Blain: Is WeWork The Spark That Ignites The Valuation Inferno?

Submitted by Bill Blain of Blain’s Morning Porridge

“I laughed and shook his hand, and made my way back home..”

I’m wondering if We Work (or the We Company as it now grandly calls itself), is likely to be the car crash that causes the almighty pile up in the Unicorn/Tech Market we’ve so long expected?  The spark that ignites the conflagration to restore valuation common sense?

I didn’t have time yesterday morning to launch into an analysis of the Softbank/We Work farago, but a number of readers came back with similar concerns.

In case you missed it: We Work was expecting a $16 bln capital injection from Softbank’s Visionfund, but after the Middle East Sovereign Wealth Funds (who fund Visionfund) pointed out there is nothing Tech about funding a property rental business, Softbank had to scale back the investment to $2 bln, causing massive internal loss of face, and a scrabbling around to present a story pretending it doesn’t matter or change anything. Part of the response was the name shift from We Work to We Company to clarify just what a life-style modern tech company We Work (sorry We Company) really is…. You can put lipstick on a pig.

Softbank must be very disappointed. By, today’s convoluted millennial wisdom: the more a company loses, the more it must be worth! On that basis We Work should and must be a screaming buy! $16 bln to buy out other shareholders, fund the company to lose yet more money and give a $50 bln valuation.. what’s not to like?

There is logic to the madness of Unicorn valuations.

Stocks ratcheting up massive losses while exhibiting zero earnings growth can be massively valuable – especially if they are creating new markets and a variation of a monopoly position for themselves. That’s about the only reason I stick with Tesla – even though every single one of my neurons screams something like – it’s a crap car, it can’t make enough of them, Musk is hatstand…. But the reality may be Tesla has probably cracked the electric car. Or how about Amazon – among the most valuable companies in the world because it recognised and seized e-commerce. I could go on… Facebook…

Others, I am not so sure off. Netflix is a case in point – it moved video rental into streaming and created a whole new way to watch TV. But it’s massively vulnerable to completion – and Disney is the one I watch. Sure Netflix is making great content… but its burning through money to garner subscribers to get them to watch their programmes, while Disney leads with its Great Content attracting subscribers in. Simples…

But We Work is something else completely. It’s nothing new. It’s not innovative. But, it is very good at what it does – renting office space. I’ve been in We Work offices – and they’re fine. She-who-is-Mrs-Blain loves them. A chum who is CFO of a Tech firm swears by them – she sticks all her staff in them. But, she’s also quite happy to use a Regus office for board meetings. In fact she prefers to. Everyone is aware We Work has smashed the previous short-term office rental paradigm – a market of 3-4 firms. It leases property long term, does them up to make them attractive to the kind of workforce likely to use them – millenials, start-ups, gig-workers, consultancies, etc.

The rest of the We Company stuff is pure-bunkum – schools and residential living might be aspirational, but it’s a complete distraction. I can’t imagine a more meaningless life – everything from your home, to friends, holidays and kids, circling round your workspace.. How did we manage before We Work figured you might have a pint with co-workers.. (Maybe I get SoftBank to fund me $20 bin for my new social-dynamic inter-reactions experience-centre: My pub.com?)

The bottom line is We Work rents property long-term and rents it out short term. End of. And very dangerous.

There isn’t anything remarkable, innovative or fundamental about renting office space. If the world is entering recession, then the first parts of the economy likely to be shaken out are… consultants, start-ups, and SMEs. It reminds me of a German Bank I used to cover in the 1990s – they told me they borrowed long and lent short and were happy to take the risk because the Bundesbank was right next door and therefore they could predict interest rates perfectly. They collapsed and went under.

The question to ask is how We Work’s CEO, Adam Neumann, pulled it all together? Marketing is a talent. Tell people what they want to believe and they will believe it. Finding the right partner even more so.

Softbank founder Masayoshi Son was the perfect mark. He and Neumann cooked up the valuations between themselves. He bought into the flaky We Work white-board Venn diagram concentric circles encompassing Work Space, Health, Sport, Friends, Etc… Somewhere he might have missed is the point we do these things anyway.. and the core of We Work was Property, Property, Property.

Nothing Tech about it.

How did he fall for it? I’m sure he was mightily impressed that Neumann was sporting a broken finger earlier this week – broken while surfing 15 ft waves in Hawaii with a top pro surfer. Wow. Aspiration lifestyle, and you can get it all, with free beer on a Friday, at We Work. I bet Son would love to do the same.

At which point its worth bearing in mind how We Work is also vulnerable to changing fashion. At the moment millennials like shabby post industrial-chic. The plus is it looks distressed today, and will still be distressed in 10-years time as We Work’s leases come up. However, the reason the Millennials’ bosses rent a board room from Regus is because they have to impress the baby boomers who still control the purse strings. (And bear in mind, Regus’s parent IWG makes money.) Toscafund has been steadily increasing its stake in IWC, even as Regus starts to do stuff We Work does, like allowing yoga pants in the office.. But, they do it profitably.

Who knows if We Work will be another “Wake up and smell the Coffee” moment… In this strange, curious and difficult to understand modern world, everything is not what it seems. There is actually value in losses to build position. There is corporate evolution, and the “Art of War” is as relevant today as ever. But, you can’t put lipstick on a property gamble and call it a Tech paradigm shift…

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“Socialist Sandy” To Join “Mad Maxine” On House Financial Services Committee

In what looks like a nightmare scenario for American banks, Socialist Sandy may soon be joining Mad Maxine on the influential House Financial Services Committee, Politico reported.

Rep. Gregory Meeks, the lawmaker representing New York on the House panel that doles out committee assignments, said he planned to nominate Queens Democrat and self-described “Democratic Socialist” Alexandria Ocasio-Cortez for a spot on the committee after she requested it. As one of the farthest-left members of the Democratic caucus, Ocasio-Cortez has been outspoken in her criticism of Wall Street and big business (recently leading the backlash to Amazon’s taxpayer-assisted move to Queens and igniting a controversy by proposing a 70% marginal tax rate). She has also refused to drop criticisms of her fellow more-moderate Democrats for their support of Wall Street.

AOC

Ocasio-Cortez

Among the Democrats who could be targeted by Ocasio-Cortez could be Meeks himself, who represents a district in Queens and is a member of the New Democrat Coalition, a group of centrist lawmakers. Meeks has said that he believes that when Wall Street does well, so do his constituents.

There have even been rumors that Ocasio-Cortez could support a challenger to Meeks and another prominent New York Democrat, Brooklyn Rep. Hakeem Jeffries, who was recently awarded a position in the leadership as head of the Democratic Caucus, a position formerly held by Rep. Joe Crowley, whom Ocasio-Cortez defeated in her stunning upset primary campaign.

As Politico pointed out, Ocasio-Cortez’s presence on the committee could be “a new kind of test” for Chairwoman Maxine Waters, who will now need to struggle with a Democrat on her left, while managing the expectations of centrist Democrats and Republicans on the committee. Waters has said she wants to focus on consumer protection and housing.

Unsurprisingly, financial services industry lobbyists expressed some “mixed views” to Politico about AOC joining the committee. Their opinions ranged from anxieties that her presence could make it even more difficult for Democrats and Republicans on the committee to work together to confidence that one low-ranking member likely wouldn’t have much of an impact on the committee’s policy work.

Then again, being a member of the committee could come with some drawbacks for Ocasio-Cortez, as one lawmaker who survived a primary challenge from an Ocasio-Cortez backed challenger pointed out.

Rep. Lacy Clay said Ocasio-Cortez “could get a full appreciation of financial services in this country.”

“Who knows,” he said. “She may deal with some issues over this first term and her supporters may start referring to her as a sellout.”

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Two Governors Kick Off 2019 With Big Occupational Licensing Reforms

Two Republican governors got the new year off to a productive start by striking a small blow against their states’ occupational licensing boards.

In Ohio, Gov. John Kasich signed a bill requiring the state legislature to review all licensing boards at least once every six years to ensure there is a continued public need for the licensing rules. The legislature will also be tasked with determining whether one-size-fits-all licenses are “the least restrictive form” of regulation for specific professions. If it determines that the answer is “no,” the boards can be shuttered. Finally, the legislature will have to determine if a board’s actions have inhibited economic growth, reduced efficiency, or increased the cost of government.

“Occupational licensing should only be a policy of last resort,” says Lee McGrath, legislative counsel for the Institute for Justice, a libertarian law firm. A 2018 analysis published by McGrath’s group calculates that licensing laws cost Ohio 68,000 jobs and $6 billion in economic activity annually. “This licensing reform has the potential to create more economic opportunity and save Ohioans billions of dollars,” McGrath says.

The bill also opens the door for Ohioans with criminal records to obtain licenses in some fields. More than a million residents of the state have a criminal record of some sort, and about 25 percent of all Ohio jobs were off-limits to those individuals solely because of their records, according to a recent report from Policy Matters Ohio, a left-leaning think tank.

Licensing rules that automatically disqualify individuals with criminal records continue to punish people long after they have paid their debts to society. Under the reforms that Kasich signed this week, individuals with criminal records will be able to ask licensing boards whether their specific criminal records would be grounds for denying a license before they spend time and money (sometimes years and several hundred dollars) trying to meet the qualifications.

It would be better to require licensing boards to publish a specific list of crimes for which a license application could be denied. It makes sense, for example, to prevent someone with a history of crimes against children from getting a license to be a preschool teacher, but not to keep him from being a carpenter. Still, Ohio’s new law will likely help some residents of the state navigate the complex licensing process and land a job.

In Idaho, the first executive order issued by newly elected Gov. Brad Little will impose a mandatory periodic review of the state’s occupational licensing boards by the state legislature, similar to the reform in Ohio. In his first “state of the state” address, Little promised to put regulatory and licensing reform at the top of his agenda.

The executive order “will deliver more jobs and economic opportunity to Idahoans, particularly our low-income friends and neighbors,” says Wayne Hoffman, president of the Idaho Freedom Foundation, a free market think tank.

Idaho and Ohio join three other states—Louisiana, Nebraska, and Oklahoma—that passed similar licensing sunset provisions last year.

It would be better, of course, for states to strike many occupational licensing laws from the books entirely. A promise that the legislature will review those laws and boards every few years is only as good as the people who sit in the legislature—and lawmakers always have more interesting and politically beneficial things to do than check up on how a bunch of bureaucrats are doing.

But the mandatory sunset periods are an undeniable step in the right direction, even if only as a way to curb some of the boards’ worst behaviors. It’s one thing to pass a rule saying that someone needs 1,000 hours of training before he can safely use a blow dryer on a customer’s scalp when you think you are the final authority on the matter. Simply knowing that you’ll be subject a periodic review might put the brakes on that sort of thing. And if it doesn’t, the periodic reviews give the public (and pro-liberty groups like the Institute for Justice and state-based think tanks) an open door to press for changes or at least to highlight the more problematic laws.

The reforms in Ohio and Idaho are not a guarantee that licensing boards won’t continue to abuse their authority. But they tip the scales slightly toward economic freedom.

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CNN Cancels On San Diego TV Station After They Report Border Wall Works

A local San Diego television station said on Thursday that CNN invited them to provide a “local view” of the existing wall at the US-Mexico border, only to cancel after past reports from the station showed that the wall is an effective method of combating illegal immigration. 

“Thursday morning, CNN called the KUSI Newsroom asking if one of our reporters could give them a local view of the debate surrounding the border wall and government shutdown,” begins a report by local San Diego station KUSI. 

“KUSI offered our own Dan Plante, who has reported dozens of times on the border, including one story from 2016 that was retweeted by former Speaker of the House, Newt Gingrich, and posted on DrudgeReport.com,” the report continues. 

“We believe CNN declined a report from KUSI because we informed them that most Border Patrol Agents we have spoken to told us the barrier does in fact work,” it concludes. “We have continuously been told by Border Patrol Agents that the barrier along the Southern border helps prevent illegal entries, drugs, and weapons from entering the United States, and the numbers prove it.” 

Conservative pundits took notice;  

Of course, San Diego’s border wall to the east is a bit less fortified…

Photo: Dave White

Acosta mocked

On Thursday, CNN‘s Jim Acosta was ridiculed over social media after his report from a steel wall from the border “didn’t show anything resembling a national emergency.” 

“I found some steel slats down on the border,” tweeted Acosta. “But I don’t see anything resembling a national emergency situation.. at least not in the McAllen, Texas, area of the border where Trump will be today.” 

Acosta was widely mocked by conservatives for proving that border walls work. House Minority Whip Steve Scalise (R-LA), Donald Trump Jr., and even the President himself poked fun at the CNN White House correspondent. 

(h/t Joe Concha of The Hill)  

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Man bills the US government for his Corvette. This is how they responded…

Last week I decided to use my tax savings to pay the rent for US government workers affected by the shut down. Emails keep coming in from furloughed federal employees having a tough time. And money keeps going out.

As I’ve been highlighting over the past week, the government shutdown affects many more people than the 800,000 furloughed government workers. Some contractors and subcontractors might not even know their salary ultimately stems from government funding.

So it’s really millions who aren’t receiving a paycheck.

This obviously isn’t the first time the government has shut down. And it won’t be the last either.

With the national debt just shy of $22 trillion, there are going to be more shutdowns due to statutory borrowing limitations, something that’s commonly called the ‘debt ceiling’.

So the next shutdown could come as early as August… which is pretty ridiculous. I mean, the US is really starting to look like a banana republic.

Well, one enterprising American named Gunther Glaub got sick of all this fiscal irresponsibility.

He figured that if the government could spend a bunch of money it doesn’t have and stick taxpayers with the bill, that he should get to spend a bunch of money HE doesn’t have, and stick the government with the bill.

So he went out and bought a new Corvette… and sent an invoice to the US Department of Agriculture to pay for it.

I mean hey, $100,000 doesn’t even move the needle on the government debt. And since they already bailed out the car-makers, why not the car-buyers too?

Along with his bills and wire transfer instructions, he included a note that said, “Thank you for paying this debt.”

I won’t lie, here at Sovereign Man we thought this was hilarious. I mean, the government has definitely wasted money in worse ways than buying Gunther a new sports car.

Uncle Sam blew $2 billion on the Obamacare website that didn’t even work.

And taxpayers forked over half a million dollars to cover the legal costs of defending members of Congress from sexual harassment claims.

But go figure, the USDA didn’t think it was so funny…

When the USDA got the bill, they didn’t have a good laugh like us. Nor did they simply shake their heads at Gunther Glaub’s antics, and throw the request in the trash.

Nope. These USDA employees– who we are guessing are a whole lot of fun at parties– actually reported Gunther to federal prosecutors.

And the Justice Department actually charged and CONVICTED Gunther with criminal fraud under the False Claims Act.

This is pretty nuts given that Gunther faced 25 years in prison.

Given that the cost of incarceration is $32,000 per inmate in US federal prisons, Gunther’s prison sentence could have costed taxpayers $800,000… to punish him for asking the government to buy him a $100,000 car.

Obviously we don’t think that the taxpayers should have to buy Gunther a new car. (And the guy has got to be half crazy for poking the bear like that).

But it does send a clear message: YOU the citizen are responsible for the government’s debts. Yet if you try to reverse the roles, even as a joke, they throw your ass in jail.

Source

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Trump’s National Emergency Is an American Obscenity

||| Leah Millis/REUTERS/NewscomWhen then-president Barack Obama attempted in November 2014 to expand the Deferred Action for Childhood Arrivals program to protect an additional 3.7 million illegal immigrants from deportation, Sen. Lindsey Graham (R–S.C.), a longtime supporter of comprehensive immigration reform, opposed the move. Indeed, he signed onto an amicus brief challenging the executive order at the Supreme Court.

“What is at stake in this matter is nothing less than an effort to supplant Congress’s constitutional power,” the brief read. “There is little doubt that the Executive adopted the Deferred Action for Parents of Americans and Lawful Permanent Residents (‘DAPA’) program as part of an explicit effort to circumvent the legislative process.”

Graham, who has since graduated to the chairmanship of the Senate Judiciary Committee, was right then. He’s a disgrace now.

President Donald Trump, according to the latest reporting, is “laying the groundwork for a declaration of national emergency to build [a] border wall,” telling his phone buddy Sean Hannity last night: “Now if we don’t make a deal with Congress, most likely I will do that….I would actually say I would. I can’t imagine any reason why not because I’m allowed to do it. The law is 100 percent on my side.”

Needless to say, people with more familiarity with law don’t share the president’s view. “The validity of this claim is dubious at best,” Ilya Somin explains at The Volokh Conspiracy. “It’s a terrible idea,” editorializes National Review. “Even if it’s legal—which is unclear, at best—it would represent another unwelcome step in America’s long march toward unilateral government by the executive.” Opines NR‘s David French: “If you look at the plain language and clear intent of the relevant statutes, they do not permit Trump to defy Congress and build his wall. He knows it. Congress knows it. His own lawyers know it.”

The congressional Republican most vocally opposed to the national-emergency scheme is, unsurprisingly, the self-described libertarian Rep. Justin Amash (R–Mich.). “I think it would be a huge mistake,” Amash told Michigan Advance yesterday, “and it would be a massive executive overreach….There’s no national emergency. Obviously, there are problems at the border, but to declare a national emergency—and assume all sorts of powers—would be way beyond what I think is authorized.”

But Amash’s is a lonely view even within his own Freedom Caucus bloc of ostensible constitutionalists. “I would prefer the legislative option,” Freedom Caucus Rep. Scott Perry (R–Pa.) tells The Huffington Post. “But if he keeps on trying and trying and trying, and the other side is so intractable that they refuse to discuss it, what other option do you have?”

This foul immigration cycle—legislative impasse, presidential policymaking, legal challenges, all lubricated by grotesque partisan hypocrisy—long predates Trump. Both Obama and George W. Bush, like the 45th president, deployed National Guard troops to the U.S.–Mexico border as political theater to influence legislation. Both consciously increased deportations as a reaction to Congress—Obama to demonstrate his seriousness about border security as a negotiating precursor, Bush to teach senators what the “consequences” would be for its inaction.

||| ReasonYou can have sympathy for the desired ends of a policy while still opposing the unsound means. That’s one of the core principles animating America’s founding documents—redirecting government is supposed to be hard, not easy, requiring arduous navigation of co-equal branches and the protection of individual rights. Overriding congressional intent is supposed to come through the veto power, not situational emergency declarations.

Yes, presidents have wide latitude to prioritize law enforcement resources, declare national emergencies, and invoke “national security.” And yes, Congress has serially and consciously abdicated even the most basic of its constitutionally mandated functions. The presidency gets more imperial by the day.

But the proper response to this pathology is not to shrug and say “what other option do you have,” but rather to rally against America’s creeping re-monarchization. As Mel Brooks taught us, it’s good to be the king—but it’s not so hot to be the king’s subject. In a polarized country where only three of the past seven presidential winners received a majority of the popular vote, ceding new powers to the White House is a recipe for heightened social conflict. Particularly when the new power involves the deliberate trampling of property rights.

The forthcoming Elizabeth Warren administration would no doubt enjoy the power to re-write corporate charters, create a government-run pharmaceuticals industry, and spend a half-trillion dollars on public housing. But the Constitution requires that those who agree with such proposals convince enough legislators to get them passed, while not running afoul of the Bill of Rights. That is how the system was designed.

Congressional Republicans who endorse the declaration of an emergency that isn’t an emergency, who support using presidential action and threats thereof as a backstop to legislative negotiations, might as well turn in their security passes. What is the point of a legislative branch that won’t legislate? If we are to halt the long slide into one-man governance, politicians will have to adopt more than a situational constitutionalism—and voters will have to reject with prejudice those who’d rather kiss the president’s ring than do their damn jobs.

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Buchanan: Memo To Trump – Declare An Emergency

Authored by Patrick Buchanan via Buchanan.org,

In the long run, history will validate Donald Trump’s stand on a border wall to defend the sovereignty and security of the United States.

Why? Because mass migration from the global South, not climate change, is the real existential crisis of the West.

The American people know this, and even the elites sense it.

Think not? Well, check out the leading liberal newspapers Thursday.

The Washington Post and The New York Times each had two front-page stories about the president’s battle with Nancy Pelosi and Chuck Schumer on funding the border wall.

Inside the first section, the Post had more stories, including one describing walls in history from China’s Great Wall to the Berlin Wall to the Israeli West Bank wall to the wall separating Hungary from Serbia.

Inside the Times was a story on a new anti-immigration party, Vox, surging in Andalusia in Spain, and a story about African migrants being welcomed in Malta after being denied entry into Europe.

Another Times story related how the new president of Brazil, Jair Bolsonaro, has pulled out of a U.N. pact on migration, declaring, “Brazil has a sovereign right to decide whether or not it accepts immigrants.”

Half the columns on the op-ed pages of the papers dealt with Trump, immigration and the wall. And there was nothing significant in either on the Democrats’ hot new issue, a Green New Deal.

Consider. In 1992, this writer’s presidential campaign had to fight to have inserted in the GOP platform a call for “structures” on the border.

Now, the whole Western world is worried about its borders as issues of immigration and identity convulse almost every country.

Looking ahead, does anyone think Americans in 2030 are going to be more concerned about the border between North Korea and South Korea, or Turkey and Syria, or Kuwait and Iraq, or Russia and Ukraine, than about the 2,000-mile border between the U.S. and Mexico?

Does anyone think Pelosi’s position that a wall is immoral will not be regarded as absurd?

America’s southern border is eventually going to be militarized and defended or the United States, as we have known it, is going to cease to exist. And Americans will not go gentle into that good night.

Whatever one may think of the face-off Tuesday with “Chuck and Nancy,” Trump’s portrait of an unsustainable border crisis is dead on:

“In the last two years, ICE officers made 266,000 arrests of aliens with criminal records, including those charged or convicted of 100,000 assaults, 30,000 sex crimes and 4,000 violent killings.”

The Democrats routine retort, that native-born Americans have a higher crime rate, will not suffice as new atrocities, like those Trump related, are reported and repeated before November 2020.

What should Trump do now? Act. He cannot lose this battle with Pelosi without demoralizing his people and imperiling his presidency.

Since FDR, we have had presidential government. And when U.S. presidents have been decisive activists, history has rewarded their actions.

Lincoln suspended habeas corpus. On taking office, FDR declared a bank holiday. When Britain was barely hanging on in World War II, he swapped 50 destroyers for British bases. He ordered U.S. ships to chase down German submarines and lied about it. Truman fired General MacArthur.

Reagan fired the striking air controllers and ordered the military to occupy Grenada to stop Marxist thugs who had taken over in a coup from taking 500 U.S. medical students hostage.

Critics raged: Reagan had no right to invade. But the American people rewarded Reagan with a 49-state landslide.

Trump should declare a national emergency, shift funds out of the Pentagon, build his wall, open the government and charge Democrats with finding excuses not to secure our border because they have a demographic and ideological interest in changing the face of the nation.

For the larger the share of the U.S. population that requires welfare, the greater the need for more social workers, and the more voters there will be to vote to further grow the liberal welfare state.

The more multiracial, multiethnic, multicultural, multilingual America becomes — the less it looks like Ronald Reagan’s America — the more dependably Democratic it will become.

The Democratic Party is hostile to white men, because the smaller the share of the U.S. population that white men become, the sooner that Democrats inherit the national estate.

The only way to greater “diversity,” the golden calf of the Democratic Party, is to increase the number of women, African-Americans, Asians and Hispanics, and thereby reduce the number of white men.

The decisive issues on which Trump was elected were not the old Republican litany of tax cuts, conservative judges and increased defense spending.

They were securing the borders, extricating America from foolish wars, eliminating trade deficits with NAFTA nations, the EU and China, making allies pay their fair share of the common defense, resurrecting our manufacturing base, and getting along with Russia.

“America First!” is still a winning hand

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“Approaching A Tipping Point”: Stock Rally Hits Key Checkpoint

After a furious, post “Mnuchin Massacre” rally that has seen the S&P index rise +10.44% over the last 11 sessions, the best such stretch since October 2011, every major US stock index is approaching a tipping point according to Nomura quants who caution that with the S&P500 near 2,600 and the Russell 2000 at ~1,450, we are near levels at which CTAs are forced to cut their loss-making short futures positions, and further note that they have already identified that mechanical buying back of futures by trend-followers is been gradually induced.

To be sure, the positive drivers such as progress in US-China trade talks and the Fed’s dovish shift have significantly accelerated a recovery in sentiment, but in global stock markets, the current pattern in major DM equity market factor returns shows investors calmly remain in a conservative stance on risk-taking (rather than this being a superficial rebound). In fact, their preference has been tilted toward defensive-oriented factors such as low volatility (i.e., buying low-vol, selling high-vol names) or dividend-yield carry factors (i.e., buying higher dividend yield stocks and selling low dividend yield stocks). The cautious view is still very persistent under the surface.

However, a more notable observation for the viability of the recent rally is that according to Nomura, “we have reached a reality check in identifying the sustainability of the current risk rally” with the bank adding that its estimate of global stock market sentiment is aligned with the peaks seen last November and December. Note that in all prior cases, sentiment softened from around these market levels.

Even if the improvement continues, Nomura warns that additional positive events or drivers related to solid fundamentals would be necessary to push sentiment further into positive territory (i.e., a risk-seeking phase). Otherwise, one needs to be aware that systematic buy-back pressure on trend-chasing algo investors like CTAs and Risk Parity funds only will accelerate the upward momentum of the equity market.

One other key wildcard is what happens with China: while Nomura believes that the future momentum of the Chinese economy seems overlooked at the moment, it is one of the “reality check” factors. Removing US economic uncertainty is not enough, in Nomura’s view, but at the same time “we need to confirm if China’s economic recovery is likely.”

On that point, some short-term investors are slightly sceptical; CTAs are still short Hang Seng Index futures and trend-followers in the Japanese market are also short China-related sectors. That’s why the bank’s quant team said it will watch closely such speculative investors’ China-bearish positions as well as China stock market sentiment in an effort to confirm the sustainability of the global stock price rebound.

Finally, in light of today’s furious dollar rally and return-reversal, Nomura cautions that CTAs continue to unwind their aggregate USD long positions which may suggest today’s snapback rally is just new CTAs loading up longs. That said, unless DXY rapidly recovers above 96.0, USD is more likely to be exposed to mechanical selling pressures across major pairs, in Nomura’s view.

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Macron Cancels On Davos One Day After Trump Skips Out

French President Emmanuel Macron on Friday announced that he would not attend the World Economic Forum in Davos later this month, citing a busy schedule which includes debates over the ongoing Yellow Vest protests which are set for a ninth week of demonstrations.

Macron will also hold the second edition of his own forum with business leaders in Versailles on January 21, according to Reuters, citing Macron’s office.

US President Trump said on Thursday that he won’t be attending the event in Switzerland amid the partial government shutdown and his push for funding for a wall on the southern border at the center of the impasse.

“Because of the Democrats intransigence on Border Security and the great importance of Safety for our Nation, I am respectfully cancelling my very important trip to Davos, Switzerland for the World Economic Forum,” tweeted Trump. “My warmest regards and apologies to the @WEF!”

 

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Dollar Spikes As Stocks, Crude, & Bond Yields Tumble

And just like that – with no catalyst – everything reverses…

As Richard Breslow noted earlier, “The dollar has gone from chump to champ as Turkish troop movements on the Syrian border have caused a quick flight to safety.”

The dollar’s abrupt rally against the euro and the yen may have been fueled by investors trimming positions heading into the weekend, said Mazen Issa, senior foreign-exchange strategist at TD Securities.

“After a week that saw the dollar trade on its backfoot by an appreciable degree, there may be some lightening of positions,” Issa wrote in an email. “These markets are different, and carrying risk into the weekend may not be prudent — especially when obvious, though consequential, risks with unknown outcomes are around the corner.”

And it seems everyone is unwinding the momo trades across all assets too…

Stocks retested a critical resistance level…

And failed…

 

After a mini-bloodbath, bonds are suddenly panic-bid – double-topping at 2.75%…

 

And WTI hit $53 and tumbled…

Will Trump quickly tweet that “trade talks are going well”? Will A few head subtlely suggest QE5 is coming? Sadly, that is all that matters.

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