Category: zerohedge

Lowell “Casey” Cagle, Georgia’s Lt. Governor, took to Twitter this morning to express his dis-satisfaction with Delta Airlines’ decision to cut ties with the NRA after the massacre at a Florida high school last week.

Cagle begain by warning that “I will kill any tax legislation that benefits @Delta unless the company changes its position and fully reinstates its relationship with @NRA.”

Then added that “Corporations cannot attack conservatives and expect us not to fight back.”

I will kill any tax legislation that benefits @Delta unless the company changes its position and fully reinstates its relationship with @NRA. Corporations cannot attack conservatives and expect us not to fight back.

— Casey Cagle (@CaseyCagle) February 26, 2018

It did not take long for an avalanche of trolls (who must be Russian bots looking to stir social divides in America) to attack his tweet.

Cagle just happened to pick a day when the stock is soaring on the heels of Warren Buffett’s comments about the airline sector…

via Zero Hedge http://ift.tt/2ozYjvt Tyler Durden

Last week, when looking at the latest weekly HSBC hedge fund performance report, we commented that while February was barely half-way done, it is already shaping up as the worst month in history for most quant, CTA and managed futures funds since the great quant blow up of August 2007. And not only: a quick look at the best and worst performers so far in 2018 shows a distinct skew to the downside, with the worst performing hedge fund down 25% in 2018 compared to the 14.5% return for the best.

However, by far the worst hit were the various quant, stat-arb, momentum and trend following funds: here the bloodbath was almost unprecedented as the following snapshot of quant/systematic/managed futures funds demonstrates:

Using an updated set of HSBC P&L data, the FT reports that Man AHL’s $1.1bn Diversified fund lost almost 10% in the month to February 16, “while the London investment firm’s AHL Evolution and Alpha funds were down about 4-5% over the same period. The flagship funds of GAM’s Cantab Capital, Systematica and Winton lost 9.5%, 7.2% and 5.3% respectively between the start of the month and February 16.”

Other quants who got crushed include Aspect Capital’s Diversified Fund, down 9.5% MTD, while Lynx Asset Management’s trend-following fund slumped 12.7%. A leveraged version of the same fund tumbled 18.8%, the FT adds. As we showed last week, one of the biggest victims was Roy Niederhoffer, whose fund lost 21.1% in the month to February 20, and is one of the 20 worst performing hedge funds YTD.

Commenting on the move, JPM’s Nikolaos Panigirtzoglou said that the low beta that CTAs exhibited to the market recovery of the past two weeks confirms our previous assessment that 1) CTA de-risking had been at the core of the recent market correction and 2) intense CTA de-risking is behind us.

Which may be good news for the market, but it is bad for the trend and momentum-chasing community.

Indeed, as more performance figures emerge, we can conclude that the quantquake of February was especially destructive for the trend-following community, and specifically the Commodity Trading Advisers (CTA) or managed futures funds, which chase market momentum and which according to the SocGen CTA index, dropped 5.5% in February, their worst month in nearly 17 years, going all the way back to November 2001.

According to JPMorgan, however, for overall CTAs including those outside the Pure-Trend Following category, the loss of 8% in the week ending Feb 8th, “was the worst weekly loss ever recorded since data began in 2000.“

As the FT adds, the February reversal was so steep that “most quantitative trend-following hedge funds are now in negative territory for the year, with the SocGen CTA index down just over 2 per cent since the start of 2018. February 5 alone was the worst day for CTAs since 2003.”

Not unexpectedly, despite the carnage, many remain optimistic: the FT cites Marlin Naidoo, global head of capital introductions at Deutsche Bank, who said it was not likely to scare investors away from CTAs.

“We don’t think investors who truly understand the strategy are nervous. They may hold off a little before allocating more to the space this year but I’d be surprised if sophisticated investors meaningfully reduce their CTA exposure as a result of February performance,” he said.

Mr Naidoo added that in a recent survey conducted by Deutsche Bank, 10 per cent of investors said they planned to add to their investment in CTAs this year.

JPM’s Panigirtzoglou disagrees.

In his latest Flows and Liquidity piece, the JPM strategist writes that “the abrupt de-risking and severe underperformance is raising questions about the future of the CTA universe as it compounds a previous two-year trend of already significant underperformance.”

Here he notes that while CTAs have lost -3.7% since January 2016 vs. a positive return of 19.5% for the overall hedge fund universe, what is more troublesome is that the most recent underperformance during February is more problematic for the CTA universe because it casts doubt on the idea that Quant funds such as CTAs exhibit higher convexity and lower beta during market corrections.

So why is the JPM quant suddenly predicting the February volocaust was an “extinction level event” for the CTA sector? In his own words:

In our mind, February’s correction shows that CTAs can become victims of even modest profit taking when momentum signals become too strong and momentum positions become too crowded.

And…

Recent CTA underperformance creates the risk of institutional investors withdrawing their investments, causing shrinkage of the CTA universe going forward.

Not only that, but a wave of redemptions in the CTA community – as investors realize they have none of the upside and all of the downside – may be sufficient to prompt the next leg of the systematic deleveraging/unwind.

Finally, for those saying the market is now in the clear and the great quant/inverse VIX unwind has run its course, recall that the August 2007 quantquake took place two months before the market hit its all time high in October 2007…

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The Nasdaq Composite just topped 7,411… erasing all losses for the month of February…

Nasdaq is the big winner in the rebound – up almost 12% off the lows…

 

As FANG stocks soar to new record highs…

As if it never happened.

via Zero Hedge http://ift.tt/2oydh5l Tyler Durden

Authored by John Rubino via DollarCollapse.com,

Analysts disagree about which indicator is best for calling market tops, but the easiest to understand – and the most tragic – is probably margin debt.

This is money borrowed by (usually individual or “retail”) investors against their existing stocks to buy more stocks. Investors tend to do this when markets are rising and using leverage seems like an effortless way turbocharge their gains. But eventually the market turns down, leaving stock portfolios insufficient to cover related margin debt and generating “margin calls” in which brokers demand more money and/or start liquidating customer portfolios.

This sends the market down sharply and indiscriminately, as fairly-valued babies are dumped along with overvalued bathwater. The result: a quick, brutal bear market.

Margin debt hit record highs several years ago and has just kept on going. From yesterday’s Wall Street Journal:

Investors’ Zeal to Buy Stocks With Debt Leaves Markets Vulnerable

Investors borrowing record sums to bet on stocks exacerbated this month’s selloff, after they were hit with calls to reduce those obligations and forced to sell shares to raise cash.

If that debt, known as margin loans, continues to rise at the current pace, analysts warn that big selloffs and sudden bouts of volatility in the stock market could become more commonplace.

Retail and institutional investors have borrowed a record $642.8 billion against their portfolios, according to the Financial Industry Regulatory Authority, as they try to pocket bigger gains by ramping up their exposure to stocks.

So-called net margin debt was worth 1.31% of the total value of the New York Stock Exchange last year, according to Goldman Sachs data stretching back to 1980, eclipsing the previous peak of 1.27% reached in the buildup to the tech bubble in 2000.

Lending against securities is a key profit center for brokerages, as firms charge interest on the money that is used and say they have found they better retain clients who take on the debt. These loans can also factor into brokers’ compensation, incentivizing many to extend money to clients regardless of whether they need it or not.

Margin debt has been on the rise for years and is generally considered a gauge of investor confidence. The long-running stock rally has helped push debt levels higher since investors tend to be more willing to take loans against investments that are rising in value. However, it can also precipitate a steep market downturn as it did before the burst of the dot-com bubble and the financial crisis of 2008.

The growing loan balances have caught the attention of Wall Street’s watchdog. Finra in January published an investor alert after the total value of margin loans broke $600 billion for the first time, saying investors may be underestimating the risks of trading on margin and may not understand how margin calls work.

Many of the hardest-hit investors were those who had used exchange-traded products to wager that low volatility would persist and stock prices would remain stable.

Harvey Hajiyan, a 35-year-old financial adviser who lives in Toronto and has been investing for more than a decade, assumed stocks would continue to grind higher this year, similar to the gains the Dow and the S&P 500 had posted for much of the past two years without a pullback.

“All of the strategists agreed the market would go up,” said Mr. Hajiyan.

At the end of January, he placed an ill-timed bet and used only margin to fund a large position in the ProShares Short VIX Short-Term Futures exchange-traded fund (SVXY), which rises as long as stock prices remain stable. When the S&P 500 fell into correction territory to erase one of its best starts in years, Mr. Hajiyan’s investment in the ProShares fund tracking expected market swings was nearly wiped out, forcing him to liquidate hundreds of thousands of dollars of securities to answer the margin call.

“I was in denial,” said Mr. Hajiyan after he realized he lost about 600,000 Canadian dollars (US$472,260) worth of his C$1.1 million investment portfolio.

Despite losing a sizable portion of his wealth, Mr. Hajiyan says the experience hasn’t soured him on using margin debt. “If I wasn’t using margin, I wouldn’t be at this level,” Mr. Hajiyan said of his profits before the pullback. “As my money grows, I’ll limit the amount of margin I use.”

Why This Matters

“So-called net margin debt was worth 1.31% of the total value of the New York Stock Exchange last year, according to Goldman Sachs data stretching back to 1980, eclipsing the previous peak of 1.27% reached in the buildup to the tech bubble in 2000.”

When an indicator exceeds its dot-com bubble extreme, it’s in mania territory. The reason equities seem relatively sedate this time around is that they’re just part of a much broader bubble. Bonds around the world are an historic bubble – one that may be starting to burst as interest rates rise. Real estate prices in trophy cities have exceeded their 2007 extremes. Debt levels in the developed world (and China) have blown through their previous cyclical peaks. And of course cryptocurrencies are generating dot-com level excitement and fear of missing out. This “everything bubble” is completely unprecedented.

“The growing loan balances have caught the attention of Wall Street’s watchdog. Finra in January published an investor alert after the total value of margin loans broke $600 billion for the first time, saying investors may be underestimating the risks of trading on margin and may not understand how margin calls work.”

The “may not understand” part is, as usual at market peaks, an understatement. Towards the end of a long cycle like the current one, a whole new generation of investors emerges who, never having experienced falling prices, eagerly embrace tools that magnify their genius. This is a rite of passage that all investors have to go through on their way to cautious middle age, but with each new debt binge the stakes get higher. Now we’re talking total wipeout rather than painful but survivable life lesson, and systemic collapse rather than one or two bad years.

“I was so bullish that I went all in,” said Mr. Diaz. Confident that markets would recover, he deposited $2,500 into his account to satisfy a margin call on Feb. 8. “The next day, the market ripped higher and I breathed a sigh of relief,” he said.

Finally, as we detailed earlier, speaking on CNBC, and echoing one of the main points from the annual Berkshire letter, Warren Buffett said that “it’s crazy to borrow money to buy stocks.”

via Zero Hedge http://ift.tt/2F92bhl Tyler Durden

The Broward County Deputy who has been roundly criticized since Sheriff Scott Israel confirmed last week that he didn’t confront Florida school shooter Nikolas Cruz has released his first public statement – and its contents are hardly surprising.

The deputy insisted he isn’t a coward and that he didn’t initially believe that gunfire was happening inside the building, according to local media reports.

Broward Sheriff’s Deputy Scot Peterson, in a statement released through his lawyer Monday, said his actions during the Valentine’s Day massacre “were appropriate under the circumstances.”

Peterson “heard gunshots but believed those gunshots were originating from outside of the buildings on the school campus,” according to the release. “BSO trains its officers that in the event of outdoor gunfire one is to seek cover and assess the situation in order to communicate what one observes with other law enforcement.”

“Allegations that Mr. Peterson was a coward and that his performance, under the circumstances, failed to meet the standards of police officers are patently untrue,” according to the statement sent from the office of Fort Lauderdale attorney Joseph DiRuzzo.

The statement comes four days after Israel singled out Deputy Scot Peterson for failing to engage Cruz. The deputy, Israel said, waited outside for four full minutes while Cruz massacred students inside.

“I am devastated. Sick to my stomach. He never went in,” Israel said at the time. Hours before the press conference, Peterson was suspended without pay, effectively forcing him to retire. promptly retired. Peterson, a 32-year veteran, was named school resource officer of the year in Parkland four years ago.

Deputy Scot Peterson, shown speaking in 2015…

In the statement, Peterson claimed he took up a position outside Building 12 after rushing over to respond to a report of firecrackers. He said that he was the first BSO deputy to dispatch on the radio that shots were being fired. He also claimed that he told a first-arriving Coral Springs officer that he “thought that the shots were coming from outside.

“Radio transmissions indicated that there were a gunshot victim in the area of the football field, which served to confirm Mr. Peterson’s belief that the shooter, or shooters, were outside,” according to the lawyer.

Peterson added that he had “the presence of mind” to have school officials locate the shooter using closed-circuit TV cameras.

“Sheriff Israel’s statement is, at best, a gross oversimplification of the events that transported,” the statement said.

The lawyer also criticized Israel for prematurely singling out Peterson, adding that the public should wait to see the results of the investigation.

President Trump insinuated on Friday that Peterson is a “coward”. Trump added earlier today that he would’ve rushed in to confront the shooter even if he wasn’t armed.

via Zero Hedge http://ift.tt/2CKgxPO Tyler Durden

In what has been slammed as a bizarre act of propaganda, Turkey’s president Recep Tayyip Erdogan sparked online outrage when during a public address urging the nation to prepare for mobilization, he invited a small girl in military uniform onstage and promised the sobbing child she would receive state honors if she is killed.

While addressing a provincial congress of the ruling AKP party, the Turkish leader used the occasion to whip up public support for the ongoing military operation targeting Kurdish militias in Syria, and remind those who have completed their service but still had “active mobilization orders” to be ready to be recruited again if the situation requires.

As he was speaking, a young girl who was present at the congress and was dressed in military uniform complete with a maroon beret worn by the Turkish Special Operations Forces, caught Erdogan’s attention, according to TV footage of the speech. He invited the young child to come to the stage next to him ,BBC reported. She did so reluctantly, at which point she burst out sobbing.

“Look what you see here! Girl, what are you doing here? We have our maroon berets here, but maroon berets never cry,” the Turkish president told the weeping child quoted by the Daily Mail. “She has a Turkish flag in her pocket too,” Erdogan then told the audience, embracing the clearly uncomfortable girl.

“If she is martyred, they will lay a flag on her, God willing,” he then added in a bizarre twist: “She is ready for everything, isn’t she?” He made the comment on live television, in front of cheering supporters who urged him to carry on with the military offensive against Kurdish fighters in Syria’s northern Afrin

The confused girl only answered: “Yes.” Erdogan then planted a kiss on the girl’s face and let her go.

The president’s comments were immediately condemned on twitter – one person likened them to child abuse while another sad the president was wrong to says ‘God willing’ to the death of a child. Other critics said this was the same sort of child abuse for propaganda purposes as carried out by Islamic State fighters.

The pro-Kurdish Peoples’ Democratic Party which opposes Ankara’s operation in the Afrin region, slammed Erdogan’s act: “The mindset that abuses children by promising them death will lose. We will win the struggle for the children’s free and happy life!” the party said in a Twitter post.

Çocuk istismarı yaparak onlara ölüm vaat eden anlayış kaybedecek. Çocukların özgür ve mutlu yaşaması için mücadele eden bizler kazanacağız! pic.twitter.com/CgovWF7p0d

— HDP (@HDPgenelmerkezi) February 24, 2018

Erdogan’s latest comments have however hardly dampened the enthusiasm of his supporters for his Syria offensive, nor do they appear particularly concerned that Erdogan’s own sons have evaded military service while he routinely emphasizes the importance of martydom as a means of securing Turkey’s future.   

In January, Turkey launched a major military operation to oust YPG Kurdish forces from their enclave of the northwestern town of Afrin. Erdogan earlier this month said troops would also move east to Manbij – where unlike Afrin there is a US military presence. Commentators say such a move would mark a major escalation in the conflict.

via Zero Hedge http://ift.tt/2GMgNAi Tyler Durden

Authored by Nicholas Colas via DataTrekResearch.com,

Every few months for the last +5 years I have watched Daniel Kahneman’s TED Talk titled “The Riddle of Experience Versus Memory.” Kahneman, you may recall, won the 2002 Nobel Prize in Economics despite having no degrees in the subject. That freedom from traditional dogma gave him and partner Amos Tversky an open field to develop Prospect Theory – the notion that humans make decisions based on potential losses and gains rather than rational expectations of final outcomes.

A quick example. Would you rather:

• Receive $100, no strings attached…

• Or flip a coin where heads means you get $0 but tails nets you $250

The expected value of the game is $125, and therefore greater than the $100 sure thing; classical economics says everyone should always take the coin toss. But in real life, many people choose the sure $100 because they anticipate the sense of regret they will feel if they lose the coin toss (“I just walked away from free money…”). Prospect Theory explained in a rigorous way – and for the first time – why humans don’t maximize utility at every turn.

Kahneman’s TED talk is about a seemingly easy topic in comparison to Nobel Prize winning work: “Happiness”. What makes us happy? What should we do to be happier?

As with Prospect Theory, Kahneman’s perspective is that human mental processing makes these questions more complex than we realize. His work concludes that we have two “selves” and the dichotomy between them is large:

• The experiencing self. Right now your experiencing self is reading this note. After you are done, that same “in the moment” self will likely open another email and read that. Then it might talk to a friend or colleague or watch TV.

• The remembering self. This part of your personality sits in the background of your daily existence, creating and refining stories that help you make sense of your life. Unlike your experiencing self, it deeply anchors your perceptions on change, emotion, and (most importantly) on how a given story ends.

In the narrow confines of the “What makes us happy?” question, these two selves are very different.

• Your experiencing self wants to be out with family and friends having a good time, however you choose to define that. If a survey taker happened to ask you “Are you happy in this moment?” you would reply with a hearty “Yes.” It would be true; the research shows such environments create “Peak happiness” for the experiencing self.

• Your remembering self is very different. The analog survey question here is “Are you happy with your life?” That requires you to assess different questions, like “Am I achieving my life goals?” and “am I financially secure?”

• Kahneman’s work shows just a 50% correlation between respondents who say they are happy “In the moment” and those who are happy “with their lives”. The two concepts are both important but are clearly not the same. We make a grave error when we try to conflate them.

As investors, we all try to use our “remembering selves” and limit the impact of the “experiencing self”. The latter would sell everything after a few rough days. The former is supposed to be the rational, goal driven self that keeps us to our strategy and vision.

That would work well if the “remembering self” were a robust and consistent partner, but it isn’t. Here are three major problems with it:

#1. It is highly selective, and arbitrarily so. I remember exactly where I was during the March 2009 lows, and the Monday morning of the August 2015 flash crash. By contrast, I literally do not remember any individual trading day last year. Why? No volatility means no standout memories. And therefore nothing upon which the remembering self to build a story. I know the S&P 500 was +20% on the year, but only because I have run the numbers.

#2. It is heavily dependent on how stories end. Like most investors and traders who have been in the game for a while, I have a “Do Not Trade” list. These are securities where I have tried to make money over the years and lost every time. Enough bad endings and the “remembering self” convinces you to alter your behavior. Go back to the Great Depression, and a whole swath of Americans swore they would never invest in the stock market again after being wiped out in 1929. Fast-forward to millennials today, and you see some of the same caution.

#3. It sways decision making towards “Anticipated memories”. At one point in the TED talk, Kahneman poses a question: when planning a vacation, would you take the same trip if I told you that once completed I would wipe all memory of it from your brain?” If the answer is “No”, then you are taking the wrong vacation. Your “remembering self” is trying to hijack your “experiencing self” in that case.

Take the recent market volatility as a case study in these points. Despite a different environment from 2008/2009, it was all too easy to anticipate a memory of another market decline like that one (Point #3). Last year’s low volatility environment made the early February swoon seem like a bolt out of a clear blue sky (Point #1). And there was certainly enough market commentary likening the action in volatility ETFs to past derivative-based market meltdowns that the “ending” seemed clear (Point #2).

In the end, we find the best two ways to short-circuit these mental challenges are:

• Don’t let the highly selective “remembering self” dismiss or delete important “market memories”. Jessica’s note below about historical market volatility is a good example of how to avoid that pitfall.

• Banish the notion that “It’s never different this time” from your thought process – it is too powerful a call to elicit “anticipated memories”. That’s not a free pass to ignore the lessons of history (see the prior point), of course. But recognize that the “remembering self” is essentially lazy and forgets large chunks of time. Unplug it as much as possible, and follow your process.

And, of course, don’t forget to let your “experiencing self” out as frequently as you can in your personal life.

via Zero Hedge http://ift.tt/2sXHD6K Tyler Durden

Martin Shkreli is going from Pharma Bro to Pharma Bro(ke).

After denying the Shkreli legal team’s long-shot motion to throw out one of Shkreli’s convictions on Friday, Brooklyn judge Kiyo Matsumoto, who presided over Shkreli’s summer trial that resulted in three convictions on securities and wire fraud, has released her recommendation for the financial restitution Shkreli must play to his purported victims.

Altogether, Shkreli – who was once worth $100 million but is now effectively broke – was found responsible for $10 million in restitution.

The news is bound to be a shock to his legal team, which argued that, since Shkreli’s “victims” ultimately made money on their investments in two hedge funds run by Shkreli, the former Pharma founder and CEO shouldn’t be forced to make restitution payments.

 

Judge in #MartinShkreli denies motion for acquittal and sets loss amount for sentencing purposes: “For the purposes of sentencing, the court will apply a loss amount of $2,998,000 on Count Three, $3,402,450 on Count Six, and $4,000,000 on Count Eight.” I.e. just north of $10M

— Dan Mangan (@_DanMangan) February 26, 2018

 

Whether Shkreli will end up paying the full recommended amount is unclear. Shkreli is due to be sentenced on March 9. He’s facing up to 20 years.

As Reuters explains, the ruling could mean more prison time for Shkreli. That’s because the dollar amount of financial loss plays a major role in federal sentencing guidelines. While Matsumoto must consider these guidelines, she is not bound to follow them.

 

* * *

Shkreli, who was sent to a Brooklyn federal prison to await sentencing after publishing what prosecutors successfully argued were a series of threatening social media posts, made his first public court appearance in months on Friday. Reporters noted Shkreli had grown a prison beard, and was also looking surprisingly buff.

As the New York Post explained, Shkreli got buff in prison.

“He’s got his prison muscles,” under his navy blue detention uniform, one source close to the defense noted of the convicted Ponzi fraudster’s first court appearance since he was locked up in September.

The newly bearded Shkreli, 34, has apparently fit right in at his new home in Brooklyn’s Metropolitan Detention Center.

“They like him in there,” the source told The Post of Shkreli’s fellow cons.

“They don’t put their arms around him and say ‘Give me your money’ like they do to other new prisoners… they like him.”

Prosecutors initially asked for Shkreli to forfeit $7.3 million in assets, including a Picasso painting and one-of-a-kind Wu Tang Clan album.

via Zero Hedge http://ift.tt/2CJiKuX Tyler Durden

So much for the iPhone X? Following reports from Rosenblatt Securities that Q2 will be “very weak,” Bloomberg reports Apple plans to boost sales with three new phones – a big one, a cheap one, and one the same size (but better). The stock dipped on the news.

Despite months of breathless hype, the iPhone X hasn’t sold as well as expected since its debut last year. Apple sold 77.3 million iPhones in the final quarter of 2017, below analysts’ projections of 80.2 million units. Some consumers were turned off by the iPhone X’s $1,000 price despite liking the design even if they wanted something more cutting-edge than the cheaper iPhone 8. With its next lineup, Apple is seeking to rekindle sales by offering a model for everyone.

Apple is preparing to release a trio of new smartphones later this year: the largest iPhone ever, an upgraded handset the same size as the current iPhone X and a less expensive model with some of the flagship phone’s key features.

Apple, which is already running production tests with suppliers, is expected to announce the new phones this fall. The plans could still change, say the people, who requested anonymity to discuss internal planning.

The reaction was… meh…

 

But Apple has been v-shaped-recovering after its tumble…

What would we do without buybacks?

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Authored by Sven Henrich via NorthmanTrader.com,

It’s Raining Money!!

With apologies to the Dire Straights:

Now look at them yo-yo’s that’s the way you do it
You play the bull on the fin TV
That ain’t workin’ that’s the way you do it
Money for nothin’ and stocks for free

After 9 years of artificial liquidity drenching markets the same game continues in 2018: It’s raining money. Again. Still.

Last week we saw the standard script of the last 9 years unfold: Dovish talk by central bankers and artificial liquidity taking over markets. The latest avalanche of free money entering markets are of course buybacks courtesy of tax cuts which now are expected to reach $650B in 2018 announcements coming to $50B a month.

In many cases companies don’t know what to do with all that free cash, but to buy back their own shares. Warren Buffet pretty much spelled it out this weekend and today:

“A large portion of our gain did not come from anything we accomplished at Berkshire,” Buffett wrote.

The firm’s most recent annual letter revealed the investment conglomerate’s net worth surged $65 billion in 2017, with $29 billion of that stemming from tax proceeds. That gain was realized in December, after the passage of the tax plan.

So he has a problem, knowing that stocks are expensive he’s having a hard time investing the cash so he’s opening the door to buy back his own shares over issuing more dividends. None of this creates jobs, jobs, jobs of course, but is a refection of the absurdity of the ill devised tax cuts that will continue to expand wealth inequality but will continue to produce a bid underneath markets until the bitter end.

Lest also not forget that the ECB keeps running QE at 30B Euro a month and overnight the BOJ’s Kuroda announced persistent monetary easing is needed while China injected 150b yuan in overnight liquidity as well and voila a sea of global green:

This has been the standard script over the past few years and no change to the program so far.

All the while retail keeps loading up leverage with over $642B in margin debt:

Retail money quote: “I was so bullish that I went all in,” said Mr. Diaz. he deposited $2,500 into his account to satisfy a margin call on Feb. 8″

Sounds prudent.

Right.

Cue record deficits for a non recession environment coming and you have the perfect recipe for a free money shower:

So party on while yields are retreating off of last week’s highs of 2.95% with the dollar dropping again. That is the correlation game in play right now.

Markets showed last week that higher yields are not necessarily good for stocks despite all the public meme to the contrary. Even Goldman came out and suggested a 25% drop in markets coming if the 10 year gets to 4.5%. Nobody can know the real trigger point, but the debt/interest equation is pretty obvious and hence all this remains a concerning construct:

The cost of carry has already been rising significantly with the prime rate barely above the 2004 lows.

But hey, free money everywhere, consequence free. Or it is?

Know that accelerating buybacks are not necessarily indicative of positive future returns. After all we last saw an acceleration of buybacks right into the financial crisis:

All this reminds me of an old saying of mine: Just because they’re buying doesn’t mean they know what they’re doing.

But for now it’s raining money.

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