 2% in the FTSE 100 while Barratt Developments PLC (LON:BDEV) and Persimmon plc (LON:PSN) slid further into the red. Although higher interest rates will boost the net income margins for banks, a deteriorating economy could spell bad news in terms of demand for loans and worries are also increasing about the potential of bad debts mounting up as a recession looms. Unless there is a lifeline of support issued to help companies withstand the painful hikes in energy costs, its feared many will go to the wall. Lloyds Banking Group PLC (LON:LLOY) shares have fallen by 1.4% and Barclays by 1.7%. The new Prime Minister’s commitment to spending more on defence by upping the budget to 3% of GDP has boosted the sector, with BAE systems extending gains in early trade following news of her announcement. She is likely to take up the baton from Boris Johnson in his dedicated support for Ukraine and is likely to clamour for more support in terms of military hardware from European nations. Her expressed distaste for a further windfall tax on the oil and gas sector will have added to the strength of energy giants today, which had already been boosted by the ratcheting higher of gas prices and the march back upwards of crude prices over supply constraints. BP plc (LON:BP) and Shell PLC (LON:SHEL) were among the biggest climbers on the FTSE 100, while Harbour Energy in the FTSE 250 also gained more than 3%. Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.....»»

Category: blogSource: valuewalkSep 6th, 2022

Is E-Sports Gaming Giant FaZe Holdings (FAZE) Primed For A Short Squeeze?

Looks into the short squeeze, gamma squeeze leaderboards and data that has been included to produce the scoring along with the companies background and outlook Retail Investors Eyeing FaZe E-Sports and entertainment company FaZe Holdings (NASDAQ:FAZE) (formerly FaZe Clan) has been grabbing attention by the retail investing cohort recently as the B Riley lead SPAC […] Looks into the short squeeze, gamma squeeze leaderboards and data that has been included to produce the scoring along with the companies background and outlook Retail Investors Eyeing FaZe E-Sports and entertainment company FaZe Holdings (NASDAQ:FAZE) (formerly FaZe Clan) has been grabbing attention by the retail investing cohort recently as the B Riley lead SPAC merger-born stock which dived on listing, posted an impressive turnaround rally that saw the stock move over +100% higher in early-August. 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 Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton 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); Q2 2022 hedge fund letters, conferences and more   After giving up more than half of the gains by mid-August, the stock again began to march higher at a more consistent rate. FaZe Clan has dubbed as the fourth most valuable E-Sports company according to Forbes in 2022. The stock has generated some interest by redditors on Wall Street Bets throughout August with some claiming the stock as a potential candidate for a gamma squeeze. Over the last few weeks, FAZE has risen to the top of Fintel’s US Short Squeeze Leaderboard with a bullish score of 99.78. This has been a function of the platform's proprietary modelling that incorporated the high short interest float percentage of 99.38% with an inflated borrow fee rate of 678.14 and 1.96 days to cover.  A list of recent short sale transactions can be found here. In addition to this score, FAZE moved 2 ranks higher and now is the 9th most likely stock to receive a Gamma Squeeze according to the Fintel leaderboard that incorporates options activity into this data. Fintel’s modelling provides FAZE with a Gamma Squeeze score of 98.91.  This is driven by the stock's net call open interest volume currently equating to ~37% of the company's total float. An interesting point worth noting was the recent 13D filing by AEC (Atlanta E-Sports Ventures) which disclosed a 5.3% stake in the company. AEC is a joint venture between Cox Enterprises and Province.  Cox Enterprises is a privately held global conglomerate headquartered in Atlanta, Georgia while Province is a national advisory firm focused on growth opportunities, restructuring and fiduciary related services. While no direct statement was provided about the intention of the investment, the backing signals a level of confidence in the future prospects and outlook of the company. B Riley Principal Merger Corp Investor Presentation WIth significant interest picking up in the stock, it is worth looking into the investment thesis and why the merger occurred in the first place. As cited from the SEC filing archive, FaZe has now expanded beyond its clan gaming roots and is “becoming a voice of youth culture” with a combined social media reach of over 350 million users with around 120 million being unique. The company sees organic revenue growth coming from sponsorships, content, merchandise, E-Sports, international expansion and other IP vertices which they believe will lead to increased monetization per user. The outlook supports a revenue growth opportunity of “~10-200x today’s levels”. Management included revenue, gross profit and adjusted EBITDA forecasts to FY25 that provides a planned runway to profitability. These forecasts have been included below: FaZe highlighted that 80% of their audience is aged between 13-34 years old which has been regarded as a demographic that has traditionally been harder for advertisers to reach with traditional media. Article by Ben Ward, Fintel.....»»

Category: blogSource: valuewalkAug 31st, 2022

The Short Case For US Stocks Requires Answers To 4 Questions

The Short Case For US Stocks Requires Answers To 4 Questions By Nick Colas of DataTrek Research Every investor is short something, even if they don’t think about their investment decisions or risk exposure in the same way a hedge fund might. For example, if you are underweight equities right now versus a benchmark or your typical allocation, you are essentially short stocks. Today we discuss the very specific rules traders use when shorting a security and how they apply to all investors. The bottom line: every short is just a trade, and eventually you must cover. “Every investor is short something.” I (Nick) first heard that bit of wisdom in the early 1990s from an analyst at Harvard Management, the organization which manages that university’s endowment. His point was that the range of possible investments is so wide that no institution or individual investor can possibly run a truly “neutral” portfolio. This is even truer today. For example, most investors are short virtual currencies because they don’t own even a small allocation of this now trillion-dollar but still deeply fragmented and complex asset class. At a more mainstream level, many investors are short equities in that they are underweight stocks versus their benchmarks or historical allocations due to this year’s volatility. Traders know that shorting stocks requires strict adherence to a set of rules, and for this week’s Story Time Thursday I will describe 4 of them and how I think they apply to today’s investment environment: #1: Valuation alone is not enough. At the old SAC, rookie analysts often made the mistake of pitching Steve short ideas based on valuation metrics like PE ratios or EBITDA multiples. His reply was always the same: “Everyone owns a calculator. Math is not an edge.” I think about this every time we discuss our longstanding overweight to US equities versus rest of world stocks. Yes, US stocks are much more expensive, at 18x forward earnings expectations versus 11 – 13x for European, Japanese and Emerging Markets equities. There are good reasons for that, from the dollar’s reserve currency status to American public companies’ keen focus on profits, to the world’s most vibrant venture capital industry. While it may be tempting to add non-US equity exposure here as a “cheaper” alternative to US stocks, we would advise against it. #2: A well-constructed short investment thesis requires identifying specific catalysts that will affect the price of a stock, and that means knowing exactly why the name appeals to its current base of shareholders. Hedge funds look at which institutions own a stock and why they like it in order to judge if a short argument has merit. After all, those are the asset managers that (ideally) will be spooked out of a stock on bad fundamental news. This point is what makes being short/underweight US stocks such a difficult call just now: Everyone knows only recessions kill inflation. The historical record is crystal clear on that point. It is just as obvious as a PE ratio, which means there is no investment edge in this observation. Equity investors don’t even care about recessions per se; they care about the effect recessions have on earnings. Q2 2022 was a record for S&P 500 earnings, which were 39 percent higher than 2019’s quarterly run rate. By way of comparison, nominal US GDP is only up 17 percent from Q2 2019 to Q2 2022. Despite a slew of headwinds, from supply chain shortages to labor turnover to questionable WFH productivity, American companies have delivered simply stellar margins and earnings. Unless the US economy goes into a tailspin very soon, Q3 and Q4 earnings should be broadly in line with Q3 or even slightly higher given normal seasonal trends. The short case for US stocks therefore requires answers to 4 questions: 1) when does a US recession start, 2) what will corporate earnings power be when it starts, 3) how much will earnings decline, and 4) how quickly will they recover? The fact that monetary policy works with a lag only makes answering these questions even harder. Half of the art in shorting stocks is timing the entry point for a position. And as the old trader’s saying goes, “early is the same thing as wrong”. #3: Avoid crowded shorts. There is nothing more frustrating to short sellers than being right on a fundamental call but wrong on a stock because too many other hedge funds are short the same name. On top of that, short interest is public knowledge so there is also the risk of simply being squeezed out of a position. One way to think about the June 16th lows for US stocks is that it represented the apex of a crowded short. Too many investors saw the S&P 500 down +20 percent on the year, the VIX at 33-34, and Treasury yields ripping to new highs and simply said, “I’m out”. The subsequent rally has been, therefore, a classic short squeeze. With the VIX now at 20, that squeeze is over, and stocks have to justify further gains based on fundamentals and macro developments. #4: Shorts are trades, not investments. By the time a company is public, it usually has some intrinsic value. This can wax and wane with management competence, economic cycles, competitive forces, and other issues. If things truly go off the rails, the company’s board either replaces management or splits up/sells the business. Very few public companies go to zero. This is why every short seller has a target price where they cover in mind before they initiate a position. If one is negative on stocks at current levels, the only relevant question to ask (and answer) is “where do you cover/add equity exposure and, more importantly, why is that the right level?” One of the hardest things about shorting a stock is covering when it hits your price target. Maybe it will go lower… Maybe it’s even one of those rare stocks that goes to zero. And why even cover when the position is working for you? The answer is, as a wise old SAC trader once told me, because “this game is rigged to the upside”. The upshot here is that if one is underweight stocks right now, set a target price or range where you will add equity exposure and do your best to stick to it. Tyler Durden Mon, 08/22/2022 - 07:20.....»»

Category: blogSource: zerohedgeAug 22nd, 2022

Mind Medicine Soars On Speculation It Could Be The Next Bed Bath & Beyond

Mind Medicine Soars On Speculation It Could Be The Next Bed Bath & Beyond With Bed Bath & Beyond stock tumbling on fears that Ryan Cohen is about to dump his entire 9.5 million share-equivalent stake in the troubled retailer, but not before executing the best gamma pump-and-dump in history, the Reddit ape army appears to have already moved on to its next target: a far smaller pharma microcap which is soaring on massive trading volumes this morning, as a flood of retail investors bet that it just may be the next BBBY-type multi-bagger. The stock, as we first hinted last night and again very early this morning on our Twitter feed to premium subscribers, is microcap psychedelic pharma company Mind Medicine (MindMed or ticker MNMD) which nearly doubled at one point in early trading, after it was named by 20-year-old "whiz kid investor" Jake Freeman - who as we reported last night made more than $110 million buying Bed Bath and Beyond three weeks ago and cashing out on Aug 16 - as not only his other major holding, but a company where he just went activist last Thursday. While we know that the 20-year-old USC college student Jake Freeman (who let's face it, was really just a front for his uncle Dr Scott Freeman especially with the very strong hint that to "realign" BBBY debt, the company should leverage Bed Bath options, i.e., execute a gamma squeeze) already took profits on his 6.2%, $27 million stake in BBBY after the stock soared 5x in three weeks, the tension as we put it, is "where Freeman Capital Management would make its next 5x return in under a month next" and Easter-egged that "actually we know how, and we will reveal it tomorrow." The answer was hidden in plain sight in the hyperlink above, which tagged an activist letter to the Kevin O'Leary backed psychedelic pharma company Mind Med (ticker MNMD) sent on Aug 11 by FCM MM Holdings, LLC (the latest incarnation of the same Freeman Capital that made over $110 million Bed bath and Beyond) in which Jake Freeman and his uncle Dr Scott Freeman, the alleged architect behind the BBBY trade activist campaign but more importantly the co-founder and former Chief Medical Officer of MindMed which is the new activist target, reveal they recently amassed a stake in the company amounting to 5.6% of the outstanding stock, or roughly 20 million shares, and one which has yet to be reflected in the Bloomberg HDS page, which would make the activist hedge fund the 2nd largest holder in MNMD (worth mentioning, just like in Bed Bath and Beyond, Citadel just added aggressively to its position in MNMD, becoming the 8th biggest shareholder in the company, and potentially waiting for much more fireworks). In the letter, the two alongside Orbiter Research executive Chad Boulanger, write that having seen the value of their 5.6% stake in the company "plummet as the stock has fallen from its highs of around $5.77 to $0.70 per share" they are writing to present a plan to turn the Company around. Expanding on the "value enhancement plan" (laid out in detail in Exhibit A to the letter below), they claim that the Company can "create significant value for shareholders by focusing on the development [of key drugs] and reducing the company's cash burn" and lay out all the steps the company should be taking to improve its performance and "benefit all shareholders." See Exhibit A in the letter below for more details. In short, Dr. Freeman hopes to "work hand-in-hand" with the Board of MindMed - which he co-founded - to unlock the Company's full potential value, thanks to his intimate knowledge of how to turn around the company which he co-founded as he lays out in Exhibit B. Maybe Dr. Freeman can turn the company around. Maybe he won't. But what people are really asking is whether the heavily shorted stock... ... whose call options today have exploded in volume... ... can pull off a similar short and/or gamma squeeze to that in BBBY. Considering the modest float, the fact that with barely any newsflow a third of the float has already changed hands this morning,  the potential for a painful short squeeze, and the stated intention to push with their activist campaign until the stock price returns to at least the stated $5-handle, we would not be surprised if Scott Freeman, pardon Jake Freeman, can pull it off again... especially if the Wall Street Bets shifts its attention away from BBBY. The full letter is below (link) Tyler Durden Thu, 08/18/2022 - 12:33.....»»

Category: dealsSource: nytAug 18th, 2022

In Sureal Story, 20-Year-Old Student Acquires 6% Of Bed Bath & Beyond, Makes $110 Million In 3 Weeks

In Sureal Story, 20-Year-Old Student Acquires 6% Of Bed Bath & Beyond, Makes $110 Million In 3 Weeks We thought that today's story about Ryan Cohen filing to dump his entire stake in Bed Bath & Beyond after sparking a massive gamma squeeze using deep OTM call options would be the most absurd meme-related story of the day. Boy, were we wrong. In a late Wednesday article published on the FT which at first (and second, and third) read comes across as a cross between absurdist satire and a PR puff piece, we read the day's feel-good "riches to riches" story in which a 20-year-old university student, Jake Freeman, who is an applied mathematics and economics major at the University of Southern California, managed to accumulate 6.2% of the entire outstanding stock of Bed Bath & Beyond at under $5.50 share (did we mention he is a 20-year-old university student) amounting to $27 million, which he announced in an activist 13-G letter to BBBY Management on July 21, 2022, and less than a month later sold out of his entire stake - thanks to the insane gamma squeeze in the stock - not through some prime broker but through his TD Ameritrade and Interactive Brokers accounts, making $110 million in the process! For the sake of simplicity, here is what happened summarized in one chart. First things first - how the FT got the idea for the story in the first place was rather inspired: they looked at the HDS page of BBBY and found that the 4th largest holder of BBBY is a completely unknown entity called Freeman Capital, which alongside only Ken Griffen's Citadel and Federated Hermes, were the only three Top 20 holders to build out their entire stakes in the second quarter (as a reminder, shortly before the close we learned that the 2nd largest holder, Ryan Cohen's RC Ventures, filed a 144 to dump its entire 9.450MM share-equivalent stake). And while we wait for RC Ventures to liquidate its stake, we now know for a fact that the #4 top BBBY holder already sold to unwitting retail investors. What is remarkable is that at the same time Freeman disclosed its 6.21% (or 4,968,000) stake, the 20-year-old also sent out a 9 page activist letter (hardly the stuff 20-year-old college math majors write) to BBBY management explaining that the company is "facing an existential crisis for its survival" and that the company "needs to cut its cash-burn rates, drastically improve its capital structure and raise cash." The first page of the letter is below (link to the full letter here). In it... ... Jake Freeman writes that his "plan for the realignment of BBBY consists of two crucial legs: cutting debt and raising capital." He proceeds to detail his proposal for both legs, which would culminate in reducing the company's senior debt from $1.2 billion to $500 million (through an exchange offer of the current discounted debt into far less par debt), and the issuance of converts to somehow raise $1 billion in the market (how this would have worked when the stock was trading around $5 with imploding EBITDA is anyone's guess). But what was most remarkable is what Freeman said in the highlighted section: namely that the "US options market is pricing in high implied volatility for BBBY derivatives which can be leveraged and capitalized on in order to effect a realignment of BBBY's debt", in other words a debt reduction using... a gamma squeeze? Perhaps. We don't know who on the board (or management team) read Freeman's letter, or what they did next, but less than ten days after the recent teenager shipped out his "activist letter" to BBBY, the stock doubled, then tripled, quadrupled and so on, from his cost basis... at which point Freeman, quite content with the 6x return he made on his initial investment of $27 million, sold his BBBY stake north of $130 million, making more than $100 million in less than a month! By this point, readers should have some questions, like for example how did a 20-year-old get $27 million in cash to buy 6.2% of the outstanding shares of Bed Bath & Beyond, and become the 4th largest shareholder? Here, the FT comes to the rescue: Freeman’s initial stake cost about $25mn, which he said was mostly raised from friends and family. He has invested for years with his uncle, Dr Scott Freeman, a former pharmaceutical executive. The two recently built an activist stake in a publicly traded pharmaceutical company called Mind Medicine. There's more: Freeman also said he had interned for years at a New Jersey hedge fund, Volaris Capital. Just before his 17th birthday, Freeman and its founder, Vivek Kapoor, a former Credit Suisse executive, published a paper titled “Irreducible Risks of Hedging a Bond with a Default Swap”. But we digress: let's get this straight: "friends and family" handed a tiny $25 million (really, $27 million) to a 20-year-old math major at USC, whose extensive financial background is co-investing with his uncle "a former pharma executive" and interning at a hedge fund located above a Starbucks office in Milburn, NJ, yet which oddly enough is primarily focused on various options trading strategies. ... $25 million which he invested, through his hedge fund Freeman Capital Managent, LLC, which doesn't really exist except through a Sheridan, Wyoming-based commercial registered agent at 30 N Gould St. (where more than one registration scam has been discovered recently) and which was "founded" in May 2022 ... .... into just one high-beta, practically bankrupt stock just weeks after the company reported dismal earnings report according to which BBBY sales plunged by 25% in Q2 while its net loss widened to $358mn from $51mn, and its cash position had dwindled to just $107 million from $1 billion at the start of the year, or just a few weeks from insolvency, culminating a catastrophic trend of disappearing EBITDA. Surely such a concentrated, undiversified investment by a young "hedge fund" guru who doesn't even have an active Bloomberg account... ... screams "fiduciary duty", and we can only applaud the "friends and family" who handed their $25 million to this young investing wizard, who were surely expecting a few percent returns here and there, instead of a 5x return in 3 weeks. Surely. According to the FT, Freeman himself quite shocked by the outcome: “I certainly did not expect such a vicious rally upwards,” Freeman told the Financial Times in an interview on Wednesday. “I thought this was going to be a six months plus play . . . I was really shocked that it went up so fast.” So young Master Freeman was expecting the 5x return to take place in "six months" but was "really shocked" it took just 24 calendar days. Come to think of it, we would be too (or maybe not, especially since the entire idea was that of Jake's uncle Scott, M.D.... but more on that in a subsequent post. But here one additional thing is worth noting, between July 13 (when FCM BBBY HOLDINGS, LLC was registered in Wyoming by Jake Spencer Freeman) and July 20 when the 13G was filed disclosing the 5 million share stake, just 41.9 million shares traded, which means that young Master Jake was in quite a rush to build up his stake: as JC Oviedo pointed out, "to amass its stake in this time period, FCM BBBY HOLDINGS, LLC would have had to be over 11% of the average daily volume!" That's not only a ton of conviction where to put in every last penny of your "friends and family" money but one hell of a rush too. Finally, what did Freeman do after making $100 million in what may be the luckiest investment ever made by a 20-year-old? After selling the shares, Freeman went for dinner with his parents in the suburb of New York City where they live and on Wednesday he flew to Los Angeles to return to campus, he said. We, for one, can't wait to see how Freeman Capital Management makes its next 5x return in under a month next (actually we know how, and we will reveal it tomorrow). Tyler Durden Wed, 08/17/2022 - 23:01.....»»

Category: personnelSource: nytAug 18th, 2022

Futures Tumble After UK Double-Digit Inflation Shock Sparks Surge In Yields

Futures Tumble After UK Double-Digit Inflation Shock Sparks Surge In Yields Futures were grinding gingerly higher, perhaps celebrating the end of the Cheney family's presence in Congress, and looked set to re-test Michael Hartnett bearish target of 4,328 on the S&P (which marked the peak of yesterday's meltup before a waterfall slide lower when spoos got to within half a point of the bogey), when algos and the few remaining carbon-based traders got a stark reminder that central banks will keep hammering risk assets after the UK reported a blistering CPI print, which at a double digit 10.1% was not only higher than the highest forecast, but was the highest in 40 years. The print appeared to shock markets out of their month-long levitating complacency, and yields - both in the UK and the US - spiked... ... and with yields surging, futures had no choice but to notice and after trading at session highs just before the UK CPI print, they have since tumbled more than 40 points and were last down 0.85% or 37 points to 4,271. Nasdaq 100 futures retreated 0.9% signaling a selloff in technology names will continue. The dollar rose as investors awaited the minutes of the Fed’s last policy meeting for clues on policy makers’ sensitivity to weaker economic data. In US premarket trading, retail giant Target slumped 4% after reporting earnings that missed expectations despite still predicting a rebound. Applied Materials and PayPal dropped at least 1.3%. Tech stocks are the forefront of the growing pessimism over equity valuations on the back of Fed rate increases. The S&P 500 had posted a small gain on Tuesday, aided by earnings reports from retailers Walmart Inc. and Home Depot. Here are some of the other biggest U.S. movers today: Manchester United (MANU US) rises as much as 17% in US premarket trading before trimming most of the gains, after Tesla CEO Elon Musk said he was buying the English football club but later added that he was joking. Hill International (HIL US) shares rise 61% in premarket trading hours after it announced Global Infrastructure Solutions will commence an all-cash tender offer for $2.85/share in cash, representing a premium of 63% to the last closing price. BioNTech (BNTX US) was initiated with a market perform recommendation at Cowen, which expects demand for Covid-19 vaccines to mirror annual flu trends as the pandemic enters its endemic phase. Bed Bath & Beyond (BBBY US) shares surge 20% in premarket trading, putting the stock on track for its sixth day of gains. The home-goods company has helped reinvigorate a wave of meme stock buying Agilent (A US) saw its price target boosted at brokers as analysts say the scientific testing equipment maker’s results were strong thanks to growth in biopharma and a recovery in China, while the company’s guidance was on the conservative side. Shares rose . Jefferies initiated coverage of Waldencast Plc (WALD US) class A with a buy recommendation as analyst Stephanie Wissink sees 29% upside potential. Sea Ltd. (SE US) ADRs slipped as much as 2.1% in US premarket trading, extending Tuesday’s declines, as Morgan Stanley cut its PT on expectations of slowing growth at the Shopee owner’s e-commerce business in the third quarter. Weber (WEBR US) downgraded to sell from neutral at Citi, which says there are too many concerns to remain on the sidelines, including a decline in point-of-sale traffic and macro factors like inflation weighing on consumer demand In the past two months, US stocks rallied on signs of peaking inflation and an earnings-reporting season that saw four out of five companies meeting or beating estimates. Boosted by relentless systematic (CTA) buying and retail-driven short squeezes, as well as a surge in buybacks, stocks recovered more than 50% of the bear market retracement. Yet, continuing rate hikes and the likelihood of a recession in the world’s largest economy are weighing on sentiment. Meanwhile, concern is growing that Fed rate setters will remain focused on the fight against inflation rather than supporting growth. “We expect the FOMC minutes to have a hawkish tilt,” Carol Kong, strategist at Commonwealth Bank of Australia Ltd., wrote in a note. “We would not be surprised if the minutes show the FOMC considered a 100 basis-point increase in July.” In Europe, the Stoxx 600 fell after a strong start amid signs the continent’s energy crisis is worsening. Benchmark natural-gas futures jumped as much as 5.1% on expectations the hot weather will boost demand for cooling. In the UK, consumer-price growth jumped to 10.1%, sending gilts tumbling. Real estate, retailers and miners are the worst performing sectors. The Stoxx 600 Real Estate Index declined 2%, making it the worst-performing sector in the wider European market, as focus turned to UK inflation that soared to double digits for the first time in four decades and also to today's FOMC minutes. German and Swedish names almost exclusively account for the 10 biggest decliners. TAG Immobilien drops 5.4%, Wallenstam is down 4.7%, Castellum falls 4% and LEG Immobilien declines 3.3%. The sector tumbles on rising bond yields, with 10y Bund yield up 11bps, and dwindling demand for Swedish real estate amid rising rates. Earlier on Wednesday, stocks rose in Asia amid speculation that China may deploy more stimulus to shore up its ailing economy while Japanese exporters were boosted by a weaker yen. After a string of weak data driven by a property-sector slump and Covid curbs, China’s Premier Li Keqiang asked local officials from six key provinces that account for 40% of the economy to bolster pro-growth measures. The MSCI Asia Pacific Index advanced as much as 0.8%, with consumer-discretionary and industrial stocks such as Japanese automakers Toyota and Honda among the leaders on Wednesday. The benchmark Topix erased its year-to-date loss. Chinese food-delivery platform Meituan also rebounded after dropping more than 9% in the previous session on a Reuters report that Tencent may divest its stake in the firm. Chinese stocks erased declines early in the day, as investors hoped for more economic stimulus after a surprise rate cut on Monday failed to excite the market. Premier Li Keqiang has asked local officials from six key provinces that account for about 40% of the country’s economy to bolster pro-growth measures. “I believe policymakers have the tools to prevent a hard landing if needed,” Kristina Hooper, chief global market strategist at Invesco, said in a note. “I find investors are overly pessimistic about Chinese stocks -- which means there is the potential for positive surprise.” Asia’s stock benchmark is trading at mid-June levels as traders attempt to determine the trajectory of interest-rate hikes and economic growth globally -- as well as the impact of China’s property crisis and Covid policies. Meanwhile, minutes of the US Federal Reserve’s July policy meeting, out later Wednesday, will be carefully parsed. New Zealand stocks closed little changed as the country’s central bank raised interest rates by a half percentage point for a fourth-straight meeting. Australia's S&P/ASX 200 index rose 0.3% to close at 7,127.70, supported by materials and consumer discretionary stocks. South Korea’s benchmark missed out on the rally across Asian equities, as losses by large-cap exporters weighed on the measure In FX, the Bloomberg Dollar Spot Index rose as the dollar gained versus most of its Group-of-10 peers. The pound was the best G-10 performer while gilts slumped, led by the short end and sending 2-year yields to their highest level since 2008, after UK inflation accelerated more than expected in July. The yield curve inverted the most since the financial crisis as traders ratcheted up bets on BOE rate hikes in money markets, wagering on 200 more basis points of hikes by May. The euro traded in a narrow range against the dollar while the region’s bonds slumped, led by the front end. Scandinavian currencies recovered some early European session losses while the aussie, kiwi and yen extended their slide in thin trading. EUR/NOK one-day volatility touched a 15.12% high before paring ahead of Norges Bank’s meeting Thursday where it may have to raise rates by a bigger margin than indicated in June given Norway’s inflation exceeded forecasts for a fourth straight month, hitting a new 34-year high. Consumer sentiment in Norway fell to the lowest level since data began in 1992, according to Finance Norway. New Zealand’s dollar and bond yields both rose in response to the Reserve Bank hiking rates by 50bps, while flagging concern about labor market pressures and consequent wage inflation; the currency subsequently gave up gains in early European trading. The Aussie slumped after data showing the nation’s wages advanced at less than half the pace of inflation in the three months through June, backing the Reserve Bank’s move to give itself more flexibility on interest rates. In rates, treasuries held losses incurred during European morning as gilt yields climbed after UK inflation rose more than forecast. US 10-year around 2.87% is 6.5bp cheaper on the day vs ~13bp for UK 10-year; UK curve aggressively bear-flattened following inflation data, with long-end yields rising about 10bp. Front-end UK yields remain cheaper by ~20bp, off session highs, leading a global government bond selloff. US yields are higher on the day by by 4bp-7bp; focal points of US session are 20-year bond auction and FOMC minutes release an hour later. Treasury auctions resume with $15b 20-year bond sale at 1pm ET; WI 20-year yield at around 3.35% is ~7bp richer than July’s sale, which stopped 2.7bp through the WI level. In commodities, oil fluctuated between gains and losses, and was in sight of a more than six-month low -- reflecting lingering worries about a tough economic outlook amid high inflation and tightening monetary policy.  Spot gold is little changed at $1,774/oz Looking at the day ahead, the FOMC minutes from July will be the main highlight, and the other central bank speaker will be Fed Governor Bowman. Otherwise, earnings releases include Target, Lowe’s and Cisco Systems, and data releases include US retail sales and UK CPI for July. Market Snapshot S&P 500 futures down 0.3% to 4,293.00 STOXX Europe 600 little changed at 443.30 MXAP up 0.5% to 163.48 MXAPJ up 0.2% to 530.38 Nikkei up 1.2% to 29,222.77 Topix up 1.3% to 2,006.99 Hang Seng Index up 0.5% to 19,922.45 Shanghai Composite up 0.4% to 3,292.53 Sensex up 0.5% to 60,168.83 Australia S&P/ASX 200 up 0.3% to 7,127.68 Kospi down 0.7% to 2,516.47 German 10Y yield little changed at 1.06% Euro little changed at $1.0178 Gold spot down 0.0% to $1,775.21 U.S. Dollar Index little changed at 106.50 Top Overnight News from Bloomberg More market prognosticators are alighting on the idea of benchmark Treasury yields sliding to 2% if the US succumbs to a recession. That’s an out-of-consensus call, compared with Bloomberg estimates of about a 3% level by the end of this year and similar levels through 2023. But it’s a sign of how growth worries are forcing a rethink in some quarters The euro-area economy grew slightly less than initially estimated in the second quarter as signs continue to emerge that momentum is unraveling. Output rose 0.6% from the previous three months between April and June, compared with a preliminary reading of 0.7%, Eurostat said Wednesday Egypt became a prime destination for hot money by tethering its currency and boasting the world’s highest interest rates when adjusted for inflation Norway’s $1.3 trillion sovereign wealth fund, the world’s largest, posted its biggest loss since the pandemic as rate hikes, surging inflation and Russia’s invasion of Ukraine spurred volatility. It lost an equivalent of $174 billion in the six months through June, or 14.4% A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks just about shrugged off the choppy lead from the US where markets were tentative amid mixed data signals and strong retailer earnings, but with gains capped overnight ahead of the FOMC Minutes and as participants digested another 50bps rate hike by the RBNZ. ASX 200 swung between gains and losses with the index indecisive amid a slew of earnings and with strength in the consumer sectors offset by underperformance in tech, energy and healthcare. Nikkei 225 climbed above the 29,000 level with the index unfazed by mixed data releases in which Machinery Orders disappointed although both Exports and Imports topped forecasts. Hang Seng and Shanghai Comp were somewhat varied with Hong Kong led higher by tech amid plenty of attention on Meituan after reports its largest shareholder Tencent could reduce all or the bulk of its shares in the Co. which a Tencent executive later refuted, while the mainland was less decisive amid headwinds from the ongoing COVID situation and with power restrictions disrupting activity in Sichuan, although reports also noted that Chinese Premier Li told top provincial officials that they must have a sense of urgency to consolidate the economic recovery and reiterated to step up macro policies. Top Asian News RBNZ hiked the OCR by 50bps to 3.00%, as expected, while it stated that conditions need to continue to tighten and they agreed that maintaining the current pace of tightening remains the best means. RBNZ also agreed that further increases in the OCR were required to meet the remit objective and that domestic inflationary pressures had increased since May. Furthermore, the RBNZ raised its projections for the OCR and inflation with the OCR seen at 3.69% in Dec. 2022 (prev. 3.41%) and at 4.1% for both Sept. 2023 and Dec. 2023 (prev. 3.95%), while it sees annual CPI at 4.1% by Sept. 2023 (prev. 3.0%). RBNZ Governor Orr stated at the press conference that they are not forecasting a recession but expected below-potential growth amid subdued consumer spending. Governor Orr also stated that they did not discuss a 75bps rate hike today and that 50bps moves have been orderly and sufficient, while he added that getting rates to 4% would buy comfort for the policy committee and that a Cash Rate of around 4% is unambiguously above neutral and sufficient to meet the inflation mandate. Chongqing, China is to curb power use for eight days for industry. China’s Infrastructure Boom Gets Swamped by Property Woes Tencent 2Q Revenue Misses Estimates Hong Kong Denies Democracy Advocates Security Law Jury Trial UN Expert Says Xinjiang Forced Labor Claims ‘Reasonable’ Singapore’s COE Category B Bidding Hits New Record Delayed Deals Add to Floundering Singapore IPO Market: ECM Watch European bourses have dipped from initial mixed/flat performance and are modestly into negative territory, Euro Stoxx 50 -0.5%. Stateside, futures are under similar pressure awaiting fresh corporate updates and the July FOMC Minutes, ES -0.6%. Fresh drivers relatively limited throughout the session with known themes in play and focus on upcoming risk events; stocks also suffering on further hawkish yield action. Lowe's Companies Inc (LOW) Q1 2023 (USD): EPS 4.68 (exp. 4.58), Revenue 27.47 (exp. 28.12bln); expect FY22 total & comp. sales at bottom-end of outlook range, Operating Income and Diluted EPS at top-end. Target Corp (TGT) Q1 2023 (USD): EPS 0.39 (exp. 0.72), Revenue 26.0bln (exp. 26.04bln); current trends support prior guidance. Top European News German Gas to Last Less Than 3 Months if Russia Cuts Supply European Gas Surges Again as Higher Demand Compounds Supply Pain Entain Falls; Citi Views Fine Negatively but Notes Steps by Firm UK Inflation Hits Double Digits for the First Time in 40 Years Crypto.com Receives Registration as UK Cryptoasset Provider FX Greenback underpinned ahead of US retail sales data and FOMC minutes, DXY holds tight around 106.500. Pound pegged back after spike in wake of stronger than expected UK inflation metrics, Cable hovers circa 1.2100 after fade into 1.2150. Kiwi retreats following knee jerk rise on the back of hawkish RBNZ hike, NZD/USD near 0.6300 from 0.6380+ overnight peak. Aussie undermined by marginally softer than anticipated wage prices and lower RBA tightening bets in response, AUD/USD well under 0.7000 vs 0.7026 at one stage. Yen weaker as yield differentials widen again, but Euro cushioned by more pronounced EGB reversal vs USTs, USD/JPY probes 21 DMA just below 135.00, EUR/USD bounces from around 1.0150 towards 1.0200. Loonie and Nokkie soft amidst latest slippage in oil, USD/CAD closer to 1.2900 than 1.2800, EUR/NOK nudging 9.8600 within 9.8215-9.8740 range. Fixed Income Debt retracement ongoing and gathering pace ahead of Wednesday's key risk events. Bunds now closer to 154.00 than 156.00 and 157.00 only yesterday, Gilts not far from 114.50 vs almost 116.00 and 117.00+ earlier this week and T-note sub-119-00 vs 119-31 at best on Monday. Sonia strip hit hardest as markets price in aggressive BoE hikes in response to UK inflation data toppy already elevated expectations. Commodities Crude benchmarks are currently little changed overall, having recovered from a bout of initial pressure; newsflow thin awaiting fresh JCPOA developments Spot gold is little changed overall but with a slight negative bias as the USD remains resilient and outpaces the yellow metal as the haven of choice. Aluminium is the clear outperformer amid updates from Norsk Hydro that they are shutting production at their Slovalco site (175k/T year) by end-September, due to elevated energy prices. OPEC Sec Gen says he sees a likelihood of an oil-supply squeeze this year, open for dialogue with the US. Still bullish on oil demand for 2022. Too soon to call the outcome of the September 5th gathering. Spare capacity at around the 2-3mln BPD mark, "running on thin ice". US Private Inventory Data (bbls): Crude -0.4mln (exp. -0.3mln), Cushing +0.3mln, Gasoline -4.5mln (exp. -1.1mln), Distillates -0.8mln (exp. +0.4mln). Shell (SHEL LN) announced it is to shut its Gulf of Mexico Odyssey and Delta crude pipelines for two weeks in September for maintenance, according to Reuters. Uniper (UN01 GY) says the energy supply situation in Europe is far from easing and gas supply in winter remains "extremely challenging". China sets the second batch of the 2022 rare earth mining output quota at 109.2k/T, via Industry Ministry; smelting/separation quota 104.8k/T. Geopolitics China's military is to partake in a military exercise in Russia, their participation has nothing to do with the international situation. Taiwan's Defence Ministry says they have detected 21 Chinese aircraft and five ships around Taiwan on Wednesday, via Reuters. Iran is calling on the US to free jailed Iranian's, says they are prepared for prisoner swaps, via Fars. US Event Calendar 07:00: Aug. MBA Mortgage Applications, prior 0.2% 08:30: July Retail Sales Advance MoM, est. 0.1%, prior 1.0% 08:30: July Retail Sales Ex Auto MoM, est. -0.1%, prior 1.0% 08:30: July Retail Sales Control Group, est. 0.6%, prior 0.8% 10:00: June Business Inventories, est. 1.4%, prior 1.4% 14:00: July FOMC Meeting Minutes DB's Tim Wessel concludes the overnight wrap Starting in Europe, where the looming energy crisis remains at the forefront. An update from our team, who just published the fourth edition of their indispensable gas monitor (link here), where they note the surprisingly fast rebuild of German gas storage, driven by reductions in industrial activity, reduces the risk that rationing may become reality this winter. Many more insights within, so do read the full piece for analysis spanning scenarios. Keep in mind, that while gas may be available, it is set to come at a higher clearing price, which manifest itself in markets yesterday where European natural gas futures rose a further +2.64% to €226 per megawatt-hour, just shy of their closing record at €227 in March. But, that’s still well beneath their intraday high from March, where at one point they traded at €345. Further, one-year German power futures increased +6.30%, breaching €500 for the first time, closing at €507. Germany is weighing consumer relief measures in light of climbing consumer prices and also announced that planned nuclear facility closures would be “temporarily” postponed. The upward energy price pressure and attenuated (albeit, not eliminated) risk of rationing pushed European sovereign yields higher. 10yr German bunds climbed +7.1bps to 0.97%, while 10yr OATs kept the pace, increasing +7.4bps. 10yr BTPs increased +15.9bps, widening sovereign spreads, while high yield crossover spreads widened +10.2bps in the credit space. Equities were resilient, however, with the STOXX 600 posting a +0.16% gain after flitting around a narrow range all day. Regional indices were also robust to climbing energy prices, with the DAX up +0.68% and the CAC +0.34% higher. In the States the S&P 500 registered a modest +0.19% gain, with the NASDAQ mirroring the index, falling -0.19%. Retail shares drove the S&P on the day, with the two consumer sectors both gaining more than +1%, following strong earnings reports from Wal Mart and Home Depot. Treasury yields also climbed, but the story was the further flattening in the curve. 2yr yields were +7.5bps higher while 10yr yields managed to increase just +1.6bps, leaving 2s10s at its second most negative close of the cycle at -46bps. 10yr yields are another basis point higher this morning. A hodgepodge of data painted a mixed picture. Housing permits beat expectations (+1674k vs. +1640k) while starts (+1446k vs. +1527k) fell to their slowest pace since February 2021. However, under the hood, even permits weren’t necessarily as strong as first glance, as single family permits fell -4.3% with gains in multifamily pushing the aggregate higher. Indeed, year-over-year, single family permits have now fallen -11.7% while multifamily permits are +23.5% higher. So the single family housing market continues to feel the impact of Fed tightening. Meanwhile, industrial production climbed +0.6% month-over-month (vs. +0.3%), with capacity utilization hitting its highest level since 2008 at 80.3%. Drifting north of the border, Canadian inflation slowed to 7.6% YoY in July in line with estimates, while the average of core measures climbed to a record 5.3%. Bank of Canada Governor Macklem penned an opinion piece saying that while it looks like inflation may have peaked, “the bad news is that inflation will likely remain too high for some time.” In turn, Canadian OIS rates by December climbed +16.2bps. In other data, the expectations component of the German ZEW survey fell to -55.3, its lowest level since October 2008 at the depths of the GFC. In the UK, regular pay (excluding bonuses) fell by -3.0% in real terms over the year to April-June 2022, its fastest decline on record. On the Iranian nuclear deal, EU negotiators reportedly found Iran’s response constructive, though Iran still had some concerns. Notably, Iran is looking for guarantees that if a future US administration withdraws from the JCPOA the US will "have to pay a price”, seeking insulation from the vagaries of representative democracy. Asian equity markets are trading higher after Wall Street’s solid performance overnight. The Nikkei (+0.76%) is leading gains across the region with the Hang Seng (+0.57%), the Shanghai Composite (+0.23%) and the CSI (+0.51%) all rebounding from its opening losses this morning. US futures are struggling to gain traction this morning with the S&P 500 (-0.02%) and NASDAQ 100 (-0.09%) trading just below flat. The Reserve Bank of New Zealand lifted its official cash rate (OCR) for the fourth consecutive time by an expected +50bps to 3%, a seven-year high, while bringing forward the estimate of future rate increases. The central bank expects the OCR will reach 3.69% at the end of this year and expects it to peak at 4.1% in March 2023, higher and sooner than previously forecast. Early morning data coming out from Japan showed that exports rose +19.0% y/y in July (v/s +17.6% expected) posting 17 straight months of gains while imports advanced +47.2% (v/s +45.5% expected) driven by global fuel inflation and a weakening yen. With the imports outweighing exports, the nation reported trade deficit for the 14th consecutive month, swelling to -2.13 trillion yen in July (v/s -1.91 trillion yen expected) compared to a revised deficit of -1.95 trillion yen in June. In terms of the day ahead, the FOMC minutes from July will be the main highlight, and the other central bank speaker will be Fed Governor Bowman. Otherwise, earnings releases include Target, Lowe’s and Cisco Systems, and data releases include US retail sales and UK CPI for July. Tyler Durden Wed, 08/17/2022 - 07:55.....»»

Category: dealsSource: nytAug 17th, 2022

"Sea Of Green": Bears Crushed As Stocks Storm Above 50% Fib Retracement

"Sea Of Green": Bears Crushed As Stocks Storm Above 50% Fib Retracement And just like that, the bears were run over. We had a hint that today's session was going to be a faceripper when we reported last night that some of the most stubborn market bears - the hedge funds - had thrown in the towel and had capitulated on their shorts. Sure enough, amid this accelerating marketwide short squeeze (which so far still has evaded the most bearish "long only" funds which we will discuss in a latter post), today's meltup was especially memorable as it not only cemented the Nasdaq's new bull market, but sent the broader market up more than 3% for the week, its 4th consecutive week of gains (starting with the week when Powell announced "we're at neutral") the longest stretch of gains since November... ... thanks to a sea of green across every single sector... ... but more importantly today's eruption higher has pushed stocks above key thresholds, such as the 200DMA on the Russell... ... and leaving the 100DMA on the S&P far in the rearview mirror with the 200DMA looming... ... but most importantly, the S&P is now back over the 50% retracement level from the Jan all time high to the Jun bear market lows. This is key because as we noted yesterday, there has never been a "bear market rally" that bounce back above the 50% fib and then went on to make lower lows, although as Michael Burry earlier noted earlier this week, he clearly disagrees that this is anything more than a bear market rally. pic.twitter.com/S4NEiMwoR2 — Cassandra B.C. (@MichaelJBurry__) August 11, 2022 While time will tell who is right, for once Burry is on the side of the Fed, which is not only actively shrinking its balance sheet now thanks to QT... ... for now retail remains firmly in control, and this was another week when meme stocks stormed higher as forced short squeezes sent the meme stock basket to the highest level in 5 months... ... propelling names like Gamestop, Bed Bath and Beyond and AMC to multi-month highs. In fact, despite the Fed balance sheet shrinkage, our consolidate bubble basket chart shows a strong rebound across various "bubble" components such as momentum longs, unprofitable tech names, SPACs, cryptos and even the ARK fund, as some of the highest beta trash out there is already pricing in not only the end of QT but the start of QE... ... and nowhere was this more obvious than in cryptos where ETH today traded to a new 3 month high and is set to break above $2,000 this weekend, up more than 100% from its June lows. “The music hasn’t stopped,” said Matt Bartolini, State Street Global Advisors’ head of SPDR Americas Research. “The labor market continues to be positive, earnings growth continues to be positive. So largely, if there is a recession, it’s going to be relatively shallow.” While yields went nowhere today, unlike yesterday's sharp spike which depressed risk assets, and oil sliding among speculation that the neverending negotiation over the Iran Nuclear Deal may finally be coming to a close, we even saw some upside to the precious metal complex with silver closing at the highest of the day, alongside gold which managed to sneak above 1,800 in the last few minutes of trading. Yet for all the meltup euphoria, a casual look at what lies ahead brings up storm clouds because unless earnings rebound - and with margins collapsing that's unlikely - the markets will need to see multiple expansion, which however is unlikely unless real yields drop turn negative again... ... which however is especially unlikely since the Fed will have to aggressively step in and contain the market's froth which has undone the tightening from the latest 150bps of Fed rate hikes... ... leaving Powell with no other choice than to hammer markets at the first possible opportunity Tyler Durden Fri, 08/12/2022 - 16:11.....»»

Category: smallbizSource: nytAug 12th, 2022

High Inflation is Crushing These 10 Stocks

In this article, we discuss 10 stocks that the high inflation is crushing. If you want to see more stocks that are impacted by inflation, check out High Inflation is Crushing These 5 Stocks.  The Consumer Price Index for July reported an 8.5% rise, which was a much needed reprieve for businesses, consumers, and policymakers […] In this article, we discuss 10 stocks that the high inflation is crushing. If you want to see more stocks that are impacted by inflation, check out High Inflation is Crushing These 5 Stocks.  The Consumer Price Index for July reported an 8.5% rise, which was a much needed reprieve for businesses, consumers, and policymakers alike. While inflation slowed relatively, it is not indicative of a proper turnabout in the economic crisis. After eliminating food and fuel costs to get an accurate insight on underlying prices, the CPI showed that prices jumped by 5.9% through July. While fuel prices, air travel, and automobile prices dropped in July, the decline was offset by higher rent and food costs. Although the stock market is rejoicing about the slower inflation numbers in July, the rate of inflation is still abnormally high and the drop was largely owed to lower gas prices, which can always climb again. The US dollar also fell against multiple currencies.  According to the U.S. Bureau of Labor Statistics, prices for services rose at an annualized rate of 8.1% over the three months to July, compared to a 9.9% jump over the three months to June, which was the highest recorded level in 40 years. The growth in the Service sector has diminished notably since the beginning of the year as per the survey of purchasing managers carried out by the Institute for Supply Management. Inflation has plagued the United States since the start of this year, and it peaked to 9.1% in June. Many businesses have been impacted as consumers shift their spending patterns from discretionary and luxury purchases to basic necessities. Some of the stocks that were crushed due to high inflation include Builders FirstSource, Inc. (NYSE:BLDR), Expedia Group, Inc. (NASDAQ:EXPE), and Lowe’s Companies, Inc. (NYSE:LOW).  Photo by WeLoveBarcelona.de on Unsplash Our Methodology  We selected stocks from sectors such as consumer discretionary, luxury retail, home improvement, and entertainment, to name a few. These sectors are generally impacted severely during inflationary periods. These stocks have also received subpar analyst ratings or ratings downgrades recently, which further indicate the crushing impact of inflation.  We have ranked the list according to the hedge fund sentiment around the securities, which was gauged from Insider Monkey’s Q1 2022 database of 900+ elite hedge funds.  High Inflation is Crushing These Stocks 10. Bed Bath & Beyond Inc. (NASDAQ:BBBY) Number of Hedge Fund Holders: 15 Bed Bath & Beyond Inc. (NASDAQ:BBBY) is an American company that operates a chain of retail stores, selling bed linens, bath items, kitchen textiles, and home furnishings. Street consensus regarding Bed Bath & Beyond Inc. (NASDAQ:BBBY) is very negative due to past performance issues, however, the stock seems to be rallying amid a meme stock frenzy and short squeeze warnings.  On August 9, Baird analyst Justin Kleber downgraded Bed Bath & Beyond Inc. (NASDAQ:BBBY) to Underperform from Neutral with an unchanged price target of $4. The stock closed on August 8 up 40% to $11.41. The shares have gained 148% since July 27, including 86% in the past two trading days, the analyst told investors. However, he believes the rally has been “driven by non-fundamentally focused market participants”. With higher market share losses and Bed Bath & Beyond Inc. (NASDAQ:BBBY) “burning cash,” the stock’s fundamental risk/reward looks unattractive, contended the analyst. As per his estimates, the company needs to accumulate more than $350 million of EBITDA by fiscal 2025 to justify the present $2.3 billion enterprise value. This is a “tall order given the current macro/sector backdrop,” the analyst stressed. According to Insider Monkey’s data, 15 hedge funds were bullish on Bed Bath & Beyond Inc. (NASDAQ:BBBY) at the end of Q1 2022, down from 17 funds in the last quarter. John Overdeck and David Siegel’s Two Sigma Advisors held a notable position in the company, comprising 915,474 shares worth $20.6 million.  Like Builders FirstSource, Inc. (NYSE:BLDR), Expedia Group, Inc. (NASDAQ:EXPE), and Lowe’s Companies, Inc. (NYSE:LOW), investors are monitoring Bed Bath & Beyond Inc. (NASDAQ:BBBY) carefully amid  the soaring inflation.  Here is what Miller Value Partners Income Strategy has to say about Bed Bath & Beyond Inc. (NASDAQ:BBBY) in its Q2 2022 investor letter: “Bed Bath & Beyond 5.165% 08/2044 declined 67.4% in the period. Bed Bath & Beyond reported 4Q21 sales of $2.05 billion, down 22% Y/Y, missing consensus of $2.08 billion. The company lost $0.92 per share in the quarter, down from 4Q20 adjusted EPS of $0.40, below analyst expectations for EPS of $0.03. Management noted supply chain disruptions and the Omicron variant led to inventory availability challenges, which had an estimated sales impact of $175 million, or 8.5% of 4Q21 net sales, and a 400 basis points (bps) Y/Y contraction in 4Q21 adjusted gross margin to 28.8%, driven by product cost increases and higher than anticipated freight and shipping costs. Additional headwinds in the quarter included general weakness in the retail segment, highlighted by big earnings misses from Walmart and Target, along with Moody’s downgrading Bed Bath’s corporate family rating from B1 to B2. The ratings agency cited increased execution risk of the company’s strategic turnaround initiatives and ongoing supply chain issues weighing on the company’s market share and profitability going forward as the main drivers for the downgrade. However, Moody’s maintained a stable outlook for the retailer due to the financial flexibility provided by the company’s liquidity position and low level of funded debt.” 9. Blend Labs, Inc. (NYSE:BLND) Number of Hedge Fund Holders: 20 Blend Labs, Inc. (NYSE:BLND) is a California-based company that provides on-demand software products for mortgages, home equity loans, lines of credit, vehicle loans, personal loans, credit cards, and deposit accounts in the United States. On August 9, Blend Labs, Inc. (NYSE:BLND) traded 8% lower as fintech stocks got hammered ahead of July’s inflation data. Year to date, the stock has lost 57% in value as of August 10.  Keefe Bruyette analyst Ryan Tomasello on July 24 downgraded Blend Labs, Inc. (NYSE:BLND) to Underperform from Market Perform with a price target of $2.75, down from $4. The analyst took a rather defensive approach in real estate technology. While his optimistic long-term view on real estate technology is intact, the analyst expects the combination of a “looming recession and inhospitable environment for growth stocks to continue to weigh on valuations, particularly low profitability names with nascent, untested business models”.  Among the hedge funds tracked by Insider Monkey, 20 funds were bullish on Blend Labs, Inc. (NYSE:BLND) at the end of Q1 2022, compared to 16 funds in the prior quarter. Chase Coleman’s Tiger Global Management is the largest position holder in the company, with roughly 20 million shares worth $112.77 million.  8. TaskUs, Inc. (NASDAQ:TASK) Number of Hedge Fund Holders: 21 TaskUs, Inc. (NASDAQ:TASK) is a Texas-based company that offers digital outsourcing services for companies worldwide. As inflation cuts into profit margins of firms, they stop or reduce the jobs they outsource, in order to save on costs. This impacts companies like TaskUs, Inc. (NASDAQ:TASK). As of August 10, the stock has shed over 66% in value year to date. TaskUs, Inc. (NASDAQ:TASK) stock plummeted 21% on August 9 despite beating Q2 earnings estimates, as its FY 2022 outlook was below consensus. The company expects revenues of $930 million to $950 million, versus a consensus of $969.49 million.   Goldman Sachs analyst Brian Essex on August 9 downgraded TaskUs, Inc. (NASDAQ:TASK) to Neutral from Buy with a price target of $24, down from $26. The company’s Q2 saw better than forecasted revenue and profitability, but the Q3 outlook was less than Wall Street consensus and its FY22 forecast was also revised lower, the analyst told investors. TaskUs, Inc. (NASDAQ:TASK) will trade at a discount until the company can set a record of improved performance and give investors more comfort that estimates and valuation adequately factor in the risk associated with its customer base, the analyst contended. Among the hedge funds tracked by Insider Monkey, 21 funds were long TaskUs, Inc. (NASDAQ:TASK) at the end of Q1 2022, down from 30 funds in the last quarter. Jorge Paulo Lemann’s 3G Capital is the leading stakeholder of the company, with 1.70 million shares worth $65.3 million.  Here is what Alger Mid Cap Focus Fund has to say about TaskUs, Inc. (NASDAQ:TASK) in its Q4 2021 investor letter: “TaskUs is a modern customer care company that manages digital customer experience exclusively for highly innovative “technology Disruptor” clients. The company’s services include managing end-consumers’’ needs for its clients, such as sales, after-sales support, complaint management, trust and safety and transaction processing. It also provides content security and operations services driven by artificial intelligence. The stock underperformed in the final three months of 2021 despite the company providing a strong third quarter earnings report. We think the underperformance resulted from the company issuing 25% year-over-year earnings growth guidance for fiscal year 2022, which implies a meaningful deceleration. Additionally, an agreement preventing certain insiders from selling shares expires in the middle of January. The company’s shares, furthermore, have significant ownership by hedge funds, making them subject to year-end rebalancing. Despite the recent weakness, we think the fiscal year 2022 guidance is extremely conservative and the company is currently well positioned for future upward revisions to its earnings estimates.” 7. Bilibili Inc. (NASDAQ:BILI) Number of Hedge Fund Holders: 24 Bilibili Inc. (NASDAQ:BILI) is a Chinese company that provides online entertainment services. The stock has lost more than 46% in value year to date as of August 10. As inflation rises and salaries do not match the increase in prices, Bilibili Inc. (NASDAQ:BILI) will likely struggle to gain more paying customers. With competition from Amazon Prime, Disney+, and Netflix, consumers will select one subscription at best in this macro backdrop, which will also create competitive pressure for Bilibili Inc. (NASDAQ:BILI). On June 13, JPMorgan analyst Alex Yao raised the price target on Bilibili Inc. (NASDAQ:BILI) to $25 from $19 and maintained a Neutral rating on the shares. Elite hedge funds pulled out of Bilibili Inc. (NASDAQ:BILI) in the first three months of 2022. According to Insider Monkey’s data, 24 hedge funds were bullish on Bilibili Inc. (NASDAQ:BILI) at the end of Q1 2022, down from 33 funds in the last quarter. Jonathan Guo’s Yiheng Capital is the leading stakeholder of the company, with 9.35 million shares worth $239.3 million.  Here is what Tao Value has to say about Bilibili Inc. (NASDAQ:BILI) in its Q3 2021 investor letter: “As witnessed in the past quarter, the government intervention in the Chinese private sector is elevated to an unprecedented level. Given this background, I thoroughly reviewed all our Chinese holdings and made a few changes. We also exited Bilibili (ticker: BILI), given its priced-in valuation in the context of Chinese ADR confidence loss.” 6. Palantir Technologies Inc. (NYSE:PLTR) Number of Hedge Fund Holders: 36 Palantir Technologies Inc. (NYSE:PLTR) is a Colorado-based company that builds software platforms in the United States that help with counterterrorism investigations and operations. Palantir Technologies Inc. (NYSE:PLTR) stock has plummeted 48% year to date. On August 8, the company reported Q2 results that missed market estimates. The company also posted a soft Q3 and full-year 2022 guidance. For the third quarter, the company expects sales to be between $474 million and $475 million, compared to Wall Street estimates of $508.23 million. For the full-year, Palantir Technologies Inc. (NYSE:PLTR) revised its forecast and now predicts that it will generate $1.9 billion in revenue, below analysts’ estimates of $1.98 billion. Inflation has also hit government budgets, which is negatively impacting the likes of Palantir Technologies Inc. (NYSE:PLTR).  On August 9, Deutsche Bank analyst Brad Zelnick downgraded Palantir Technologies Inc. (NYSE:PLTR) to Sell from Hold with a price target of $8, down from $11. The company’s Q2 report leaves “little to hang our hat on,” the analyst told investors. He said the results don’t support his earlier optimistic thesis on Palantir Technologies Inc. (NYSE:PLTR)’s government business, since he sees further deceleration of easier comps and less visibility in the future. In addition to reducing sales expectations, Palantir Technologies Inc. (NYSE:PLTR) is also “aggressively” spending, which is boosting its risk profile, contended the analyst. According to Insider Monkey’s Q1 data, 36 hedge funds were bullish on Palantir Technologies Inc. (NYSE:PLTR), compared to 33 funds in the last quarter. Jim Simons’ Renaissance Technologies is the biggest stakeholder of the company, with 12.5 million shares worth $171.8 million. Like Builders FirstSource, Inc. (NYSE:BLDR), Expedia Group, Inc. (NASDAQ:EXPE), and Lowe’s Companies, Inc. (NYSE:LOW), Palantir Technologies Inc. (NYSE:PLTR) is one of the stocks impacted severely by high inflation. Here is what Tao Value has to say about Palantir Technologies Inc. (NYSE:PLTR) in its Q4 2021 investor letter: “We have no new position this quarter and have made below changes to our portfolio. We also sold Palantir (PLTR) as I identified it subject to high retail bubble risk (using above method) and are not part of our core “Mindful Compounder” holdings.”   Click to continue reading and see High Inflation is Crushing These 5 Stocks.      Suggested articles: 10 Stocks That the Russia-Ukraine War Will Affect in the Future 10 Stocks Analysts Are Downgrading After Weak Earnings Reports 10 Buy-The-Dip Restaurant Stocks to Invest In Now   Disclosure: None. High Inflation is Crushing These 10 Stocks is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyAug 10th, 2022

Explosion In Retail Buying Revealed As Source Of Latest Market Meltup, Tesla Stock Surge

Explosion In Retail Buying Revealed As Source Of Latest Market Meltup, Tesla Stock Surge A little less than a month ago we reported that in addition to institutional investors, many of whom we knew had already thrown in the towel with hedge fund gross and net exposure the lowest in years, retail investors had also capitulated as their BTFD euphoria, observed so often during the stimmy days of 2021, was nowhere to be found. Well, not anymore. With TSLA stock soaring 50% from its recent May lows prompting many to wonder if this is another manipulated gamma squeeze by the "usual suspects"... ... this morning Vanda Research writes that retail investor flows have been the major driver of the rebound in equities in the last few days across the broader market, as aggregate buying has been consistently above the YTD average (avg. $1.36BN over the last five days), while the focus has been on classic tech stocks such as TSLA, NVDA, AAPL, AMD, and AMZN. As we discussed recently, the relatively strong earnings season and positive performance of the equity market have drawn attention to single names rather than generic equity ETFs. Vanda suspects that retail investors will continue to buy mainly single stocks and Tech over the next days or weeks – as long as the rally consolidates. However, according to Vanda, the pick-up in risk sentiment is likely to be fragile given the YTD large portfolio losses, and they caution that retail could (re)capitulate if the S&P 500 re-tests the lows which it will likely have to once Powell doubles down on hiking until he crushes inflation. For now however, retail is back with a bang, and one doesn't have to look at the insane surge in meme stocks like HKD that briefly pushed the $25mm revenue company to a market cap of $400 billion yesterday. As Vanda shows, last Friday net retail inflows were massive relative to the equity performance especially given that retail investors are contrarian: they buy when prices fall – as they perceive it as a good buy-the-dip opportunity. On the other side, they are hesitant to chase rallies in the early stages. Nevertheless, on the 29th of July, the net daily imbalance amounted to US$ 1.6Bn, the highest figure in a day of positive S&P 500 performance since the start of the sell-off. What does this mean for markets? Well, as Vanda elaborates, strong retail participation is not necessarily good news, as the strong inflows are coming from momentum retail traders rather than institutional investors. The former are likely to try to recover their YTD losses by increasing their risk exposure aggressively (currently, their portfolio drawdown is at -23%). On the other side, as we have been nothing frequently, hedge funds and discretionary professional investors have been sidelined and are not willing to buy or sell actively. The issue arises from the lack of retail investors' psychological buffer (and lack of infinite bank account) to cope with further losses. Moreover, their conviction is likely to be based on the trend rather than a positive macro outlook. As a consequence, they will capitulate quickly if equities drop again. Of course, as long as the broader momentum is higher - and it is for now thanks to short squeezes, blindly buying CTAs, and stock buybacks - retail buying continues, in the process infuriating those who have dubbed this the most hated rally. Indeed, with more than 60% of S&P 500 firms having reported Q2 earnings, retail investors continue to stick with their usual pattern of buying both on dips and on misses in single stocks during earnings season. Moreover, sector-level data shows that retail’s focus has shifted towards typical growth areas … particularly on EPS beats. Interestingly, while high-beta growth sectors have attracted the most outsized inflows on EPS beats, Tech stocks as a whole have witnessed some outflows on misses so far. This pattern is corroborated by the number of tech companies sold vs. bought. Vanda suspects that retail investors are concentrating all their tech investments on just the usual handful of tech names (FAANGMT), which leaves less capital for disappointing tech stocks. And while the FAAMG, or GAMMA as it is now known, sector has been the focus of retail buying, one specific company has been a supermagent for the renewed retail frenzy: according to Vanda, retail purchases of TSLA are skyrocketing as "retail investors have never been so bullish since summer ‘20." It speculates that the strong buying activity followed the 3-for-1 stock split proposal, and while a stock split shouldn’t have an impact on the stock price, retail investors don't care about fundamentals and instead speculate on the fact that historically stocks rallied after the split announcement as even a flood of even greater fools emerges to buy the stock. If the split will be confirmed, we could even see an acceleration of inflows – which could push the stock price higher. More importantly, perhaps the recent surge in TSLA stock will cheer Elon Musk enough for him to drop his legal challenge to get out of the Twitter deal and accelerate his purchase of the social media company. Of course, it's not just TSLA that experienced a surge in interest from the retail army: the previously discussed likes of HKD, AMTD, and SIGA have been the most recent culprits, gaining significant traction in recent days. Should this market rebound have more legs, Vanda expects retail investors’ appetite for speculative stocks will grow, as they seek the opportunity to further scratch back the losses they’ve accumulated through the year. However, any risk-off moves could easily shift the focus again to broad ETFs (or trigger a capitulation). Finally, while retail has traditionally stayed far away from the energy sector, thanks to the Buffet effect, this is changing and Occidental Petroleum has become a popular retail stock. Ever since regulatory filings disclosed Buffet’s US$ 5bn stake in OXY earlier in March with subsequent modest additions, the stock has witnessed a massive 16.5x increase in average daily net flows from retail investors (from $500k/day to $8.25mn/day). During the same window, the stock has rallied ~16% - outperforming both the S&P500 (-5.5%) and the energy sector (+2.6%) There is more in the full Vanda Research retail tracker note available to pro subscribers Tyler Durden Wed, 08/03/2022 - 15:10.....»»

Category: smallbizSource: nytAug 3rd, 2022

"No One Is Positioned For Any Good News:" Record Shorting In Tech Ensures "Most Hated Rally" Will Continue

"No One Is Positioned For Any Good News:" Record Shorting In Tech Ensures 'Most Hated Rally' Will Continue July was a tremendous month for stocks, it was also a mediocre (at best) month for hedge funds which not only underperform the S&P when stocks slide (as they did during the crashes of 2020 and early this year), but also underperform the broader market during sharp squeezes like the one that took place in July, prompting some to ask just what is the point of paying someone 2 and 20 to some overweight billionaire to always underperform. The question of hedge fund utility becomes that much more pressing when one reads in the latest Goldman Sachs Prime Services hedge fund weekly report that while the GS Equity Fundamental L/S Performance Estimate rose +0.57% between 7/22 and 7/28 (roughly a third the performance of broader - and free - MSCI World TR +1.74%), this return was driven almost entirely by beta of +0.56% (i.e., market exposure), with alpha of just +0.01%. In other words, not only can't hedge funds generate alpha, they can't even keep up with the market's own beta! That will cost 2 and 20, please. It gets worse; much worse... because while growth and tech names have been screaming higher in the past month, with some names such as Tesla now up a whopping 50% from their May lows (!), instead of capitulating on their market crash bets, hedge funds have been doubling down, and as the following stunning chart from the latest Goldman Prime note (available to pro subscribers) shows, hedge funds have been doubling down on failed bearish bets by short, shorting, and then shorting some more until the short MV as a % of Gross MV line has fallen right off the chart. As GS Prime puts it: "Information Technology experienced strong short selling momentum (particularly within the US), and was the most net sold sector on a global basis." Translation: what the same Goldman recently dubbed the "most hated rally" is set to continue for a good while, because as noted over the weekend, fears of a worst case scenario have not materialized and instead both Fed and ECB easing is now on deck as things are only set to get better. Others, such as Thomas Hayes, chairman at Great Hill Capital, agree: “No one is positioned for any good news." He points to cash levels that are at the highest since 9/11, and recession fears at the most pronounced since April 2020 and March 2009. “The stock market is a discounting mechanism, so while we may be in or will have a recession, the market will bottom far before it is declared,” Hayes says. “Managers will have to chase up and panic buy any further unexpected strength.” Meanwhile, looking at broader market metrics confirms that it's not just tech that shorts keep piling in: according to the latest CFTC Committment of Traders data, large speculators in the futures market - mostly hedge funds - turned net short on S&P 500 futures contracts in mid-June as the 500-member index plunged to 3,666.77 and have been net-short the futures for six consecutive weeks since then, incrementally boosting their net bearish positions to nearly 238,000 contracts in the latest week, the most since June 2020! A similar analysts by Deutsche Bank shows that aggregated US equity futures positions across all markets (S&P500, Russell, Nasdaq, S&P400 and DJIA), remains stock at record shorts! Needless to say, the strategy of doubling down on losing shorts has not paid off (at least so far) with the S&P 500 just clocked its best month in 20 with a 9.1% bounce, while the Nasdaq 100 Index posted its second-best month since 2010, in no small part by forced squeeze as increasingly more bears have been forced to capitulate. Repeating what we said two week ago in "Investor Frustration Remains Through The Roof As Pain Trade Is Higher", Dave Lutz, managing director at JonesTrading Institutional Services, said that "last week’s rally was a huge ‘pain trade’, " adding that "the S&P holding the 100-day moving average is going to be very painful for those short." Adding insult to P&L injury, it wasn’t just hedge fund managers who were bearish: data show investors in traditional funds, too, faded last month’s bounce. Of course, it's not that investors didn’t insert money into US stock funds in July -- they did, but virtually all of it happened last week, when a $9.2 billion inflow offset three prior withdrawals to flip the monthly scorecard into the positive zone, EPFR Global data analyzed by Jefferies show. The total $4.7 billion inflow into US stocks in the month was less than half of that in June. If anything, this highlights a heated debate about where stocks are headed after July’s run. With half of the S&P 500 quarterly announcements in the rear window, the earnings season is shaping up to be far better than many had feared. There is one final hail mary for the bear - seasonality. Since 1950, the S&P has essentially been flat in August, both when the index was above or below its 200-day moving average line, data compiled by Oppenheimer show. The S&P has averaged a 0.7% return for any given month. Actually, there is a second potential rescue, and that would be the world war that would begin once Pelosi lands in Taiwan. Then again, with counterparty risk quote a "hot topic" in a global nuclear exchange, it's most likely that risk will explode... just before the mushroom clouds. Tyler Durden Mon, 08/01/2022 - 14:54.....»»

Category: personnelSource: nytAug 1st, 2022

The Challenges Ahead For Britain"s New Prime Minister

The Challenges Ahead For Britain's New Prime Minister Authored by Alasdair Macleod via GoldMoney.com, Britain’s next Prime Minister must address two overriding problems: London is at the centre of an evolving financial and currency crisis brought forward by a change in interest rate trends; and the reality of emerging Asian superpowers must be accommodated instead of attacked. This article starts by examining the economic challenges the next Prime Minister faces domestically. Are the two candidates equipped with a strategy to improve the nation’s economic prospects, and why can we expect them to succeed where others have failed? It is unlikely that either candidate is aware that there has been a fundamental shift in the direction of interest rates, the consequences of which are undermining debt mountains everywhere. The problem is particularly acute for the euro system. As well as for other major currencies, London operates as the clearing centre for transactions between the Eurozone’s commercial banks. If the euro system fails, London’s survival as a financial centre could be jeopardised. The other major challenge is geopolitical. Being tied into America’s five-eyes intelligence network, coupled with policies to remove fossil fuels as sources of energy Britain is condemned to falling behind the Asian superpowers, and sacrificing trading relationships with which her true interests must surely lie. And then there were two… The selection process for a new Conservative Prime Minister has whittled it down to two — Rishi Sunak and Liz Truss. The former is a wealthy meritocrat, former Goldman Sachs employee and hedge fund manager, the latter a self-made woman. Sunak was Chancellor (finance minister). Among several other high-office roles, Truss has been First Secretary to the Treasury. Both, in theory at least, should understand government finances. Both studied PPE at Oxford, so are certain to have been immersed in the Keynesian version of economics, which also informs Treasury thinking. Despite their common Treasury experience and being on that same page, Sunak’s and Truss’s pitches on economic affairs have been very different. Sunak aims to maintain a balanced budget, reducing taxes afterwards as economic growth increases tax revenues. This is Treasury orthodoxy. Truss is claiming she will cut taxes more immediately in an emergency budget to stimulate growth. She is emulating the Thatcher/Reagan supply-side playbook. The politics are straightforward. The electorate is comprised of about 160,000 paid up Conservative Party members, mostly leaning towards less government, free markets, and lower taxes. As a subset of over 40,000,000 voters nationwide, they may be reasonably representative of a silent majority in the middle classes which believe in conservative societal values. The one issue that matters above all for Conservative Party members is taxes. Given their different stances on tax, Truss has emerged as the early favourite. Furthermore, to the disadvantage of Sunak very few Chancellors make it to Prime Minister for a reason: like Sunak, they nearly always push the Treasury line on maintaining balanced budgets over the cycle, which means that they are for ever trying to pluck the goose for more tax with the minimum of hissing. Don’t expect geese to willingly vote for yet more exfoliation. The issue of less government in the total economy is not properly addressed by either candidate or is restricted to vague promises to do something about unnecessary bureaucracy. In arguing for free markets, Truss is stronger in this respect than Sunak who appears to be more captured by the permanent establishment. With the exception of Treasury ministers, all politicians in office are naturally inclined to seek increased departmental budgets, which is a problem for all tax cutters. But to understand the practical difficulties of reducing government spending, we must make a distinction between departmental expenditure limits and annually managed expenditure. The former is budgeted for by the Treasury in its allocation of financial resources. The latter can be regarded as including additional costs arising from public demand for departmental services. This explains why total departmental expenditure for fiscal 2020-21 was £566.2bn, representing about half of total government spending of £1,112bn.  With government spending split 50/50 overall on departmental expenditure limits and public demands for services, both issues must be addressed when reducing costs meaningfully. Failing to do so means only departmental expenditure limits are tackled, resulting in less resources to deliver mandated public services. That would be seen by the opposition and the public to be a government failing. Therefore, it is not sufficient to merely say to ministers that they must cut departmental expenditure, but laws and regulations must also be changed to reduce public service obligations as well. That takes time. Imagine tackling this problem with respect to the National Health Service. The NHS takes 34% of total departmental expenditure limits, yet it clearly fails to efficiently provide the public with the services required of it. Health ministers always argue that it needs more financial resources. This is followed by education (13% of total departmental expenditure). What do you do: sack teachers? And Scotland at 8% is another no-go area, where cuts would likely encourage the nationalist movement. And that is followed to a similar extent by defence spending at a time of a proxy war against Russia… One could go on about other ministry spending and the costly provision of their services, but it should be apparent that any realistic cuts in public services are likely to be minor and overwhelmed by rising and unbudgeted departmental input costs which are indirectly the consequence of the Bank of England’s monetary policies. It is therefore hardly surprising that neither Sunak nor Truss is seriously engaged with the subject of reducing state spending, merely fluffing around the topic. But total state spending is going to be an overriding problem for the future PM. Figure 1 shows the long-term trend of total managed expenditure relative to GDP, admittedly exacerbated by covid. Since then, there has been a recovery in GDP to £2,239bn in the four quarters to Q1 2022, and covid related disbursements have materially declined, so that in the last fiscal year, total government spending is estimated to have dropped to 46.5% of GDP from the high point of 51.9%. However, rising interest rates globally are set to drive the UK economy into recession. Even if the recession is mild, while GDP falls this will increase public spending on day-to-day public services back up to over 50% of GDP. The philosophical problem for the new PM can be summed up thus: with half the economy being unproductive and the productive economy shouldering the burden, how can economic resources be restored to producers in a deteriorating economic outlook? Inflation is not going away Orthodox neo-Keynesians in the government and its (supposedly) independent Office for Budget Responsibility do not recognise that the root of the inflation problem is the debasement of currency and credit. Furthermore, by thinking it is a short-term supply chain problem, or a temporary energy price spike due to sanctions against Russia, the OBR, in common with the Bank of England takes the view that consumer price rises will return to the targeted 2% level. Only, it might take a little longer than originally thought. Figure 2 shows the OBR’s latest forecasts (in March) for inflation (panel 1) and real GDP (panel 2). Note how the October forecast failed to reflect an annual CPI rising to more than 4%. In March that was raised to 8%, which is already outdated. Price inflation rising to over 10% is on the cards, and it should be noted that the retail price index, abandoned by government because of the cost of using it for indexation, already shows annual consumer inflation to be rising at 11.8%. The OBR’s response to these unwelcome developments is simply to push out an expected return to the 2% inflation target a little more into the future. Similarly, it expects the trajectory of GDP growth will be maintained, having just slipped a little. On this evidence, the OBR’s advice to a future prime minister and his chancellor will be badly flawed. Instead of going down the macroeconomic approach of modelling the economy, instead we need to apply sound, unbiased economic and monetary theories.  We know that the Bank of England’s monetary policies have debased the currency, reflected inevitably in a falling purchasing power for the pound. That is what drives the increase in the general level of prices. The primary cause is not, as government and central bank officials have stated, supply chain disruptions and the consequences of the war in Ukraine. That has only made things worse, in the sense that higher energy and commodity prices along with supply bottlenecks have encouraged the average citizen to adjust the ratio of personal liquidity to purchases of goods and services, bringing forward purchases and driving prices even higher. The debasement of fiat currencies everywhere is encouraging their users to dump them in what appears to be a slowly evolving crack-up boom encouraged by a background of product shortages. The common view that consumer price inflation is a temporary phenomenon is little more than wishful thinking, as is the latest argument developing, that rising interest rates will deflate economic demand. The official line is that lower demand will lead to lower prices. Realistically, less demand is the product of less supply, so it does not lead to lower prices. And here we must turn to the second panel in Figure 2, of the OBR’s modelling of real GDP. With the annual increase in the RPI already at 11.8% and that of the CPI at 9.1%, a bank rate of 1.25% fails to recognise the changed environment. Interest rates, bond yields and therefore the cost of government funding are all set to rise substantially. The consequences for financial assets will be to drive their market values lower. And unprofitable businesses relying on finance for their existence risk being wiped out, either because they will lose hope of ever being economic, or bank credit will be withdrawn from them. All empirical evidence is that currency debasement accompanies the destitution of an economy. Therefore, it is a mistake to think that a slump in business activity will neutralise the inflation problem. To deal with the inflation problem, the new prime minister will have to resist intervening and let all failing businesses go to the wall. But whoever becomes PM, there is no mandate to simply let events take their course. Instead, the burden of sustaining a failing economy will certainly lead to a soaring fiscal deficit — financed, of course, by yet more monetary debasement. Without quantitative easing, the appetite of commercial banks for financing the fiscal deficit at a time of rising bond yields is uncertain. It is a different environment from a long-term trend of declining interest rates, underwriting bond prices. A trend of rising interest rates is likely to lead to funding dislocations, as we saw in the 1970s. Furthermore, commercial banks have more urgent problems to deal with, which is our next topic. Banks will be in self-preservation mode GDP is no more than a measure of currency and credit in qualifying transactions. Growth in nominal GDP is a direct consequence of an increase in currency and bank credit, particularly the latter. An old rule of thumb was credit was larger than currency in the ratio of perhaps ten to one. The evolution of banking, the war on cash, and the advent of debit cards have changed that, and since covid, the ratio has increased to 37:1. This means that changes in nominal GDP are almost entirely dependent on the supply of bank credit for the production of goods and services. The availability of customer deposits to draw down for spending reflect the commercial banking network’s willingness to maintain the asset side of their balance sheets, comprised of lending and financial investment. Customer deposits, which are a bank’s liabilities, will contract if bank lending, recorded as a bank’s assets, contract. This is already evident in the slowing down of broad measures of money supply growth. Given that bank balance sheets are highly leveraged, and that the economic outlook is deteriorating, bank lending is almost certainly beginning to contract. This vital point appears to be completely absent in the OBR’s modelling of the economic outlook. By the usual metrics, commercial banks are extremely over-leveraged after thirteen years of the current bank credit cycle, in other words since the Lehman failure. Table 1 below summarises the position of the three British G-SIBs (designated global systemically important banks). They can be regarded as a banking proxy for exposure to global systemic risks. Important points to note are that balance sheet leverage, the relationship of assets to total equity, are as much as double multiples of between eight and twelve times at the top of a normal bank credit cycle. Balance sheet equity includes accumulated undistributed profits as well as the common equity entitled to them.[i] All three banks’ common shares trade at substantial discounts to their book value.  Their share prices tell us that markets have assessed that there is a high level of systemic risk in these banks’ shares. It would be extraordinary if the directors of these banks are blind to this message. Before covid when economic dangers were less apparent, it would have been understandable though not necessarily excusable for them to use this leverage to maximise profits, particularly since all banks were following similar lending policies.  Covid came, and all banks had no option but to extend loan facilities to businesses affected, for fear of triggering substantial loan losses on a scale to take down the banks themselves. Furthermore, the government put in loan guarantee schemes. Post-covid, bankers face the withdrawal of government loan guarantees, rising interest rates and the consequences for their risk exposure to higher interest rates, as well as declining values for mark-to-market financial assets — the latter affecting both bank investments and collateral against loans. Clearly, the cycle of bank credit is on the turn and will contract. The dynamics behind this phase of the cycle indicate that to take leverage back down to more conservative levels the contraction will have to be severe. But an excessive restriction of credit both causes and produces a run for cash notes and gold. And thus, without intervention banks and businesses all collapse in a universal crash.  With very little of GDP recorded in pound notes and coin, as a statistic it is driven overwhelmingly by the quantity of bank credit outstanding. In a credit contraction the GDP statistic will collapse — unless the Bank of England takes upon itself the replacement of credit in a massive economic support programme.  The consequences are sure to undermine government finances badly. Sunak’s hope that a balanced budget can be maintained, let alone permit him to oversee tax cuts when government finances permit, becomes a fairy tale when tax revenues slump and spending commitments increase. So, too, is Truss’s belief that immediate tax cuts will benefit economic growth and restore tax revenues. The reality of office is likely to decree fiscal policies very different being those being touted by both candidates. The impending collapse of the euro system I wrote recently for Goldmoney about the inevitable crisis developing in the euro system, here. Since that article was published, the European Central Bank has raised its deposit rate to zero and instituted a rescue package for the highly indebted PIGS in its awkwardly named Transmission Protection Instrument. In plain language, the ECB will continue to buy PIGS government debt to ensure their yields do not rise much further relative to benchmark German bunds. It is increasingly clear that the euro system is in deep trouble, caught out by the surge in consumer price inflation. Rising interest rates, which have only just started, will undermine Eurozone commercial bank balance sheets because they obtain much of their liquidity by borrowing through the repo market.[ii] TARGET2 imbalances threaten to collapse the system from within as the interest rate environment changes. The ECB and its shareholding network of national central banks all face escalating losses on their bonds, which earlier this month I calculated to be in the region of €750bn, nearly seven times the combined euro system balance sheet equity. Not only does the whole euro system require to be refinanced, but this is at a time when the Eurozone’s G-SIBs are even more highly leveraged than the three British ones. Table 2 updates the one in my article referred to above. With the average Eurozone G-SIB asset to equity ratios of over 20 times, the euro’s G-SIBs are one of the two most highly leveraged networks in global banking, the other being Japan’s. The common factor is negative interest rates imposed by their central banks. The consequence has been to squeeze credit margins to the extent that the only way in which banks can sustain profit levels is to increase operational gearing. Furthermore, an average balance sheet leverage of over 20 times does not properly identify systemic risks. Bank problems come from extremes, and we can see that at 27 times, Group Credit Agricole should concern us most in this list. And we don’t see all the other Eurozone banks trading internationally that don’t make the G-SIB list, some of which are likely to be similarly exposed. The problem for Britain is twofold. Including its banks, Britain’s financial system is more exposed to Eurozone risks than any other, and a Euro system failure would be a catastrophe for it. Furthermore, Eurozone banks and fund managers use UK clearing houses for commercial euro settlements. Counterparty failures will contaminate systemically all participants, not only dealing in euros but all the other major currencies settled in London as well. The damage is sure to extend to forex and credit markets, including all OTC derivatives which are an integral part of bank clearing facilities. At the last turn of the bank lending cycle, it was the securitisation of liar loans in the US which led to what is commonly referred to as the Great Financial Crisis. This is a term I have rarely used, preferring to call it the Lehman Crisis because I knew, along with many others, that the non-resolution of the excesses at the time would store up for an even greater crisis in the future. We can now begin see how it will be manifested. And this time, it looks like being centred on London as a financial centre rather than New York. We must hope that a collapse of the euro system will not happen, but there is mounting evidence that it will indeed occur. The falling row of dominoes is pointing at London, and it could even happen before the Conservative Party membership have voted for either Truss or Sunak in early-September. Dealing with a banking crisis fall out On the advice of the Bank for International Settlements, following the Lehman crisis the G20 member states agreed to make bail-ins mandatory, replacing bailouts. This was a politically motivated move, fuelled by the emotive belief that bailing out banks are at the taxpayers’ expense. In fact, bank bailouts are financed by central banks, both directly and indirectly. The only taxpayer involvement is marginally through their aggregated savings in pension funds and insurance companies. But these funds have been over-compensated with extra cash through quantitative easing. The audit trail leads to the expansion of currency and credit every time, and not to taxes as the phrase “taxpayer liabilities” implies. All the G20 nations have passed legislation enabling bail-in procedures. In the Bank of England’s case, it retains discretion to what extent bail-in as opposed to other rescue methods might be used. As to specifics for the other G20 members it is unclear to what extent they have retained this flexibility and understand bail-in ramifications. And it could be an additional confusion likely to complicate a global banking rescue, compared with the previously accepted bail-out procedures. In theory, a bail-in reallocates a bank’s liabilities from deposits and loans into shareholders’ capital — excepting, perhaps, smaller depositors covered by deposit guarantee schemes. But even that is at the authorities’ discretion.  The objective can only make sense for single bank, as opposed to systemic failures. But if it were to be applied to an individual banking failure in the current unstable situation, it would almost certainly undermine other banks, as bank loans and other non-equity interests would be generally liquidated, and deposits flee to banks deemed to be safer as panic sets in. The risk is that bail-in procedures could set off a system-wide failure, particularly of the banks rated by the market with substantial discounts to book value — including all the UK’s G-SIBs (see Table 1 above). Even assuming the Bank’s bail-in procedures are ruled out in dealing with a systemic banking crisis, to keep banks operating will require a massive expansion of credit from the Bank of England. In effect, the central bank will end up taking on the entire banking system’s obligations. With London at the centre of a global banking crisis, all other major central banks whose banking and currency networks are exposed to it must be prepared to take on all their commercial banking obligations as well. Britain’s place in the world must be secured The problems attendant on currencies afflict all the majors, with the UK at the centre of the storm because of its pre-eminent role in international markets. There is no evidence that the leadership at the Bank of England is equipped to understand and deal with an increasingly inevitable economic and monetary crisis which will take sterling down. Nor has there been any attempt by the Treasury to rebuild the nation’s depleted gold reserves to protect the currency, which is a gross dereliction of public duty. But we must now turn our attention to geopolitical matters, where there is currently no pragmatism in Britain’s foreign policies. Since President Trump’s aggressive stance against the challenge to America from Chinese technology, the UK as America’s most important partner in the five-eyes intelligence sharing agreement has sided very firmly with America against both Chinese and Russian interests. The recent history of the five-eyes partnership is one of political blindness — ironic given its title. Wars against terrorism, more correctly US intelligence operations which destabilise Muslim nations before the military go in to sort the mess out have been a staple since the overthrow of Saddam Hussein. A series of wars in the Middle East and Afghanistan have yielded America and her NATO allies only pyrrhic victories at best, created business for the US armaments industry, and resulted in floods of refugees attempting to enter Europe. Meanwhile, these actions have only served to cement the partnership between Russia, China, and all the Asian members of the Shanghai Cooperation Organisation amounting to over 40% of the world population. They have a common mission to escape from the dollar’s hegemony. America’s abandonment of Afghanistan was pivotal. As America’s closest intelligence partner, Britain following Brexit is no longer a direct influence in Europe’s domestic politics. Together, these factors have surely encouraged Putin to adopt more aggressive tactics with the objective of undermining the NATO partnership, always seen as the principal threat to Russia’s borders. This is the true objective behind his proxy war against Ukraine. Supported by Britain, the US response has been to fuel the Ukrainian proxy war by supplying military hardware. But the biggest mistake made by the NATO partnership has been to impose sanctions on Russian trade. The consequences for energy and other vital commodity prices do not bear unnecessary repetition. The knock-on effects for global food prices and the shortages emerging ahead of the winter months are still evolving. Sanctions have become NATO’s suicide note — it is beginning to look like a modern version of Custer’s last stand.  It is surely to the private horror of Western strategists that the sense behind Putin’s strategy is emerging: it is to further the economic consolidation of Asia with the unfettered advantages of fossil fuels traded at significant discounts to world prices. At their own behest, America and its NATO allies are shut out of it entirely. Global fears of climate change and the war against fossil fuels are essentially a Western concept, not shared by the great Asian powers and the Middle East. The hysteria over fossil fuel consumption has led European nations to eliminate their own production in favour of renewables. Consequently, to make up energy shortfalls they have become dependent on imported oil and gas from Russia. And that is what will split Europe away from US hegemony. Unrestricted energy supply is crucial for positive economic outcomes. The result of US-led sanctions is that energy starvation faces all her allies, including Britain and the members of the European Union. As an oil-producing nation herself, America is less affected, her allies suffering the brunt of sanctions against Russian energy supplies.  By committing to policies to lessen climate change without fossil fuel sources of energy, the economic prospects for Europe and the UK are of economic decline.  Only last weekend agreements have been signed between Russia, Iran, and Turkey, with Iran due to become a full member of the Shanghai Cooperation Organisation later this year. Other than Turkey’s wider economic interest, it is essentially about oil. In addition to these developments, Russia’s Foreign Secretary Sergei Lavrov went on to address the Arab League in Cairo. It is clear that Russia is building its relationship with oil producers in the Middle East as well, whose members are faced with declining Western markets and growing Asian demand. Therefore, British policy tied into US hegemony with a self-imposed starvation of energy is untenable. It is worse than being on the losing side. It guarantees economic decline relative to the emerging Asian powers. A future Prime Minister needs to pursue a more pragmatic course than the bellicose stance against Russia and China, currently espoused by Liz Truss. As Britain’s current Foreign Secretary, she is briefed by the UK’s intelligence services, which are closely aligned with their American colleagues. There is groupthink going on, which must be overcome. The interest rate trend and the looming threat of the mother of all financial crises on London’s doorstep requires a leadership strong enough to take on the civil service, always complacent, and guide the wider electorate through some troubling times. Following the financial and currency crisis, mindsets must be radically changed, steered away from perpetual socialisation of economic resources back towards free markets. Which of these two candidates for the premiership see us through? Probably neither, though being less a child of the establishment Liz Truss might offer a slim chance. The task is not impossible. Currencies have completely collapsed before, and nations survived. Instead of being restricted to one or a group of nations, the looming crisis threatens to take out what we used to call the advanced economies in their entirety, so it will be a bigger deal. Fortunately for Britain, her citizens are less likely to riot than their continental cousins. But as a warm-up for the main event, our new leader will have to navigate through growing discontent brought on by rising prices, labour strikes and all the other forms of economic pestilence which bought Margaret Thatcher to power. Tyler Durden Mon, 08/01/2022 - 05:00.....»»

Category: personnelSource: nytAug 1st, 2022

Tesla short-sellers took a $1 billion hit after earnings and more pain may be coming. Here"s what you want to know

The biggest story in markets today is that investors betting against Tesla, the most shorted stock in the world, are headed for a "short squeeze hell." "Friday." Doesn't that word have a glorious ring to it? Phil Rosen here, today writing to you from Los Angeles, California. But I won't take long, since today we're covering shorts. Tesla shorts, that is. Elon Musk's EV-maker is the most shorted stock in the world, but this week, those betting against Mr. Musk lost big, and there's likely more pain to come. Let's get started.If this was forwarded to you, sign up here. Download Insider's app here.Elon Musk at the Tesla Grünheide site in May 2021.Christophe Gateau/Getty Images1. Investors betting against Tesla are headed for "short squeeze hell," according to research group S3 Partners. Those who bet against Tesla lost $1 billion on Thursday as the stock rallied after its second quarter earnings report. Production records at Tesla's Fremont and Shanghai factories in June led Musk to praise the company, saying it has "the potential for a record-breaking second half of the year."Musk's optimism helped drive the stock gain, but it was also driven by short-seller covering, which happens when investors who have bet against a stock  snap up shares in the open market to close their losing positions. At the same time, Tesla remains the ninth most popular long position among hedge funds — which means they could help drive further momentum. "These buy-to-covers and the potential for hedge funds to bulk up their positions in a high beta name with a positive price trend may help reverse Tesla's year[-to-date] price weakness," S3 Partners said.Meanwhile, another interesting tidbit that emerged from the earnings call was that the automaker has dumped 75% of its bitcoin. We don't quite know what motivated the move, but it's a safe bet to look at this year's slumping asset prices (especially for tech and crypto) as well as frosty economic conditions — which may also be part of the reason why Musk is looking to nix the Twitter deal.In other news:Christine Lagarde is the President of the European Central Bank.Pool/Getty Images2. US stock futures fall early Friday, as Snap's downbeat second-quarter earnings rattles investors. Also, wheat prices dropped to pre-war levels after Ukraine and Russia agreed a deal to unblock shipments. Here are the latest market moves.3. On the docket: Verizon Inc., American Express Co., and Twitter, all reporting. 4. These dividend stocks can provide extra income as inflation erodes purchasing power. That's according to a fund manager who has performed better than 96% of his competitors this year. See his list of seven companies. 5. Retail investors have been scared away from the stock market after this year's brutal decline. According to JPMorgan: "The younger cohorts' deleveraging has advanced by so much that all the previous post pandemic increase has been unwound already."6. The chance of a US recession in the next 12 months is a "coin flip," the Mortgage Bankers Association said Thursday. The comments followed the firm's lower growth revision for the US economy. Aggressive Fed policy and soaring inflation have pushed the firm to expect a 50-50 shot of a full downturn.7. In case you missed it: The European Central Bank hiked interest rates yesterday for the first time in 11 years. In a bid to cool searing inflation, policymakers authorized an outsized 50-basis-point hike. The central bank is staring down the onerous task of trying to balance out an increasingly delicate eurozone economy. 8. Tech-stock picker Alex Umansky ran the world's best mutual fund for years. But like a lot of growth stock investors, he's had to take some hard losses lately. He explained what he's buying now to get back to the top after a deep downturn — and how his strategy has changed. 9. Hedge Fund chief Mark Spitznagel said we should expect inflation to be "elevated forever." He called the Fed's bluff on raising interest rates enough to tame high prices — and told Insider how he thinks investors should approach risk mitigation.Snap stock price on July 22Markets Insider10. Shares of Snap tanked as much as 30% after hours on disappointing second-quarter earnings results. The tech company missed big on expectations, posting its weakest ever sales for the quarter, and announced it would slow down its hiring and rate of operating expense growth. Goldman Sachs almost halved its price target for the stock after the disheartening result. Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJul 22nd, 2022

AMC Entertainment Is On Track For Blockbuster Results

AMC Rides Wave Of Blockbuster Movie Openings While the movie industry is still a bit shy of regaining its pre-pandemic business levels AMC Entertainment (NYSE:AMC) is on track for a blockbuster quarter. The last few months have seen no end of high-grossing movie openings, and the trend is set to continue. The latest is Disney’s […] AMC Rides Wave Of Blockbuster Movie Openings While the movie industry is still a bit shy of regaining its pre-pandemic business levels AMC Entertainment (NYSE:AMC) is on track for a blockbuster quarter. The last few months have seen no end of high-grossing movie openings, and the trend is set to continue. The latest is Disney’s (NYSE:DIS) Thor: Love And Thunder, which amazed critics with its $140+ million opening weekend. What this means for AMC Entertainment and its investors is an opportunity to get into this stock at the lowest levels in over a year and well before the good news is released. AMC Entertainment is scheduled to release earnings in the first week of August and should easily outpace the consensus. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get Our Activist Investing Case Study! Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below! (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2022 hedge fund letters, conferences and more The analysts expect revenue to grow 39% sequentially to $1.18 billion, and we think this underestimates the rebound. The revenue growth is also 16% higher than last year but still more than 20% down from the 2019 quarter. In our view, revenue could easily top the $1.25 billion mark and come with favorable guidance, if not profitability. In regard to the analyst's ratings, there hasn’t been much activity over the past year, and what there is, isn’t bullish. The two commentaries that have any relevance to today’s opportunity have the stock pegged at a weak Sell with a price target about 50% below the current price action. If the company can perform as we expect, the analyst sentiment should also begin to shift. The Institutions Are Buying AMC Entertainment The institutional holdings in AMC Entertainment aren’t large at 35%, and the activity isn’t robust, but it is bullish. The institutions have been net buyers since the pandemic set in, and that trend extended into the 3rd quarter. This has the market tilted in favor of the bulls despite the high short interest, which we view as another catalyst for higher share prices. The short interest is running very close to 20% and has not changed much over the past month or so. Assuming the Q2 results align with our expectations, the short-covering should begin shortly after. If we say the results are even better, we may see a short-squeeze that takes the price action up to the $30 level or higher, a gain of more than 100% from current price levels. CEO Adam Aron recently commented on the short interest and when he thought it was right to “pounce” on the short market and what he said amounts to “wait and see what we report for Q2”. "I keep getting asked, 'Wen pounce?' Know this: 1. I always keep my word. 2. I’ve said publicly that a pounce would not happen before Second Quarter 2022 earnings are announced. 3. Press release issued today that Q2 earnings are to be announced on Thurs, August 4. Read between those lines." The Technical Outlook: AMC Entertainment Holdings Braces For Big Move Shares of AMC Entertainment Holdings have been in a correction for several quarters but hit a bottom as the summer was beginning. The price action is drifting higher in the wake of that bottom and looks ready to move higher given the right catalyst. Assuming the Q2 report is a good one, we see this stock moving above the 150-day EMA at least and possibly above the $25 level as well. However, if the shorts start running scared, this stock could easily move above the $30 level. Article by Thomas Hughes, MarketBeat Updated on Jul 18, 2022, 5:10 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: valuewalkJul 18th, 2022