Month: February 2018

Kolanovic Admits He Was Wrong, Says Central Banks May Step In To Halt The Crash

How the market’s mighty wizards have fallen.

Just last Thursday, JPM’s head quant Marko Kolanovic, the man who once moved markets with one word, predicted that the recent crash  in stocks was nothing to be worried about, and that quants wouldn’t liquidate into it, to wit:

Equity price momentum is positive and trend followers are not likely to reduce equity exposure. While the recent move was concerning for its correlation properties (bonds, equities and commodities all going lower), overall the volatility of multi-asset portfolio is still very low, and the increase was relatively small (e.g., increased from ~4% to ~5%). Also, there are other circumstances that are not in favor of a continued sell-off – we are in the midst of one of the strongest earnings seasons in the US, and global growth continues to be strong.

Two trading days later, and nearly 2000 Dow points lower, that assessment could not be more wrong.

So, now that systematic funds got clearly blown up, and for countless retail investors using XIV to short volatility this may well be the end following termination events at short-vol ETFs such as XIV,  Kolanovic is out with a note in which he expresses renewed hope that the cataclysmic move of the past few days – driven entirely by either CTAs, risk parity, vol-targeting funds or all of the above – is nothing but a scratch.

Here is his note:

In last week’s note, we noted that volatility, at the time, was not sufficient to trigger systematic strategy de-risking. On Friday, the market dropped ~2% on a day when bonds were down ~40bps. The move on Friday was helped by market makers’ hedging of option positions (as gamma positions turned from long to short midday). Friday’s move, on its own, was significant as it pushed realized volatility higher, which is a signal for many volatility targeting strategies to de-risk. Anecdotally, broad knowledge about the risk of systematic selling kept many investors fearful and waiting on the sidelines (both in equity and volatility markets). Midday today, short-term momentum turned negative (1M S&P 500 price return), resulting in selling from trend-following strategies.

… which, of course, is something Marko said would not happen. Anyway, back to the note:

Further outflows resulted from index option gamma hedging, covering of short volatility trades, and volatility targeting strategies. These technical flows, in the absence of fundamental buyers, resulted in a flash crash at ~3:10pm
today. At one point, the Dow was down more than 6%, and later partially recovered. After-hours, the VIX reached 38 and futures more than doubled—it is not clear at this point how this will reflect on various short volatility products (e.g., some volatility ETPs traded down over 50% after hours).

Actually, with the XIV down 80% on the day, tracking the VIX, it most likely means a termination event is imminent.

So what happens next according to the JPM head quant? In short: don’t worry, all shall be well.

Today’s large increase of market volatility will clearly contribute to further outflows from systematic strategies in the days ahead (volatility targeting, risk parity, CTAs, short volatility). The total amount of these outflows may add to ~$100bn, as things stand.

As a reminder, this is roughly half the $190 billion number cited by Goldman as the total amount in global equity selling over the next few weeks. Both numbers would be large enough to lead to further dramatic downside in the stock market.

And here comes the damage control:

However, we want to point out the massive divergence between strong market fundamentals and equity price action over the past few days. The large market decline over the past few days will likely draw fundamental investors and even trigger pension fund rebalances (those that rebalance on weight thresholds).

And if that’s not enough to wake the BTFDers out of their shocked daze, here come the big guns:

We also want to highlight a strong probability of policy makers stepping in to calm the market.

Right, because when you get a call so incredibly wrong, there is nothing quite like central banks bailling you out.

Finally, here is Kolanovic’s advice after the biggest point drop in Dow Jones history: just BTFD:

Rapid sell-offs, such as the one today, can also be followed by market bounce backs as liquidity gets exhausted by programmatic selling. With next year P/E on the S&P 500 now below 16, further positive impacts of tax reform and stabilization of bond yields (e.g., note the current record level of CFTC bond short positions), we think that the ongoing market selloff ultimately presents a buying opportunity.

On Thursday, when commenting on Kolanovic’s painfully sanguince assessment, we said that it was “Almost as if Gandalf was given the tap on the shoulder…”

We now know for sure.

via RSS http://ift.tt/2E76ycU Tyler Durden

America’s “Intellectual-Yet-Useful-Idiots” Exposed

Authored by James Howard Kunstler via Kunstler.com,

A Quandary

It is the super-duper quandary of the moment: choose between the oafish, charmless, and possibly not-so-stable-genius Leader-of-the-Free-World… and a security state that will do whatever it takes to get rid of him, for instance, engineering a nationwide hysteria over Russia.

 

Has anyone else noticed how odd it is that the so-called “Resistance” has all along included the state security apparatus in its every sordid iteration — the CIA, the NSA, the FBI, and God knows how many others among the touted “seventeen security agencies” who supposedly ginned up the Russian Meddling story on behalf of the Democratic National Committee.

Movements that affect to be revolutionary don’t usually turn to the secret police and their equivalents for aid and comfort.

The Resistance pulled out all the stops last week in its shrieking denunciation of the Nunes Memo, and the various complaints had one thing in common: a complete lack of interest in the facts of the matter, in particular the shenanigans in the upper ranks of the FBI.

Give a listen, for instance, to last Thursday’s Slate’s Political Gabfest with David Plotz, John Dickerson, and Emily Bazelon, the three honey-badgers of Resistance Radio (like the fabled honey-badgers of the veldt, they don’t give a shit about any obstacles in pursuit of their quarry: Trump). They’ve even been able to one-up Nassim Taleb’s defined category of “intellectuals-yet-idiots” to intellectuals-yet-useful-idiots.

The New York Times, with its termite-mound of casuistry artists, managed to concoct a completely inside-out “story” alleging that the disclosure in the Nunes memo of official impropriety at the FBI was in itself an “obstruction of justice,” since making the FBI look bad might impede their ability to give Trump the much wished-for bum’s rush from the White House.

There was already enough dishonesty in our national life before the Left side of the political transect decided to ally itself with the worst instincts of the permanent Washington bureaucracy: the faction devoted to ass-covering. The misconduct at the FBI and DOJ around the 2016 election is really quite startling.

How is it not disturbing that Associate Deputy Attorney General Bruce Ohr brokered the Steele Dossier between the Fusion GPS psy-ops company and the FBI, when Fusion GPS was employed by the Clinton campaign, and Ohr’s wife worked for Fusion GPS?

How is it okay that this janky dossier was put over on a FISA court judge to get warrants to surveil US citizens in an election campaign?

How was it okay for Deputy FBI Director Andrew McCabe’s wife to accept $700,000 from the Clinton family’s long-time bag-man, Terry McAuliffe, when she ran for a Virginia State Senate seat, a few months before McCabe assumed command of the Hillary email investigation?

How was it not fishy that FBI Deputy Assistant Director of the Counterintelligence Division, Peter Strock, and his workplace girlfriend, FBI lawyer (for Andrew McCabe), Lisa Page appeared to plot against Trump in their many cell-phone text exchanges?

These allegations look really bad, and it should be no surprise that they’ve prompted a massive ass-covering campaign by the FBI and especially their allies at the official Resistance news outlets. And, of course, lastly and most perplexingly there is the unappetizing figure at the center of this circus, President Trump himself, the avatar of wished-for return to American greatness, who is looking more and more like Melville’s awful and enigmatic White Whale pursued by single-minded mad men — and, remember, despite all the bloody ire, abuse, and harrassment heaped upon him by the vengeful Ahab, Moby Dick ended up smashing the whaling ship Pequod, and swimming away to legend.

As I have suggested previously, this whole tiresome shootin’ match of counter-allegation and propaganda about Russian Meddling will probably be superseded by upsets in the financial markets. Last week’s market action was a downer for sure. The melodrama of imploding valuations and counterparty obligations has just begun. It’s going to continue through the year, and the nation will face some truly existential dilemmas that may actually require some attention.

Hope you all enjoyed the giant Zumba class led by Justin Timberlake in last night’s Superbowl halftime show. It made me nostalgic for Janet Jackson’s wardrobe malfunction of yesteryear.

via RSS http://ift.tt/2E50DkR Tyler Durden

Roboadvisor Websites Crash, Lock Out Traders From Their Accounts

As the Dow plunged 1,600 points during intraday trading Monday, millions of investors rushed to check on their portfolios to survey the damage from one of the worst selloffs since the financial crisis.

But customers of roboadviser firms Betterment and WealthFront were furious to find that both companies’ servers crashed during today’s stock-market route, locking thousands of customers out of their portfolios.

As Bankinnovation pointed out, Betterment and other roboadvisers automate most of their functions, which is why they’re so much cheaper than hiring a traditional, human financial advisers. But the downside to this is that these services, which have soared in popularity over the past five years, don’t have much experience with market routes like what happened today.

The glitches could set the industry’s progress back – a welcome relief for their human rivals, per Bloomberg.

One Betterment customer complained that the company was costing him money…

…while WealthFront promised to fix the problem ASAP…

…Other customers threatened to take their business elsewhere…

Wealthfront acknowledged in a statement that its clients lost access to their accounts for “a short period of time today” and said it’s working to make sure “clients don’t experience this again.” Betterment has yet to issue a statement. According to Bloomberg, back  during the Brexit fallout in 2016, Betterment told users that it had implemented a “short delay in trading” to protect its users from a “potentially erratic market.” No such statement was issued by the company in this case.

via RSS http://ift.tt/2nJVZ4C Tyler Durden

Pennsylvania’s Redistricting Crisis Deepens as SCOTUS Takes Hard Pass on Getting Involved

As half the state nursed a celebratory Super Bowl hangover, Pennsylvania took another half-step towards a full-blown constitutional crisis. Today the U.S. Supreme Court has rejected a request from Republicans in the state legislature, who sought an order stopping the state Supreme Court from ordering new congressional maps before the 2018 election.

Yes, it’s a bit confusing. Here’s how we got here. The state’s high court ruled last month that current congressional district lines, drawn by Republicans in 2011, were unconstitutional. New maps must be passed by the state legislature and signed by the Democratic governor before February 9, the state court said, or else the court would design its own maps for the upcoming midterm elections. Republicans in the legislature refused to comply and asked the U.S. Supreme Court to tell the state court it was out of line.

Now that the SCOTUS has refused to do that, the legislature has just four days to get new maps drawn up and passed.

“Now, all parties must focus on getting a fair map in place,” said Gov. Tom Wolf, a Democrat. “Gerrymandering is wrong and we must correct errors of the past with the existing map.”

If Republicans continue to refuse to draw new maps, the state Supreme Court may have to back up its threat to take matters into its own hands. It’s not at all clear that the state court has the authority to do that, since both the state and federal constitutions give redistricting authority to the legislature. Should the state court produce new maps and order them used for the midterms, another GOP-backed appeal to the U.S. Supreme Court would seem likely.

The crisis in Pennsylvania—like other ongoing court battles over partisan redistricting, in such places as North Carolina and Wisconsin—points to a broader problem. It’s relatively easy to show that redistricting is often done in partisan, biased ways, but it’s much harder to find a workable alternative.

One supposed solution to gerrymandering is supposedly independent “redistricting commissions” filled with supposedly independent normal people.

The main problem with that approach is that the list of people who care about redistricting enough to serve on such a panel and are not interested in partisan politics is just about zero. As Reason‘s Ron Bailey has pointed out, independent redistricting commissions tend to gerrymander just as much as legislators do. In California, a citizens redistricting commission in 2010 was infiltrated by union-backed groups and, no surprise, produced maps that pretty clearly advantage Democratic candidates.

Another possible solution—one that the state Supreme Court in Pennsylvania has now embraced—involves greater activism from judges. In the past, courts at all levels generally have been unwilling to strike down maps purely for reasons of partisan bias (though there is a history of courts rejecting maps that deliberately diluted minority populations’ votes).

The problem with that is that it raises questions about the impartiality of judges. Republicans in Pennsylvania are howling about comments made by Supreme Court Justice David Wecht in 2015, when he was running for a seat on the state Supreme Court. “Gerrymandering is an absolute abomination. It is a travesty. It is deeply wrong,” he said at a candidate forum in Philadelphia. “There are only 5 Democrats in the Congress, as opposed to 13 Republicans. Think about it. Do we need a new Supreme Court? I think you know the answer.”

Judicial elections are tricky things. There’s a fine line between a judge informing voters about his stance on an important legal issue and a judge campaigning for a seat on the bench so he can overturn a partisan map for partisan reasons. Wecht, no surprise, was one of the five justices on the state Supreme Court to vote in favor of tossing the 2011 maps.

What’s to be done? One possible solution is to let computers do the dirty work for us. Like with many other jobs that humans don’t care to do or don’t do very well, computers might actually be pretty good at this whole redistricting thing.

For example, here’s the 2011 congressional map side-by-side with a potential district map drawn by a computer algorithm as part of FiveThirtyEight‘s “Atlas of Redistricting” series (check out the maps for other states here):

The computer-drawn maps would give Democrats an edge in two Philadelphia-based districts, two other districts in the Philly suburbs, and one district centered on Pittsburgh. Republicans would have a clear edge in nine other districts covering most of the rest of the state. That leaves four “highly competitive” districts along the eastern edge of the state, stretching from Scranton and Wilkes-Barre in the northeast to Bucks County just north of Philadelphia. The map would likely leave Republicans with an 11-7 edge in the state’s congressional delegation—a margin the GOP should be pleased with, considering that there are more registered Democrats than Republicans in the state—instead of the current 13-5 split.

To my eye, the computer-drawn maps using county lines as their foundation do a nice job of grouping together Pennsylvania’s various and often conflicting political communities. I’m not sure this represents the best possible congressional map—in fact, I’m not sure there is such a thing, period—but it’s a pretty clear improvement over the cartoonish shapes and Democratic “vote sinks” that defined the 2011 maps.

If Republicans in Pennsylvania’s legislature and Democrats in the state’s governor’s mansion and on the state’s high court are unable to reach an agreement on what the new congressional districts should look like, maybe a novel experiment is in order. Put the computers in charge.

from Hit & Run http://ift.tt/2E5SI6V
via IFTTT

White House Issues Statement On Today’s Historic Market Crash

Today, the Dow Jones suffered (including the plunge after hours) its biggest point crash in history, turning negative for the year, which for a president who takes particular delight in every uptick in the market, was terrible news.

So, as many expected, the White House issued a statement after the close, commenting on today’s market crash.

Predictably, there was little commentary of the “day to day” moves, and instead Trump deflected by pointing out that he is now focusing on the economy’s “long-term fundamentals” instead.

Full statement below:

“The President’s focus is on our long-term economic fundamentals, which remain exceptionally strong, with strengthening U.S. economic growth, historically low unemployment, and increasing wages for American workers. The President’s tax cuts and regulatory reforms will further enhance the U.S. economy and continue to increase prosperity for the American people.

Translation: Trump will never again tweet about the market.

 

 

via RSS http://ift.tt/2GRm6Q7 Tyler Durden

“This Is It”: Traders Panic As XIV Disintegrates After The Close

We noted earlier that US equity futures were extending losses after the close, but the real panic action is in the volatility complex.

Putting today’s VIX move in context, this is among the biggest ever…

And it appears Morgan  Stanley was right to bet on VIX hitting 30…

But the real action is in the super-crowded short-vol space.

XIV – The Short VIX ETF – after its relentless diagonal move higher as one after another Target manager sold vol for a living… just disintegrated after-hours, down a stunning 50%

And SVXY – Short VIX ETF -is down over 65%…

Remember, last Thursday saw investors pour a record $520 million into an exchange-traded note that gains when VIX drops…

As one veteran trader (who has seen numerous volatility cycles), “I’ve never seen anything like this… this is it” referring to the start of the unwind of the biggest aggregate short volatility position the market have ever known.

via RSS http://ift.tt/2nNlKRx Tyler Durden

No, President Trump, It’s Not ‘Treasonous’ to Be Chill During the State of Union

TrumpDuring a speech at a factory in Ohio on Monday, President Trump called Democratic Congressmen “un-American” for failing to cheer enthusiastically during the State of the Union address last week. He even suggested that their behavior was “treasonous.”

“You’re up there, you’ve got half the room going totally crazy, wild, they love everything, they want to do something great for our country,” said Trump, referring to his Republican supporters in Congress. “And you have the other side, even on positive news, really positive news… they were like death, and un-American.”

Someone in the factory audience apparently called out “treasonous,” which prompted Trump to respond, “Yeah, I guess, why not.” Again, that was Trump casually affirming the idea that his political opponents had committed treason in failing to applaud him.

But treason has a specific definition: it involves levying war against the United States, or giving aid and comfort to its enemies. “Aid and comfort” means actually helping a declared enemy of the United States—by sending them money, leaking sensitive information to them, etc. Merely signaling dissent from, or disapproval of, the current commander-in-chief is not treason; if it was, members of the out-of-power political party would have no real means of challenging the president’s agenda. Thankfully, the First Amendment guarantees everybody the right to criticize the government and its chief executive.

Trump’s statement about treason echoes his previous comments in support of jailing flag burners and broadening the scope of libel laws. Rhetorically speaking, the president is no friend to free speech—he would clearly like to criminalize all kinds of anti-Trump political expression. Fortunately, Trump has not attempted to actualize his stated preference for censorship, and if he did, the Supreme Court would stop him.

In any case, Trump really shouldn’t be too eager to broaden the public’s definition of the word treason. Many on the left have accused Trump himself of treason because his campaign allegedly colluded with elements of the Russian government to interfere in the 2016 presidential election. Under the strict definition of treason, this doesn’t count, since the U.S. remains formally at peace with Russia. The strict definition is vastly superior to the “yeah, I guess, why not” definition nonchalantly endorsed by Trump in his remarks today, even for the sake of Trump’s own political interests.

Trump says the Democrats would rather see him “do badly” than the US do well: “Somebody said ‘treasonous’. I mean, yeah, I guess. Why not?” https://t.co/E2AOVJNiGE

— CNN Politics (@CNNPolitics) February 5, 2018

from Hit & Run http://ift.tt/2BHIEDl
via IFTTT

Gitmo Trial Overseer Fired, McCain Introduces Immigration Bill, More Rent Control Demanded Instead of More Housing: P.M. Links

  • Guantanamo BayThe Pentagon has fired the man overseeing the trials of alleged terrorists being held in Guantanamo Bay.
  • The stock market is having kind of an off day today.
  • The Supreme Court has rejected an emergency request by Pennsylvania Republican leaders to put on hold a recent decision by the state’s supreme court ordering them to redraw the state’s congressional districts.
  • Sens. John McCain (D-Ariz.) and Christopher Coons (D-Del.) have introduced a bill to allow undocumented “DREAMers” to stay in the United States, but it doesn’t provide funding for a border wall between the U.S. and Mexico. For that reason, President Donald Trump tweeted a pre-emptive rejection.
  • A new federally funded research study shows more evidence that legal access to medical marijuana from dispensaries correlates with a drop in opioid overdose deaths.
  • Folks who still do not grasp the laws of supply and demand are pushing for more rent controls when they should be demanding a dramatic increase in housing stock.
  • The New York Times is asking the secretive Foreign Intelligence Surveillance Court to unseal and release the secret documents used as the justification to surveil Carter Page back when he was a campaign advisor to Trump.

Follow us on Facebook and Twitter, and don’t forget to sign up for Reason’s daily updates for more content.

from Hit & Run http://ift.tt/2nKVFTm
via IFTTT

Lululemon CEO Laurent Potdevin Resigns Due To Unspecified “Misconduct”

In an announcement that stunned the market, Laurent Potdevin has resigned as CEO of Lululemon Athletica and also left the company’s board because of “allegations of misconduct” of an unspecified nature, although for a company best known for yoga pants one can make a wild guess…

His resignation is effective immediately.

Potdevin joined the company in 2014 after the departure of former CEO and founder Chip Wilson, who was himself pushed out after a series of embarrassing PR flops including a scandal where the company inadvertently sold see-through yoga pants, according to the Wall Street Journal.

It wasn’t immediately clear how Mr. Potdevin had fallen short of the company’s standards.  There were “a range of instances” where his actions didn’t align with company policy on leadership and conduct, according to a person familiar with the matter.

“Lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Mr. Potdevin fell short of these standards of conduct,” the company said in a statement.

The stock is sliding on the news.

 

 

via RSS http://ift.tt/2EiEiDH Tyler Durden

S&P, Nikkei Futures Crash After Hours As VIX Volumes Hit All Time High

Here is the simple summary of what happened today courtesy of Morgan Stanley’s quants: market liquidity collapsed while VIX futs volumes hit an all time high, as countless vol-sellers were forced to cover.

The details from Morgan Stanley’s quant team:

  • Liquidity in the top of the S&P futures book 50% worse than Friday.
  • Avg available size is 111 contracts since 3PM today on the top of the S&P book. Friday avg. size was 209 (for the entire day
  • Beginning  of Jan this was 800.  End of Jan it was 300.
  • VIX futures traded 897k total across the curve so far today.   Previous FULL DAY record was 850k  (aug 10 2017)

For those wondering, the market on close imbalance was a whoppoing $3.4 billion.

What does this mean in practical terms: as shown in the chart below, the crash is continuing after the close.

Meanwhile, don’t wake up Mrs. Watanabe, she is due for a shock when she learns that Nikkei futures are now down -8% and crashing lower.

via RSS http://ift.tt/2FPucqO Tyler Durden