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For those following retail order flow as an indicator of how to trade, well… you just got stopped out.

Last Friday we observed that in the week ending Sept 16, which saw $26.3BN of new capital deployed into equities, the largest inflow since March 18…

… investors flooded into tech names with the weekly inflow into tech funds the 9th largest on record.

While this may have been sparked by hopes of a BTFD rally following the early September swoon in tech names, we mused that investors are flooding into the very names which according to Wall Street professionals were the “most crowded trade” of all time…

… with fund managers telling BofA in its latest Fund Manager Survey that the “tech bubble” is now the second biggest tail risk for the market after a “second wave” of COVID-19.

Well, maybe someone read our bemused commentary on the persistently schizophrenic state of the market, or more likely, investors were disappointed by the lack of upward momentum in stocks coupled with the whiplash-inducing surge in volatility, because just one week later, EPFR reported that after last week’s near record inflows, US equity funds and ETFs reported $26.87 BN of outflows, the largest weekly outflow since December 2018 and the third largest outflow ever, more than reversing a $22.67bn inflow one week earlier.

This was the biggest weekly swing in fund flows in history, and shows just how extreme market sentiment has become, and how it can seemingly swing overnight from  euphoria to despair.

Not surprisingly, tech funds which saw the 9th biggest inflow ever last week were rocked by the biggest redemption since Jun’19, as passive investors – who have been the backbone of the Nasdaq’s rally this year –  seem to have lost their nerve according to Reuters, which added that in the week ending Sept. 23, tech-focused ETFs suffered $1.23 billion worth of outflows, the largest since December 2018, when global stock markets tanked, according to Lipper data. September was also the first month of outflows for the tech sector since the March crash.

The figures are significant because ETFs such as the QQQ Nasdaq tracker have taken some $20 billion between January and July, however in recent days we have seen some rather massive swings in QQQ flows: for instance, the QQQ fund posted record $3.5 billion outflows on Monday amid a Nasdaq slump, then got $4 billion the following day as sentiment recovered.

“We think the latest pullback in U.S. equities, from frothy levels, is a chance for investors to diversify their allocation to those parts of the equity market so far left behind, which could benefit Europe,” said Maneesh Deshpande, a U.S. equity strategist at Barclays.

According to Saxo Bank’s Peter Garnry, QQQ volatility pointed to “widespread speculation in U.S. technology stocks and that this is increasingly becoming the leading index for sentiment.”

Other ETF service providers also showed outflows. On a three-month rolling basis, the most active ETFs tracking the U.S. technology and growth sectors saw $1.7 billion of outflows, the first negative reading this year, according to Wisdom Tree.

To be sure the reversal is long overdue: for much of the past 6 months, money has poured in to chase the outperformance of technology shares. Total net assets for a group of technology focused ETFS nearly doubled to $113 billion at the end of August from $64 billion a year ago, according to Morningstar data.

The whiplash has been painful: the giga techs are down more than 13% from a September peak and account for nearly half of the S&P 500 decline over that period. Even with that correction, valuations remain in nosebleed territory, near 22 times forward earnings for the S&P 500 index, the highest since the dotcom bubble in early 2000. Multiples of some tech stocks are as high as 100 times forward earnings.

For many, however, this is just another opportunity to buy the dip: Sumant Wahi, a portfolio manager at Fidelity International, said this is just a temporary correction: “I think the market is digesting some of the large flows we have seen in recent weeks and this is a temporary correction. “Big tech is here to stay.”

Sumant is probably correct: with central bank liquidity injections tapering, Congress gridlocked over fiscal stimulus and stocks sliding, it is only a matter of time before the Fed is forced to launch another market bailout.

It appears that former Texas Congressman and longtime Libertarian icon Dr. Ron Paul just had a stroke – or some other type of serious medical issue – during a live stream of his “Liberty Report” web series, which garners hundreds of thousands of viewers with every episode.

A flood of tweets wishing Paul well followed the emergence of the footage above on social media.

Please pray for Ron Paul. It appears a medical issue may have just happened during his show.

— We Are Libertarians (@werlibertarians) September 25, 2020

Pray for Dr. Ron Paul. Looks like he had a stroke or some sort of medical episode live on stream.

— Anthony Brian Logan (ABL) 🇺🇸 (@ANTHONYBLOGAN) September 25, 2020

Thoughts and prayers today with the greatest champion of Liberty in a generation, @RonPaul, and his family.

— Eric Brakey (@SenatorBrakey) September 25, 2020

Ron Paul is a living legend.

He just had some type of medical situation live on air – seems like a stroke?

Pray 🙏

— Daniel Bostic (@debostic) September 25, 2020

Prayers up for Ron Paul 🙏

— Quoth the Raven (@QTRResearch) September 25, 2020

That Ron Paul video is hard to watch. I hope he’s okay.

— Ivan the K™ (@IvanTheK) September 25, 2020

Say a prayer for Ron Paul. He’s truly one of the best humans in politics.

— Cassandra Fairbanks (@CassandraRules) September 25, 2020

It appears Ron Paul may have just suffered a stroke. Pray for him and his family.

— Daily Caller (@DailyCaller) September 25, 2020

We have yet to receive any kind of confirmation about the Congressman’s status from the Paul camp. Notably, his son, Rand Paul, is currently serving as the junior Senator from Kentucky.

After the popularity of his 2008 presidential bid, Paul announced in July 2011 that he would forgo seeking another term in Congress to focus on his 2012 bid for the presidency. After performing strongly once again, Paul refused to endorse the Republican nominations of John McCain and Mitt Romney during their respective 2008 and 2012 campaigns, and on May 14, 2012, Paul announced that he would not be competing in any other presidential primaries but that he would still compete for delegates in states where the primary elections had already been held.

Paul’s fervid supporters helped him achieve the second highest tallies for delegates during both the 2008 and 2012 Republican National Conventions, behind only McCain and Romney respectively. In January 2013, Paul retired from Congress, though he continued to speak at colleges and work on his “Liberty Report” program.

Who could have seen this coming?

Having blown $100 million to lock in infamously-outspoken-and-uncensored podcaster Joe Rogan, Spotify is facing an internal revolt from the woke mob who have demanded broad-based editorial control, censorship, and even removal of the world’s most-popular podcasts… or else!!

Just  three weeks ago, we reported that dozens of Rogan’s past episodes with “controversial guests” like Alex Jones, David Seaman, Owen Benjamin, Stefan Molyneux, Milo Yiannopoulos, Gavin McInnes, Charles C. Johnson, and Sargon of Akkad did not make the migration over to Spotify, according to Entertainment Weekly.

And now, the ‘woke’ are demanding more…

Who TF is Joe Rogan and why does he have a platform? Is this just another white dude airing grievances to other white dudes?

Victimization does sell in this country.

— CincoTamayo (@CincoTamayo_) September 18, 2020

As DigitalMusicNews.com reports, Spotify employees were demanding direct editorial oversight over the recently-acquired Joe Rogan Experience podcast. 

That would include the ability to directly edit or remove sections of upcoming interviews, or block the uploading of episodes deemed problematic.

The employees also demanded the ability to add trigger warnings, corrections, and references to fact-checked articles on topics discussed by Rogan in the course of his multi-hour discussions.

If they are not granted these ‘ministry of truth’ oversights, the mostly-New-York-based staff have threatened to walkout or strike.

As DigitalMusicNews (DMN) notes, for Spotify, the decision to offer some concessions may have only emboldened demands for wide-scale editorial oversight.

It is worth remembering the words of Joe Rogan himself, who said of the deal in the past:

“They want me to just continue doing it the way I’m doing it right now. It’s just a licensing deal, so Spotify won’t have any creative control over the show. It will be the exact same show. We’re going to be working with the same crew doing the exact same show.”

While the c-suite may want that (and the eyeballs, or earholes?), it seems the outrage mob of employees does not.

Finally, one wonders why exactly Spotify should give a shit… doesn’t America have 20-30 million suddenly unemployed people who we are sure would appreciate the opportunity to work in a large and growing tech company and could manage to leave their political/social-justice-virtue-signaling egos at home.

As DMN notes, Spotify employees reportedly enjoy comfortable salaries in the $120-$130,000 annual range, with considerable perks and benefits.  These are plum jobs in extremely uncertain economic times, making a strike a risky move. It also appears that Spotify management – including CEO Daniel Ek – has a limited tolerance for the mutiny on deck (especially since Rogan’s entire identity revolves around unfiltered discussion and opinion, and audiences could abandon the podcast if it becomes censored or controlled).

Submitted by Adventures in Capitalism

Over the past few months, I’ve been writing a lot about Event-Driven strategies, mainly because I see an unusual amount of opportunity there. That said, Event-Driven remains a small piece of my book. The core of what I do is inflection investing—finding a theme that’s inflecting better and get there before anyone else realizes it.

With that preamble out of the way, today the government announced that seasonally adjusted new home sales for August hit 1.011 million. For those keeping score at home, this is the highest that this figure has been since 2006 and up 43% from last year.

Of course, that figure is backwards looking. Fortunately, two prominent home builders announced results this week giving us some added color on future trends. I’ll let them tell the story;

Beazer Homes (BZH – USA) today announced that, based on preliminary operating results, net new orders for the first two months of its fiscal fourth quarter were up 37% year-over-year with a 26% increase in July and a 48% increase in August. This performance was primarily related to a higher pace, as sales per community per month rose to 4.4 from 3.0 in the previous year.

Meanwhile at KB Home (KBH – USA)

“Housing market conditions strengthened during the third quarter, fueled by the combination of historically low mortgage interest rates, a limited supply of resale inventory and consumers’ desire to own a single-family home,” continued Mezger. “Reflecting this strength, our net orders expanded 27% year over year, with growth in each of our four regions. We achieved a monthly absorption pace that accelerated to 5.9 orders per community, an increase of 36%, while we also increased prices in most of our communities. We believe that our Built-to-Order model is a key factor driving our sales pace, with this quarter’s results underscoring the robust demand for the choice and personalization we offer to our homebuyers….”

Net orders for the quarter grew 27% to 4,214, the Company’s highest third-quarter level since 2005 (my bolding), with net order value increasing by $367.5 million, or 29%, to $1.64 billion. Both net orders and net order value increased in all of the Company’s four regions.

The Company’s net order growth accelerated during the quarter, with monthly net orders up 11% in June, 23% in July and 50% in August. The Company’s cancellation rate as a percentage of gross orders for the quarter improved to 17% from 20%.

Company-wide, net orders per community averaged 5.9 per month, compared to 4.3.

I hope you get the point; things in housing are good and getting better. When it comes to inflection investing, if you cannot answer the “why,” you’re just a slave to monthly data. With that in mind, what’s driving sales growth? I think it is the confluence of many trends, from generationally low interest rates and affordability pressures in cities, to a decade of below-trend housing construction caused by Millennials postponing family creation until now. However, you could have said the same thing a few years ago and not made money. The real catalyst is the sudden panic migration from cities.

Remember when cities were awesome back in January?? They were full of great food and bars—all your friends were around and there was always something interesting going on. Then COVID hit and the restaurants closed down and they won’t allow you into the bars. A 600-foot studio apartment is fine if you never spend any time there. If there’s nowhere else to go, a studio feels like a prison. Even worse, everyone is now doing some version of Work From Home (WFH), so those four walls are all you see each day. Suddenly, a home sounds attractive. However, in my mind the real catalyst isn’t COVID, it’s the riots.

I don’t know why Democrats think that burning their cities is going to bring about social justice, but lots of things suddenly make little sense to me. Rather than go into politics, it’s useful to remember that increased crime, arson and tear-gas don’t make things enjoyable in a city—especially when your rent is eating up most of your paycheck. As a result, there’s been a massive flight from cities by those who can afford to leave. As these macro and social trends converge, there’s been a huge increase in demand for single family and multi-family property in the suburbs and exurbs—particularly in more affordable parts of the country.

As many of us have learned, homebuilding is a mediocre business at best. Instead, I’m playing this trend through the suppliers to single-family and multi-family homebuilders. These suppliers have had dramatic consolidation during the decade-long bear market in housing and as a result have some pricing power in what should be a commodity industry.

Let’s look at Cornerstone Building Brands (CNR – USA). CNR is one of the largest US players in multiple verticals including; vinyl windows, doors, siding, trim, gutters, shutters, stone façade and plenty of others—essentially the components of a home. While they also have a commercial business that has been suffering a bit lately, warehouses and medical have been white hot.

Normally, I’d think of these component manufacturers as mediocre sorts of businesses, but when you run the numbers, over the past year, CNR has earned a low-20% adjusted return on tangible assets. Assuming that they can achieve the planned merger synergies (CNR is a roll-up of various businesses), the return would likely be in the mid-20% (indicative of an unusually good business). Now, if I’m right about the macro and both revenue and margins increase, why couldn’t they earn around 30% on tangible capital. Throw a few turns of debt on that and you’re earning pretty stunning returns on equity for many years into the future, as I tend to think this trend towards the suburbs has multi-year legs.

Of course, inflection investing is all about the price you pay in order to see the upside. In this case, the company had $215 million of free cash flow to equity over the past 12 months and that includes two weak quarters with COVID—not so bad when you consider that the market cap is around $900 million—though the valuation is much more stretched on an enterprise value basis.

When I look at inflections, I often gravitate towards the more financially and operationally leveraged players once it is clear that the inflection is happening. While you take on more risk if you get it wrong, you also take on a whole lot more upside. With that in mind, CNR has a lot of debt, some may even say it has too much debt—a legacy of multiple acquisitions. As a result, the risks are elevated here. Then again, a quick look at insider buying (they’ve bought millions worth of stock when a lot less was going right), ought to tell you that when they talk about de-leveraging, they’re probably serious about it.

I had planned to write about CNR and a few others earlier this summer—then they all ran like they stole something and I chose to hold off saying anything. With the recent pullback into the low-$7s, I’ve added to my already chunky exposure and figured I might as well flag it for those who care—especially as housing is my largest sector exposure.

Caveat Emptor

The last time we heard from Citadel was two weeks ago when, in the aftermath of the furious “gamma meltup” reversal, investors and regulators starting asking pointed questions about who was behind all this option frenzy. It was then that David Silber, the head of institutional equity derivatives at Citadel Securities decided to preemptively come to the defense of option-heavy market-makers, such as Citadel, and told Bloomberg to stop blaming options for the recent market drop.

Going a little further back to July, we reported that Citadel Securities – one of the world’s biggest market-makers – had just been find by industry regulator FINRA (the whopping sum of $700,000) for frontrunning of at least 559 client orders while masking “hundreds of thousands” of orders from its pre-trade control logic. This happened at a time when Citadel emerged as the biggest Robinhood client, paying hundreds of millions to route retail investor orderflow (something that we first reported in 2018 in “Robinhood Is Said To Get 40% Revenue From HFT Firms Like Citadel ) in both stocks and options, as the latest Robinhood 606 reveals:

Needless to say, whether with or without frontrunning orderflow, Citadel hit the jackpot because in the past few months, option trading – mostly by retail accounts – has exploded with traded volumes doubling over the past year and hitting a record 18.4 million in August according to the CBOE.

As a result of some combination of the facts above, coupled with Citadel Securities’ unprecedented domination of US equity markets, the Chicago based market-maker has made an absolute killing and as Bloomberg reports, Citadel’s trading operation, which is separate from Griffin’s hedge fund business, generated $3.84 billion of revenue in just six months, more than the $3.26 billion for all of 2019. Net income was $2.36 billion in the first six months of 2020, more than double the $982 million for the same period a year earlier.

The numbers were revealed, ironically enough, in a presentation to Citadel investors which is seeking a $300 million loan (it appears Citadel’s massive organic cash flow is not enough for whatever Citadel owner Ken Griffin has planned next).

To be sure, it’s not just “benefitting” from the historic retail option trading frenzy that led to this revenue bonanza: while most of its competitors were scrambling to figure out continuity plans in March when institutional trading on Wall Street was effectively frozen, Citadel Securities abandoned its Chicago and New York offices and set up shop at the Four Seasons Palm Beach, moving dozens of employees and their families as Bloomberg reported at the time, while others went to an emergency facility in Connecticut in moves designed to keep his market-making firm operating seamlessly as the rest of the financial world dealt with wild swings and extraordinary trading volumes from makeshift home offices.

The efforts clearly paid off, and Citadel Securities has now become a behemoth of unprecedented proportions, with Bloomberg reporting that it now handles more than a quarter of all U.S. equity volume in the first half of the year.

One wonders if there is a magic number of market dominance that will prompt the FTC and/or DOJ, which are busy pursuing Google and Facebook for antitrust, to take a look at Citadel Securities’ creeping monopolization of the entire US equity market.

If there is, it clearly has not been reached, and meanwhile Citadel Securities, led by CEO Peng Zhao, has continued to increase its market share, and in the U.S. options market, it climbed to 32% from 27%. In the three months through August, 28% of U.S. equity volume went through Citadel, up from 22% in 2019.

That’s right: one-in-four stock trade and one-in-three option trades taking place now effectively goes through the Citadel pipe. Meanwhile, in the retail market, Citadel dominates with an mindblowing 41% of the marketshare! And now you know why been paying so generously to dominate Robinhood’s orderflow.

As a result of this creeping monopolization, Citadel’s owner is about to get even richer. Ken Griffin owns 85% of the securities business and has a $15.3 billion fortune, according to estimates by the Bloomberg Billionaires Index.

Bottom line: having already purchased the trophy properties many of the world’s most desirable cities, Ken Griffin will soon be in the market for even more homes…

… showing the Robinhooders – with their get rich quick dreams and whose furious daytrading makes Griffen richer by the day – what to do if they too miraculous somehow strike it rich one day.

Authored by Pat Buchanan via Buchanan.org,

“As everyone knows, I made it clear that my first choice for the Supreme Court will make history as the first African American woman justice.”

So Joe Biden promised. Since the death of Justice Ruth Bader Ginsburg, however, Biden has refused to produce a list of Black female judges and scholars whom he would consider for the now-vacant seat.

What is his problem?

Donald Trump had no such reluctance. In 2016, he listed a slew of candidates from among whom he promised to pick his justices. True to his word, Trump elevated federal appellate court judges Neil Gorsuch and Brett Kavanaugh.

Since the Kavanaugh confirmation, Judge Amy Coney Barrett has been openly discussed as a potential Trump choice to succeed liberal icon Ginsburg. Why is Biden so reluctant to reveal some highly qualified Black female judges? His refusal suggests that the kind of high court judges that America wants is not the liberals’ issue. It is Trump’s issue.

The president will announce his choice Saturday, after the mourning period for Ginsburg is over. Mitch McConnell’s Senate is expected to confirm the new justice in late October.

With the court’s ideological balance at stake, the battle from now to Nov. 3 is thus for all the marbles: control of the House, the Senate, the presidency and the U.S. Supreme Court.

Rarely has there been an election in which the stakes were so high, the ideological gulf so great and the outcome in such doubt.

The polls show Biden ahead, but Democrats are visibly nervous. Of greatest concern — the possibility that, Tuesday night, Biden, in the first debate, with his verbal and mental lapses occurring frequently now, could kick it all away in front of millions of voters.

On the court issue, Democrats are exhibiting something akin to panic. They are warning that if a conservative jurist like Barrett is confirmed, Democrats may retaliate by “packing” the Supreme Court — increasing the number of justices from nine to 11 and installing two new liberals — if they win the presidency and Senate.

If a Scalia constitutionalist is nominated and confirmed this year, says Sen. Chuck Schumer, “nothing is off the table next year.”

Other Democrats are threatening to pack the Senate by granting statehood to D.C. and Puerto Rico. This would add four new Democratic Senators and formally convert the United States into a bilingual nation.

Nancy Pelosi has threatened a new impeachment of the president if he appoints a new justice to fill Ginsburg’s seat. Yet, this is what Article II of the Constitution directs Trump to do.

Activists are talking about “burning down” the system, and given what we have witnessed in Portland, Seattle, Minneapolis and Louisville, the BLM crowd and its media camp followers should be taken seriously.

Should Democrats win the Senate and White House, they will face one obstacle to imposing the Biden-Bernie-Socialist-AOC agenda on the nation. Only the filibuster, the ability of a Senate minority, through extended debate, to delay, and occasionally frustrate, the will of the majority, would stand in the way of their turning their radical agenda into law, as LBJ did with his massive majorities in 1965.

This is no idle threat. Even Barack Obama is calling for abolition of the filibuster, stripping a Republican Senate minority of its last weapon of resistance in the world’s greatest deliberative body.

Another danger facing the GOP is its demographic demise if it fails to control immigration.

Currently, white folks, who produce the vast majority of GOP votes, are 60% of the nation. The Black population is 12-13%, Hispanics 18%, Asian Americans 7%.

The GOP demographic crisis: The white population is steadily diminishing as a share of the electorate. Hispanics and Asians, who vote 2-1 Democratic in presidential elections, are the fastest-growing minorities and are being fed by the largest streams of migration.

A few years hence, the GOP will face the fate it failed to avert in California. Once the Golden State was Nixon and Reagan country, as those two Republicans carried California on all seven presidential tickets on which they ran from 1952 to 1984.

Moreover, former red states such as Florida, Georgia, North Carolina and Arizona are now swing states, and Texas is trending that way.

Democrats, too, have a white folks problem.

At the party’s apex are Speaker Pelosi and Majority Whip Steny Hoyer, both octogenarian white folks. Senate Minority leader Schumer and Minority Whip Dick Durbin are white septuagenarians.

Presidential nominee Joe Biden is a 77-year-old white man who would be older than our oldest president, Ronald Reagan, was the day he left office.

The last white man appointed to the Supreme Court by a Democratic president was Stephen Breyer back in 1994. At 82, he is now the oldest justice serving.

The days of white liberals dominating the rising party of America’s people of color may be over this decade.

As the seemingly never-ending squabbling over TikTok’s deal with Oracle and Walmart drags on, the Trump administration’s battle with tech giant Huawei Technologies has seemingly taken a backseat over the last couple of weeks to this newest distraction.

But in a shocking new developing, a Huawei research lab in Dongguan caught fire on Friday, according to Reuters and local Chinese press. 

The Chinese state-controlled Global Times confirmed reports of the fire but assured the public that nobody was injured.

“The lab in the city’s Songshan Lake area is a steel structure and the main material burning is sound-absorbing cotton,” Dongguan city fire-rescue department said in a statement.

The lab is allegedly the site for where the tech giant conducts testing for 4G and 5G antennas related to Huawei’s base station business, sources told Reuters.

The Global Times noted the building was under construction at the time of the blaze. Videos from social media show thick black smoke pouring from the research lab. 

NBC’s Janis Mackey Frayer tweeted a picture of the blaze. 

“There are images on Chinese social media of a big fire at Huawei’s Dongguan campus near Shenzhen. More to come…,” Frayer tweeted.

And the video has also surfaced online. 

I’m looking forward to seeing if you can explain the Huawei lab fire. pic.twitter.com/aVJI6dJcjF

— AviMora (@198532A) September 25, 2020

The fire comes at a critical time for Huawei, as it has continued to supply components for 5G infrastructure to many European nations, much to the Trump Administration’s chagrin. 

As for the cause of the fire, right now it’s unclear. But we’re certainly curious to learn more.