Category: zerohedge

Contrary to public opinion that hedge funds have not participated in the recent rally, the latest hedge fund tracker from Goldman reveals that hedge funds boosted returns by keeping net leverage elevated throughout the market rebound. In fact, aggregate hedge fund net leverage calculated based on publicly-available data registered 54% at the start of 2Q 2020 and 50% at the start of 3Q, above the historical average.

Exposures calculated Goldman Sachs Prime Services show an even more acute dynamic, with hedge fund net leverage declining only modestly in Q1 as the market plunged, then sharply rebounding and today registering at levels that in recent years have only been exceeded following the passage of the TCJA tax cuts in late 2017-early 20. GS Prime Services data show net leverage ranking in the 95th percentile of the past five years, while gross leverage has slipped to the 68th percentile.

What we find even more remarkable however in the latest Goldman data, is that S&P 500 short interest has fallen to the lowest level in at least 15 years as funds lifted net length while cutting gross exposure. At the start of August, the median S&P 500 stock had outstanding short interest equating to just 1.8% of market cap, the lowest level in Goldman’s 16-year data history. In most sectors, short interest outstanding currently ranks in the bottom decile of the last 15 years, with only Energy sector shorts registering above the historical average.

Of course, this means that hedge funds now “hedge” only in name, as most have become glorified vanilla long-onlines, although in a world where central banks step in to rescue the market after even a modest decline – acting as the market’s Chief Risk Officer as we pointed out all the way back in 2013 when we said that the best strategy is to go long the most shorted stocks – who can blame them for throwing caution to the wind and going all in the most popular momentum names? After all, if there is another crash, it is now widely accepted that the Fed will step in again, this time by purchasing either ETFs or single name stocks outright.

Submitted by Joseph Carson, former chief economist at AllianceBernstein

With each passing day, the failure of Congress and the Administration to reach a deal on extending fiscal stimulus creates a bigger and bigger hole in consumer cash flow. So far investors have brushed off the stalemate. But that’s a mistake.

That’s because the federal stimulus payments that flowed to people in Q2 was the largest on record. Removing the “punch bowl” of stimulus entirely or even in half raises the risk of a hard landing in consumer spending.

Boom To Bust

According to the Bureau of Economic Analysis (BEA), special federal payments to individuals and small businesses (proprietors) in Q2 boosted personal income by $ 3.2 trillion annualized. That figure includes direct stimulus payments, an increase in unemployment compensation to a broader group of workers, and forgivable loans to small businesses (proprietors) that are included in the personal income data.

The actual boost to consumer cash flow was even larger because millions of renters and homeowners were allowed to forgo monthly rent and mortgage payments.

So how big is $3 trillion in federal payments to people? It’s humongous.

Here are two examples.

• First, the federal payments of $3.2 trillion to people and small businesses equaled nearly 15% of personal income. To put that in perspective, personal tax payments in 2019 totaled $2.2 trillion, or 12% of personal income. So the scale of stimulus payments Congress sent to people in Q2 was $1 trillion more than what people pay in taxes for an entire year. Never before has any federal tax cut or special payment to people has ever come close to something of that scale.

• Second, Q2 wage and salary income totaled $8.85 trillion, off $680 billion from Q1 level. That means the infusion of $3.2 trillion in payments to people was nearly 5X times the amount of lost income due to job loss, fewer hours worked, and wage cuts. In other words, Congress appropriated more spendable income to people than what was lost from the record 20 million-plus employment losses emanating from the closure of the economy.

The punch bowl reference is often related to monetary policy. Fed chairman William McChesney Martin once argued that the central bank’s role is to take away the punch bowl just when the party’s going well. What Mr. Martin meant was that if policymakers applied the monetary brakes sufficiently in scale and in time policymakers would have avoided excesses and imbalances from developing and therefore reduce the need for more forceful action that could send the economy off the cliff.

The punch bowl nowadays is centered on fiscal policy. Congress provided record payments to people in Q2 and cutting that off completely or even in half before labor markets are fully healed runs the risks of pushing the consumer and the economy off the cliff.

Just do the math. In Q2, fiscal payments to people equaled nearly $35 billion a day, or roughly $250 billion a week. With jobless claims at 1.1 million for the week ending August 15, it will not take long before the lack of federal support shows up in all areas of consumer spending.

At a moment of continuing top level military talks between India and China in which the two sides said they’ve agreed to work toward “complete disengagement of troops” from the contested Line of Actual control in the disputed Eastern border region, it appears tensions for India are about to shift right back to its Western border once again and New Delhi’s most immediately threatening nuclear rival of Pakistan.

A highly visible member of the National Assembly of Pakistan has grabbed national headlines for threatening India with nuclear war. Pakistan Minister Sheikh Rashid told a national broadcaster during an interview that his country’s nuclear arsenal “will save Muslim lives” should India conduct acts of aggression.

“If Pakistan gets attacked by India, there is no scope for convention war. This will be a bloody and nuclear war. It will be a nuclear war for sure,” Rashid told Samaa TV. He said only Muslim’s would survive such a nuclear showdown.

“Our weapons will save Muslim lives and will only target specific regions. Pakistan range now even includes Assam. Pakistan has no option in convention war; therefore India knows if something will happen it will be the end,” he added provocatively. He emphasized Pakistan’s arsenal of “small and perfect” nukes can be narrowly targeted to inflict proper punishment on Muslim Pakistan’s enemies.

Though Rashid has no position or authority within the defense ministry, he’s head of the influential political party Awami Muslim League, and currently serves as Federal Minister for Railways.

It’s certainly not the first time with recent tensions still boiling in the aftermath of India’s immensely contentious revoking of Article 370 from Jammu and Kashmir, and moving tens of thousands of national troops into the region, that a Pakistani official has invoked the prospect of nuclear response. 

In August 2019 it was no less than Prime Minister Imran Khan that said if India doesn’t back down, the use of nukes could be on the table.

“I want to tell (Narendra) Modi that our Army is ready for anything they do in Kashmir (PoK). The world should know that when two nuclear countries face-off, the whole world will be harmed. I tell this to everyone I speak with,” he said at the time.

Earlier today we showed that excluding the tremendous impact of just a handful of megatech stocks whose market cap has skewed the entire S&P500 in the favor of just five stocks…

… the S&P500 would be effectively unchanged for the year.

And of all stocks impacting the broader market, none does more so than Apple which today alone is up $85 billlion not on any news, but ostensibly because the record date for its 4-for-1 stock split is Monday.

Some more facts: Apple rose as much as 4%, the most since Aug. 12, outperforming by a wide margin other megacap technology stocks, with the next best performer among the four biggest U.S. technology stocks was Alphabet with a gain of 1%.

Putting the move in context, Apple has added $440 billion to its market cap over the last month, which as Charlie Bilello notes, is more than the current market cap of 493 companies in the S&P 500.

The result is that the Nasdaq has just hit a new all time high of 11,522, and why? Because of a stock split.

The National Hurricane Center (NHC) is forecasting two tropical depressions (Tropical Depression 13 and 14) to strengthen into Tropical Storm Laura and Marco on Friday. By Monday, both storms could strengthen into Category 1 hurricanes and take aim at the Gulf Coast of the US on Tuesday or Wednesday. 

The Balm Peach Post quoted Colorado State University researcher Phil Klotzbach, who said if the NHC forecast of two hurricanes simultaneously traversing the Gulf of Mexico holds up, then it would be the first time in history. 

At the start of the 2020 hurricane season, we noted how this year’s season was going to be very busy. If both depressions strengthen into named storms in the coming days and take aim at the US, it would break the record of 6 tropical cyclone landfalls before the end of August. 

The most Atlantic named storms to make landfall in the continental US (CONUS) by the end of August is 6, set in 1886 and 1916. The CONUS has already had 5 this year: Bertha, Cristobal, Fay, Hanna and Isaias. #TD13 #TD14 #hurricane pic.twitter.com/pV55VDTupO

— Philip Klotzbach (@philklotzbach) August 20, 2020

More recently, we said the hurricane season is about to go “from bad to worse with La Nina odds up.”

The odds the equatorial Pacific will remain neutral, or even spin up a La Nina, have risen in the last month, the U.S. Climate Prediction Center said. In either state, the weather patterns over the Pacific actually decrease hurricane-killing wind shear across the Atlantic, allowing more storms to form and strengthen. –Bloomberg

NHC’s latest update on Tropical Depression 13 and 14 was released on Friday, at about 5:00 ET, with indications 13 is “approaching the Northern Leeward Islands,” and 14 is”approaching Honduras/Nicaragua border coast.” 

Long-term model tracking of both storms forecasts landfall could be possible early next week across Gulf Coast states, including Texas, Louisiana, Mississippi, Alabama, and Florida.

Hurricane track models can easily change over the coming days. Nothing is certain but if NHC’s forecast is correct, that is, two storms are about to simultaneously cross the warm water’s of the Gulf of Mexico and take aim at the US next week, then this could be particularly dangerous for Southern states, already dealing with surging coronavirus cases and depressionary unemployment. 

Comedian and political commentator Jimmy Dore on his show this week went off on the who’s who of neocon war hawks that lined up to endorse Joe Biden at the Democratic National Committee convention this week.

“Joe Biden’s foreign policy – his entire career – is consistently imperialist,” Dore began, after presenting a clip of John Kerry attacking Trump’s foreign policy. Kerry, it should be noted, has long been on record as defending his ‘yes’ vote on the Iraq war.

“Joe Biden voted for the Iraq War. Not only did he vote for it, he was one of the most vocal and active advocates for the Iraq War… Under Joe Biden we did Libya, Yemen, and Syria… he took Bush’s two wars and turned them into seven wars.”

And then there’s “Colin Powell… bona fide war criminal who intentially lied us into a war… he wasn’t duped, he knew exactly what he was doing.”

Dore presents further clips from foreign policy thinkers featured at the DNC who claim Trump is not standing up to Russia and China.

“So that’s the Democratic Party encouraging Donald Trump to be more bellicose and saber-rattling,” Dore concludes, underscoring the DNC foreign policy platform of US “leadership” in the world is but a resurrection of neocon assumptions.

Meanwhile…

A group of 70 Republican national security officials — spanning the administrations of Ronald Reagan through Donald Trump — have released a scathing letter criticizing President Trump’s leadership and endorsing Joe Biden.https://t.co/jbXy2LIE0x

— NPR (@NPR) August 20, 2020

* * *

As Bonnie Kristian writing for The Week observes, the sad reality is that the anti-war wing of both parties is dead:

Powell’s comments were followed by a video touting Biden’s friendship with the late Sen. John McCain (R-Ariz.), another heavyweight GOP hawk. Meanwhile, there’s a pro-Biden super PAC of George W. Bush administration alumni, and Biden has racked up support from a who’s who of neoconservatives (Bill Kristol, Max Boot, David Frum, Jennifer Rubin), as commentators left and right have observed.

She concludes that, “These alignments highlight an increasingly undeniable fact of American politics in 2020: The anti-war wing of both major parties is dead. Your presidential choice is between war and war.“

As Postmaster General Louis DeJoy takes a grilling before the Senate on Friday, six Democratic-governed states are suing DeJoy, Chairman Robert Duncan, and the USPS itself in yet another lawsuit alleging they broke USPS rules and violated states’ rights to carry out “free and fair” elections.

#NEW–Democratic AGs file another #USPS lawsuit:

PA AG @JoshShapiroPA
CA AG @XavierBecerra
DE AG @KathyJenningsDE
DC AG @KarlRacineDC
MA AG @maura_healey
NC AG @JoshStein_
ME AG Frey

The second Dem AG coalition protecting USPS & people’s vote this November! Elect more Dem AGs! pic.twitter.com/6TQCkMRVYB

— BRANDON ⚖️ (@bjrich_) August 21, 2020

Here’s a breakdown of some of the highlights from @lovenheim.

And here’s a copy of our lawsuit against Postmaster General #DeJoy and others. Summed up: They failed to follow the process required by law to change the rules mid-stream, and violated state rights. #USPS https://t.co/McKKO4mWDZ

— Sarah Lovenheim (@lovenheim) August 21, 2020

FROM OUR LAWSUIT AGAINST #DEJOY: Postal Service employees received a “Stand-Up Talk” in which they were told it was okay if “mail is left behind for the day” & acknowledged these CONSEQUENCES, as if to put profit over people receiving Rx medication, paychecks & more: pic.twitter.com/TLyYcv0Egv

— Sarah Lovenheim (@lovenheim) August 21, 2020

Don’t miss this: Tucked into our lawsuit against #DeJoy: 5+ pages of examples of EMPTY @realdonaldtrump claims about #USPS and mail-in ballots, starting with these: pic.twitter.com/87x23q4z2M

— Sarah Lovenheim (@lovenheim) August 21, 2020

If ever we needed a window into how Trump’s team illegally works to overhaul critical govt. missions, let this be it. #USPS is the 1 agency we all have routine contact with (see @helaineolen WaPo column). #DeJoy & co. tried to pull a fast one on all of us: https://t.co/McKKO4mWDZ

— Sarah Lovenheim (@lovenheim) August 21, 2020

During Friday’s hearing, DeJoy insisted it was his “sacred duty” to ensure that voting by mail works in November.

Read the lawsuit in its entirety below

2020.08.21 – Complaint PA v DeJoy by Zerohedge on Scribd

Residents of an upscale Portland neighborhood were treated to some late night entertainment on Thursday, as roughly 100 protesters idled down the street blaring a truck horn and chanting “Wake up motherfucker, wake up!” through a bullhorn.

The Portland protesters shine lights into houses in the neighborhood, calling on everyone to come out and march with them as they make their way back towards Keaton Park #Portland #PortlandProtest pic.twitter.com/N5SGmlLczO

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

Public Disturbance in Portland – The protesters have vowed to wake up the entire neighborhood as they march through tonight, an act of non-violent civil disobedience #Portland #PortlandProtests pic.twitter.com/56UtEQ3Vxn

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

This is my new alarm clock

— c savage (@whatupchris) August 21, 2020

(h/t @The_Real_Fly)

As if this wasn’t ‘helpful’ enough for the Biden campaign, at one point a woman on the bullhorn says “Yes, I know Joe Biden fucking sucks, but vote for him please.“

“Yes, I know Joe Biden f***ing sucks, but vote for him, please.” Protest leaders reluctantly back Joe Biden as they seek to remove Donald Trump from office in this upcoming election #PortlandProtest #Portland pic.twitter.com/jOjNjMq4mg

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

George Soros clearly had nothing to do with this one…

“Honestly, we should be getting paid.” Protesters discussed the summer-long endeavor of organizing marches & demonstrations on the streets of Portland #Portland #PortlandProtest pic.twitter.com/si6HCPn816

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

Continuing along with footage from roving journalist Brendan Gutenschwager (who covered the Trump rally in Yuma, AZ on Tuesday and then drove through California wildfires to Portland), the scene in Oregon remained tense Thursday night as federal agents stormed out of the Portland ICE detention center while protesters played ‘Move bitch, get out da way‘ and other music.

The Feds stormed out after about 30 minutes of protester taunting at the I.C.E. Detention Center #Portland #PortlandProtest pic.twitter.com/q0ED3spBj4

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

“Black Lives Matter!” chants as DHS agents push protesters a block away from the I.C.E. facility #PortlandProtests #Portland pic.twitter.com/gdq2ZRwN6g

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

The facility was successfully defended and protesters dispersed.

Portland Police in riot gear push past burning dumpsters as they disperse the protesters #PortlandProtests #Portland pic.twitter.com/p97DG01qwc

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

Federal agents in formation outside the I.C.E. Detention Center in Portland #Portland #PortlandProtests pic.twitter.com/h97CwDwV5l

— Brendan Gutenschwager (@BGOnTheScene) August 21, 2020

Just another Thursday night in Portland…

We have previously shown the following remarkable chart from Goldman breaking down the post-March lows rally, and showing that while the 5 FAAMGs stocks have soared from the covid shutdown crash, the rest of the market remains well underwater.

The reason we are showing it again is because the market’s dismal breadth took a new, striking turn yesterday when the S&P500 ramped to close green yet again led by just a handful of tech stocks even as 70% of the S&P500’s constituents closed red.

The cause behind this “bad breadth” is well known: as the following Goldman chart shows, the market cap of the five largest S&P companies has hit a record high 23% while the top ten companies alone now account for nearly a third, or 29%, of the S&P500’s entire market cap:

Maybe it’s high time to rename the S&P500 to the S&P5?

So to normalize for the unprecedented impact of the handful of record outperformers, we decided to look at the S&P on an equal-weighted bases instead of cap-weighted. The result is amazing, and shows that if it wasn’t for the 5 mega caps – which as we noted previously have been aggressively repurchasing their shares which goes a long way to explaining their historic outperformance – the S&P500 is roughly flat from its March lows.

As we noted earlier, existing home sales are expected to surge in July (the latest data), playing catch up to the huge rebound in new- and pending-home sales in June.

After a 20.7% MoM surge in June, July’s existing home sales were up a stunning 24.7% MoM (crushing expectations of a 14.6% MoM) and sending home sales up 8.72% YoY

Source: Bloomberg

The SAAR rose from 4.70mm to 5.86mm in July, the highest since Dec 2006…

Source: Bloomberg

“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said Lawrence Yun, NAR’s chief economist.

“With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”

The median existing-home price for all housing types in July was $304,100, up 8.5% from July 2019 ($280,400), as prices rose in every region. July’s national price increase marks 101 straight months of year-over-year gains. For the first time ever, national median home prices breached the $300,000 level.

Source: Bloomberg

Total housing inventory at the end of July totaled 1.50 million units, down from both 2.6% in June and 21.1% from one year ago (1.90 million).

“The number of new listings is increasing, but they are quickly taken out of the market from heavy buyer competition,” he said. “More homes need to be built.”

Unsold inventory sits at a 3.1-month supply at the current sales pace, down from 3.9 months in June and down from the 4.2-month figure recorded in July 2019.

“Luxury homes in the suburbs are attracting buyers after having lagged the broader market for the past couple of years,” Yun said.

“Single-family homes are continuing to outperform condominium units, suggesting a preference shift for a larger home, including an extra room for a home office.”

For the second consecutive month, sales for July increased in every region and median home prices grew in each of the four major regions from one year ago.

• Existing-home sales in the Northeast rocketed 30.6%, recording an annual rate of 640,000, a 5.9% decrease from a year ago. The median price in the Northeast was $317,800, up 4.0% from July 2019.
• Existing-home sales jumped 27.5% in the Midwest to an annual rate of 1,390,000 in July, up 10.3% from a year ago. The median price in the Midwest was $244,500, an 8.0% increase from July 2019.
• Existing-home sales in the South shot up 19.4% to an annual rate of 2.59 million in July, up 12.6% from the same time one year ago. The median price in the South was $268,500, a 9.9% increase from a year ago.
• Existing-home sales in the West ascended 30.5% to an annual rate of 1,240,000 in July, a 7.8% increase from a year ago. The median price in the West was $453,800, up 11.3% from July 2019.

The question is – just how low do rates have to keep going (from already record lows now) to maintain this momentum?

The avg. 30-Yr FRM ticks up to 2.99% https://t.co/Cj2GH9Tofy

Chief Economist @TheSamKhater: “Purchase housing demand continues to accelerate, ultimately providing support to an economy that otherwise has stagnated.” pic.twitter.com/jURPvVu8fP

— Freddie Mac (@FreddieMac) August 20, 2020