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Authored by Jonathan Turley,

In an academic version of the Rachel Dozezal controversy, the New York Times is reporting that George Washington University is investigating the bizarre case of George Washington associate professor Jessica A. Krug who admitted in a Medium post Thursday that, despite publicly identifying as a black woman, she is in fact a white Jewish child from the suburbs of Kansas City. 

Krug has called herself a “cultural leech” and announced that she was “cancelling herself.” 

The Chronicle of Higher Education stated that some of the positions that she secured in teaching were due to her claimed minority status.

The case rekindles the tension in academic over claims of minority status, including the controversy surrounding the long-claims of Sen. Elizabeth Warren (D., Mass.) who also taught at George Washington that she was a Native American.

Much of our minority status designations are based on such self-identifications.  The Census Bureau approach is based solely on self identification. Since 2000, it has allowed people to check multiple boxes for races and ethnicities. Brown University attracted attention for proposing a pure self identification system for “people of color.”

Krug, 39, wrote a  Medium post titled “The Truth, and the Anti-Black Violence of My Lies.”  She revealed what she described as a life built on a “napalm toxic soil of lies.” That career include different claims of minority status from African to Caribbean to Puerto Rican roots as well as being raised in a poor family in the projects.  This background gave her greater credence in writing as a “historian of politics, ideas, and cultural practices in Africa and the African Diaspora.”

Krug has a Ph.D. and is the author of the book “Fugitive Modernities: Kisama and the Politics of Freedom,” according to her GW faculty profile.  She was also a Diversity Achievement Scholar at Portland State and an Advanced Opportunity Fellow at the University of Wisconsin at Madison.

She wrote:

“To an escalating degree over my adult life, I have eschewed my lived experience as a white Jewish child in suburban Kansas City under various assumed identities within a Blackness that I had no right to claim: first North African Blackness, then US rooted Blackness, then Caribbean rooted Bronx Blackness. I have built my life on a violent anti-Black lie, and I have lied in every breath I have taken.”

In a culturally ironic twist, she then declared that she was going to publicly commit self-cancelling: “I am a coward,” she writes, and then repeats it. “You should absolutely cancel me, and I absolutely cancel myself.”

Notably, she insisted that she wanted to be held accountable. It is unclear legally what form such accountability could take. Securing minority positions or benefits can be fraudulent like those at Wisconsin. However, the benefits (as discussed in the Warren controversy) can be less direct or easy to isolate for academics. As with “stolen valor cases,” the most common punishment is public recrimination and isolation.

While New York State has launched its startlingly insecure portal to allow residents to request absentee ballots, the state of North Carolina on Friday has truly kicked off the election by mailing out the first ballots to more than 618,000 voters who requested them (already more than 3x the 190,000 who voted by mail in NC in 2016)

The ballots going out marks the beginning of an 8 week sprint to November, and the grand experiment with mass mail-in voting that is unfolding, to one degree or another, in every state across the country. Over the next two weeks, ballots should start arriving, and voters will fill them out and mail them back, or drop them off at their local election office.

President Trump drew attention to North Carolina’s ballots earlier this week when he urged voters to fill out their absentee ballots then try voting in person to “Test the system”. Trump’s words set off a firestorm in the mainstream press as reporters accused him of breaking federal election-tampering laws by inciting his supporters to vote twice in a critical swing state.

For years, Donald Trump has lied about “voter fraud.” Now he proceeds to tell the people of North Carolina to commit a felony by voting twice. This is not a president who believes in democracy. He is an authoritarian who must be defeated.

— Bernie Sanders (@BernieSanders) September 3, 2020

The state’s board of elections even issued a statement informing voters that “it’s illegal to vote twice”.

“It is illegal to vote twice in an election,” the executive director of North Carolina’s state elections board says in a statement after the president of the United States encourages people to try to vote twice to test the system. pic.twitter.com/9KsVqVj4P3

— Daniel Dale (@ddale8) September 3, 2020

Even Twitter tried to censor Trump’s comments.

Based on the massive number of Unsolicited & Solicited Ballots that will be sent to potential Voters for the upcoming 2020 Election, & in order for you to MAKE SURE YOUR VOTE COUNTS & IS COUNTED, SIGN & MAIL IN your Ballot as EARLY as possible. On Election Day, or Early Voting,..

— Donald J. Trump (@realDonaldTrump) September 3, 2020

…..go to your Polling Place to see whether or not your Mail In Vote has been Tabulated (Counted). If it has you will not be able to Vote & the Mail In System worked properly. If it has not been Counted, VOTE (which is a citizen’s right to do). If your Mail In Ballot arrives….

— Donald J. Trump (@realDonaldTrump) September 3, 2020

….after you Vote, which it should not, that Ballot will not be used or counted in that your vote has already been cast & tabulated. YOU ARE NOW ASSURED THAT YOUR PRECIOUS VOTE HAS BEEN COUNTED, it hasn’t been “lost, thrown out, or in any way destroyed”. GOD BLESS AMERICA!!!

— Donald J. Trump (@realDonaldTrump) September 3, 2020

North Carolina has become a critical swing state, and both campaigns are aggressively courting its 15 electoral votes.

Thank you, North Carolina! #MAGA 🇺🇸 pic.twitter.com/bITYLALdp0

— Mike Pence (@Mike_Pence) September 3, 2020

According to CNN, a combined $32 million has been spent on television ads in the state, split evenly between the two campaigns. The Trump campaign says it has knocked on more than 425,000 doors and called more than 4.7 million voters in the state, and polls show that the race has no clear leader in the state.

Authored by Paul Joseph Watson via Summit News,

A new survey has found that two in five New Yorkers want to leave the city, citing concerns over the faltering COVID economy and violent crime.

The survey, carried out by the Manhattan Institute, found that 22 per cent think the anemic economy is the biggest issue affecting the city while 21 per cent are concerned about crime and public safety.

Figures show that shootings have doubled and murders are up 50 per cent on the same period last year. This all unfolded after Mayor Bill De Blasio celebrated emptying out New York prisons to protect inmates from coronavirus.

“The survey found that two in five New Yorkers say that they would leave the city if they had the ability to live anywhere they wanted,” reports Fox 5.

There was also a 44% increase in home sales in the suburbs compared to the same time period last year as people flee for bigger homes in safer areas.

The sentiment is reflected in demand experienced by removal companies, which is off the charts.

“Long lines were seen outside of a number of U-Haul stations in the neighborhood across Saturday and Sunday, with moving vehicles lining residential streets and discarded furniture stacked on sidewalks left by locals seeking pastures new,” reported the Daily Mail.

As we document in the video below, with the economy on its knees, trash-strewn streets, violent crime soaring and people now working remotely from home, there’s literally no reason to live in a big city anymore and people are fleeing in droves.

*  *  *

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Yesterday, as the gamma meltup insanity of the past month finally rolled over and tech names tumbled, we said  “the real questions emerge and first and foremost is who was it that led this furious gamma charge higher, taking on virtually every dealer?”

As a reminder, this came following several weeks of bizarre market moves duly discussed here, which we said could be described as an unprecedented “epic battle” in gamma “between one or more funds who were aggressively loading up on gamma and bidding up calls to the point that VIX was surging even as stocks hit 9 consecutive all time highs, while dealers were stuck “short gamma” and in their attempts to delta-hedge the ever higher highs, would buy stocks thereby creating a feedback loop where the higher the market rose, the more buying ensued.”

Yesterday, we first identified the solitary party that was responsible for the unprecedented call-buying insanity as Japan’s bizarro VC/media conglomerate SoftBank, and elaborated:

It is hardly unreasonable to imagine SoftBank, the “brains” behind such catastrophic investments as WeWork, WireFraud WireCard, and countless other failed “unicorns” would desperately try to Volkswagen not just a handful of tech names, but the entire market in the process. After all, Masa Son is desperate to deflect attention from the fact that as we put it last October, “SoftBank is the Bubble Era’s “Short Of The Century.” And if there is one thing that can salvage the Japanese VC titan’s reputation it is a second tech bubble which blows out the valuation of his countless (otherwise worthless) investments which form the backbone of SoftBank’s “AI Revolution” whatever that means.

Today, one day after our original report, the Financial Times catches up and confirms that SoftBank has been “unmasked as the ‘Nasdaq Whale’ that stoked the tech rally”, writing that Masa Son’s investing vehicle “has bought billions of dollars’ worth of US equity derivatives in a move that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday, according to people familiar with the matter” (oddly enough, the FT forgot to note that “this was first reported by Zero Hedge” but whatever.)

While traditionally SoftBank for investing in either unicorns or megafrauds such as WireCard, the FT repeats what we first said, namely that SoftBank has “also made a splash in trading derivatives linked to some of those new investments, which has shocked market veterans.” It goes on to quote a derivatives-focused US hedge fund manager “These are some of the biggest trades I’ve seen in 20 years of doing this. The flow is huge.“

How huge? Huge enough to send the implied vol of calls of the world’s biggest company, Apple, soaring at the same time as its stock price hit record highs.

It’s also why the S&P kept rising alongside the VIX, which hit a record high at a time when the S&P was also at an all time high, as we first pointed out on Wednesday, warning that the last time this happened was when the dot com bubble burst.

How much did SoftBank buy? According to the WSJ, which also moments ago confirmed our original reporting, SoftBank…

… spent roughly $4 billion buying call options tied to the underlying shares it bought, as well as on other names

… which due to the embedded leverage in options, is the equivalent of buying tens if not hundreds of billions of underlying stocks, thus sparking the massive upward move in the handful of tech stocks which then spilled over everywhere.

And speaking of underlying stocks, in Q2 SoftBank just so happened bought brand new stakes in all the super high beta names including Amazon, Google, NVidia, Tesla, Netflix, Zoom and so on.

SoftBank’s trade was simple: buy billions in underlying ultra-high beta stocks, then also buy billions in call options to take advantage of illiquid markets and gamma, and sure enough all the “SoftBank stocks” exploded to all time highs, and in the process dragged the entire market higher.

Going back to the FT’s confirmation of our original report, it quotes another anonumous “person familiar with SoftBank’s trades” who said it was “gobbling up” options on a scale that was even making some people within the organisation nervous.

“People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

Or not, because if SoftBank “forgot” to take profits and has been piling on gamma, it is now entirely at the dealers’ mercy as we first explained yesterday, which incidentally explains today’s continued plunge in tech names as traders brace for the unwind of all that gamma.

Of course, that’s the last thing SoftBank – which already is hurting from the dismal performance of so many of its recent investments – wants, and is why a banker “familiar with the latest options trading activity” told the FT that Thursday’s market pullback would have been painful for SoftBank (well, duh), and “he expected the buying to resume” unless of course the dealers double down and sell all those same calls that exploded in recent days. The FT then added, perhaps for the benefit of its Robinhood readers that “a larger and longer-lasting stock-market decline would be more damaging for this strategy, and would probably involve rapid declines.”

While there was nothing actually new in the FT report beside merely confirming what our readers already knew, all we can say is that we sincerely hope that Masa Son publishes all his material derivative holdings so the public can take the other side and finally crush this grotesque company which last October we said was the “Bubble Era’s “Short Of The Century“.”

Meanwhile, for those wondering just how far from the Minsky Moment we are, it appears that Japanese pensioners – who are the 4th largest holder of SoftBank – are now indirectly buying deep OTM Apple and Tesla calls:

One final point: while there is an amusing feud brewing between the FT and the WSJ about who broke the SoftBank story (spoiler alert: neither)…

I have huge respect for the excellent work the Wall Street Journal does but it’s *very* poor form for it to not credit the FT in it’s, er, six paragraph follow up to our huge SoftBank scoop https://t.co/09O5QLy7Hy

— Matthew Garrahan (@MattGarrahan) September 4, 2020

… the real question is which media publication will refuse to touch on the next part of this story, and where the rabbit hole really goes: namely the frontrunning of call options by certain HFTs who clearly magnified the gamma effect sparked artificially by SoftBank.

Allianz Chief Economic Advisor Mohamed El-Erian told CNBC’s Sara Eisen that if the “mindset changes from technicals to fundamentals,” then the stock market could take another leg down.  

“That is the tug of war that’s going to play out, and it’s going to show the DNA of investors,” he told Eisen on Thursday after main U.S. equity indexes recorded their worst session since June.

If a return to macro event kicks in, or at least a growth scare is seen, Allianz’s chief economist warned stocks could be headed for a deeper correction.

“We could have another 10% fall, easily … if people start thinking fundamentals,” he said.

S&P500’s Fibonacci Retracement Levels 

El-Erian said the stock market remains decoupled from the real economy. He said if investors revert back to macro, then a further selloff could be seen as many will be forced to recognize a slowing recovery and looming corproate bankruptcies. 

“If you are in a liquidity-based paradigm, you will be dominated by relative thinking, and that’s where we’ve been. If you’re in a fundamentally-based paradigm,” he said, adding “the answer is: no, you are not paying for an economy that faces not just moderation in the way of improvement, but a rising level of bankruptcies.”

El-Erian warned, earlier this week, in a Financial Times op-ed, that a reversal in the stock market could be devastating for small investors who have piled into technology stocks over the last five months. 

It has been supplemented by more downside “tail protection” aimed at safeguarding portfolios from sharp drops. With that, the Vix volatility index has decoupled from equity indices, adding to signals that a large market correction, should one materialise, would encourage more professional selling that could overwhelm the buy-the-dip retail investor.

This is a potentially troubling situation for central bankers, regulators and economists.

Yes, it would take a big shock for markets to move significantly lower — such as a renewed sharp economic downturn, a considerable monetary or fiscal policy mistake, or market defaults and liquidity accidents. But should such a move occur, the likelihood of further market turmoil would be high, especially given the current lack of a short base to buffer the downturn.

This exposes small retail investors to big potential losses. It risks broader economic damage and could end up pulling central banks even deeper into distorting price signals and undermining the markets’ role in efficiently allocating resources throughout the economy. – El-Erian wrote

To show the market insanity, S&P 500’s P/E multiple just broke above the all-time highs from the dotcom bubble…

And, if, in fact, a growth scare is the reason why stocks are selling, not a sector rotation into value, then it could be possible investors misread the shape of the economic recovery.

Repeat of the early 1930s? 

While the headline payrolls print was solid, rising by 1.371 million, and the Household Survey showed an even more remarkable increase as the number of employed Americans surged by 3.756 million helping send the unemployment rate sharply lower (as discussed earlier), a look at the composition of job gains reveals that below the “Great Job Numbers” surface as defined by president Trump, there was less than meets the eye.

For one, the one-time impact of the Census had an outlier effect on the August payrolls, due to 238,000 temporary jobs hired for the 2020 Census. This led to a 251,000 jump in Federal workers, and a near record 344,000 increase in total government jobs. This means that government jobs were a whopping 25% of all job gains in August.

Of course it wasn’t just government jobs, so here is a full breakdown of which sectors were responsible for the impressive August job gains:

• Retail trade added 249,000 jobs in August, with almost half the growth occurring in general merchandise stores (+116,000). Notable gains also occurred in motor vehicle and parts dealers (+22,000), electronics and appliance stores (+21,000), and miscellaneous store retailers (+17,000). Employment in retail trade is 655,000 lower than in February.
• Professional and business services employment increased by 197,000. More than half of the gain occurred in temporary help services (+107,000). Architectural and engineering services (+14,000), business support services (+13,000), and computer systems design and related services (+13,000) also added jobs over the month. Employment in professional and business services is 1.5 million below its February level.
• Leisure and hospitality jobs increased by 174,000 in August, with about three-fourths of the gain occurring in food services and drinking places (+134,000). Despite job gains totaling 3.6 million over the last 4 months, employment in food services and drinking places is down by 2.5 million since February.
• Education and health employment services increased by 147,000 but is 1.5 million below February’s level. Health care employment increased by 75,000 over the month, with gains in offices of physicians (+27,000), offices of dentists (+22,000), hospitals (+14,000), and home health care services (+12,000). Elsewhere in health care, job losses continued in nursing and residential care facilities (-14,000). Employment in private education rose by 57,000 over the month.
• Transportation and warehousing rose by 78,000 in August, with gains in warehousing and storage (+34,000), transit and ground passenger transportation (+11,000), and truck transportation (+10,000). Employment in transportation and warehousing is down by 381,000 since February.
• The other services industry added 74,000 jobs in August, reflecting gains in membership associations and organizations (+31,000), repair and maintenance (+29,000), and personal and laundry services (+14,000). Employment in other services is 531,000 lower than in February.
• Financial activities added 36,000 jobs in August, with most of the growth in real estate and rental and leasing (+23,000). Employment in financial activities is down by 191,000 since February.
• Manufacturing employment rose by 29,000, with gains concentrated in the nondurable goods component (+27,000). Despite gains in recent months, employment in manufacturing is 720,000 below February’s level.
• Wholesale trade increased by 14,000 in August, reflecting an increase of 9,000 in the nondurable goods component. Wholesale trade employment has declined by 328,000 since February.

And a visual summary of all of the above, as it compares to the July job gains.

Yesterday’s sudden and violent, non-news-catalyst-driven collapse in Nasdaq (and the rest of the US equity market), especially focused on the go-go momo names, has brought home to many freshly-minted stock market gurus that risk is real and markets don’t always go up.

In fact, just as Nomura’s Charlie McElligott warned yesterday (before the crash), “something’s gotta give,” and it did.

Simply put, as the Nomura MD has explained numerous times before, the great and austere US equity market is nothing more than a weak dog being wagged by the tail of speculative mania in options markets – in other words, gamma is the market’s most important flow.

(Negative) Convexity cuts both ways:

Yesterday was obviously the “…as it turns the other way to the downside” part, with the coiling convexity that is the reality of hedging “short gamma” as it relates to the sensitivity of the options that dealers are short to the then vacuum-like collapse in price of the underlying securities, i.e. the single-name Tech momentum longs which saw all the buying of calls, call spreads and riskies traded recently as part of the large upside buying flow from the institutional mkt participant as well as the Robinhood short-dated OMT Calls in said “gamma proxies” (i.e. continue to watch TESLA spot as a “leading indicator” today); to single-name delta and the NQ & ES “upside” & futs bot by dealers to hedge “CRASH UP” over the past few weeks).

So as to the point of my recent notes, the Vol market told us that something was going to happen (as foretold by the epic and perverse recent moves in skew, implied vs realized vol, “vol-of-vol,” SPX- and VIX- term structure…need I go on?!)…and the Equities market caught-down to that reality yesterday in self-fulfilling “tail wags the dog” fashion.

Yesterday saw some sanity / rationality restored, and that’s a healthy development:

• SPX 1m tenor jump +2vols, QQQ outperforming at +3vols

• SPX 3m-1m term structure was smashed -1.5vols

• SPX Put Skew (ratio of 10d puts v 25d) came off from local highs

• 1m “vol of vol” jumped 15vols higher

• UX2-UX1 spread flattened 2 vols, with VIX skew flattening off local highs as a function of the move lower in short-dated SPX put skew

But as McElligott notes, this is not over yet.

That much accumulated “short gamma” doesn’t just go away in a ~4% flush – the Street is still very much in a dangerous space, and that flow is still out there in full “Resevoir Dogs” standoff fashion both to UPSIDE AND DOWNSIDE (again, short gamma = sell when mkt going lower, buy when mkt going higher)

I also think it is still worth reiterating what I’ve recently mentioned regarding “extreme” positioning in the market to capture the “length” out there which realistically cannot be cleared in a single session as well: from the unprecedented $Delta from the “heavy” options positioning to the magnitude of the US Eq futs positioning from Asset Managers—remember these charts?

However now, in light of yesterday’s market shock and the mathematically factual “drag-UP” impact it will have on trailing realized volatility windows…

…if we were to see this “realized vol UP” dynamic sustain moving-forward, then Vol-Control as a source of prior enormous releveraging “buy” flow can very easily again turn to a mechanical incremental SELLER – again, all thanks to this market structure built upon “volatility as your exposure toggle.”

So far today is more of the same with pure “gross-down”: Fins, energy, indus, and mats (value cyclicals) are all UP and leading S&P; tech conm svc and cons disc (secular growth)…all down… crushing the momo factor…

What goes up (on negative gamma) comes down even harder…

The S&P500 hit an all-time high price earlier this week, with a forward P/E multiple surpassing the dot com peak of 27x, printing at 27.02x. These mind-numbing valuations (before Thursday’s panic sell) have been met with intense insider selling as corporate executives dump billions of dollars worth of their stock into unsuspecting Robinhood traders. 

Data compiled for the Financial Times by Smart Insider shows insider selling by 1,042 chief executives, chief financial officers and company directors in Aug. was the highest dollar amount since Nov. 2015. The total number of execs disposing of their stock as valuations, in some cases, surged beyond dot com levels, was the highest since Aug. 2018. 

The insider selling frenzy has been happening as only a handful of technology stocks push overall main equity indexes to record or near-record forward P/Es. The optics of insiders selling in force is not a good one, indicating these business elites don’t believe in today’s rich valuations as the economic recovery stalls. 

“Chief executives have been much more downbeat in their outlooks than investors,” said Max Gokhman, head of the asset allocation for Pacific Life Fund Advisors. 

“If you think that your future is dim, but your stock is soaring, then it makes sense to sell,” Gokhman said. 

For some historical context, after insiders dumped billions of dollars worth of stock in Nov. 2015, the S&P500 tumbled nearly 14% over 65 days into a low in late Jan.-Feb. 2016. 

FT outlines the most significant insider selling transactions in Aug.: 

Steven Rales and his brother Mitchell, founders of US industrial conglomerate Danaher, were the biggest sellers in August, offloading nearly $1bn worth of stock in technology specialist Fortive Group, which was spun out of Danaher in 2016.

Steven Rales pocketed $606m while Mitchell took home $363m. Fortive’s stock is up about three-quarters since the March trough. The company did not respond to a request for comment.

Leslie Wexner, the founder of L Brands, which owns Victoria’s Secret, sold $89m of the company’s stock — which has more than tripled since the rally began. Mr. Wexner has made headlines in recent years for hiring Jeffrey Epstein, the disgraced financier who died in prison last year, to manage his personal fortune. L Brands did not respond to a request for comment. -FT

In a separate report via StoneX, a brokerage, insider selling of Nasdaq 100 tech stocks over the second quarter hit $10.4 billion, up 171% over the same quarter in 2019. 

“Insiders at Nasdaq 100 index companies are harvesting a once-in-a-millennium bonanza,” said Vincent Deluard, a macro strategist for StoneX.

Insiders are suggesting that current valuations aren’t just rich, but the latest rally in stocks this summer is not sustainable, rather it could be viewed as a blowoff top. 

For more color, we recently penned a couple of pieces (see: here & here) that shows insiders have been dumping through the summer, meanwhile, Robinhood daytraders are panic buying every dip as they might just be transformed into bagholders.