Weekend Reading: Fed Up

Submitted by Lance Roberts via RealInvestmentAdvice.com,

As discussed yesterday, the markets have been quiet. Too quiet. That makes me worry as generally when volatility resurfaces it has not been kind to investors in the short-term.

But despite the lack of volatility in the market, the S&P eclipsed 2300 yesterday breaking through the psychological barrier on its continued quest towards 2400.

While the market continues to trade on the back of Trump announcements of potential tax reform and support for airlines, the economic backdrop continues to show signs of age.

The important point to note here is the historical deviation between exuberance and economic realities has generally NOT been resolved by reality catching up with fantasy. It has always been the other way around.

This brings me to my interview with Danielle DiMartino-Booth this past week. She and I dig into the economy, the Fed’s missteps, and the realities that currently prevail in the market and the economy. I am sure you will enjoy the interview.


(Note: If you order a copy of Fed Up and bring it to the 2017 Economic & Investment Summit on April 1st in Houston, Texas you can have Danielle personally autograph for you. Also presenting Greg Morris, Michael Lebowitz, and Dave Collum.)

In the meantime, here is what I am reading this weekend as I put my “S&P 2300” hat on…for now.



Favorite / Interesting Reads

“The only thing standing between you and your goal is the Bulls*** story you keep telling yourself as to why you can’t achieve it.” -The Wolf Of Wall Street

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Dead Market Ramping – Stocks Hit Record Highs As Activity Hits Record Low

Herd mentality…" yes, we are all individuals… he's not the messiah, he's a very naughty boy"


Dead Market Walking

Lowest 90-day realized vol for the S&P 500 in 10 years…

85 days in a row without a 1% drop… 44 days without a 1% close to close gain or loss… 39 days in a row without a 1% intraday swing…


But The Biggest Short Squeeze since the election


Has sent stocks to record highs… Trannies were best on the week, but the massve squeeze lifted everything…


On an ever-decreasing bed of lower volumes…


VIX was crushed back to a 10 handle leading the Dow to just shy of 20,300…

Energy stocks ended the week red but today's kneejerk higher on Tarullo's resignation headlines kept the banks in the green…


Bonds traded in a very narrow range today and ended the week lower in yield across the curve… (30Y ended the week back above 3.00%)


The yield curve flattened notably… (the week saw the biggest weekly flattening in 2 months)


Which explains why banks shot higher today… oh wait…


The USD Index has its first positive week of the year (best week in 2 months)


EUR was the weakest of the majors on the week and Cable strongest…


Meanwhile oil prices ramped into the green for the week (as EIA OPEC data trumped dismal production and inventory data)…


And Oil Vol collapsed to 3 year lows…


On the week oil ended unchanged. Notably Copper and silver surged today as the USD dropped around the US open (performance post-payrolls)


For 2017, The Dow just edge out the long bond but Gold remains the big winner… (6th winning week of the last 7)

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RBC Warns “It’s The Melt-Up That Hurts”

After an outstanding start to the year for Equity hedge funds, this most recent gap move higher in stocks (while rates and FX remain firmly ‘in range’) is pretty-much exactly what RBC's Charlie McElligott warned is a "bad scenario" for equities funds.

Risk-assets to fresh highs alongside a “reflation impulse” re-rack (S&P eminis through their 1 year trendline resistance as we speak, while the early scan (revisions / updates coming later of course) of new positioning data shows a remarkable jump in TY (UST 10Y fut) open interest +70k (!) as shorts re-engage SIZE, h/t RBC Futures). 


  • First-and-foremost, the Trump drive-by statement on a “phenomenal” tax plan to purportedly be released in the next “two or three weeks” satiates the market’s primary desire for clarity and positive-messaging on the tax cuts and how they are going to be funded to keep them ‘rev neutral’ (BAT?  VAT?  Cash flow taxation?  No interest deduction?  A replacement of “amortization of cap goods” by instead a deduction of “capital purchases”?  Have House and Senate somehow shockingly ‘aligned’ after being so ‘apart’ on this topic?)  As a reminder, the tax cuts are by far-and-wide the largest driver of the S&P target upgrades that daisy-chained Street-wide in December.
  • More market rewarding “Good (focused) Trump,” as the President has agreed to honor the “One China” policy in a phone call to with China’s Xi, and squelching fears of “that” left-tail.  And in general, a President Trump that is refocused on “momentum” after the messy immigration battle: TRADE (Xi patch-up and Abe today / tomorrow), DEREGULATION / INFRASTRUCTURE (comments with airlines execs yday) and obvi TAXES.
  • Chinese trade data showing better-than-expected imports and exports (although almost certainly distorted due to the long Lunar New Year).
  • Release of IEA data showing very strong OPEC output-cut compliance (92% of targets, led by Saudi at 116% of cut rate), with now more Ministers calling for an extension (“if it feels good, do it”).  As I say almost-daily now, the QI Factor PCA Model shows inflation expectations (crude primary driver), credit spreads (crude first deriv driver), energy prices (duh…) and risk-aversion (negative correlation btwn crude and VIX at nearly 3-year highs) as the largest macro factor price drivers of the S&P.  This is why I continue highlighting crude as the most-likely culprit behind both left- and right- ‘tail events’ for global equities right now.  In the meantime, WTI is +1.8% and thus breakevens stop their slump to reverse higher for the first time in days.
  • Abe / Trump speculation of further coordination on growth-measures (currency manipulation NOT going to be a topic, but US infra investments WILL #HomnaAccord conspiracy theorists unite) keeping everybody’s favorite old-school risk-proxy $/Y well-bid back through 113.5.

RE-REFLATING: Just as it was on life-support (HIGH HIGH HIGH expectations for this “tax announcement”-caveat emptor), “reflation” takes one more swing. 


EQUITIES THEMATIC MONITOR EXPRESSING THE ‘FINAL PUSH’ OF ‘REFLATION’ (nicely tracking the view that Mark Orsley and I have been pushing while marketing regarding the ‘final’ equities melt-up over next quarter or two before back half of year interest rate volatility implications sees stocks end off their best levels)-

THE MELT-UP THAT HURTS?: After an outstanding start to the year for Equity HF’s, this gap move higher in stocks (while rates and FX remain firmly ‘in range’) is pretty-much exactly what I was referencing in Tuesday’s note as the “bad scenario” for equities funds:

One challenge going-forward though is the potential of a market breakout higher, where anecdotally I still don’t see a ton of risk-appetite per recent meetings / marketing and PB data on nets / gross. 


“Rich valuations” with “Trump uncertainty” / “implementation delays of pro-growth policy” language is the baseline response from clients in US (and the dreaded ‘geopolitical / election risks’ in EU), which speaks to a ‘pain trade’ melt-up scenario being highly-likely as positioning data still shows that many are begrudgingly along for ride with only one foot in the water.

This also touches on the point I made in the same note about buyside ‘long vol’ trades “bleeding” them of performance as we now see SPX realized vols from 15d, 30d and 90d all below the 8 level, which is a real kick in the pants.  And yes, this comes with short books being squeezed over the past three days the most since the start of December / peak post-election “reflation euphoria.”

VOL BLEED = MAJOR SYSTEMATIC LENGTH IN EQUITIES AND CRUDE: Just a note that we have to assume very significant length in the market from vol-based allocation models (risk-parity, CTA, target vol) in both crude (3m implied vol at 1.5 yr lows) and stocks (SPX 3m 100% moneyness just off January’s 2.5 year lows).  This would of course speak to the potential for “positioning imbalances” that would be ripe for mechanical (unemotional) deleveraging on a sustained move higher…but for now, selling short front-month vol continues to be a profitable-trade.

USD AGAIN IN-FOCUS: As pointed-out in Tuesday’s “Big Picture,” the USD is again ‘getting its legs’ (DXY about to test 111 for first time since January) as the poster-child proxy for the ‘reflation trade’–which until yesterday morning was at death’s doorstep.  Even before President Trump’s utterings on ‘tax policy progress’ yesterday, the Dollar had been showing signs of life for the better part of a week and a half—and is actually now set to see its first weekly gain of the year.  It is pretty clear that the move higher in the Dollar—although with plenty of qualitative drivers (positioning excess washout, Fed speakers attempting to keep March / 3 hike in ’17 “alive,” dovish Draghi / ECB and the aforementioned renewed confidence in a “Dollar bullish” US tax package pending) has been driven by two inputs:  1) the turn higher again this week in US “real yields” (as breakevens finally cracked-lower while nominal yields did more of their chopping) and 2) wider US / EU rates differentials (+11bps since last Thursday).

TAXES—OBVIOUSLY WHAT THE MARKET IS FOCUSED UPON: When on Tuesday I was showing the extent of the “reflation unwind” (rates, thematic equities and FX reversing the mega-trend), I made this specific caveat on what it would take for the USD to regain its status as ‘chief indicator’ of reflation: “This could again change where ‘higher Dollar / domestic reflation’ again “synch” if we were to receive ‘Trump policy clarity’ (taxes) or more robust ‘hard’ economic data that would in turn keep the ‘growth over financial tightening / inflation’ hope alive.”  Some “phenomenal” tax-plan (purported) progress later, and there you go.
This “sudden progress” on tax policy is obviously confounding (but exciting!) the market, as over the past 2 weeks we’ve seen the opposite–a firming of the Senate opponents vocally against the House- and Paul Ryan- supported B.A.T. (as the primary means of funding the tax cuts in addition to the deduction).  Thus, I do think there is scope for IN THIS NEAR-TERM 2-3 WEEK WINDOW for some disappointment with whatever is announced—perhaps a re-branding of this as a VAT, as a “fee,” as a “made in America” mechanism…or some other case of semantics.  As Mark Orsley has stated, dropping the “PAYGO” requirements as a workaround is very low odds…but it in theory would be possible to make this work.  But if it is TOO watered-down with sector / business-specific exemptions, it likely won’t pass WTO muster, NOR will it raise the required revenue to offset the tax cuts….ERGO it’s possible we’d see a dreaded “smaller than advertised” tax cut.  GASP.
That said, there is also a reason I went on the record in Monday’ “RBC Big Picture” that the market is vastly underpricing B.A.T. going-through as part of the House’s tax policy plan, and estimated its inclusion as a 70 delta (instead of say GS’ “20 delta” note last week): Republicans are feeling the heat of their constituency with regards to the two big changes they were promised by the Trump Administration out of the gates: an ACA replacement / amendment and Taxes…and as such, they need to ‘come to terms’ with a resolution ahead of the Summer, as reconciliation is typically a 4 to 5 month process (making these potentially end of ’17 / start of ’18 stories).  Simply put, that timeline is not gonna cut it…so you have to take action and sweeten the deal to get the Republicans on the same page—thus you find the additional ‘add-ons’ and close other loopholes to get the hold-outs something that eases their concerns.

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Recession Alert: Treasury Receipts Turn Negative For The First Time Since The Financial Crisis

On the surface, today’s monthly budget statement showed good news: in January the US Treasury brought in total receipts of $344 billion, versus outlays of only $293 billion, resulting in a surplus of $51 billion, substantially greater than the $40 billion expected (and well above last year’s $28 billion deficit), a surplus which however was largely due to a law requiring the IRS to delay sending out tax refund checks to household claiming certain tax credits. For the fiscal year through Jan.31, the total US budget deficit was $157 billion, and set to keep rising this year and for the foreseeable future.

However, a more concerning datapoint emerges when looking at the annual change in the rolling 12 month total. It is here that we find that for the LTM period ended Jan 31, total government receipts were $3.27 trillion. This number was 0.3% lower than the $3.28 trillion reported one year ago.

Why is this important? Because as the chart below shows, every time since at least 1970 when government receipts have turned negative on an annual basis, the US was on the cusp of, or already in, a recession. Indicatively, the last time government receipts turned negative was in July of 2008.

One potential mitigating factor this time is that much of the collapse in receipts is due to a 12% plunge in corporate income tax, which begs the question what are real corporate earnings? While we hear that EPS are rising, it is clear that for IRS purposes, corporate America is in a recession.

How about that far more important indicator of overall US economic health, and biggest contributor to government revenue, individual income taxes? As of January, the number was $1.56 trillion, fractionally, or 0.3% higher than a year ago, and declining.

Finally should Trump proceed to cut tax rates without offsetting sources of government revenue, a recession – at least based on this indicator – is assured.

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In Search Of A Pension Fix (When None Is Possible): What Happens?

Submitted by Mike Shedlock via MishTalk.com,

As I pointed out long ago, there is no possible fix to the Dallas pension mess except massive haircuts to pension payouts.

Given The pension board does not want to admit that, nor the mayor, nor the city council, it was inevitable talks would disintegrate into finger-pointing and lawsuits.

That’s precisely what happened.

The story is a bit convoluted and hard to follow without the background so for those unfamiliar here are some articles to bring the story up-to-date.

  1. October 16, 2016: Dallas Police Retiring in Droves, Taking Lump Sum Pensions, Fearing the Money Isn’t There (And It Isn’t)
  2. November 22, 2016: Dallas on Verge of Bankruptcy Due to Pensions; Just a Matter of Time (For Dallas, Houston, LA, Oakland, Chicago, etc)
  3. December 5, 2016: Dallas Pension Showdown: Mayor Seeks to “Target Those Who Got Rich From System”
  4. December 31, 2016: Criminal Witch Hunt in Dallas Pension Fiasco

With the background out of the way, please consider ‘Politics of intimidation,’ or family feud? Anger grows as Dallas Police and Fire Pension System looks for fix.

As the Dallas Police and Fire Pension Board braced for possible legal action from four of its own trustees, frustrated Chairman Sam Friar sought retribution.


Friar, in his personal capacity, circulated a resolution among police and fire associations. The document proposed to permanently ban the associations from giving any endorsements or other political support for the council members on the board for their “despicable action.”


Both his maneuver and the council members’ request to have a court take control of the pension system have added more friction to the deeply strained relationship between City Hall and active and retired police and firefighters.


Some hope still remains that they’ll find a way to save the pension system from insolvency. But so far, talks have gone nowhere, and tensions are running high.


Council member Scott Griggs said Friar engaged in “the politics of intimidation.” He said the fact Friar spent time and energy on the resolution underscored why the fund needs an independent court-appointed receiver making decisions.


Deputy Mayor Pro Tem Erik Wilson said he understands why Friar drafted the resolution, even though he was “taken aback” by it.


Mata said Friar had “good intentions,” but that the idea wasn’t “appropriate nor in the best interest of the DPA and the city.”


Dallas Firefighters Association President Jim McDade agreed but believes city officials are disingenuous.


“They’re trying to point fingers at us, but they need to look at themselves and ask whether they are even trying to negotiate a settlement in some way,” he said. “Clearly, they’re not.”


State House Pensions Committee Chairman Dan Flynn and his staff are looking at a proposal that would pay out the lump-sum payments as annuities over retirees’ projected lifespan. The retirees might also be able to sell their stream of payments to private financial institutions in exchange for a lump sum. But it would save the pension fund from losing nearly half its value and save retirees from seeing the interest they earned disappear.


But the board still expressed some reservations about the idea. Still, none disagreed that it would be better than the city’s plan.


That is, if the numbers work.

Numbers Don’t Work

The source of the bickering is clear: The numbers don’t work.

  • The plan assumes 8% returns plus an extra 2% COLA in some cases.
  • Projected salary increases are a “modest” 3.5% to 18.0%.
  • The plan uses 5-year smoothed averages. That means the great recession was already factored out.


The Dallas police and firefighters pension fund has just 45% of the money it needs to cover benefits. The fund rates to be out of money in 15 years at the current rate of withdrawals.

Threatening lawsuits against the pension board will not change the numbers. Nor will targeting  “Those Who Got Rich From the System

To get the pension plan a mere 70% funded would require a taxpayer bailout of $1.1 billion dollars. Of course, that assumes stock prices keep rising.

Taxpayers on the Hook?

Taxpayers should not be on the hook for this mess. The promises were bound to fail from the get go.

The fault for this mess is squarely in the hands of politicians, not those running the fund.

Nearly every public pension plan in the nation is severely underfunded. There is nothing special about Dallas.

The witch hunt is on.

There is only one practical solution: cancel the plan for future employees while slashing benefits accrued.

No one wants to admit that, so lawsuits and pamphlets are flying.

Bankruptcy Law

Unlike Illinois whose pensions are in even worse shape, Texas specifically allows chapter 9 filings according to the Governing.Com article Municipal Bankruptcy State Laws.

Sensible Actions

  1. The sensible solution is municipal bankruptcy coupled with big pension haircuts.
  2. Before the pension fund implodes, the sensible action for Dallas police and firefighters is to retire ASAP and take a lump sum payment.
  3. Point number two ensures that a run once started is likely to be fast and furious, which is where we are at today.

This is going to get interesting in a hurry.

By the Way

By the way, please note we have these problems with the stock market at an all-time high. Dallas is not unique. The entire state of Illinois is in an even worse predicament.

Even flat market performance for a number of years will bankrupt nearly every public pension plan in the country given 7.5% to 8.0% pension plan assumptions.

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How The Flash Crash Trader Was Scammed Out Of A $50 Million Fortune

The sad saga of Navinder Sarao, who on April 20, 2015 became the scapegoat for the May 2010 flash crash and was sentenced to up to 360 years in prison – he will find out later this year the actual length of his prison sentence – got its latest twist today thanks to a fascinating report how in addition to having lost his freedom, Nav also lost all of trading fortune, some $50 million of it.

As Bloomberg’s Liam Vaughn recounts, “it took Navinder Singh Sarao a long time to accept that he might have been scammed out of $50 million. Stuck in London’s Wandsworth prison, wracked with anxiety and unable to sleep, the realization dawned on the man dubbed the “Flash Crash Trader” as slowly as spring turned to summer outside the barred window of his jail cell.”


Regular readers are familiar with the background story: according to the U.S. government, the British day trader had made tens of millions of dollars using an illegal practice called spoofing, including on May 6, 2010, when the Dow Jones Industrial Average fell almost 1,000 points in minutes before bouncing back. The extent of Sarao’s culpability for the flash crash is fiercely contested, but the incident exposed the shaky foundations on which the hyper-fast, computer-dominated financial markets now rest, and we this website warned about since its inception in 2009.

Then, in November of last year, following an unsuccessful extradition fight, Sarao flew to Chicago where he pleaded guilty to one count of wire fraud and one of spoofing. He was ordered to pay $38.4 million to the CFTC and the Justice Department, which determined that, of the money he made by day trading, only $12.8 million came from cheating the market.

That much is known, what is less known is what happened after.

When Sarao’s bail was set at 5.05 million pounds ($6.3 million), Vaugh writes, few were surprised. “It was a hefty sum, but according to the accounts of his company, Nav Sarao Futures Limited, he’d earned 30 million pounds in the previous five years. Newspaper reports, in which Sarao was dubbed “The Hound of Hounslow,” speculated that he’d be back with his family in the shabby West London borough by the weekend. Instead, the nightmare got worse.”

“Where’s the money, Nav, his lawyers wanted to know.”

As it turns out, Sarao couldn’t make bail, “because the bulk of his wealth was tied up in investments and offshore trusts, each more complicated than the last.” And after four months of dead ends, in which Sarao remained locked up among sexual predators and violent offedners at Wandsworth prison, his legal team struck a deal with the authorities: If the U.S. Justice Department and the Commodity Futures Trading Commission agreed not to oppose a reduction in bail to 50,000 pounds, the firm would act as a bounty hunter, taking on responsibility for tracking down the missing millions on the condition that its fees be paid if it did.

What they found is that virtually all of Sarao’s money, some $50 million, was gone. Sadly, the infamous trader was a better spoofer, than investor.

A review of Sarao’s investments from 2005 to the present day, based on dozens of interviews and thousands of pages of documents, reveals another twist in an already remarkable story. Navinder Sarao, the trading savant accused of sabotaging the world’s financial markets from his bedroom, may himself have been the naïve victim of what his lawyers portray as a series of cons that stripped him of almost every cent he earned.

Making the money was not the problem. When Sarao left his last employer, Futex, in 2008 and struck out on his own, he started to make serious money, most of through spoofing. Public filings show his assets popped to 14.9 million pounds from 461,000 pounds in the 12 months ending in June 2009, long before he enlisted a programmer to build a system that authorities say was designed to cheat the market. By 2011, Sarao had trebled his assets to 42.5 million pounds.

As the money grew, Sarao felt the urge to engage various shady, and as it would subsequently emerge, criminal tax advisors, to help him preserve as much of the trading profits tax free. Predictably, it was here that the problems emerged.

Bloomberg then recounts where Sarao’s the money went. First, a company called IXE.

  • Sometime in 2012, Sarao was introduced to a squat, intense Mexican named Jesus Alejandro Garcia Alvarez, who was looking for investors for his company IXE Group. Garcia said he was the scion of a family of billionaire landowners and industrial-scale farmers with swaths of land around the world. He had arrived in Zurich from Latin America a few years earlier and had been working hard to build a reputation ever since.  IXE was conceived as a one-stop shop for high-net-worth individuals, offering services ranging from asset management to event planning to advice on private schools.
  • Then, around the time Sarao met Garcia, the company’s website underwent a radical overhaul. Gone were the concierge services. IXE was henceforth a “conglomerate of companies worldwide” involved in “agribusiness, wealth management, commodity trading and venture capital.”  Garcia was invited on Bloomberg TV to talk about his family’s quinoa interests, then on CNBC to discuss the “white gold rush” for lithium. Sarao did some due diligence about IXE, according to one adviser, but he seems to have overlooked a few red flags: The company website is littered with spelling mistakes, and several executives are members of Garcia’s family.
  • Garcia had all the trappings of a successful entrepreneur: half a dozen sports cars, a small but well-appointed office in the center of Zurich, a glamorous Russian wife. He even joined the Swiss board of the Robert F. Kennedy Center for Justice & Human Rights, an organization whose U.S. directors include Tim Cook and Martin Sheen.
  • Garcia told Sarao he would get an annual 11 percent return, the people said, and assured Sarao that any money he handed over would be used only as collateral, not put at risk.
  • On Aug. 20, 2012, documents show, Sarao agreed to give about $17 million to Garcia and his company—by far his biggest investment and a substantial chunk of his net worth. He later invested an additional $15 million, according to a person with knowledge of the matter. Even though they’d met on only a handful of occasions, he would describe Garcia to associates as a friend.

Sarao’s next major investment was in Iconic Worldwide Gaming. a company which allowed gamblers to bet on movements in currencies and securities using an interface that looked like an online casino, with a roulette wheel and buttons for “higher” and “lower” instead of red and black. The company predicted in the pitch document that Iconic would go from a standing start to a cash balance of 110 million pounds by the end of its third year. There were also some reassuring names on the board: Robin Jacob, a U.K. appeals court judge, and David Michels, a former deputy chairman of Marks & Spencer.

  • In July 2014, documents show, Sarao invested 2.2 million pounds in Iconic. Cranwood Holdings extended loans of an additional 1 million pounds, according to one Sarao adviser. He was, several times over, the largest investor in the company.
  • In the months following Sarao’s investment, O’Brien went on a campaign to increase Iconic’s profile. The company sponsored World Touring Car Championship driver Rob Huff and filmed a slick advertisement with mixed martial arts superstar Conor McGregor. O’Brien and his employees were photographed ringside or wining and dining clients. In one shot taken in Las Vegas and posted on Twitter, a line of promo girls posed in matching uniforms with Iconic logos emblazoned on their hot pants. In another, O’Brien stood next to a matte-black Rolls-Royce with the license plate DAMI3N.

His third investment was in an Isle of Man-based entity called Cranwood Holdings, set up to acquire land in Scotland that would one day house wind farms, according to two advisers to Sarao.

  • Documents on the enterprise filed in the British dependency are light on detail, but the advisers say Sarao put about 12 million pounds in Cranwood.
  • Dupont and MacKinnon said in their e-mail that Sarao conducted “substantial independent due diligence” before investing in Cranwood and that he approved all of its payments. One of their companies, Wind Energy Scotland, is funded by and provides project management services to Cranwood.

Unfortunately, none of these paid out.

By the time Sarao was arrested in April 2015, he had about $50 million tied up in investments around the world, according to people with knowledge of the matter who even now aren’t positive it’s all accounted for. It was only as his lawyers tried to recoup the money that he was forced to face up to the possibility that it was gone. Sarao was released that August after his parents put up the family home as collateral against the bail of 50,000 pounds. Sarao’s lawyers are no closer to getting their hands on the money beyond about 5 million pounds seized from his trading accounts after his arrest. The CFTC and the Justice Department have joined them in the hunt.

Ultimately, every Sarao investment ended up being either a ponzi scheme, a fraud, or a simple bankruptcy.

  • IXE told Sarao it would return the cash in installments in 2015 and 2016, according to a person familiar with the matter. “The deadlines came and went, but no money has been produced. Former IXE employees interviewed by Bloomberg say that Garcia spent whatever he brought in to fund his own lavish lifestyle.” Garcia hasn’t been accused of any wrongdoing. Forcucci, the IXE spokesman, said the company is “working to return the money in a fair and equitable manner to its investors.”
  • Iconic went into liquidation in January 2016. A company hired to advise it on resale options said O’Brien had underestimated the cost of breaking into the online gaming market by about 10 million pounds.
  • Sarao’s lawyers have been unable to retrieve his investments in Cranwood despite repeated requests, owing to its convoluted offshore ownership structure.

Meanwhile, as Vaugh concludes, “Sarao is back in his bedroom. The computer that got him into so much trouble is gathering dust in a Washington evidence room. Depending on how much the authorities are able to recoup, he will probably spend the rest of his life paying back the money he owes. If they really want it, they could always lift the trading ban, one associate quips: He’d make it back in no time.”

Sadly for Sarao, who was caught in the middle of an HFT fight that demanded a sacrifice, that will never happen. Now if only Nav had spent his money it as it came in…

There is much more in he full Bloomberg story.

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Has The “Fade The Trump Trade” Ended?

Submitted by Kevin Muir via The Macro Tourist blog,

Remember last month when everyone was hot and bothered about all the TRUMP trades? Whether it was long Russell 2000 futures, short bonds, long US dollar or short gold, most market participants were busy extrapolating the violent market moves months into the future. You were deemed an idiot if you didn’t buy into the “Trump will fix everything” mantra. Even supposedly long term investors like Warren Buffett were busy chasing the stock market higher.

At that time I created a volatility weighted TRUMP basket of those four trades (long small caps & US dollar while short bonds & gold) that I viewed as the poster children of Trumphoria. In early January I warned this TRUMP basket was already acting poorly and might have bad news written all over it.

How has it done since then? Well, it has continued to drift lower. It even hit new lows for the corrective move yesterday.




Although it might seem my caution regarding these TRUMP trades was warranted, I am actually a little disappointed it hasn’t been a bigger win. In some ways, I am surprised at the resiliency of the TRUMP basket.

Let’s go through the four trades one by one, starting with being long Russell 2000 stocks.



After their massive run on the heels of the Trump victory, small cap stocks have gone sideways for the past month. Shorting Russell futures might have been a relative win versus other indexes, but it has basically been a push on an absolute basis.

And bonds are not that much better.



Fading the TRUMP bond decline has been tricky. There have been rallies, but they are fleeting and difficult to catch.

The same can’t be said for the US dollar. It has had a text book correction.



A large portion of the TRUMP gains has been surrendered.

And finally gold is even more impressive.



The rally in gold has pushed it back to almost pre-TRUMP levels.

Looking at these charts, it is obvious that fading the TRUMP basket last month was the right move, but how right was it?

Much to my surprise, it has not corrected anywhere near the amount I would have expected.



The TRUMP basket is actually hanging in there fairly well.

This morning as I write this, Trump is back in the news bragging about the coming “phenomenal changes” to the tax code. His rhetoric is pushing the TRUMP basket back up. For now, it appears the TRUMP basket has bottomed.

Will that be it for the TRUMP bears? Was yesterday the low? I am not sure, but I am keeping a careful eye out for the chance this trade of “fading the TRUMP basket” wasn’t nearly as dramatic as I hoped.

I am more interested in the boring easy part of the trade, and I will leave the dramatics to the Donald himself…



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Daniel Tarullo, Fed’s “Regulatory Point Man”, Unexpectedly Resigns

Last October, as part of the Podesta email leaks, we disclosed the particularly close relationship between Fed governor Dan Tarullo and Barack Obama, which emerged as part of a previously undisclosed memo involving the AIG bailout. We speculated that as a result of this now public disclosure it was possible that Tarullo's days at the Fed were numbered should Donald Trump win the election. Trump won, and moments ago Dan Tarullo unexpectedly announced that he is resigning in early April, just days after the Fed's general counsel Alvarez also announced that he is departing the Fed.

What makes Tarullo's resignation particularly notable is that Tarullo has been the Fed's "regulatory point man" since 2009, suggesting some regulatory friction has emerged.

In light of Trump's vow to crush Wall Street regulations, one can see why Tarullo thought his services are no longer necessary.

Tarullo’s brief resignation letter to Fed Chairwoman Janet Yellen didn’t give a reason for his departure. He said he has been privileged to serve at the Fed for eight years. The letter said his resignation will take effect “on or about” April 5.

As the WSJ further notes, "Tarullo’s future has been a matter of debate in the financial sector. He was appointed by President Barack Obama in January 2009 and overhauled the way the Fed oversees the largest U.S. banks.

His term doesn’t expire until 2022, but President Donald Trump is widely expected to appoint someone else to the currently vacant post of Federal Reserve vice chairman in charge of bank oversight.


Mr. Tarullo has effectively filled that role, even without that title. A Trump nominee likely would challenge Mr. Tarullo’s influence.

In a statement, Yellen said that "Dan led the Fed's work to craft a new framework for ensuring the safety and soundness of our financial system following the financial crisis and made invaluable contributions across the entire range of the Fed's responsibilities."

"My colleagues and I will truly miss his deep expertise, impeccable judgment, wise insight, and strategic counsel."

Tarullo, 64, was appointed to the Board by President Obama for an unexpired term ending January 31, 2022. During his time on the Board, he served as Chairman of the Board's Committee on Supervision and Regulation. He was also Chairman of the Financial Stability Board's Standing Committee on Supervisory and Regulatory Cooperation.

In his brief departure letter, Tarullo just said two sentences:

"After more than eight years as a member of the Board of Governors of the Federal Reserve System, I intend to resign my position on or around April 5, 2017. It has been a great privilege to work with former Chairman Bemanke and Chair Yellen during such a challenging period for the nation's economy and financial system."

* * *

With his departure, the market appears even more confident that a substantial crackdown on Wall Street regulations is imminent, and has pushed stocks to new all time highs.


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USDJPY Spooked Below 113.00 On Trump-Abe Comments Regarding China

After an initial spurt higher on “strategic ally” comments, the dollar faded and yen rallied on comments from President Trump regarding FX moves with President Xi and Abe’s comments on protecting the Senkakus – both related to China…


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