Category: zerohedge

Authored by James Rickards via The Daily Reckoning,

Turkey is a beautiful country with a rich history including Greek, Roman and Muslim influences that make it one of the most fascinating places on Earth. It is literally a bridge between East and West: The mile-long Bosporus Bridge just north of Istanbul connects Europe and Asia across the Bosporus Strait.

Turkey has been a magnet for direct foreign investment from abroad and dollar-denominated loans by international banks to local enterprises. This investment enthusiasm is understandable given Turkey’s well-educated population of 83 million and its rank as the 17th-largest economy in the world, with a GDP of just under $1 trillion.

The flood of bank lending and direct foreign investment has given rise to another flood of hot-money portfolio investors in Turkish stocks chasing high returns with cheap dollar funding in a variation of the global carry trade. So-called emerging-market (EM) funds offered by Morgan Stanley, Goldman Sachs and others are stuffed full of Turkish stocks and bonds.

Your correspondent in central Istanbul, Turkey, on the site of the ancient Hippodrome, where chariot races were still held in late antiquity. In my many visits there since 1996, I have observed Turkey’s shift from a firmly secular society to one dominated by religious and authoritarian rule. As Turkey turns its back on Western society, it still relies on Western institutions to deal with potential debt, currency and reserve crises. Turkey’s new alienation from the West may mean that Western help will not be available in a future financial crisis.

But there’s a dark side to this seeming success story. Turkey’s external dollar-denominated debt is so large that a combination of rising U.S. dollar interest rates and a slowing global economy could quickly turn Turkey from model EM to the canary in the coal mine of the next great global debt crisis.

The risk of a major debt crisis beginning in Turkey is heightened by the rise of Turkey’s President Recep Tayyip Erdoğan as an autocratic strongman in the mold of Argentina’s Juan Perón and other populist nationalists who have ruined strong economies.

Begin with a look at the Turkish debt situation. Turkey’s debt is huge, one of the highest debt burdens of any EM. Turkey owes $450 billion to foreign creditors, of which $276 billion is denominated in hard currency, mostly dollars and euros. The remainder of $174 billion is denominated in Turkey’s local currency, the lira.

Both kinds of debt are problematic. The lira debt is a growing burden because lira interest rates have skyrocketed from 6% to 12% in the past five years.

The foreign currency debt is problematic for two reasons. The first is that the lira has devalued from 1.75 to 3.89 to the dollar since 2013, which increases the amount of lira needed by local companies to repay their external debt. The second reason is that U.S. and euro interest rates are starting to rise, which also makes the external debt burden more difficult to service.

Turkey’s hard currency reserve position is adequate for the moment, with about 100% coverage of foreign debt. The problem is not an immediate debt crisis but the likelihood that foreign credit could dry up or reserves could drain quickly, leading to a tipping point and a rapid loss of confidence.

Unfortunately, there are numerous economic and geopolitical catalysts for such a loss of confidence. The principal catalyst is a sharp deterioration in Turkey’s relations with the West and increasing links between Turkey and Russia that could lead to a crisis.

Recent polls show that 68% of Turkish citizens believe that Turkey’s alliance with Europe and the U.S. is breaking down. The same poll shows 71.5% of Turkish citizens believe that Turkey should enter into an economic, political and security alliance with Russia.

Another irritant is the widespread belief in Turkey that the U.S. played a role in the attempted military coup d’état against President Erdoğan in July 2016. This suspicion is heightened by the fact that the U.S. refuses to extradite Erdoğan’s political enemy, Fethullah Gülen, who lives in exile in Pennsylvania.

Erdoğan alleges that Gülen tried to force him from office in 2013 based on false charges — what Erdoğan called a “judicial coup.” The combined impact of a so-called judicial coup and an actual military coup attempt have led to profound distrust between the U.S. and Turkey.

The U.S. court system is also currently hearing a trial in which a Turkish-Iranian gold dealer, Reza Zarrab, has turned state’s witness and is providing testimony involving bribes and kickbacks by the Erdoğan government.

The U.S. government’s main charge is that Turkey helped both Russia and Iran avoid U.S. government economic sanctions. A newly passed Russian sanctions bill would impose severe penalties on Turkey if it goes ahead with a proposed purchase of Russian anti-aircraft systems.

A more serious point of contention between the U.S. and Turkey involves the role of the Kurds in Syria. From Turkey’s perspective, the Kurds are a separatist movement that threatens the territorial integrity of Turkey. The most extreme Kurds are pushing for an independent Kurdistan that would include parts of present-day Turkey, Syria, Iraq and Iran.

From the U.S. perspective, the Kurds are a potent fighting force who have been instrumental in the decimation of ISIS and are now playing a key role in support of Syrian freedom fighters opposing the regime of Syrian President Bashar al-Assad. The Kurds are bitter enemies of Turkey and good friends with the U.S.

Another confrontation between the U.S. and Turkey is emerging over the status of Qatar. Saudi Arabia economically isolated and physically blockaded Qatar because of its support for terrorists and Islamic radicals. The U.S. has tried to mitigate this conflict but on balance supports the Saudi position.

Turkey has come to the aid of Qatar with both financial support and a military presence. A war between Saudi Arabia and Qatar would, in effect, be a proxy war between the U.S. and Turkey, two erstwhile NATO allies.

In short, U.S.-Turkish relations are at their lowest point since the breakup of the Ottoman Empire in 1922.

This deterioration in relations has important economic implications. If Turkey were to find itself in financial distress — a highly likely outcome in the near future — the usual place to turn for a financial lifeline is the IMF. However, the U.S. and its Western allies, especially Germany, have effective veto power over IMF bailouts.

The U.S. might demand conditions on any IMF assistance to Turkey in the form of compliance with Russia sanctions. Turkey would likely reject such conditions leading to an impasse on the subject of IMF aid.

With geopolitical tensions rising and the U.S. aggressively tightening monetary policy, what are the prospects for the Turkish lira and Turkish markets in the months ahead?

The single most important trend is Turkey’s growing isolation from the West at the same time that Turkey’s external debt burden spirals out of control.

The geopolitical issues noted above — involving Syria, Qatar, the Kurds, Russia and Iran — could lead to a sharp break in U.S.-Turkey relations and Turkey’s departure from NATO.

President Erdoğan is strong-willed but also defiant and stubborn in the face of what he regards as the infringement on Turkey’s sovereignty by the U.S. and Europe.

Far from negotiating with the IMF in the event of distress, Erdoğan could easily impose capital controls, which would effectively be a default on all external debt and lock all equity investments in place with no ability to cash out for dollars. Turkish stock and bond markets would plunge at best or cease to function at worst.

The situation in Turkey is uncomfortably close to the situations that arose in Thailand in 1997 and Russia in 1998 in which both countries closed their capital accounts after attracting billions of dollars in foreign loans and investment. Those Thai and Russian defaults precipitated one of the most acute and dangerous liquidity crises in world history.

Just the existence of these geopolitical fault lines and potential financial defaults is enough to slow down new investment and loan rollovers in ways that make a credit crisis in Turkey even more likely.

via Zero Hedge http://ift.tt/2oiA8SR Tyler Durden

Almost exactly a year ago, we solved what at the time was a mysterious meltup in stocks (S&P rose over 6% from mid-Jan while bonds and the dollar did practically nothing). It was the slow-at-first-then-all-of-a-sudden collapse of a little-known, multi-billion-dollar futures fund whose apparent specialty was ‘picking up nickels in front of steam-rollers’ by selling upside-ratio-call-spreads.

We explained at the time that the firm was basically buying at the money options and funding those purchases by selling even more out of the money options (this is a simplified view of the fund strategy but close enough for examining whether it could have impacted markets).

The strategy is (notably simplified) a bet that pays off if the market drifts higher amid calm volatility (and ends above the lower strike and below the upper strike).

If, however, the market should rally aggressively beyond the upper strike, the initially-long position begins to ‘turn short’ and requires significant hedging/unwinds to maintain any semblance of control.

As we noted at the time – it appears that is what happened in Feb 2017:

The trade was going well, until the S&P rose above 2,300.

At that point the “convexity seemingly ‘kicked-in’ as witnessed by market participants, the short-gamma ‘take’ since has been nothing short of astonishing.“

Charlie McElligott (now of Nomura) said at the time:

I’m worried that this stock ‘melt-up’ move is extraordinarily mechanical right now – almost entirely the aforementioned forced-covering, not high conviction induced-buying – and may be sending a “false signal” which is potentially dragging-in new buying on the breakout to new highs.

While the concern at the time was whether it was possible that a single small fund could bring down the mighty US equity markets; as Peter Tchir noted at the time, in all likelihood this particular fund is just a relatively public example of a more widespread strategy – a strategy that was getting hit across the board.  

I am more willing to believe the argument that this fund was just one of many funds trading this strategy and that everyone employing this strategy was hit by the same combination of factors and that this widespread unwind was driving the market.

I want to believe that view, because the alternative, that liquidity has devolved to the point that a relatively small and formerly obscure fund can drive the entire market for days on end is quite scary as both a trader and investor.

But one glimpse at the fund’s performance and ‘coincidental panic-buys’ in stocks suggests that Catalyst – the fund’s name – was indeed the catalyst for those odd melt-ups (or at least was the most evident symptom of a strategy that had become dominant in markets).

Fast forward a year and look at what happened in January…

Another sudden unexplained stock market meltup – talking heads explained it all away as ‘normal’: earnings, tax reform, infrastructure, goldilocks, etc., etc., but just as we saw a year ago – stocks and VIX decoupled completely as that ratio-call-spread went short and forced-buying sent stock prices higher (and vol higher as the sold upside calls were bought back).

And right as the equity market was melting up in January – grabbing every headline with its irrational record-beating ramp – so a managed futures fund was starting to suffer (as its panic’d gamma squeeze sent its NAV notably lower, despite its initially bullish options position).

It won’t last right. It can’t. Someone will do something. But it did and it appears that Catalyst finally threw in the towel their month-end statement arrived (and likely with it some margin calls). That liquidation event just happens to have coincided with someone needing to buy vol at any cost (to exit their position), crashing XIV – triggering its termination event, and taking the Dow down 1600 points (twice).

So is Catalyst (or its strategy being so broadly-followed as to become ‘the market’) the culprit again? We shall see, but we are sure the denials will be first.

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

And so we reach the last auction in what has been a record supply of over a quarter trillion in bills and coupon notes this week, with today’s sale of $29 billion in 7 Year paper.

Continuing the trend set by the recent 2Y and 5Y bond auctions, today’s 7Y year was mediocre at best but certainly not a disaster. The auction stopped out at a high yield of 2.839%, a tail of 0.7bps to the 2.832% When Issued, far above the 2.565% in January and the highest yield since March 2011.

The internals were also average, with the Bid to Cover dropping from last month’s 2.732 to 2.488, below the 6 auction average of 2.53

Indirects also declined, dropping from 78.1% to 62.3%, below the 66.7% 6-average, and with Directs rising from 10.2% to 15.6%, perhaps as a result of Pimco buying again, Dealers were left with 22.1% of the award, double last month’s 11.7%.

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

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

The Federal Reserve (Fed) has increased the Fed Funds rate by 125 basis points or 1.25% since 2015, which had little effect on bonds until recently. Of late, however, yields on longer-maturity bonds have begun to rise, contributing to anxiety in the equity markets.

The current narrative from Wall Street and the media is that higher wages, better economic growth and a weaker dollar are stoking inflation. These forces are producing higher interest rates, which negatively affects corporate earnings and economic growth and thus causes concern for equity investors. We think there is a thick irony that, in our over-leveraged economy, economic growth is harming economic growth.

Despite the obvious irony of the conclusion, the popular narrative has some merits. Fortunately, the financial markets provide a simple way to isolate how much of the recent increase in longer-term bond yields is due to growth-induced inflation expectations. Once inflation is accounted for, we shine a light on other factors that are playing a role in making bond and equity investors nervous.

Given the importance of interest rates on economic growth and stock prices, understanding the supply and demand for interest rates, as laid out in this article, will provide benefits for those willing to explore beyond the headlines.

Nominal vs. Real

Since September of 2017, the yield on the five-year U.S. Treasury note has risen 90 basis points while the ten-year U.S. Treasury note has increased 75 basis points. At the same time, inflation, as measured by annual changes in CPI, declined slightly from 2.20% to 2.10%. Recent inflation data, while important in understanding potential trends, is by definition historical. As such, forecasts and expectations for inflation over the remaining life of any bond are much more relevant.

Treasury Inflation Protected Securities (TIPS) are a unique type of bond that compensates investors for changes in inflation. In addition to paying a stated coupon, TIPS also pay holders an incremental coupon equal to the rate of inflation for a given period. In technical parlance, TIPS provide a guaranteed real (after inflation) return. Non-TIPS, on the other hand, provide a nominal (before inflation) return. The real returns on bonds without the inflation protection component are subject to erosion by future rates of inflation. To gauge the market’s expectations for inflation, we can simply subtract the yield of TIPS from that of a comparable maturity nominal bond.

During the same six month period mentioned above, yields on five and ten-year TIPS increased 30 basis points. As shown below, this means that 60 basis points of the 90 basis point increase in the five-year note and 45 basis points of the 75 basis point increase in the ten-year note are a result of non-inflationary factors. The graphs below highlights the recent period in which five and ten-year yields rose at a faster pace than inflation expectations.

Data Courtesy: St. Louis Federal Reserve

Data Courtesy: St. Louis Federal Reserve

By isolating the widening gap between nominal and real yields on Treasury notes of similar maturities, we establish that there are other factors besides inflation that account for about two-thirds of the recent march higher in yields. Below, we summarize the potential culprits affecting both the supply and demand for U.S. Treasury debt offerings, which should help uncover the factors other than inflation that are driving yields higher.

Supply Factors

The most obvious influence driving yields higher, in our opinion, is the prospect of larger Federal deficits in the coming years. The tax reform package boosts the deficit over the next ten years by an estimated $1.5 trillion, and the recent two-year continuing resolution (CR) for government spending adds an additional $300 billion of debt to the U.S. Treasury’s ledger. We remind you these are in addition to Congressional Budget Office (CBO) forecasts for sharply increasing deficits due to social security and other previously promised entitlements.

As if deficit spending approaching that of the financial crisis of 2008 is not shameful enough, the administration’s latest budget proposal is even more daunting. Based on the proposed budget, if we optimistically assume that the current economic expansion can last for ten more years without a recession and that GDP can grow by about 1.50% more than that of the last decade, then the deficit will grow by “only” approximately $8 trillion by 2027. Keep in mind; debt outstanding tends to grow by a larger amount than stated deficits due to accounting gimmicks used by the Treasury. Before including Trump’s budget proposal, the trajectory of Federal debt outstanding is forecast by the Office of Management and Budget (OMB) to increase by $1.1 trillion on average in each of the next five years.

To put that into context with the nation’s ability to pay off the debt, the economy has grown by approximately $500 billion a year on average over the last three years. Federal tax receipts as a percentage of GDP over the last three years have declined from 11.5% to 11.1%. If the economy grows $500 billion, we should expect an additional $55 billion of tax revenue. These numbers emphasize the extent to which elected officials from both parties have radicalized the budget process and the acute state of fiscal irresponsibility now in play.

Don’t dismiss the magnitude of $20 Trillion in U.S. debt and it projected growth rate. It is larger than the debts of the next four largest debtor nations combined. 

Demand Factors

“Deficits don’t matter.” This frequently quoted statement leads many to believe that our nation’s debts will always be funded by willing and able creditors. To their point, rapidly increasing federal debt levels of the last thirty years have been easily funded and at increasingly lower interest rates.

To better gauge whether we can expect said support to fund the increase in projected debt issuance, we analyze the two largest holders of publically traded Treasury securities, foreign investors and the Federal Reserve.

Foreign investors hold 43% of all publically held Treasury securities outstanding, commonly referred to as “marketable debt held by the public.” China and Japan top the list, with each holding over $1 trillion of Treasury debt. The graph below compares foreign holdings of U.S. Treasury debt and the entire stock of public U.S. Treasury debt.

Data Courtesy: St. Louis Federal Reserve

Will foreign buyers continue to grow their holdings by over $400 billion each year?

To help answer that question, consider:

• Over the last year, foreign holders have purchased approximately 5% of new debt compared to a range of 40-60% since the recession of 2008.
• Since 2015, foreign holders have increased their Treasury security holdings by $151 billion while $1.591 trillion of new Treasury debt has been issued.
• Since 2015, Japan has reduced holdings of US. Treasuries by 12% or $141 billion.
• Since 2015 China has reduced holdings of US. Treasuries by 4% or $52 billion.

The second largest holder of U.S. Treasuries is the Federal Reserve. Quantitative Easing (QE) was a major part of the Feds economic stimulus and bailout program of the 2008/09 financial crisis and continues to this day. QE is essentially the act of printing money to purchase debt securities from the market. According to the Federal Reserve Bank of St. Louis, Fed holdings of U.S. Treasury securities rose from $474 billion in March 2009 to a peak of $2.40 trillion in December 2014, an increase of 416%. That balance was held stable through the end of 2017. To put that into context, as of September 2017, mutual funds, pension funds, and insurance companies held a combined $2.47 trillion of Treasury debt.

As we discussed in the Fed Giveth (LINK), the Fed has recently begun reducing the size of their balance sheet, and therefore its holdings of Treasury securities are slowly shrinking. They began in late 2017 by reducing the amount of Treasuries held by $6 billion per month and will increase the pace by $6 billion every three months until they reach $30 billion per month. This schedule, if reliable, implies that the Fed will reduce their Treasury holdings by $225 billion in 2018 and $351 billion in 2019. In this way, the reduction in Federal Reserve holdings is an incremental supply of Treasury securities to the market. And when the supply of bonds increases, yields should rise.

The absence of the Fed as large Treasury holders and the reductions in holdings and new purchases of Treasuries by China and Japan should have similar effects on yields, although the magnitudes may be different. So, rising yields are not just about inflation, whether realized or expected, it is also about the changes taking place in supply and demand simultaneously.

Summary

Vice President Dick Cheney was quoted in 2002 as saying “deficits don’t matter.” With the staggering accumulated deficits of the past few years, we are about to test Cheney’s theory. The powerful economic environment of the 1980’s and 1990’s allowed for the accumulation of federal, corporate and personal debt. In this millennium, the growth of debt accelerated, but the tailwinds supporting economic growth have weakened substantially.

Just because we were easily able to fund deficits of years past does not mean we should be so naïve as to think it will be easy going forward. As described above, the circumstances we face today are far more challenging than those of past years. The confluence of these events argues that investors should prepare for a new paradigm and not get caught flatfooted trusting in outdated narratives.

We leave you with a bit of wisdom from investment guru Bob Farrell, Former Chief Stock Market Analyst Merrill Lynch

“In the early stages of a new secular paradigm, therefore, most are conditioned to hear only the short-term noise they have been conditioned to respond to by the prior existing condition.  Moreover, in a shift of long-term significance, the markets will be adapting to a new set of rules while most market participants will be still playing by the old rules.”

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

Unverified photos and video footage has emerged on Twitter, showing two new Russian Su-57 stealth fighters, also known as the PAK FA and T-50, landing at Khemimim air base, near Latakia, in northwestern Syria.

The two stealth combat aircraft were reportedly part of a larger package of assets deployed to the Russian airbase in Syria.

Didn’t see that coming!!#RuAF deployed today few numbers of their fifth generation fighter jet the Su-57 in #Khmemeim #Syria

Along with
4 Su-35
4 Su-25
1 A-50U pic.twitter.com/2W9ZLPNAOs

— Wael Al Hussaini (@WaelAlHussaini) February 21, 2018

Subsequent footage analysis confirm that the videos were indeed taken in Syria as the jets made a landing at Russia’s master air base located south of Latakia:

Decían que el video de los Su-57 (AKA #PAKFA #T50) llegando a #Khmemeim #Siria podría ser falso así que hice esto.
Ustedes decidan.#OSINT #RuAF
El video: https://t.co/LrhUCbVFx1
cc @Zmilitar pic.twitter.com/QkwvYxgPDV

— Juanma Baiutti (@juanmab) February 22, 2018

In one of the video clips, which first emerged online on Feb. 21, 2018, an Su-35 Flanker-E fighter jet, which the Russians have already deployed to Syria, is also seen flying nearby. As The Drive reports, additional unconfirmed reports said that the Su-57s were part a larger group of Russian aircraft arriving in the country, including four additional Su-35s, four Su-25 Frogfoot ground attack aircraft, and an A-50U Mainstay airborne early warning aircraft, all types the Russians have previously deployed to the country.

Still, this would be a major deployment for Russia, coming after Putin claimed total victory over terrorists in the country during a December 2017 visit where he also announced his country would begin drawing down its military presence in Syria.

Unverified footage claims to show #Russia deployment of two T-50 #PAKFA prototype aircraft to #Syria pic.twitter.com/cvDHwui5ut

— Joseph Dempsey (@JosephHDempsey) February 21, 2018

The deployment also comes after a steadily increasing number of aggressive interactions between Russia’s tactical aircraft and U.S. Air Force F-22 Raptor stealth fighters over eastern Syria. If the Kremlin has sent the Su-57s to Syria it could further complicate those situations since American pilots have no actual experience, beyond intelligence assessments and possibly simulations, with how the Russian aircraft appears on their sensors and at what ranges, what the jet’s actual combat capabilities are, and what threat they might pose. At the same time, of course, it could give the United States an excellent opportunity to gather new information about the fighters, especially depending on what sensors they activate or if they fly in a full low-observable configuration during missions.

Although the deployment of two Russian 5th generation aircraft came somehow unexpected, it must be noted that it’s not the first time that Moscow deployed some of its advanced “hardware” to Syria.

According to the Aviationist on Sept. 13, 2017, the Russian Air Force deployed some of its MiG-29SMT multirole combat aircraft to Khemimim airbase for the first time. Previously, in February 2016, it was the turn of the still-in-development Tu-214R spyplane to exploit the air war in Syria to test its sensor packages.

To be sure, Russia has used the proxy war in Syria to showcase and test its latest weapons systems. However, most analysts agree that the deployment of the Su-57 is probably mostly meant to send a strong message about air superiority over Syria, where Russian and American planes have almost clashed quite a few times recently  (with conflicting reports of the incidents).

The Aviationist notes that deploying two new stealth jets in the theater is a pretty smart move for diplomatic and marketing purposes, especially with questions surrounding the Su-57 program as a consequence of delays, engine problems and subsequent difficult export (last year the Indian Air Force reportedly demanded an end to the joint Indo-Russian stealth fighter project).

That said, the deployment of a combat aircraft (still under development) is obviously also a huge risk. First, there’s a risk of being hit (on the ground or during a mission: the attack on Latakia airbase or the recent downing of a Su-25 are just reminders of what may happen over there) and second, there’s a risk of leaking intelligence data to the enemy.

Meanwhile, the presence of the new aircraft raises the risk of a new provocation: while it’s safe to assume that the stealth prototype will not use their radar and that the Russians will escort the Su-57s with Su-30/35 Flanker derivatives during their trips over Syria in order to prevent the U.S. spyplanes from being able to “characterize” the Su-57’s signature at specific wavelengths as reportedly done by the Russians with the U.S. F-22s, it’s safe to assume the U.S. and NATO will put in place a significant effort to gather any little detail about the performance and operational capabilities of the new Russian stealth jet. That would certainly include getting up close and personal to observe how it responds. And considering the recent deaths of Russian mercenaries in Syria, which has failed to provoke a major diplomatic escalation – for now – why not add a downed stealth aircraft to the mix?

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

If this isn’t quite the death of Snapchat, it’s definitely a serious blow.

Snap shares were down more than 7% this morning after Kylie Jenner tweeted her criticism of Snapchat’s latest redesign last night: “soooo does anyone else not open Snapchat anymore? Or is it just me…ugh this is so sad.”

We imagine the company’s shareholders would agree.

 

sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.

— Kylie Jenner (@KylieJenner) February 21, 2018

Shortly after, she tweeted something of an apology: “still love you snap… my first love.”

 

still love you tho snap … my first love

— Kylie Jenner (@KylieJenner) February 21, 2018

 

But the damage had, apparently, already been done…the company’s shares have now erased most of their post-earnings climb…

The Snapchat parent’s shares sank as much as 7.2 percent Thursday, erasing $1.3 billion in market value.

 

 

As the company’s share price crumbles, Snap CEO Evan Spiegel is poised to become one of the highest-paid US executives for 2017, thanks to a $636.6 million stock grant for sheparding his still-young company to a public offering in March of last year.

He’ll receive the shares in increments through 2020.

In addition to the bonus, Spiegel, 27, received about $1.08 million in corporate perks, including legal fees and $561,892 for personal security services. Meanwhile, his salary was cut from $500,000 to $1 around the time of the IPO.

And Spiegel isn’t the only Snap executive who’s receiving a cushy windfall. Chief Strategy Officer Imran Khan received $100.6 million in compensation last year. However, most of that – $100.1 million – is stock that won’t be fully vested until about a decade from now.

Jenner’s tweet drew a chorus of criticism from her 24.5 million followers. Wall Street analysts have also begun to notice, citing recent user engagement trends as a sign that the recent redesign is extremely unpopular.

via Zero Hedge http://ift.tt/2FnOp8q Tyler Durden

CNN’s FOIA of Broward County 911 records has produced a steady stream of scoops about Parkland, Fla. school shooter Nikolas Cruz fleshing out much of what is publicly known about Cruz’s background and the various reports made warning the FBI and other authorities about his threatening behavior.

The report draws on one specific incident that unfolded in the immediate aftermath of Cruz’s mother’s death, when Cruz and his brother Zachary Cruz were living in Palm Beach County with Rocxanne Deschamps, a former neighbor who had been close to the family.

After one particularly violent outburst, Cruz said he was going to Dick’s to pick up the AR-15 he had recently paid for, and that he would come back to attack her.

The police were warned by Deschamps, who told them about Cruz’s violent past – that he’d “used a gun against people before” and had “put the gun to others’ heads in the past” – but still they did nothing.

Cruz and his brother only lived with Deschamps for a few weeks before Nikolas was taken in by the Sneads, but Zachary – who reportedly suffered a breakdown following the shooting – stayed with Deschamps. Cruz had been staying with  the Sneads, the parents of a friend, at the time of the massacre, deceiving them by claiming he didn’t have a key to the gun safe where his AR-15 was kept in accordance with house rules.

As CNN reported earlier this week, Cruz had purchased 10 rifles in the year before his killing spree.

On the day after Thanksgiving, Cruz was at work at a Dollar Tree store. Rocxanne Deschamps’ son, Rock, 22, called 911 to report that an “adopted 19-year-old son” had possibly hidden a “gun in the backyard,” according to a dispatcher’s notes. Rock Deschamps told law enforcement “there were no weapons allowed in the household,” the report said. It’s unclear from the record whether sheriff’s deputies conducted a search. The incident was classified as “domestic unfounded,” which means a deputy didn’t find proof to back up the claims.

The Palm Beach County Sheriff’s Office was called again to the home four days later, when Rock said Cruz lashed out against the family that took him in, according to the Palm Beach deputy’s report and dispatcher notes. The deputy went to a local park and found Cruz, who explained that he had misplaced a photo of his recently deceased mother and, emotionally distraught, began punching the wall. Cruz lost control the same way he had several times in the past at his mother’s home in Parkland, Florida, when he had not taken his prescribed mood-altering medication, as CNN has previously reported based on Broward police documents.

Rock interrupted Cruz and a fight broke out between them, according to the documents. Cruz left the home, and Rocxanne Deschamps called 911. She warned the police dispatcher that Cruz said “he was going to get his gun and come back,” records show. She said Cruz had “bought a gun from Dick’s last week and is now going to pick it up.”

Rocxanne Deschamps told the dispatcher that Cruz had “bought tons of ammo” and “has used a gun against ppl before,” the notes said. “He has put the gun to others heads in the past.”

The Palm Beach sheriff’s deputy who responded to the scene of the assault spoke to both young men, who “hugged and reconcile(d) their differences.” Cruz “said he was sorry for losing his temper,” the deputy wrote in his report. Rock Deschamps told the deputy that Cruz had been suffering significantly from the loss of his mother and that he didn’t want him to go to jail, only to leave the house until he calmed down. He signed a form saying he refused to prosecute.

But perhaps the most chilling details of the report come at the very end, when a friend of the Cruz brothers describes Nikolas’s anger at the fact that almost nobody had shown up for his adopted mother’s funeral.

Cruz left Rocxanne Deschamps’ home for good a short time later, according to her ex-fiancé Paul Gold, who was also a longtime former neighbor. While his younger brother Zachary remained at that home, Nik Cruz returned to Broward County to live with a friend, and stayed at the Pompano Beach home of James and Kimberly Snead. He took his guns with him, the Sneads said.

Gold, who lived next door to the Cruz family in Parkland for years, told CNN that he drove Nik Cruz to his mother’s funeral. The only people in attendance were the two sons, Gold, and Rocxanne Deschamps, he said.

“The boy was stoic. Not a tear. Not an emotion. I asked him if he was upset. He said: ‘I’m upset because nobody came, and nobody cares about my mother,'” Gold recalled.

“I told him that his mother was loved by many, many people and they just couldn’t make it, timing and whatnot. It was a complete lie. But I felt horrible. Here’s this poor kid, and his mother dies, and not a soul shows up,” Gold said.

Gold told CNN he knew nothing of Cruz’s guns. He now describes the teen as “a monster.”

The next time Palm Beach deputies visited the Deschamps home was on February 14, in the frantic hours after the school shooting. A deputy rushed Rock and his family out of the home, clearing the way for a bomb squad to arrive, according to a report.

The FBI have taken a lot of criticism, and many have demanded the resignation of FBI Director Christopher Wray, after it emerged that the bureau had received tips warning them about Cruz, but protocol wasn’t followed and Cruz was never investigated.

 

 

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

Via AdventuresInCapitalism.com,

About a year ago, I read The Great Beanie Baby Bubble by Zac Bissonnette.

It details how basic human greed, an artificial sense of scarcity and newly created technology like eBay, were used to artificially inflate re-sale prices and convince otherwise intelligent humans to sink their life savings into plush toys that were being created by the millions at a price-point measured in the pennies.

In fact, it isn’t all that dissimilar to the current bubble in crypto-currencies—another asset class with; thin trading volume setting the market price and new technology that enraptures investors, that is likely to prove entirely worthless at some point in the not too distant future.

It would seem that every time the Federal Reserve reduces interest rates for too long in order to bail out some past bubble they created, it leads to some new and bigger bubble that also needs bailing out (tech stocks in 2000, real estate in 2007, everything this cycle) along with some hilariously silly collateral bubbles along the way.

With that in mind, last week, I was at a flea market (yeah, I’m a value guy who likes bargains) when I noticed multiple tables with Beanie Babies. I thought to myself; that’s strange—I haven’t seen one of these things in years. Why are all these adults paying so much attention to stuffed toys that were popular 20 years ago?

Naturally, I turned to my wife, who happened to be buying a few Beanie Babies for some cousin of ours.

Me: Why are you wasting money on those? Wait, …did you just buy like 10 of them?

Wife: Yeah, our cousin collects them. He says he has one that’s gone up 5 times in value, in just the past 3 months?

Me: Whaaahh??!!!

Vendor: Yeah. They’ve been out of print for two decades, even some of the real common ones are quite rare now.

Me: Whaaahh!!??? (practically with smoke shooting from my ears)

Vendor: Yeah, a few have gone from $5 to over $1500 in just the past 2 years.

Me: Holy Shit!!! That’s INCREEEEDIBLE!!! The Fed printed so much, they even managed to re-inflate the great Beanie Baby bubble of 1998 (at this point I’ve gone from abject shock to bemused laughter)

Wife: Maybe I should buy some more for our cousin. Sounds like they’re going up fast.

Me: …I’m going to get a beer. My head hurts

 

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

The past month has been mixed for JPM’s head quant, Marko Kolanovic.

On one hand, just days before the Feb 5 quant puke, he published a report,  predicting that the late January selloff would not lead to widespread systematic liquidations. A few days later, on “Volocaust Monday”, that’s precisely what happened and to a never before seen extent.

Then, in keeping up with his recent cheerful outlook, shortly after the selloff, Kolanovic doubled down, and said that after the initial deleveraging of quants, vol-sellers, CTA and risk parities, the forced selling is now over and it was safe to buy the dip. Here, his call has been far more accurate, as almost nothing is left of the early February 10% correction following a barrage of BTFDers.

In fact, the speed of the rebound appears to have surprised Kolanovic himself, and in his latest note, published moments ago, he writes that the subsequent one-week rally was very fast (~99th percentile one-week up move vs. S&P 500 trading history).

As such, “the question is: What might the market do next?“

To answer this question, Kolanovic first looks at his favorite indicator, capital flows, and specifically “the positioning of investors and expected flows”, especially among the systematic, vol-targeting funds.

First, we note that the Hedge Fund beta to equities experienced an unprecedented drop over the market sell-off (Figure 1).  This de-risking (and in some cases shorting) happened largely via buying of downside options (and selling of index products) and might not be entirely captured by prime brokerage data. For instance, open interest on index put options rose by ~$500bn shortly after the sell-off. Hedge funds went from a near-record-high equity beta, to a near-record-low equity beta.

This move started to revert last week, but has plenty of room to increase (table in Figure 1). In terms of systematic selling, this is largely over. In fact our models show that volatility targeting strategies may now start very slowly rebuilding their equity positions.

Then there is the potential bid from pension funds, whose rebalancing at the end of the month could make for a rare buying imbalance, something we discussed two weeks ago in “An Unexpected Consequence Of Last Week’s Selloff“

One should also keep in mind that most pension funds rebalanced at the end of January, and global markets are now ~5% lower from that point (~90th percentile by size of the drop). Next week is month-end, and buying from fixed weight allocators could be substantial. These flows will be a headwind for any near-term bearish thesis.

In other words, from a client positioning and flows standpoint, it’s smooth sailing ahead according to the JPM quant. What about any near-term bearish thesis? Kolanovic is quick to dispense with these too:

We have, for instance, heard theories that the market ‘needs to re-test’ the bottom quickly. This seems to be a somewhat arbitrary argument with no significant structural or statistical evidence to support it.

The JPM quant then goes on to point to the record bearish positioning in the rates complex, warning that if anything, we could have a vicious squeeze, which would send yields much lower, unleashing even more buying:

A second thesis is based on fear of rapidly rising yields and inflation. While we think that inflation and yield fears are overblown near term, this is more difficult to disprove. We would like to point to the record speculative bond futures shorts from both fundamental and systematic investors. Figure 2 shows that speculators have amassed the largest short position in the history of bond futures trading. When there is such a large short position, there is always risk of profit taking, or worse a proper short-squeeze.

Looking at the longer-turn, Kolanovic points out that the biggest threat remains one of deflation, not inflation, based on the three D: demographics, debt and disruption.

We also note extreme sentiment swings and the media playing into fears of inflation, while largely ignoring important points such as those most recently voiced by the Fed’s Harker and Bullard. Inflation discussions have recently centered around ‘linear extrapolation’ of inherently noisy data points, and focus on ‘old news’ (e.g., the nearly month-old Fed minutes yesterday). There is no mention of structural deflation via demographics or technology/AI.

Having dispatched with the bearish bogeyman – assuming of course that yesterday’s market reaction to the non-Goldilocks Fed was wrong and the selling won’t return later today – Kolanovic goes on a tangential to comment on short volatility strategies which have been all over the news lately:

Selling of equity index risk premia (via implied correlation, volatility, skew, etc.) is a strategy that underwrites insurance on an inherently risky asset. These strategies are well documented (over 3 decades) and have strong theoretical justification. The risk-reward profile of these strategies is highly ‘non-Gaussian,’ and there is a trade-off between the typically high Sharpe ratio but also high downside tail risk. Over time, and when properly risk-managed, these strategies work well (equally well as underwriting insurance, e.g., for natural disasters). Fires, hurricanes, and market sell-offs do happen, and this is a normal part of an insurance strategy cycle.

Of course one needs to understand the risk/reward, and manage exposure and tail risk. This is where some investors or products might have miscalculated and suffered large losses. If one is collecting a 20% or 30% premium (return) per month, one should suspect that there is a significant risk for the loss of entire principal (e.g., similar as with credit – which is another form of insurance). We pointed to this in our previous reports and it was covered in press extensively before the recent events.

However, history shows that insurance strategies tend to work better in the aftermath of ‘disasters,’ when the level of premia is elevated, there is less market participation and leverage, and the probability of another tail event might be lower.

In other words, assuming stocks will keep rising, just don’t sell vol to hedge. Which, of course, is precisely what investors are doing…

via Zero Hedge http://ift.tt/2Fn2ouX Tyler Durden

Following last night’s surprise crude draw (from API), and USD weakness, WTI/RBOB rallied overnight, but faded into the DOE data. However, as DOE confirmed API’s reported surprise crude draw (-1.616mm) and production slipped very modestly, prices jumped.

API

• Crude -907k (+2.9mm exp)

• Cushing -2.644mm

• Gasoline +1.644mm

• Distillates -3.563mm

 

DOE

• Crude -1.616mm (+2.35mm exp)

• Cushing -2.664mm

• Gasoline +261k (+742k exp)

• Distillates -2.422mm (-1.1mm exp)

In quite a shocking moment – it seems API was right for once – DOE reports a 1.6mm crude draw – and RBOB prices are up as Gasoline saw a smaller than expected build.

As Bloomberg notes, Cushing is being emptied at a very, very, very fast pace. It’s the 9th consecutive week of crude draws, bringing the total to its lowest since December 2014.

Bloomberg’s Javier Blas notes that U.S. oil exports surged last week above the key 2 million barrels a day mark for the second time ever, contributing hugely to the draw in crude stocks.

Once again all eyes are on US crude production (after yet another week of rig count increases) as it tops Saudi Arabia and closes in on Russia’s output, spoiling the OPEC-Deal party. But, US crude production slowed last week… if you squint, you can see it dropped 1k b/d…

NOTE – Lower 48 production rose 10k b/day to a new record…

 

WTI/RBOB bounced notably higher overnight (weak USD and API-reported draw) but faded into the DOE data. However, the confirmation of a crude draw (and smaller than expected gasoline build) sent both WTI/RBOB back to the highs…

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