It has been a twofer from Bill Ackman’s Pershing Square this afternoon, which first released its latest weekly performance moments ago, revealing that as of May 10 it was down -1.7% for the month, but also -19.4% YTD, back to its worst 2016 performance since April 12.
Ackman also released his disastrous Q1 Portfolio Update, in which he made zero macro comments, and instead spent the entire letter defending his various investments such as Air Products, Canadian Pacific (of which he sold 30% of its position on April 22), Fannie Mae, his Herbalife short which recently has cost him even more hundreds of millions in losses, Howard Hughes Company, Mondelez (where he also sold 20 million share on March 16), Nomad Foods, Platform Specialty Products, Restaurant Brands, and Zoetis (where he sold a 16.85mm share block on May 9 taking his stake from 8.6% to 5.0%).
Why all the liquidations? Because of Valeant of course, which remains Ackman’s biggest headache, and to whose defense he dedicated the most time.
And speaking of defense, his book certainly needs it. Here is a table showing the investments that add or (mostly) detracted at least 50 bps of gross performance.
One wonders just how many billions in redemptions Pershing Square is seeing as of this moment.
Finally, Ackman announced that a member of his team, Bill Doyle, has left the company and instead will be working part-time at an entity that oversees private investment for Ackman’s family. But we thought that was Pershing Square.
Lars Schall interviewed Peter Boockvar. Peter is one of those rare and informed people in the investment space who really understands the history and role of Central Banks in general, the Federal Reserve Bank in particular, and their interactions with the financial industry on (government) policy. We are very pleased to have Peter Boockvar on board this month with his first Matterhorn Interview. We recommend a good listen below.
Transcript
Lars Schall: Howdy, ladies and gentlemen! On behalf of Matterhorn Asset Management I am now connected with Peter Boockvar, who is the Chief Market Analyst with The Lindsey Group, a macro economic and market research firm in Washington DC. – Mr. Boockvar, recently President Obama and Vice President Biden met with Federal Reserve Chairwoman Janet Yellen. It was said that in the history of the United States, it has never before taken place that both the President and Vice President met “unexpectedly” with the Federal Reserve Chair. Now, what do you believe what this was all about?
Peter Boockvar: Well, I wish I was a fly on the wall listening to the conversations between them, but I have to say that I don’t think anything was too political in that. I couldn’t imagine, however I could be wrong, that Obama would say to Yellen, “Don’t mess this up for Hilary and don’t raise rates”, and I can’t imagine that Janet would say, “Okay, Barack, you got it”.
I want to believe that it was an update on the economy. I think that the White House is probably getting a little concerned that growth in the fourth quarter which printed only 1.4% is going to be followed by possibly growth in the first quarter of less than 0.5%. If you take those two quarters together, then you’re looking at something that’s close to flat line. The second quarter may not be looking much better and I don’t think those are the circumstances that Barack Obama wants to go out on. He doesn’t want to go out as a President that left his successor with a recession, and I have to believe that the White House is actually getting a bit worried about the state of the economy and the optics of it. That’s why he probably met with Yellen. Again, I don’t think there’s any quid pro quo on the direction of interest rates. I think that if the economy continues to muddle along at a slower and slower pace, Janet Yellen doesn’t need Barack Obama to tell her that she’s not going to be raising rates again any time soon.
LS: Yes, but last year, the Federal Reserve was optimistic that it could raise interest rates in a substantial way. This is now gone, this sentiment. Why so?
PB: Well, the Federal Reserve has been optimistic every year since the recession began, and every year their optimism has proven to be wrong because they’re using models that no longer work. They’re believing that altering the price of money lower in an already over-leveraged economy is somehow going to accelerate growth, and unfortunately haven’t learned that lesson. We can be sure that the Federal Reserve will persistently be overly optimistic in the benefits of their policy.
LS: Now, if the Federal Reserve proves as unable to raise the interest rates, this is also a problem for its credibility?
PB: I believe that credibility was somewhat shot a while ago but, yes, I think that any comparison that they will then get to Japan and their policy of the past 25 years would be terrible for their credibility. I think their credibility, like I said earlier, is shot and that keeping rates at zero for seven years is… I’m trying to think of the best word to say it, ridiculous way of running policy. So, yes, and if they can’t get out of the traps they put themselves in, that would definitely damage their credibility.
LS: What are your thoughts on the fact that more and more people at the Federal Reserve System are open to negative interest rates, at least they are talking about this?
PB: Yes, they see what’s gone on in Europe, they see what’s happened in Japan but, to me, any economist that thinks that negative interest rates is a good thing, I think needs to go back to school. Negative interest rates are essentially a tax on capital that somebody has to eat and I don’t think you expand the economic pie by taxing capital. So, any Federal Reserve Member in particular who believes that negative interest rates are somehow going to be effective, to me, that’s just anti-capitalist, it’s anti-free market, and I actually think that they’re not going to go there, to be honest.
LS: Okay, but talking about the Federal Reserve: Dartmouth College economics professor Andrew Levin—special adviser to Ben Bernanke and Janet Yellen between 2010 and 2012 when they were Fed chairman and vice chairwoman—said not so long ago, inter alia: “A lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned. The Fed “should be a fully public institution” and the 12 regional banks should become fully public entities, meaning they have to somehow eliminate or repurchase the stock they have issued to private member banks. He also proposed banning anyone affiliated with financial institutions overseen by the Fed from serving as a regional Fed director. (1) Does this sound reasonable to you?
PB: I think he’s overreacting. I mean, I think the problems with the Federal Reserve are much deeper than whether regional Fed institutions are more private based. The problem with the Fed is their manipulation and price fixing of interest rates. It’s not the internal logistical structure of these central banks. I think he’s missing the main problem of the Fed and whether these regional districts are under the Federal Reserve umbrella in being a “public institution” as opposed to having private influences. I think it is just a red herring.
LS: Does the United States and its people need the Federal Reserve actually, or do you think it is rather the case of the private banking system in and outside the United States needs this institution?
PB: Well, the institution in 1913 was created to really be the lender of last resort, and while I’m not for a government entity creating money, that’s for sure, if they would have just stuck to being a lender of last resort, I think that would’ve been, to me, a great limit on their authority. Of course, that has not happened. They’ve gone well above that authority that congress particularly gave them, particularly in the late 70’s when they wanted the Fed to be focused on maximum point and then price stability. To me, a most limited Federal Reserve would’ve been much more productive than turning them into above the law institution that they became.
LS: The next question that I have is the involvement of governments or central banks in the commodity markets because, as you know, the CME Group operates the major future markets in the United States. Its January 2014 filing with the US Securities and Exchange Commission disclosed that central banks and governments are being given volume trading discounts for trading all future contracts on the major exchanges in the United States, not just financial futures contracts – so this means they also can trade with commodities future contracts. (2) Moreover, the CME Group masters 10K filing with the US Securities and Exchange Commission for 2013 disclosed that the CME Group’s customers include governments and central banks. (3) Now, let us put this in perspective to a certain statement given by former Federal Reserve Board of Governors member Kevin M. Warsh that he wrote for The Wall Street Journal in December 2011. In that essay Warsh said: “Policy makers are finding it tempting to pursue ‘financial repression’ — suppressing market prices that they don’t like.” (4) And so the question is, are central banks and/or governments players in the commodity markets?
PB: Well, I think the Fed plays in the markets that they’ve told us they play in, and that’s treasuries, mortgage backed securities, and I don’t believe that they’re somehow buying S&P futures, for example, or shorting the gold market because secrets like that don’t stay secrets. I happen to work for an ex-Federal Reserve Governor, and I don’t think that that was something that they’ve done or something that they currently do. Now, with respect to other central banks, I would not be surprised if they did but I can’t say for sure. We can talk about conspiracy theories, no question, but I don’t even think the Federal Reserve would call another foreign central bank and says, “We need to support a market, please get involved”. I mean, we have to look at the fact that markets go up and they go down. Oil prices went to 100 then went back to 30. We had, in 2002, the stock market fell 50%. It fell another 50% in 2007 and 2008, and the central bank of the US, the Fed, they fought it tooth and nail.
So, while we want to think that they can certainly manipulate certain markets, well, we know the ones they’re directly manipulating and that works for a period of time, but I don’t necessarily think that they’re getting involved in these other markets because I think it would’ve been known and, again, I don’t think they can keep a secret. I don’t think anybody else in the institution would be able to keep a secret. So if it were to happen, I think it would’ve been known and if it did get out then their reputation would be completely in tatters. I don’t think that’s something they necessarily want to risk. With respect to what Kevin Warsh said, I think he was really more talking about the securities that the Fed is blatantly buying and a sense of what they’ve told us they’re buying rather than anything else.
LS: But talking about the stock that Western central banks have in gold, they can for sure conceal the leasing that they do with this gold bullion because they are not required to say, “This is what we have and this is what we leased out”.
PB: I guess it’s possible, particularly with the Fed owning 8,000 tons of gold that I guess it is possible but, again, keeping that a secret, I think, would be very difficult to do and until we see proof of it, it’s just pure speculation.
LS: Okay. But in the past, I’ve asked the US Treasury, respectively the Exchange Stabilization Fund, the Federal Reserve Board in Washington DC and the Federal Reserve Bank of New York if the Deutsche Bundesbank has gold swap arrangements with these entities, respectively if those entities have gold swap arrangements with the Bundesbank. All those entities that I’ve mentioned refused to answer time and again. (5) Moreover, at the end of March this year, the New York Fed President, William Dudley, refused to answer in public a question about whether the Federal Reserve is engaged in gold swaps with other central banks. (6) Why do you think they all don’t like this kind of question?
PB: Maybe because they haven’t yet fully disclosed it. It’s possible. And we know central banks have gone above and beyond what their chartered mandates are and maybe they believe that this is just another example that they would have to explain to everybody.
LS: But couldn’t they just simply lie and say, “We have nothing like this”, even if they would have?
PB: I guess it’s always possible but, again, I think that if they were caught lying, the damage done to the institution would be far and above any benefit that they would get from leasing out gold. To be honest, you listen to comments from Bernanke and other central banks, I honestly think that they’re clueless about what gold really is. If they’re clueless about what gold really is then how can I say that they’re out there trying to manipulate its price?
LS: Mr. Bernanke said something in the past that gold is something like a tradition.
PB: “We own it for tradition”, right. That was a response to a question from Ron Paul at a semi-annual testimony and I think that said it all about Bernanke’s knowledge and history of what gold is and always has been. In that case, listening to that, I don’t think he’s necessarily smart enough and up to speed enough on gold to then start manipulating its price.
LS: Now, talking a little bit about the nature and value of gold. We are in the middle of a debt crisis and interestingly enough the IMF said the gold bullion, the monetary component of gold that a central bank holds, is the only financial asset without counterparty risk. Does this make gold very attractive these days?
PB: Well, there’s no question because we know that there’s no counterparty risk with the physical metal if you own it and you store it, I think that is an important characteristic and positive case for owning gold, but at the end of the day, the most positive thing for owning gold is that it actually yields something relative to the $7 trillion of sovereign bonds that yield below zero. To me, that is the most important characteristic within the price of gold and will continue to be so.
LS: What are your thoughts on the German gold repatriation from New York and from London? What does this mean to you?
PB: I guess we can all speculate on the symbolism of it. Maybe it was just the Germans are more comfortable owning it on their soil rather than in the US. I don’t know if that’s for security purposes or just having it in their own back yard. Do I think that Germans are worried about not getting it back? If they wanted it, I don’t want to necessarily go that far, but I would think that if the Germans own a lot of gold, why aren’t they storing it themselves?
LS: Yes, and if you have it on your own soil, in your own possession, then it can actually have this quality as a financial asset without counterparty risk.
PB: Agreed. Now, it would be nice if the Bundesbank came out and said that instead of trying to hide why they wanted it back, but we can all assume that that’s probably the case.
LS: And then we see in Eurasia, the members of the Shanghai Cooperation Organisation buying gold big time, for example, China and Russia. What do you think is the purpose to boost their gold holdings?
PB: Well, I think everyone is looking around and seeing what countries are doing to fiat currencies. Putin, for example, in Russia, I mean he knows owning a lot of gold is probably good for the Ruble, and the Chinese certainly see what their central bank is dealing with printing money, and they understand that there is a possibility they’ll want to weaken the Yuan and I think the Japanese now are buying more gold and the Europeans are buying more gold. I think people are not blind to the fact that central bankers are debasing and devaluing the worth of fiat currencies. They know that gold has been around for 5,000 years. It is a language that everyone speaks, and it is a currency that everyone accepts.
LS: What are your overall expectations for gold this year?
PB: Well, I’m of the belief that the bear market, at least in US dollar terms, that started in September 2011, and silvers bear market in dollar terms began in April 2011, that bear market is over. It was only in the context of a secular bull market that began in the early 2000’s. If I’m correct then these new highs which we will see in the next coming years will surpass the previous highs, and that’s around 50 bucks in silver, that’s 1,900-ish in gold, and I do expect those all to be taken out within the next couple of years. What happens from now until the end of the year, I don’t know. I do think that prices continue to move higher, particularly if I’m right that the Fed is not going to raising interest rates any time soon, or likely at all through year-end and possibly not at all until the expansion after the next recession. There’ll be a bid under the precious metals and where the price goes by year, and I don’t know, but again in the coming years, they will most likely see their previous highs.
LS: Would you say that gold is underpriced compared to the bond markets and the equity markets?
PB: I think it’s underpriced relative to the traumatic expansion and the size of central bank balance sheets.
LS: The final topic that I would like to discuss with you are the so-called Panama Papers. At CNBC, the banking whistleblower Bradley Birkenfeld said recently that the CIA is behind these Panama Papers. (7) At least this is his assumption. But there’s also another interesting conspiracy theory because at the Brookings Institute, which is one of the most influential think tanks in the world, they entertained the idea that the Panama Papers represent a Putin plot. (8) What is your take?
PB: Like I said earlier with central banks, it’s very hard to keep a secret. Just as Snowden did with the NSA and the Panama Papers release, in the days of digital documentation, social media and so forth, it’s very hard to keep a secret. Who wanted it to come out and who had a motive to get this knowledge out there? I don’t know, but it’s hard to keep a secret. So whether you’re the President of a major country or you’re a high net worth individual that wants to hide money, just understand that a lot of people are watching and it’s likely at some point they’re going to find out.
LS: Do you think that there would be some kind of incentive for the CIA to do such a thing?
PB: I think every intelligence agency probably around the world is sniffing around and trying to find every trail of money. If that’s what they happen to come across then I guess. The people that spend every day trying to follow the trails of money and it will take them wherever it’s going to take them, whether it’s the CIA or it’s intelligence agencies throughout Europe or Asia, they’re on the hunt.
LS: Yes, but I think the United States has the best infrastructure for that kind of thing, like for example…
PB: I don’t doubt that but I think… everyone’s spying on everyone. The governments.
LS: What are your biggest concerns these days when you take a look into the world and see its problems?
PB:My concerns are the response of central banks to what’s going on. Recession follows an expansion like night follows day, a bear market follows a bull market like night follows day, but the desire to suppress any cyclicality in economic growth and the desire for 2% inflation has literally wreaked havoc on global markets and global economies. My fear is that central banks are now taking this too far through negative interest rates in particular and that they’re going to literally destroy their own banking systems. If they’re actually successful in generating higher inflation, then they’re going to destroy their own bond markets. So, Draghi, who publically comes out and says, “I want inflation as quickly as possible”. That’s what he says, “as quickly as possible”, but what does he think is going to happen to the German 10-year bond which is yielding 16 basis points? What does he think is going to happen to that bond if he gets inflation as quickly as possible? There is an epic global bond market that central bankers, if they get what they want, will then blow up. That’s what I am most worried about.
LS: Yes. There’s one more thing that I would like to ask you about. The world watches thoroughly the US these days because you have an election year. Do you think that this election will become the most interesting since decades?
PB: Yes, I think there’s no question just because it’s so non-conventional in the sense of it reflecting a lot of the anger that people have that Bernie Sanders has done as well as he has on the Democratic side, and how Trump has done so well on the Republican side. It’s a reflection of a lot of anger in the American populous. On the Republican side they have a contested convention which we seem to be moving towards. That’s a rare thing and I think that this is somewhat unprecedented in that it’s not something that the country is used to.
LS: Yes. Do you think the anger is justified?
PB: I do. I think our government officials, and I will include the Federal Reserve in that, have failed the American people.
Remember how awesome it all felt yesterday, yeah that's all gone… Pride (in senseless uncorrelated low volume rallies) always comes before the fall…
Macy's ate the jam out of the market rally's donut today despite crude's spike (and thus Energy stocks) on the DOE inventory draw… This was S&P Retail Sector's worst day since Aug 2011…
And it's gone…yesterday's panic buying algo turns into a sell it all algo…
Trannies worst day in 2 months…
As it touched its 50DMA from below and dropped back below its 200DMA…
As The Dow (Macy's & Disney) and Trannies (odd, oil was up?) tumbled into the red for the week… as did Small Caps in the last few minutes…
An early dump in "most shorted" stocks was squeezed back into the European close… but didn't hold…
Macy's was fingered as the blame but yesterday's market meltup had no legs under it anyway. Here is Macy's puke with the analysts who has the highest profit target…
VIX pushed back above 14.50, we suspect S&P tests back to unch YTD before this ends…
What will financials do next?
Stocks began to catch down to Treasury's reality…
Treaury yields began to fall early but buying accelerated after the hugely strong 10Y auction…2s30s flattened 5bps…
The USD Index dropped for the first day in the 7 today, driven by JPY strength…
USD weakness helped spur strength in commodities (apart from Copper which contionues to be pressured by China's bubble unwind) but crude was the crazy one today…
Here's crude for all those who need some entertainment…
And precious metals pumped and dumped overnight…but ended the day higher
The latest Quinnipiac University Survey on the 2016 U.S. Presidential election is absolutely fascinating, and presents some very bad news for team Clinton, as well as all the clueless pundits who say Trump can’t win.
The major takeaway is that Trump and Clinton are locked in a total dead heat in the three key swing states of Florida, Ohio and Pennsylvania. This is remarkable considering all the heinous things Trump said on his way to the GOP nomination, and the fact that he’s barely started to “sell” himself to the general electorate, which is his primary skill in life…
The truly fascinating takeaway from the survey can be found in the details. The key demographics Clinton needs to do well in (youth and independents) are areas in which she struggles mightily in these swing states. In contrast, Bernie Sanders dominates Trump in those two categories, proving once again that he’s by far the stronger general election candidate.
Most Hillary Clinton supporters remain stuck in a comical level of denial when it comes to the weakness of their candidate, and the very real threat posed to her by Donald Trump. Damon Linker suffers from no such hangups, and earlier today he expressed his concerns in a powerful article titled simply, Dear Hillary…
Here are a few excerpts:
Dear Hillary,
I have to admit, you have me worried. And for more than just the usual reasons.
In the week since it became clear you would be facing Donald Trump in the general election, I’ve sensed giddy delight coming from your camp.
Believe me, I get it.
Trump has incredibly high unfavorable ratings. Women hate him, as do Hispanic voters. The very things that made him attractive to the Republican base — the anger, the fear-mongering, the misogyny — could drive millions of undecided voters into your outstretched, welcoming arms.
I hate to break it to you, but you’re not especially popular either. Sure, Trump’s unfavorables are higher than yours — but yours are pretty damn high! And it’s not like those numbers are likely to move very much. You’ve been a fixture on the political scene for close to a quarter century now. And those young people who know the least about you have been Bernie Sanders’ most passionate supporters in the primaries. That might not prove fatal in the general election, but it’s not exactly good either.
And then there’s Trump.
With 10 contests left to go in the primaries, Trump has already surpassed Mitt Romney’s vote total for the entire 2012 primary season by roughly 700,000 votes. And he did it against a more sharply divided field, and while winning a smaller portion of overall votes cast (though that number will narrow between now and the end of the primary season on June 7). Republicans are energized, with turnout up sharply from four years ago. This means that the baseline assumptions that have held since 1992 may not pertain this time around.
In every single one of those elections, the Republican candidate has run on pretty much the same cluster of issues: tax cuts, especially for the wealthy; muscular internationalism; social conservatism; free trade. That’s also the matrix of positions Democrats of your generation are conditioned to respond to and attack.
But Trump is different. He will hit you from the populist far right on immigration and free trade. He will hit you from the far left on the Iraq war, Libya, and Syria. He will directly challenge you on economic policy by supporting an increase in the minimum wage and higher taxes for the wealthy.
How will you respond to the onslaught? I sure hope the answer is that you have no idea yet. Because if you think the answer is obvious or simple, you’re deluding yourself.
No Democrat has ever run against a candidate like Trump. He overturns every settled ideological and temperamental expectation of normal politics. He will go after you with a ferocity we’ve never seen before, and the assault will be unremitting — yes, on the stump, in TV and radio ads, and in the debates, but also in 24/7 cable news coverage and an endless stream of infectiously quotable tweets, half of them capped by what’s become this election cycle’s all-purpose three-letter dismissal: Sad!
Don’t try to define Trump, whether by labeling him “dangerous” or anything else. He’s a master of rhetorical jujitsu, instantly turning criticisms and insults into honorifics. Let Trump define himself. Of course he’ll try to define you, too — as “Crooked Hillary,” among other things — but your self-definition needs to prevail over the one he tries to pin on you. If it doesn’t, you’ll lose.
Following months of appeasement of Turkey’s dictator Recep Erdogan, Europe has found itself surprised that as it yields to every incremental demand, Turkey simply asks for more and more. One such example was chronicled by the FT earlier today in “Turkey demands EU hands over €3bn for refugees” in which we read that “a row has erupted between Turkey and the EU over billions of pounds in aid for Syrian refugees, casting fresh doubt on a fragile deal to halt the flow of people towards Europe.”
Erdogan’s argument is that he want the money to be transferred over to him directly to dispense with as he pleases, while Europe insists that UN agencies oversee that the money be spent as designated for refugee needs, instead of funding another wing for Erdogan’s palace. Of course, the only reason why Erdogan is confident he has leverage is because Turkey is currently hosting over 3 million Syrian refugees that is holding back from flooding into Europe once more, potentially resulting in the most acute episode of Europe’s refugee crisis.
And to his credit, Erdogan has been successful in that, because as the following chart shows, for the first time since April 2015, more refugees arrived in Europe via Italy than on the path through Greece to the east. The flow of migrants through the Aegean Sea has waned since the European Union and Turkey struck a deal in March to send refugees back that arrive in Greece.
However, this potential onslaught of Europe-bound refugees is also Erdogan’s biggest trump card: should Europe deny anything Turkey wants, he will simply open the gates leading to spiraling political chaos of the type already seen in Austria and Germany where anti-immigrant parties have stormed higher in the political polls in recent months.
Confirming precisely that, was a warning by Burhan Kuzu, a high-ranking deputy for Turkey’s ruling AKP party and former adviser to President Erdogan, who said that Ankara will send migrants back to the EU if the European Parliament won’t grant visa-free travel to Turkish citizens. Kuzu made several statements on Twitter in anticipation of Wednesday’s session of European parliament, at which visa exemption for Turkish nationals in the Schengen zone, as part of a migrant deal between Brussels and Ankara, was to be discussed.
“The European Parliament will discuss the report that will open Europe visa-free for Turkish citizens. If the wrong decision is taken, we will unleash the refugees!” in what was an unmistakable threat.
Avrupa Parlamentosu,yar?n Türk Vatanda?lar?na Avrupa yolunu vizesiz açacak raporu görü?ecek.Yanl?? bir karar verirse Mültecileri göndeririz!
He also told Bloomberg: “If Turkey’s doors are opened, Europe would be miserable.“
“Europe is on the edge of an important decision: It will decide on Turkey’s visa-free travel rights today. If a positive decision comes out, this is also a benefit for Europe,” the MP wrote in a separate tweet.
As RT writes, it’s not the first time the deputy has threatened to flood Europe with over 2 million migrants from North Africa and Middle East, stranded in Turkish refugee camps.“Finally the EU understood Turkey’s stake and loosened its purse strings. What did we say? ‘We will open the borders and set Syrian migrants on you’,” he wrote back in December 2015.
But in the worst news for Greece, and an indication that Erdogan’s gambit is no longer working, EUobserver wrote earlier that the European parliament had “quietly” suspended discussions of visa-free travel for Turkey Monday. EU parliament chief Martin Schulz put the debate on hold because Turkey had not yet met all EU visa-free criteria, said Judith Sargentini, a Dutch Green MEP. According to the site, the move is aimed at putting pressure on the European Commission so that it would take a firmer stance on Turkey fulfilling its part of the deal.
“The ball is back with the European commission,” one of the MEPs told EUobersver, while the other stressed that the suspension will “make the parliament more important.”
Meanwhile, Turkey’s minister for EU affairs Volkan Bozkir met with EU Commissioner for Migration, Home Affairs and Citizenship, Dimitris Avramopoulos, in Strasbourg today. The minister will also hold talks with Johannes Hahn, Commissioner for European Neighborhood Policy and Enlargement Negotiations, on Friday in Brussels. No press events were planned following both meetings.
The reason for the visit is because on May 4, the European Commission proposed to the European Parliament and the EU Council to lift visa restrictions for Turkish citizens, if Ankara fulfils five conditions by the end of June. They included measures to prevent corruption, holding talks on an operational agreement with Europol, judicial cooperation with all EU member states, bringing data protection rules in line with EU standards, and the revision of legislation on the fight against terrorism. It was the last condition that Turkey found particularly unacceptable.
Bozkir told Turkish NTV broadcaster Wednesday that “it is not possible for us to accept any changes to the counter-terrorism law” as demanded by the EU.
This followed a firm statement by Erdogan who told the EU on Friday that Turkey would not make the changes, declaring: “we’re going our way, you go yours”.
Wednesday’s repeated refusal, and assertion that there had never been a reciprocal deal over the laws, will likely alarm EU officials already worried by the departure of Prime Minister Ahmet Davutoglu, seen as a more flexible negotiating partner.
The EU said last week Turkey still had to change some laws, including narrowing its legal definition of terrorism, to secure visa-free travel for its citizens – part of a wide-ranging deal to secure Turkish help in reducing the flow of migrants into Europe.
Turkey’s clear rejection and insistence that it has all the required leverage, sets Europe and Turkey for what will be a dramatic showdown in which Turkey’s increasingly despotic dictator will either be appeased one more time, or his bluff will be called.
With Europe hit by the biggest migrant crisis in decades, the EU and Ankara signed the migrant deal back in March. According to the agreement, Turkey would take back refugees seeking asylum in the EU in exchange for a multi-billion euro aid package and some political concessions, including the visa-free regime.
If the deal falls apart, Turkey will surely flood millions more in refugees who will unleash far more political havoc across Europe, and certainly Germany, than Greece ever could.
So for all those focusing closely on the risk of Brexit or developments in Greece this summer where the third Greek bailout may or may not give the insolvent nation a few more months before its next payment to the ECB is due while it pretends to “reform”, a far bigger risk is what Greece’s neighbor to the east, ruled by an unhinged, irrational president, will end up doing, and how Europe would respond if he actually follows through with his bluff.
Oil stocks are at a seemingly “must-hold” level within their long-term reversal attempt.
If there is one sector that best symbolizes the prospects of the post-February stock market rally, it is energy. It isn’t that energy stocks have been the only area performing well in this rally. To the contrary, we have pointed out on numerous occasions the evidence of strong breadth within the rally. As such, many segments of the market have been working, from longer-term relative strength leaders that continue to score new all-time highs to those beaten up sectors exhibiting momentous mean-reversion bounces. Oil stocks would fall into that latter category, of course. The question now is, will the bounce in oil stocks only be a mean-reverting move – or the start of a longer-term, more meaningful rally? One key index may be undergoing a test right now that could go a long way toward answering that question.
The index is the NYSE Oil & Gas Index, or XOI. We have mentioned the XOI several times in recent months as oil stocks have indeed been in the spotlight. Our main focus in those posts, including this April 13 piece most recently, has been on the lifetime (post-1986) Up trendline in the XOI, and its significance in delineating bullish prospects from bearish ones among oil stocks. This trendline is our “line in the sand”, as we called it, in determining the well-being of the XOI. And after dropping below the trendline in January for the first time in 30 years, the index was able to reclaim the line as we mentioned in the April post.
In the past 2 weeks, oil stocks have been hit hard, though. And over the last 24 hours, the index has dropped down to again test the top of that post-1986 up trendline. As the following charts show, also converging in the same vicinity is the down trendline from the XOI highs in 2014, which the index broke above a month ago. This could be a key test of the durability of the rally in oil stocks.
Long-Term:
Close Up:
If the XOI is able to successfully hold this level (around 1070-1090), then the long-term turnaround potential in oil stocks can remain on track. If the XOI fails to hold here, in our view, oil stocks become vulnerable once again to significant downside.
Whatever the final decision turns out to be, the DOJ will most certainly be faced with harsh criticism from one side of the aisle or the other.
"In this scenario, federal prosecutors are damned if they do bring a case and damned if they don't."said former deputy chief of the Justice Department's public integrity section.
Regardless of the DOJ's final decision, its reputation will take a significant hit from those who find the ruling not to their liking. If charges are brought, Democrats will point to FBI Director James Comey's ties to the Bush administration as motive to pursue the case so diligently. On the other hand, if the Justice Department declines to bring charges, Attorney General Loretta Lynch and President Obama will both be under scrutiny, with allegations of a cover-up galore.
Of course, the DOJ could have avoided this difficult situation had it appointed an independent prosecutor. A move that, according to The Hill, Senator John Cornyn (R-TX) has advocated on the floor of the Senate. So far, however, the Justice Department has declined to go down that path.
"I'm greatly concerned about the reputation of the Justice Department, which is why I have stated that I think the proper and best course would have been to have this go to an independent prosecutor a good year ago. It was pretty obvious that to put these decisions in the hands of high-ranking political appointees creates a perception – valid or not – of, at the very least, unconscious political influence." said Ronald Sievert, a former Justice Department official who now teaches law at Texas A&M.
We don't have any sympathy for the position the DOJ finds itself in. The cronyism that has run rampant throughout the financial and political arenas may someday come back on those that helped create it and facilitate it, which would be a welcome development. There is a very good chance that no matter what happens, the public will eventually be able to review all of the evidence and decide for themselves. If charges are brought, then the public will get the opportunity to see all of the facts as they are laid out throughout the case. If no charges are brought, then as Senator Chuck Grassley hinted, the FBI's investigative materials may be "leaked."Until that time, we will just have to sit back and watch the circus.
Donald Trump is going to win the Republican nomination. If you’d told me a year ago that Trump would be the nominee, I’d have thought you were nuts.
For a candidate like Trump to win the nomination, it means that several things have gone wrong — both for the Republican Party and in the assumptions we made about how party nominations work. The other day, I summed up the three most important such factors as follows:
What happened after Wisconsin? My theory as of a couple weeks ago — and having not gotten so many other things about the Republican race right, I’m sticking to it — is that Republican voters were swayed by Trump’s arguments that the candidate with the most votes and delegates should be the nominee.
Sticking With Dead Wrong
Simply put, Silver is sticking with analysis that has been dead wrong. But here’s the clincher.
Silver says “Usually a party picks a nominee who is both reasonably ‘electable’ and who upholds its traditional policy positions.”
The second half of that sentence actually makes sense. The first shows Silver’s blatant bias.
The entire step of the way, Silver concluded Trump is not “reasonably electable”.
What Went Wrong?
Actually, nothing went wrong except Silver’s analysis. Silver ignored a massive (and obvious) attitude change.
After the Republicans lose, there will be no hugging and no learning. And that means the 2020 nominating campaign could be another circular firing squad similar to the one we are witnessing now. You had better stock up on popcorn.
The article is so ridiculous I won’t even excerpt it.
A couple days ago The Hill posted an article from a Republican strategist who just lowered the Republican chances in November because Trump won the nomination. The strategist downgraded Republican chances in Florida, Michigan, and other states. ‘
Apologies offered because I can no longer find the link.
Misguided Analysts
Analysts, left and right, still don’t get it.
On the Right, it is absurd to believe Cruz would do better than Trump. On the Left, analysts ignore the shocking weakness of Hillary who was supposed to roll over Bernie Sanders without a fight.
Everyone cites Trump’s ridiculous statements on women, abortion and other things. Yep, they were shockingly poor.
However, everyone knows about them. They were ignored. So why are they supposed to matter in November?
In contrast, have we heard everything there is to know about Hillary’s emails? About Clinton Foundation donations? About Hillary’s misguided policies in Libya?
Trump the Savior
Unlike Ted Cruz, Trump has a very good shot of picking up crossover Democratic votes.
As I stated last year, there are a lot of angry white voters who blame China, Vietnam, and India for stealing US Jobs.
I strongly disagree with Trump’s protectionist policies. But my vote is meaningless.
Trump has a strong chance of winning Ohio, Pennsylvania, Indiana, Florida, and Michigan.
Ted Cruz cannot say the same thing.
Trump can also pick up Libertarians tired or war.
Millennials? They liked Bernie Sanders and many of them will sit this out.
Slogans
Trump has “Make America Great Again”
What does Hillary have? “I am strong, I am invincible, I am woman. Let’s bomb Libya”.
It matters not whether Trump can live up to the message. What matters now is whether or not people like the message.
This is about attitudes.
Pure Hell
In retrospect, Donald Trump is the “candidate from hell”.
He will beat Clinton: Her Hell.
He is the undoing of the neocon warmongers (of which Hillary is one): Their Hell.
In doing so, Trump will save the Republican party from itself. Even if Trump, loses, purging the party of the neocons and the evangelicals is a good thing.
This comes after Hyperloop One announced it had raised $80 million in venture capital financing, formed a number of key partnerships with established transportation, engineering, and infrastructure firms, and said that it will create a new global challenge “in order to harness the most creative minds in making Hyperloop a reality.”
Over the past two weeks we observed two curious, vol-related phenomena.
First, it was Tom DeMark cautioning that even as stocks have surged, the amount of VXX shares outstanding has soared to record highs, a seemingly contradictory confluence of events because it suggested that investors, traditionally “going with the market flow”, are betting on a major vol reversal and furthermore the move contradicts historical shifts in VXX holdings at times of extreme market upside.
Second, just days later, Goldman confirmed as much when looking at overall market volatility, admitted that “our view that the VIX may remain low in the near term is at odds with the VIX ETP market, as investors seem to be pouring money into levered long VIX ETPs.” Goldman’s derivatives team also wrote that “while long ETP exposure has been growing, the appetite for inverse VIX ETPs, which benefit from declines in volatility such as the XIV and SVXY, has been muted, with vega exposure remaining range-bound in recent weeks. That’s surprising, since the benchmark index which these underliers track (SPVXSPI) is up 73% since the market low on February 11 and investors often follow performance!“
Goldman’s punchline: “Vega exposure on longs has tripled since February 11: The total amount of vega exposure across four popular long VIX ETPs (VXX, VIXY, UVXY, TVIX) has tripled since February 11 and recently stood at ~290 million, a record high.”
In short, someone has been aggressively preparing for the next vol spike episode, even as VIX itself has barely budged while the VXX recently hit fresh split-adjusted record lows.
All of this brings us to the point of this article, which focuses on the most recent observations by JPM’s quant guru Marko Kolanovic, who moments ago released his latest report. Not surprisingly for a man who deals with “Greeks” all day long, the topic of his note is precisely this curious decoupling between vol flows and realized vol. More importantly, it is volatility that is flashing a red light for Kolanovic, who says that “given the low levels of volatility and high levels of leverage, the main risk for the market remains a potential volatility shock.”
Risk for the market, yes; but not for those who have been aggressively allocating funds into vol-related products – if indeed a “vol shock” does take place and send the VIX soaring into the 30+ range as it did on August 24, 2015, there will be a few more traders who will be able to retire early.
Here is his full take on what he sees as the “main risk for the market”
Over the past 2 months, low volatility and positive equity performance attracted Equity inflows into various systematic strategies. Our estimate for the total equity exposure of Volatility Targeting, Risk Parity and CTA funds is shown in Figure 3 below (blue line; note the correlation with net speculative S&P 500 E-mini futures positions – red line). Overall, the equity exposure of various funds is high, but not peaked in April but declined somewhat over the past 1-2 weeks. The exposure of CTA funds is substantially below its 2015 peak (they largely closed shorts but did not build large long positions). Most of the levering appears to be on account of Volatility Targeting strategies that invest inversely proportional to market volatility.
Clients have asked us why CTAs never reached their 2015 highs of equity exposure as momentum briefly turned positive in April (or why they didn’t go fully short as momentum briefly turned negative over the past week). Given that the market is roughly flat on a 12, 6 and 1 month basis, the momentum signal has been volatile, i.e. small S&P 500 moves can make it shift between positive and negative. This signal instability increased Equity tail risk for trend following strategies, and likely caused them to reduce overall equity risk allocations. We also believe that several trend following strategies may have resorted to buying Equity call options, to mitigate risk related to market turning points (i.e. ‘short gamma’ risk). In terms of CTA signals and flows, the main near term risks include Oil signals turning solidly positive this week (leading to further inflows as 6M price momentum turns positive), and equity short term momentum turning negative next week (leading to potential outflows as 1M price momentum turns negative). The Equity exposure of hedge funds (e.g. HFRXGL) has also come down over the past 3 weeks (from ~75th historical percentile to about average levels of equity exposure)
Given the low levels of volatility and high levels of leverage, the main risk for the market remains a potential volatility shock. Over the past month, low volatility resulted in significantly higher market liquidity. Figure 4 shows the market depth of S&P 500 futures over the past 6 months. One can see that market depth now is almost 3 times higher than during the lows of August or January. This is one of the reasons why the reduction of equity positions of hedge funds and risk parity funds over the past few weeks did not cause much market volatility (i.e. the market easily absorbed it). However, if volatility were to increase, liquidity would dry out quickly. The inset to Figure 4 below shows the relationship between market depth and the VIX. For instance, should the VIX increase above ~20, market liquidity (depth) would like get cut roughly in half. It is this relationship between market volatility and liquidity that leads to increases in ‘volatility of volatility’ (i.e. alternating periods of extremely low and extremely high volatility).
Kolanovic, is of course right, that another spike in “volatility of volatility” could quickly deflate all the market euphoria built up over the past 4 months. The only question is the timing of said event. While we don’t pretend to know when said inflection point will come, all those who are aggressively rushing to purchase either direct vol exposure via VXX shares (see top chart) or various other vol-related gamma exposure, are certainly confident to put their money that this moment is imminent.