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In recent weeks we have read one report after another from JPMorgan’s quants who, in trying to justify their explosive S&P forecast for 2021 and 2022 which sees the S&P rising as high as 4,500, make the false claim that hedge funds are barely invested in the market and have lots of dry powder, i.e., cash on the sidelines.

We now hope to bring these lies to an end once and for all, for the simple reason that as of this moment, hedge funds have never been more long stocks on both a gross and net basis.

The reason for that, as Goldman’s Ben Snider points out in its latest hedge fund trend monitor, is that in the third quarter having given up on generating alpha, hedge funds have “increasingly relied on beta to support returns.” Confirming this, Goldman’s Hedge Fund VIP basket, which tracks the most popular hedge fund long positions, has outperformed the S&P 500 by 20% points YTD (+32% vs. +12%). And while it still lags the Nasdaq 100, the basket is now on pace for its strongest annual excess return vs. the S&P 500 on record as shown in the second chart below.

As an aside, following the recent 15-sigma rotation out of growth and into value on the back of vaccine news, Goldman caveats that in recent weeks, the outperformance of the most popular hedge fund long positions has moderated. Since the start of the fourth quarter, VIPs have outperformed the S&P 500 by about 2 percentage points (+8% vs. +6%), as the US elections and vaccine announcements drove sharp rotations within the market.

Ironically, and as we have claimed since 2013, the biggest outperformance came on the back of soaring shorts: as Snider writes in his report, “since the market trough in March the most concentrated short positions have consistently outperformed as funds covered their short exposures in a rapidly rising market.“

This should not come as a surprise to our readers: as we first observed all the way back in 2013, “The Best Trading Strategy In This Market: Buy The Most Hated Stocks, Short The Most Widely Held“, going long a basket of the most shorted names has best the best alpha generating trade year after year after year, and nowhere more so than in 2020. And now Goldman confirms this. 

Sadly, hedge funds once again were not aware of this, and even as they went long the hedge fund VIP basket which has soared, they were collectively short (as a group) the same handful of names, which has ripped higher, in many cases more than offsetting any gains from the long book.

As a result, hedge funds have resorted once again to the oldest trick in the book – piling leverage upon leverage to chase not alpha, which they have failed to do once again in 2020, but beta.

Indeed, as Goldman notes, “record net leverage has supported hedge fund returns in recent weeks despite the erosion of alpha.”

And here is our – and Goldman’s counter – to anyone who incorrectly claims that hedge funds are not all in: aggregate hedge fund net leverage calculated based on publicly-available data registered 56% at the start of 4Q 2020, tying the record from early 2015. Exposures calculated by Goldman Sachs Prime Services also show extremely elevated net leverage; in fact net leverage has never been higher: as Snider explains: “According to their data, net leverage has risen quickly since the March market trough and is now at the highest level on record.”

The flipside to the above is that that now that shorts have been absolutely crushed and steamrolled, there are none left.

As Goldman points out, as funds increased length in the rising market (i.e., covered their shorts), “short interest has continued to fall, reaching new record lows.” As shown in the final chart, the median S&P 500 stock has outstanding short interest equating to just 1.6% of market cap, the lowest level in Goldman’s 16-year data history.

In most sectors, short interest outstanding currently ranks in the bottom decile of the last 15 years, with only Energy sector shorts registering above the historical average.

This means that with no shorts left, the market’s ability to “squeeze” higher is now finished… except for energy where we expect some catalyst to unleash what will soon be the only short squeeze left in the market.

After the mainstream press accused the Trump Administration of trying to “sabotage” the Biden Administration by closing out a handful of Fed lending programs that were seeded with money from the Treasury earlier this year, Secretary Mnuchin appeared on CNBC Friday morning for a lengthy phone interview with Jim Cramer.

The secretary defended the decision as “a very simple thing” and pointed out the irony that Democrats had initially been skeptical of “giving me $500 million to do with whatever I want”. The program has been “a great success story”, he said. Now it’s time for the money to come back, as Congress intended, he said.

“This has been an incredible success. Let’s not focus on a couple of facilities that were hardly used,” Mnuchin insisted. He also claimed that markets “should be very comfortable” with the amount of ammo the Fed has in reserve.

“Markets should be very comfortable that we have plenty of capacity left,” the Treasury secretary said.

“This is not a political issue,” he added

When pressed by Cramer & Co. about whether his decision to recall the funds was tantamount to shooting Jerome Powell in the back, Mnuchin insisted that he was simply following the process set out in the law, and that the money from these Fed lending programs could be put to better use by making loans to small businesses.

“The intent was this part of it expires in December, let’s go use this money in parts of the economy that need it. We don’t need this money to buy corporate bonds. We need this money to help small businesses that have been hurt, through no fault of their own.”

“The medical emergency may not be over but the financial conditions are in great shape…corporate bonds have come in…mortgages have come in…the stock market has rebounded. I’m hoping that since we’ve been such an effective steward of these tools…that Congress” won’t hesitate to authorize similar programs in the future.

While urging Democrats to come together with the GOP like they did in the spring to pass another round of stimulus measures, Mnuchin revealed that he would meet with White House Chief of Staff Mark Meadows and Senate leader Mitch McConnell. When asked about reaching out to the Dems, Mnuchin said he planned to reach out to Democratic Congressional leaders.

As we reported last night, Mnuchin requested the expiration of the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Municipal Lending Facility, the Main Street Lending Program, and the Term Asset-Backed Securities Loan Facility by December 31. At the same time, he wants the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, and the Paycheck Protection Program Liquidity Facility be kept in place for an additional 90 days. The Fed responded with a statement claiming it would “prefer” that “the full suite” of measures designed to combat COVID’s impact on the economy be left intact.

When the interviewer pointed out that the next few weeks could be “really ugly,” Mnuchin replied that the administration had shifted its focus from the economy to vaccines, which he said should become available to the first patients in a matter of weeks.

When it comes to negotiations with the Democrats on another stimulus package, the secretary said he would be “redoubling our efforts” to strike a deal, unleashing more optimistic headlines in another effort to pump stocks.

“I had hoped now that we’re past the election that the Democrats will work with us…during the CARES act we had incredible bipartisan support…we’ll be redoubling our efforts to try and get something done.”

When Jim Cramer quoted the NYT which accused Mnuchin of trying to sabotage the upcoming Biden administration, Mnuchin insisted that “what we’re trying to do is follow the law as we’re supposed to…[the program] has been a great success…let’s get it done.”

Asked about his willingness to work with his possible successor, Mnuchin said he would be happy to work with whoever once the certification process related to deciding the official President-Elect is finished.

“There’s a process to certify, and once this is certified of course we will work with whoever we need to work with,” Mnuchin insisted. Asked whether he would be “happy” if former Fed chairwoman Janet Yellen is picked as his successor, Mnuchin demurred, saying it wouldn’t be right for him to comment on the issue…but insisted that he would work with whoever is picked, after the results are made official.

Looking ahead, White House Press Secretary Kayleigh McEnany will hold her first press briefing since the election on Friday at noon. Meanwhile, the torrent of critical op-eds continued, with CNBC publishing a piece of commentary accusing Mnuchin of “removing the life boats from the Titanic”.

Mnuchin’s Fed move is like stripping Titanic of its lifeboats, economist says https://t.co/C7FC79hUoQ

— CNBC (@CNBC) November 20, 2020

Let’s hope America’s zombie companies have learned how to swim after all those years treading water.

You’ve heard of Teslas driving themselves through storefronts. You’ve heard of Teslas spontaneously combusting. But have you yet heard of Teslas shooting piping hot projectiles through the air at innocent bystanders?

Because that appears to be the next iteration in the “What will these cars do next?” saga that has been unfolding on streets across the nation for the better part of a half decade now.

A Tesla crash this week in Oregon resulted in the vehicle’s scorching hot battery cells flying out of the car and “toward nearby homes”, according to NBC. The driver of the vehicle, who was “stoned” and “going more than 100 MPH”, lost control of the vehicle and hit trees, a power pole and a phone box when he wrecked.

“Hundreds of the Tesla’s hot batteries were thrown from the vehicle,” the report says. “Two of them crashed through windows at separate homes, starting small fires.”

A nearby neighbor who was at home watching TV said: “It was a real scary-looking wreck. There were down power lines everywhere. It’s a lot of crazy chaos.”

“Somebody had a tire come crashing through their wall,” he continued. That tire not only left a hole in the wall of a nearby apartment building, but also broke a water pipe that flooded the complex. 

Next door to the neighbor, a house window was shattered by a “flying battery”, which “started a small fire” on a child’s bed. The child wasn’t in the bed at the time. 

The driver fled the scene and was apprehended several blocks away. He is now facing charges of “driving under the influence of intoxicants, second-degree criminal mischief, reckless endangerment and reckless driving.”

As we detailed previously, yesterday’s press conference held by the Trump legal team was not for the faint of heart.

Sidney Powell: “The entire election, frankly, in all the swing states should be overturned and the legislatures should make sure that the electors are selected for Trump” pic.twitter.com/gA6aFVhvdt

— Jason Campbell (@JasonSCampbell) November 19, 2020

As Jonathan Turley writes, the team alleged a global, Communist-backed conspiracy to “inject” and “change” votes through the use of the Dominion computer system. It was exhausting and breathtaking. I was critical of the press conference as being long on heated rhetoric and short on hard evidence. Dominion issued a statement categorically denying the allegations.

The question is whether Dominion itself will now sue.  The company denied the allegations but I often measure such denials by whether anyone actually sues.  Dominion could do so and force the Trump team to reveal the evidence supporting their allegations or face potentially significant liability. I assume that counsel like Sidney Powell would not make such allegations without proof, but the press conference did not make such evidence public. But these are not just colorful but criminal allegations against named companies and by implication corporate officials and political allies.

Trump campaign counsel repeatedly accused Dominion and its officers of criminal conduct and business improprieties. Those are categories of “per se defamation” under the common law. No special damages must be shown in such per se cases. Individual officers could bring defamation claims and the company itself could bring a business disparagement action.

Businesses can be defamed like individuals if the false statement injures the business character of the corporation or its prestige and standing in the industry. In Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985) the Supreme Court allowed a business to sue a credit reporting agency for defamation where the agency mistakenly reported that the business had filed for bankruptcy.

Restatement Second § 561 Defamation of Corporations states:

“One who publishes defamatory matter concerning a corporation is subject to liability to it

(a)  if the corporation is one for profit, and the matter tends to prejudice it in the conduct of its business or to deter others from dealing with it, or

(b)  if, although not for profit, it depends upon financial support from the public, and the matter tends to interfere with its activities by prejudicing it in public estimation.”

Dominion appears to be a company with a Colorado headquarters.

There could be lawsuits in Colorado or the place of the alleged defamation. The lawsuit would likely be filed under state law but moved to federal court under diversity jurisdiction arguments.

The press conference was an explosion of potentially defamatory claims by individuals or companies.  The only clear defense is truth.  The team insists that it can prove these allegations.  It may have to do so. Not only can the individual lawyers face such lawsuits but the Trump campaign itself could be liable under the principle of respondeat superior, where an employer is liable for the conduct of his employees when they are acting within the scope of their employment. Ironically, the Latin term means “let the master speak.” The President or his campaign could be forced to speak in a defamation case if they have not spoken in the promised court filings.

There is a question of privilege for legal claims.  There is an absolute privilege for lawyers in making statements in court. That is important because we often voice allegations that impute the veracity or character of parties, particularly in criminal cases. However, that privilege is more limited outside of court. It can still apply but some courts have refused to protect statements made to the press or the public. World Wresting Fed Entertainment, Inc v Bozell, 142 F Supp 2d 514, 534 (SDNY 2001); Kennedy v Cannon, 229 Md 92, 97, 182 A2d 54, 58 (1962).

In other words, if the Trump team does not put forward this evidence in its case challenging the election, it could now be forced to produce it in a case brought by Dominion or its officers.

The US reported more than 180k new cases on Thursday for the first time ever, marking a new record just ahead of a holiday week as the CDC urges the 50 million Americans planning to travel for the Thanksgiving holiday to just stay home.

According to the COVID tracking project, the US recorded more than 1 million new COVID-19 cases over the past week, leaving the US on track to post the biggest weekly jump in new cases yet…just one week before Thanksgiving.

As COVID mortality surges, deaths per million people in the US are the highest in South Dakota and North Dakota. Of course, their overall numbers remain relatively small compared to other states.

While all 50 states are seeing their outbreaks continue to grow, the midwest is reporting the most new cases daily.

Over the past couple of weeks, hospitalizations in the US have nearly doubled, helping to push the mortality rate higher.

In terms of vaccine news, Pfizer is applying for an emergency use authorizations from the FDA as was widely expected, while one of China’s top vaccine makers just claimed that a million Chinese have already been vaccinated.

Here’s some more COVID-19 news from overnight and Friday morning:

England’s Covid infection rate continued to rise, with one in 80 people having the disease in the week to November 14, according to Office for National Statistics figures published Friday. However, the pace has leveled off in recent weeks. There were an estimated 38,900 new cases per day in the latest week, down from almost 48,000 in the previous seven days (Source: Bloomberg).

Hungarian Prime Minister Viktor Orban indicated that his government may sidestep the European Union’s drugs regulator to accelerate the authorization of Russia’s coronavirus vaccine (Source: Bloomberg).

California Governor Newsom issued a 22:00-05:00 curfew and stay at home order for purple tier counties which will last for 4 weeks and affect over 90% of the state’s population from Saturday (Source: Newswires).

WHO warned last night that it woundn’t recommend Gilead’s remdesivir for the treatment of COVID-19, in a major blow to what was once touted as a revolutionary therapeutic (Source: Newswires).

UK will set up dozens of mass vaccination centers once a vaccine is approved to immunize people against the virus. (Source: the Telegraph).

As we reported yesterday, and as Rabobank senior strategist Philip Marey writes this morning in a note titled Mnuchin shoots the Fed in the back, “Treasury Secretary Mnuchin upset the markets yesterday when he announced that a number of the Fed’s special lending facilities should be terminated by the end of the year.”

In a letter to Fed Chairman Powell, Mnuchin said that the programs have clearly achieved their objectives. Credit markets have been rehabilitated and banks have the lending capacity to meet the borrowing needs of their corporate, municipal and non-profit clients. However, the Fed does not agree with Mnuchin’s decision and said in a statement that the Fed would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.

Earlier this week, Powell said that the time to discontinue the lending facilities was not soon, highlighting that typically the Fed keeps its backstops in place for some time after a crisis hits. Yesterday, Atlanta Fed president Bostic said that given where the economy is – and there’s so much uncertainty still out there – it’s prudent to keep those things open so that when people, if they do have stress, they can draw upon it.

All this comes at a time that the economic data show a loss of momentum, with initial jobless claims moved in the wrong direction yesterday, rising to 742K in the second week of November from 711K in the first week. At the same time, existing home sales slowed down to 4.3% month-on-month in October, from 9.9% in September and the Philly Fed fell to 26.3 in November from 32.3 in October. This adds to the series of US data that show a loss of momentum in the economic recovery. The combination of rising Covid-19 infections and lack of additional fiscal stimulus after the CARES Act may now be finding its way into the economic data.

While Rabobank writes that this should underline the urgency of a new fiscal stimulus package, “unfortunately, Congress goes on vacation next week. Probably tired from doing nothing the past six months, at least when measured in terms of providing additional fiscal stimulus. On top of that, the Treasury Secretary wants his money back from the Fed.”

In this context of slowing growth, Mnuchin requested the expiration of the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Municipal Lending Facility, the Main Street Lending Program, and the Term Asset-Backed Securities Loan Facility by December 31. At the same time, he wants the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, and the Paycheck Protection Program Liquidity Facility be kept in place for an additional 90 days.

Meanwhile, it is worth noting that Republicans had earlier indicated they were worried that the Municipal Lending Facility and the Main Street Lending Program could be used by the Democrats to bypass Congress if Republicans were to block additional federal government support to local governments and small and mid-sized businesses. So, as Rabobank concludes, “Mnuchin’s action is clearly related to politics.”

Well… yes, of course it is. And it is safe to say that the political backstabbing moves are only just starting.

What is a biggest question is how will the market react: as Bloomberg’s Emily Barrett writes, “this action knocks out a safety net at a time when lawmakers have no clear plan. And no one needs reminding that the U.S. is heading into a tough winter, with infection rates setting daily records, renewed restrictions on activity, school shutdowns and more businesses closing.”

Moreover, she adds, terminating the programs on Dec. 31 means they may be tougher to restart under the new Biden Administration 20 days later. New funds will need Congressional authorization, though JPMorgan’s Mike Feroli said the incoming Treasury Secretary could agree to restart the facilities with pre-CARES Act cash available in the department’s Exchange Stabilization Fund, which he puts at just over $70 billion.

So for now the upshot is more delays and uncertainty over crucial support for the economy… and more to come if the last Senate races in Georgia next month deliver another bitterly divided Congress.

Yet while futures tumbled as much as 1% and 10Ys dropped to 0.81%, all the moves have been unwound. How come? Well, the most likely explanation is that traders are already frontrunning the massive monetary stimulus that the Fed will have to unleash next. There is just one problem: stocks have to plunge first as otherwise the Fed’s hands are tied.

Which, paradoxically, means that by frontrunning the Fed’s response, traders are effectively making it impossible.

The mantra “get woke, go broke” is one both the NBA and the NFL are becoming intimately familiar with.

After documenting historically poor ratings for the NBA Finals on the heels of the league turning political, the NFL has started to follow suit. We noted a couple months ago that the NFL season got off to a poor start in terms of ratings.

Now, ten weeks into the season, it looks as though the bleeding isn’t close to stopping for two of the NFL’s primetime spots: Sunday Night Football and Monday Night Football. 

Last week’s Sunday Night Football Patriots vs. Ravens game – featuring two of the best quarterbacks in the league and arguably the best coach in NFL history – saw its ratings collapse 31% over last year’s Week 10 game.

In fact, last week’s game became “the season’s least-watched Sunday game,” according to Breitbart. 

Sports Media Watch reported: “Ratings have dropped for all 11 NFL games on NBC this season, with viewership down for all-but-one.”

Monday Night Football also saw a similar tick down in ratings. It averaged 11.45 million viewers this past week, which was a 28% decline from the Monday night game last season. 

The league saw some respite when, on Sunday, Fox drew in 18.24 million viewers for its Buccaneers vs. Panthers game. The game because the most-watched game since 2016, when a game posted 18.4 million viewers on Fox on Christmas Eve. 

The ensuring Seahawks vs. Rams and Bengals vs. Steelers games, also on Fox, saw viewership drop 20% and 13%, respectively. 

While Bitcoin has been making all the headlines recently, surging above $18,000, it is Ethereum that is suddenly bid overnight, breaking above $500…

Source: Bloomberg

…and reversing some recent underperformance vs Bitcoin.

Source: Bloomberg

The last time the cryptocurrency was above $500 was July 2018.

Source: Bloomberg

As Decrypt.co’s Scott Chipolina notes, Ethereum has been the talk of the town in recent months as the crypto community anticipates the release of Ethereum 2.0, a massive upgrade to the Ethereum network that aims to solve long standing scalability issues plaguing the Ethereum network. But while we wait for this upgrade, Ethereum’s price has kept rising.

“Ethereum has the network, it has the attention and now we are starting to see the true price discovery start,” Charles Storry, co-founder of PhutureDAO, told Decrypt.

This recent price increase adds to solid growth over the last month, with Ethereum’s price having risen from $375 on October 20, 2020. What’s more, Ethereum began the year at just $130. That means this represents a 33% increase in the last month, and a 284% gain on the year so far.

But it hasn’t always been smooth sailing for Ethereum. On January 13, 2018, Ethereum hit its all-time high of $1,344. What followed was a major drop in price which saw Bitcoin’s chief cryptocurrency rival fell to $370 in less than three months.

But with a 33% gain in just the last month, it’s clear that Ethereum is enjoying a considerable good run of its own. Anticipation over Ethereum 2.0 is certainly playing a role, but there are many other possible reasons for this recent price increase.

“Without looking at the transaction data, price action could be driven by many reasons. Rotation from Bitcoin into Ether from Bitcoin holders, bullishness around crypto in general, or perhaps conversion of some of the funds previously stuck in dollar/ETH pairs in Uniswap back into ETH,” Kirill Kutakov, co-founder of Stakewise, told Decrypt.

But it still has a long way to go if it wants to break a new all-time high.