Did Trump Just Put The September Market “Crash Down” In Play

Until just about 11am this, the market was poised on a knife’s edge, trading right on top of the dealer gamma breakeven level. That ended with a bang when Trump unveiled that the US will retaliate to China’s Friday tariff increase “this afternoon” and ordered companies to find “an alternative to China”, in what was clearly a dramatic escalation in the trade war (and potentially currency war, should Trump announce the US will intervene in the FX market to devalue the dollar against the yuan and/or other currencies). The news of Trump’s escalation and mystery afternoon announcement sent markets tumbling…

… and sent the S&P sharply into “short gamma” territory, where selling begets more selling.

The sharp drop in the market today, however, could represent a double whammy because not only does it send stocks lower ahead of a traditionally volatile September, but it pushes risk into levels where in addition to “gamma gravity” kicking in, various quant and systemic investors are once again forced to sell, creating a feedback loop where the lower stocks drop, the more forced selling will be unleashed, etc.

It is this pernicious feedback loop that framed this morning’s note by Nomura’s Charlie McElligott who after warning earlier this week that markets are facing an especially precarious September, warned that what happens today in markets will likely reverberate for quite some time. In retrospect, his warning could not have been more timely.

As the Nomura quant writes, “with regards to Equities and the VIX Dealer “Gamma” update, Dealers post-expiry were obviously in a much “cleaner” place and now “long Delta”, something we observed after the “Short Gamma” rip into a VIX options expiry “we tend to see Deltas remain “sticky” for approx. a week or so thereafter.”

But while McElligott correctly called the recent technical “melt up”, he is now growing concerned that the pieces are falling-into-place for a potential “Equities pullback window” during the month of September, particularly with a cacophony of event- and flow- risks mid-month onward which are “clustering”, among which:

  • VIX seasonality, with September posting the 2nd best average monthly return for VIX since its inception, +6.9% on avg (2nd to only August at +9.2%) and which is likely a function of still-weak post-Summer holiday volumes/depth of book and tight liquidity/VaR constraints from Dealers into Quarter-End
  • An obvious macro catalyst to “set it off” in the form of today’s China retaliation – and US counter retaliation which is still pending – weighing on global growth and business sentiment even further CB disappointment risk, most likely via the potential for either the Fed (Sep 18th) or the ECB (Sep 12th) being unable to match markets’ very dovish expectations, with the potential to create an Equities’ “gap down” on perceived de facto “hawkish” message, which would also serve to “tighten” financial conditions (USD up, Yields up, Vol up) and accelerate the USD funding stress dynamic further (unless Trump announces a USD currency devaluation at some point today that is).
  • Buyback blackout: the mid-Sept timing of CB-induced “risk” corroborates too with the removal of a key “demand / stabilizer flow” in US Equities, as well via the commencement of the Q3 EPS season Corporate “Buyback Blackout” around mid- September, as 75% of S&P 500 corporates will see their purchase windows close by Sep 17th
  • This “clustering” of risks occurs at the same time we see the Q3 “Quad Witch” Serial Expiry on Sep 21st, meaning almost-certain “Gamma” hedge- related “swing” risk.

Not helping matters is the unpredictable impact of the “whale” vol trader known as the second coming of “50 cent”. According to McElligott, “we have already seen fresh Sep VIX “Call Wing” trading AGAIN, which look a lot like the footprints of  the “50 Cent” hedge program (“wingy” VIX Sep 20C and VIX Sep 25C both traded good size this week), which could see us again back in the same spot we were in this past month of August—meaning that Dealers may again have to then go out and buy loads of “crash” protection to offset their VIX “Short Gamma” and which could then keep VIX / Vol of Vol / S&P Skew “jumpy” and indicatively “binary”(just as we experienced since end-July into August).”

The only difference is that unlike last week, when dealers were unwinding the 50 cent trade, and sending vix crashing, this would be the opposite leg, which in turn would result in a buying spree in VIX futs, which in turn sends stocks even lower.

But the key catalyst is the China trade war escalation which as the Nomura quant notes is “weighing on sentiment and growth downside risks further, we may in fact pull-forward this scenario.”

* * *

Which brings us to the “bigger picture” summary from McElligott who notes that what we are experience is really a progression that continues to “rhyme” with other bouts of “crash-down then crash-up” cycles in the modern Equities market structure, which follows the following steps:

  • An un-anticipated “macro shock” catalyst (e.g. the most recent Trump tweet tariff escalation in late July, which then kicked-off the August Vol move) then “gaps” markets lower
  • From there via said “gap” lower, Dealer options desks’ Gamma position too tends to flip “Short” from downside protection sold to clients (as opposed to a calm / “slow grind higher” market where buyside “Vol Sellers” i.e. Overwriters / “Put Bombers” tend to get Dealers “long Gamma”), while clients often too “dynamically hedge” via pressing shorts in Futs, ETFs or singles (“Net-down”)—all of which exacerbates the violence of the move lower, hence a “feedback loop”
  • And on account of said “Short Gamma” into a macro gap down (forcing Dealer desks to short more futures the lower we go), this then too has the tendency to bring Vol Control / Target Vol and Systematic CTA trend “deleveraging” (sell) levels into play—as the ultimate “mechanical / un-emotional flow” accelerant to create the “shock down”
  • This “high vol” then tends to “normalize,” both 1) as hedges are monetized (e.g. net long vega via VIX ETNs, clients selling out of S&P downside or Dealers unwinding “crash”) and 2) thanks to the proliferation of “Short Vol” strategies (from Systematic VIX “Roll-Down” to real $ “Yield Enhancement” or “Overwriting”), which then SELL into these elevated volatility levels as attractive entry-points
  • Dealers then get “Long Gamma” from these various strategies, i.e. client “Put Sellers” which then makes options desks’ “synthetically short” the mkt and forcing them to buy large notional Delta as hedges (e.g. via buying Equities futures), in-turn acting as a massive market “shock absorber” / “stabilizer” which then bleeds Volatility in a virtuous feedback loop
  • Similar + Equities / – Volatility input occurs via Corp Buybacks, which squelch Vol spikes and historically have tended to be most active for these types of “shock down” scenarios (outside of “blackout” periods, but of course Corps can too remain active repurchasing shares via 10b5-1 programs)
  • Finally, that “dynamic hedging” of pressed Shorts in futures / ETFs / singles in order to lower ‘Net Exposure’ during the prior drawdown period described then turns into “fodder for a squeeze”
  • As markets squeeze higher and price momentum again turns HIGHER / Vol normalizes LOWER, and we then see the Vol Control- / Tgt Vol- / CTA Trend- “rules based” universe then begin adding-back exposure, either “re-leveraging” of longs / covering shorts (CTAs)
  • RINSE, REPEAT

In case there is any confusion, we are now entering the “crash down” phase again, and far faster than most had expected.

Finally, for those wondering, here are the latest CTA trigger levels per McElligott. Needless to say, the lower we drop, the most CTAs will either sell or flip even shorter.

One final thought: if it is Trump’s intention to accelerate the Fed’s launch of “some quantiative easing”, then he is doing exactly what he should (as we explained): after all, the Powell Put level is not much lower, and Trump has a free option on whether the Fed chair will cut rates or go all the way and start buying assets again.

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Videographers’ Free Exercise Clause Objections to Having to Create Same-Sex Wedding Videos

As I wrote earlier this morning, a divided Eighth Circuit panel has just held that videographers have a Free Speech Clause right not to create same-sex wedding videos, notwithstanding any antidiscrimination law that requires them to treat same-sex weddings and opposite-sex weddings equally. But the videographers also raised a claim under the Free Exercise Clause.

The general Free Exercise Clause under the First Amendment: In Employment Division v. Smith (1990), the Supreme Court held that religious objectors are generally not entitled to an exemption from religion-neutral, generally applicable laws. The Minnesota antidiscrimination law would likely qualify as such a religion-neutral, generally applicable laws, because it applies to all circumcisions, whether religious or not, and because there’s no evidence that it was motivated by hostility to religion.

The “hybrid rights” exception: Smith, however, set forth an exception to its general rule. Two decades before Smith, Wisconsin v. Yoder (1972) held that the Amish were entitled to an exemption from a generally applicable law requiring children to attend schools (public or private) up to 16; and Smith did not overrule Yoder on this score. Rather, Smith dealt with Yoder—and some past cases that used the Free Exercise Clause to protect the rights of religious speakers—like this (most citations omitted):

The only decisions in which we have held that the First Amendment bars application of a neutral, generally applicable law to religiously motivated action have involved not the Free Exercise Clause alone, but the Free Exercise Clause in conjunction with other constitutional protections, such as freedom of speech and of the press, or the right of parents, acknowledged in Pierce v. Society of Sisters (1925), to direct the education of their children, see Wisconsin v. Yoder (1972) (invalidating compulsory school-attendance laws as applied to Amish parents who refused on religious grounds to send their children to school). [Footnote: [Yoder] specifically adverted to the non-free-exercise principle involved … [by saying] that “the Court’s holding in Pierce stands as a charter of the rights of parents to direct the religious upbringing of their children. And, when the interests of parenthood are combined with a free exercise claim of the nature revealed by this record, more than merely a ‘reasonable relation to some purpose within the competency of the State’ is required to sustain the validity of the State’s requirement under the First Amendment.”] Some of our cases prohibiting compelled expression, decided exclusively upon free speech grounds, have also involved freedom of religion. And it is easy to envision a case in which a challenge on freedom of association grounds would likewise be reinforced by Free Exercise Clause concerns.

The present case does not present such a hybrid situation, but a free exercise claim unconnected with any communicative activity or parental right. Respondents urge us to hold, quite simply, that when otherwise prohibitable conduct is accompanied by religious convictions, not only the convictions but the conduct itself must be free from governmental regulation. We have never held that, and decline to do so now. There being no contention that Oregon’s drug law represents an attempt to regulate religious beliefs, the communication of religious beliefs, or the raising of one’s children in those beliefs, the rule to which we have adhered ever since Reynolds plainly controls.

This is a mysterious, mystifying, and perhaps mystical passage. I think the Smith decision is correct, but even I think that its explanation of Yoder is pretty poor. And lower courts have understandably split on what it means.

Some have dismissed the “hybrid situation” analysis as dictum, and sufficiently unhelpful dictum that those courts have felt free to reject it.

Some have concluded that “hybrid situation” simply refers to a situation where the religious objectors have a winning claim on some other right, so that the religious objectors would win but not because of the Free Exercise Clause; under this approach, there would likewise be no right to religious exemptions from generally applicable laws even when another right is in play—only the other right would matter.

But some courts have held that the Free Exercise Clause does provide extra protection when the claimant can “make out a ‘colorable claim’ that a companion right has been violated—that is, a ‘fair probability’ or a ‘likelihood,’ but not a certitude, of success on the merits.”

So if courts conclude that a “hybrid situation” under Smith is merely a situation where the religious claimant also has some other winning constitutional claim, then the Free Exercise Clause wouldn’t add anything to the analysis (see the general Free Exercise Clause discussion above): The religious claimants’ objection would stand or fall on their free speech claim.

But if courts accept the “colorable claim” theory, then they would have to decide whether the objectors’ free speech claim is “colorable” (whatever that might mean); and, if it is, then the standard of scrutiny would be elevated from that normally used for speech restrictions (which is sometimes strict scrutiny but sometimes, as for content-neutral restrictions, intermediate scrutiny), to the “strict scrutiny” used in cases such as Yoder—a religious exemption would have to be granted unless denying it would be “narrowly tailored” to a “compelling government interest.” In principle, this might mean that objectors to making same-sex wedding videos who are religiously motivated might win, even if objectors who lack a religious motivation would lose. (Most objections to providing goods and services for same-sex wedding ceremonies in the U.S. today seem to be religiously motivated, but in principle that needn’t be so. Indeed, back in the day, the officially atheistic Soviet Union banned and often punished same-sex sexual behavior—obviously, not a good reason for nonreligious people to do the same, but evidence that nonreligious people do indeed sometimes object to such behavior, and may similarly not want to be involved with same-sex weddings.)

The same-sex wedding video case: This issue arose in the Eighth Circuit case, though the argument seems to have bene superfluous in this particular context. Here’s the majority:

The basic premise of the Larsens’ free-exercise claim is that the MHRA, as interpreted by Minnesota, prevents them from freely exercising their religious beliefs. It does so, the Larsens say, because they will have to either show support for same-sex marriage, even though they object to it on religious grounds, or refrain from making wedding videos at all. This is not a typical free-exercise claim.

Those seeking relief under the Free Exercise Clause of the First Amendment will ordinarily argue that their religion requires them to engage in conduct that the government forbids or forbids certain conduct that the government requires. If the Larsens’ claim fell into one of those two categories, then we would simply apply the rule that neutral, generally applicable laws that incidentally burden “a particular religious practice” do not have to be “justified by a compelling governmental interest.”

But the Larsens have alleged that the MHRA burdens their religiously motivated speech, not their religious conduct. So their claim falls into the class of “hybrid situation[s]” in which “the Free Exercise Clause in conjunction with other constitutional protections, such as freedom of speech,” can “bar[] application of a neutral, generally applicable law.” Because the Larsens’ free-exercise claim is “[]connected with [their] communicative activity,” in other words, the Larsens may use their “Free Exercise Clause concerns” to “reinforce[]” their free-speech claim.

Minnesota, the district court, and the dissent seem to think that we can simply ignore the hybrid-rights discussion from Smith because it was dicta…. [But to reach its conclusion upholding a “neutral, generally applicable law” that interfered with the sacramental use of peyote, Smith] had to grapple with a long line of cases that had treated the Free Exercise Clause as a shield against laws burdening  religious practices. Rather than overrule these decisions, the Court explained that they involved “hybrid situation[s]” in which a free-exercise challenge was intertwined with another constitutional right.

This means that Smith did more than simply speculate about how to treat a hybrid claim in some hypothetical future case. Rather, it described the operation of an existing doctrine, one that it then applied to the parties. See id. (highlighting that “[t]here [was] no contention that Oregon’s drug law represent[ed] an attempt to regulate … the communication of religious beliefs” (emphasis added)). Although the claimants did not prevail under the hybrid-rights doctrine in Smith, the Court’s discussion of it was far from dicta.

Of course, it is not at all clear that the hybrid-rights doctrine will make any real difference in the end. After all, the Larsen’s free-speech claim already requires the application of strict scrutiny. As a practical matter, then, the fact that the videos also have religious significance may not move the needle much. But because the Larsens have adequately alleged a hybrid-rights claim in their complaint, the district court must allow them to develop it on remand….

The dissent expressed doubt about the hybrid-rights doctrine generally, but concluded that it was irrelevant because—under the dissent’s view—”the Larsens do not have a valid free speech claim.” Neither side discussed what would happen had the Larsens’ claim been merely “colorable,” which is when the hybrid rights Free Exercise Clause theory could have potentially made a difference (rather than just being duplicative of the Free Speech Clause claim).

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Videographers’ Free Exercise Clause Objections to Having to Create Same-Sex Wedding Videos

As I wrote earlier this morning, a divided Eighth Circuit panel has just held that videographers have a Free Speech Clause right not to create same-sex wedding videos, notwithstanding any antidiscrimination law that requires them to treat same-sex weddings and opposite-sex weddings equally. But the videographers also raised a claim under the Free Exercise Clause.

The general Free Exercise Clause under the First Amendment: In Employment Division v. Smith (1990), the Supreme Court held that religious objectors are generally not entitled to an exemption from religion-neutral, generally applicable laws. The Minnesota antidiscrimination law would likely qualify as such a religion-neutral, generally applicable laws, because it applies to all circumcisions, whether religious or not, and because there’s no evidence that it was motivated by hostility to religion.

The “hybrid rights” exception: Smith, however, set forth an exception to its general rule. Two decades before Smith, Wisconsin v. Yoder (1972) held that the Amish were entitled to an exemption from a generally applicable law requiring children to attend schools (public or private) up to 16; and Smith did not overrule Yoder on this score. Rather, Smith dealt with Yoder—and some past cases that used the Free Exercise Clause to protect the rights of religious speakers—like this (most citations omitted):

The only decisions in which we have held that the First Amendment bars application of a neutral, generally applicable law to religiously motivated action have involved not the Free Exercise Clause alone, but the Free Exercise Clause in conjunction with other constitutional protections, such as freedom of speech and of the press, or the right of parents, acknowledged in Pierce v. Society of Sisters (1925), to direct the education of their children, see Wisconsin v. Yoder (1972) (invalidating compulsory school-attendance laws as applied to Amish parents who refused on religious grounds to send their children to school). [Footnote: [Yoder] specifically adverted to the non-free-exercise principle involved … [by saying] that “the Court’s holding in Pierce stands as a charter of the rights of parents to direct the religious upbringing of their children. And, when the interests of parenthood are combined with a free exercise claim of the nature revealed by this record, more than merely a ‘reasonable relation to some purpose within the competency of the State’ is required to sustain the validity of the State’s requirement under the First Amendment.”] Some of our cases prohibiting compelled expression, decided exclusively upon free speech grounds, have also involved freedom of religion. And it is easy to envision a case in which a challenge on freedom of association grounds would likewise be reinforced by Free Exercise Clause concerns.

The present case does not present such a hybrid situation, but a free exercise claim unconnected with any communicative activity or parental right. Respondents urge us to hold, quite simply, that when otherwise prohibitable conduct is accompanied by religious convictions, not only the convictions but the conduct itself must be free from governmental regulation. We have never held that, and decline to do so now. There being no contention that Oregon’s drug law represents an attempt to regulate religious beliefs, the communication of religious beliefs, or the raising of one’s children in those beliefs, the rule to which we have adhered ever since Reynolds plainly controls.

This is a mysterious, mystifying, and perhaps mystical passage. I think the Smith decision is correct, but even I think that its explanation of Yoder is pretty poor. And lower courts have understandably split on what it means.

Some have dismissed the “hybrid situation” analysis as dictum, and sufficiently unhelpful dictum that those courts have felt free to reject it.

Some have concluded that “hybrid situation” simply refers to a situation where the religious objectors have a winning claim on some other right, so that the religious objectors would win but not because of the Free Exercise Clause; under this approach, there would likewise be no right to religious exemptions from generally applicable laws even when another right is in play—only the other right would matter.

But some courts have held that the Free Exercise Clause does provide extra protection when the claimant can “make out a ‘colorable claim’ that a companion right has been violated—that is, a ‘fair probability’ or a ‘likelihood,’ but not a certitude, of success on the merits.”

So if courts conclude that a “hybrid situation” under Smith is merely a situation where the religious claimant also has some other winning constitutional claim, then the Free Exercise Clause wouldn’t add anything to the analysis (see the general Free Exercise Clause discussion above): The religious claimants’ objection would stand or fall on their free speech claim.

But if courts accept the “colorable claim” theory, then they would have to decide whether the objectors’ free speech claim is “colorable” (whatever that might mean); and, if it is, then the standard of scrutiny would be elevated from that normally used for speech restrictions (which is sometimes strict scrutiny but sometimes, as for content-neutral restrictions, intermediate scrutiny), to the “strict scrutiny” used in cases such as Yoder—a religious exemption would have to be granted unless denying it would be “narrowly tailored” to a “compelling government interest.” In principle, this might mean that objectors to making same-sex wedding videos who are religiously motivated might win, even if objectors who lack a religious motivation would lose. (Most objections to providing goods and services for same-sex wedding ceremonies in the U.S. today seem to be religiously motivated, but in principle that needn’t be so. Indeed, back in the day, the officially atheistic Soviet Union banned and often punished same-sex sexual behavior—obviously, not a good reason for nonreligious people to do the same, but evidence that nonreligious people do indeed sometimes object to such behavior, and may similarly not want to be involved with same-sex weddings.)

The same-sex wedding video case: This issue arose in the Eighth Circuit case, though the argument seems to have bene superfluous in this particular context. Here’s the majority:

The basic premise of the Larsens’ free-exercise claim is that the MHRA, as interpreted by Minnesota, prevents them from freely exercising their religious beliefs. It does so, the Larsens say, because they will have to either show support for same-sex marriage, even though they object to it on religious grounds, or refrain from making wedding videos at all. This is not a typical free-exercise claim.

Those seeking relief under the Free Exercise Clause of the First Amendment will ordinarily argue that their religion requires them to engage in conduct that the government forbids or forbids certain conduct that the government requires. If the Larsens’ claim fell into one of those two categories, then we would simply apply the rule that neutral, generally applicable laws that incidentally burden “a particular religious practice” do not have to be “justified by a compelling governmental interest.”

But the Larsens have alleged that the MHRA burdens their religiously motivated speech, not their religious conduct. So their claim falls into the class of “hybrid situation[s]” in which “the Free Exercise Clause in conjunction with other constitutional protections, such as freedom of speech,” can “bar[] application of a neutral, generally applicable law.” Because the Larsens’ free-exercise claim is “[]connected with [their] communicative activity,” in other words, the Larsens may use their “Free Exercise Clause concerns” to “reinforce[]” their free-speech claim.

Minnesota, the district court, and the dissent seem to think that we can simply ignore the hybrid-rights discussion from Smith because it was dicta…. [But to reach its conclusion upholding a “neutral, generally applicable law” that interfered with the sacramental use of peyote, Smith] had to grapple with a long line of cases that had treated the Free Exercise Clause as a shield against laws burdening  religious practices. Rather than overrule these decisions, the Court explained that they involved “hybrid situation[s]” in which a free-exercise challenge was intertwined with another constitutional right.

This means that Smith did more than simply speculate about how to treat a hybrid claim in some hypothetical future case. Rather, it described the operation of an existing doctrine, one that it then applied to the parties. See id. (highlighting that “[t]here [was] no contention that Oregon’s drug law represent[ed] an attempt to regulate … the communication of religious beliefs” (emphasis added)). Although the claimants did not prevail under the hybrid-rights doctrine in Smith, the Court’s discussion of it was far from dicta.

Of course, it is not at all clear that the hybrid-rights doctrine will make any real difference in the end. After all, the Larsen’s free-speech claim already requires the application of strict scrutiny. As a practical matter, then, the fact that the videos also have religious significance may not move the needle much. But because the Larsens have adequately alleged a hybrid-rights claim in their complaint, the district court must allow them to develop it on remand….

The dissent expressed doubt about the hybrid-rights doctrine generally, but concluded that it was irrelevant because—under the dissent’s view—”the Larsens do not have a valid free speech claim.” Neither side discussed what would happen had the Larsens’ claim been merely “colorable,” which is when the hybrid rights Free Exercise Clause theory could have potentially made a difference (rather than just being duplicative of the Free Speech Clause claim).

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Investors Yank $56B From Hedge Funds Despite Industry’s Best Start To A Year Since 2009

As we noted last month, even though hedge fund performance has rebounded this year, with big-name managers like David Einhorn and Bill Ackman – and even macro icons like Brevan Howard – finally putting up strong numbers, and putting several years of disappointing returns behind them, investors are still pulling money out of hedge funds and other alternative strategies at the fastest pace in years.

Per the FT, investors pulled around $56 billion from hedge funds in the first seven months of this year, marking the worst start to a year in terms of capital outflows since 2016 (despite the best stretch of performance H1 performance).

So far this year, only 37% of hedge funds have had net inflows, according to data from eVestment published on Thursday and shared with the FT. Meanwhile, redemptions totaled $8.4 billion in July alone, though stronger returns helped soften the blow, meaning the industry’s total assets under management ticked up to $3.3 trillion. Typically, investors plan redemptions a few months, or quarters, in advance, so the pickup in redemptions this summer is likely due to the market carnage from Q4.

As usual, analysts blamed high fees and lower-than-anticipated returns for the outflow of capital.

Investors are “souring on disappointing returns or returns that don’t meet expectations for the cost they’re paying,” said Peter Laurelli, the head of research at eVestment. As investors pull back from hedge funds, the beneficiaries are often private equity and private debt funds, which are sitting on record levels of unspent cash.

And as investors pull money from hedge funds, other ‘alternative’ strategies like private equity and private debt funds are well-positioned to benefit.

Ironically, equity funds saw the largest chunk of redemptions, despite the HFR index of equity hedge funds outperforming most other strategies during this period.

Redemptions were highest in hedge funds that bet on stocks, which lost $25.5bn to outflows in the year to July. Those funds are the best-performing major strategy this year. The HFR index of equity hedge funds was up 9.8 per cent at the end of July, but that was still less than half the 20 per cent rise in the S&P 500 over the same period.

Macro and managed futures funds also suffered more than $10bn each in redemptions. Event-driven funds, which include distressed, restructuring and special situations strategies, had inflows of $10.3bn, but even there investors were choosy: more funds had outflows than had inflows.

But overall, HFR’s all-strategies index climbed 8% through the end of July, the best stretch of industry-wide performance since 2009. Still, as we’ve repeatedly noted in recent months, several big name funds have either shut their doors or returned outside capital, most notably David Tepper’s Appaloosa Management.

In terms of investment performance, hedge funds have had their best start to the year since 2009. HFR’s all-strategies index was up 8 per cent at the end of July. Returns have been boosted by surging stock and bond markets, while macro funds – which make big geographical and asset class bets – did well on trades around lower US interest rates and the escalating trade war between the US and China.

“It is the best returns the industry has broadly seen in almost 10 years, but it is still below an equal-weighted equity and bond benchmark, so I don’t know that the assumption should be there will be a general turnaround to the industry,” said Mr Laurelli.

“We’ve seen a lot of high-profile fund closures over the past couple years, and I can’t see any reason why that wouldn’t continue.” There were clear signs in the eVestment data that investors were reacting to last year’s weak performance in their allocations, rather than planning for which strategies might do well in the coming months. Funds that managed more than $1 billion and had negative performance last year were hit by $95 billion in redemptions, while those that returned more than 5 per cent in 2018 saw inflows of $51 billion.

Still, in what could be construed as a sign of the market top, just look at this chart comparing capital raised by top-performing funds during the first half of last year, compared with the first half of this year.

It doesn’t even compare…

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Ex-Overstock CEO Byrne Reveals FBI’s Peter Strzok Manipulated Him For ‘Political Espionage’

Former Overstock CEO Patrick Byrne claimed in a bombshell interview with Fox Business that he received “fishy” orders from former FBI official Peter Strzok. 

Byrne, who admitted to helping the “men in black” on two previous occasions – a murder case and Wall Street investigations – said that the Obama DOJ was conducting “political espionage” on both Hillary Clinton and Donald Trump, according to Fox News. 

Byrne said that all of the purported information he gleaned from his experiences ultimately landed in the hands of Connecticut U.S. Attorney John Durham, who has been conducting an investigation into the origins of the Russia probe at the behest of Attorney General William Barr. –Fox News

The 56-year-old Byrne also told Fox’s Martha MacCallum “I was given some fishy orders and I carried them out in 2015-2016, thinking I was conducting law enforcement,” adding “I didn’t know who sent the orders, but I did them. Last summer, watching television and some congressional hearings, I figured out where these orders came from. They came from a guy named Peter Strzok.“

Then, Byrne told CNN that the FBI directed him to pursue a romantic relationship with accused Russian spy Maria Butina. 

“Eventually, yes they did,” the former Overstock CEO told host Chris Cuomo in response to the question of whether they “told you you needed to have romantic relationship with somebody.”

“It was so strange that I was thinking, it’s almost like they’re letting this can-o-scandal develop and someday they’re going to shake it up and crack it and spray it all over the Republican Party,” said Byrne, who added that the FBI ordered him to break up with Butina – only to ask him to rekindle their romance in the summer of 2016 during the Russian election meddling probe. 

“They came back to me and said, ‘Boy, what a mistake we made. Russia, you’re right … highest national priority,” said Byrne. 

“They said, ‘We want to be clear – this never happens in the United States,” Byrne added. “‘We are the good guys. We don’t work like the bad guys, but we need to ask you to rekindle a romantic relationship with Maria Butina.’

Butina was sentenced to 18 months in prison for acting “under direction of” a Russian official and banker Alexander Torshin to infiltrate American political groups like the NRA and promote Russian’s interests in the USA. 

Following Byrne’s interview with MacCallum, she asked former Acting Attorney General Matthew Whitaker to respond, to which he said: “He’s describing it like he was being used as a source and being inserted into a situation by the feds, and there are protocols for handling sources,” adding “All of this can be corroborated. That’s the key. This whole situation has to be corroborated and the nice thing about John Durham is that he has the full picture of everything that was feeding into this investigation.”

Byrne resigned as Overstock CEO on Thursday effective immediately, after he disclosed his entanglements with the “Deep State.” 

“While I believe that I did what was necessary for the good of the country, for the good of the firm, I am in the sad position of having to sever ties with Overstock,” Byrne wrote in a lengthy 1,600-word letter.

The letter opened with two quotes, one stating the founder is “already far too controversial to serve as CEO” and the other simply noting “do not wish to disrupt possible strategic discussions.”

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David Einhorn: “Elon Musk Should Resign” Over Solar Panel Scandal

Tesla short seller David Einhorn has remained mostly mum over the last several quarters, despite Tesla stock plunging since the beginning of 2019. But given the “explosive” (pun very much intended) new details of Tesla’s most recent solar panel shitshow controversy, Einhorn has finally broken his silence in a big way.

On Twitter Friday Einhorn called for Tesla’s Chief Executive Officer Elon Musk to resign, citing the massive cover-up of faulty solar panels that ultimately led to seven fires at Walmart locations and a lawsuit filed earlier this week by Walmart, against Tesla. 

“How many solar panels are still defective and could cause fires?” Einhorn asked. “A recall should have happened long ago. Elon Musk should resign.”

“You shouldn’t have to be Walmart to have your dangerous solar panels fixed,” he continued.

Tesla stock plunged in early trading on Thursday after the Tweet. 

As we reported earlier today, Walmart claims that Tesla only inspected 29 of more than 240 sites with Tesla solar roofs on them up until the day of the lawsuit. However, on Thursday night , it looks as though Musk may have been doing even more damage control, as the two companies released a joint statement regarding the lawsuit:

“Walmart and Tesla look forward to addressing all issues and re-energizing Tesla solar installations at Walmart stores, once all parties are certain that all concerns have been addressed.”

“Together, we look forward to perusing our mutual goal of a sustainable energy future,” the statement continued. “Above all else, both companies want each and every system to operate reliably, efficiently, and safely.”

We also asked the question: what did Tesla offer one of the world’s largest retailers as a concession in order to get them to play ball and release a statement like this?

We’d love to say that we “can’t wait to find out”, but given the fact that the massive solar panel disaster with one of Solar City’s most well known customers was never disclosed or filed in an 8-K, we’re not holding out hope.

via ZeroHedge News https://ift.tt/33P5y6J Tyler Durden

The Yuan Is Crashing

According to CNBC, Trump is currently meeting with his trade aides…

  • TRUMP MEETING WITH HIS TRADE AIDES NOW, CNBC REPORTS

… to decide what additional measures and tariffs to declare against China, and if there is one currency that Trump’s economic team is currently keeping an eye on it is China’s yuan.

What said team is seeing is nothing short of carnage, because – somewhat paradoxically – even as the Bloomberg dollar index is plunging ever since Trump unleashed his tirade targeting China for daring to retaliate to US tariffs, the offshore yuan is plunging even more, tumbling below 7.13 – a new 11.5 year low – in what the White House can correctly interpret as official intervention to weaken the currency which should be rising against the greenback, yet is doing precisely the opposite.

Which brings us to the only possible question: when will the US intervene in the FX market, and how much offshore Yuan will the US Treasury buy. As a reminder, the US could deploy up to $146 billion in yuan purchasing power if intervention was launched, the combination of the Treasury’s Exchange Stabilization Fund and the central bank’s firepower.

“If an intervention does go ahead, I think the US would probably target specific currencies such as the renminbi, rather than attempt to achieve broad-based dollar weakness,” said Stephen Oh, global head of credit and fixed income at PineBridge Capital, which manages $97bn of assets.

The only question then is how will China respond. And luckily, we wrote an article on precisely that last night, and noted that top Chinese bankers in London warned that the “drama” that would follow any US attempt to weaken the dollar by intervening in renminbi markets — a move that would be seen by Beijing as a “political act.” A hostile “political act.”

Yet such an act looks increasingly likely after Trump has repeatedly taken aim at China (and Europe) both on Twitter and elsewhere for “playing currency games” as the trade war has morphed into a currency war, if not a full-blown one yet.

* *  *

Hhow likely is that the US and China would launch all out currency war at each other in the FX market?

Last month US Treasury secretary Steven Mnuchin said there was no change “as of now” to America’s currency policy but added that a different stance could be considered in the future. To be sure, investors are growing more cautious and are increasingly unwilling to short the yuan over fears of a surprise intervention by the US. One head of a currency trading platform that serves US hedge funds told the FT that his clients have begun to stay away. “They don’t want to be on the wrong side of the Fed.” Something tells us that neither does China.

via ZeroHedge News https://ift.tt/30xQtnW Tyler Durden

Videographers Have First Amendment Right Not to Make Same-Sex

From this morning’s 2-to-1 Eighth Circuit decision in Telescope Media Group v. Lucero, written by Judge David Stras and joined by Judge Bobby Shepherd (Judge Jane Kelly dissenting in major part):

Carl and Angel Larsen wish to make wedding videos. Can Minnesota require them to produce videos of same-sex weddings, even if the message would conflict with their own beliefs? The district court concluded that it could and dismissed the Larsens’ constitutional challenge to Minnesota’s antidiscrimination law.

Because the First Amendment allows the Larsens to choose when to speak and what to say, we reverse the dismissal of two of their claims and remand with instructions to consider whether they are entitled to a preliminary injunction.

I’ll blog much more extensively about it this morning, but I thought I’d just pass along the news.

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Apple Rolling Out “New” iPhone That’s “Nearly Identical” To Existing Model

With sales of iPhones having permanently plateaued and now declining year after year, and the state of Apple’s once consistent blowout iPhone numbers under growing threat (explaining the company’s pivot to a “service” company), Apple is now looking to produce new “Pro” versions of its iPhones, along with upgrades to its iPads and laptops, according to Bloomberg. The new products will be rolled out next month. 

As most are well aware, Apple has struggled to generate any “killer” innovation over the last few years – in fact ever since Steve Jobs died – and has instead leaned on its legacy iPhone business and offered relatively tepid new “wearable” products, like Apple Watch and HomePod, while hoping to transition ever more to a services company. 

Here’s what we know so far: Tim Cook will announce three new iPhones at an event next month which will likely go on sale in September. The new products will come in time for the fourth quarter and the crucial holiday season. Apple’s hopes to avoid the enormous earnings miss it posted at the end of the year last year.

As we noted after Apple’s last earnings report, iPhone sales Q3 represented about 48% of revenues, the first time that the product has made up less than half of sales in several years.

In addition to trying to drive up the ASP of iPhones offer “new” phones, a refreshed iPad Pro with an upgraded camera and faster chips and an entry-level iPad with a larger screen will also be on their way. Additionally, the company is going to be updating the Apple Watch and will revamp the MacBook Pro for the first time in three years. Audio accessories like AirPods and its HomePod speaker are also in the works.

The updates continue to make it seems as though Apple has lost its sharpness as an innovator. The “new” phones are being described as looking nearly identical to the old ones, and the main “upgrade” is going to be new camera hardware for photographs and video. Here are more of the detailed updates, according to Bloomberg:

Phone:

  • The main feature of the Pro iPhones will be a new camera system on the back with a third sensor for capturing ultra-wide-angle photos and videos. The extra camera will let users zoom out and capture a larger field of view. The sensors will capture three images simultaneously and use new artificial intelligence software to automatically correct the combined photo if, for example, a person is accidentally cut out of one of the shots. The new system will also take higher resolution pictures rivaling some traditional cameras. Photos taken in very low-light environments will improve, too. 

  • The high-end handsets will have significantly upgraded video recording capabilities, getting them closer to professional video cameras. Apple has developed a feature that allow users to retouch, apply effects, alter colors, reframe and crop video as it is being recorded live on the device.  Another notable new feature: A reverse wireless charging system so that a user can power-up the latest AirPods in the optional wireless-charging case by leaving it on the back of the new Pro phones.

  • The high-end iPhones will look nearly identical to the current models from the front and feature the same size screens, but at least some colors on the back will have a matte finish versus the existing glossy look. The new models should hold up better when they’re dropped due to new shatter-resistance technology. 

  • All of the new iPhones will have faster A13 processors. There’s a new component in the chip, known internally as the “AMX” or “matrix” co-processor, to handle some math-heavy tasks, so the main chip doesn’t have to. That may help with computer vision and augmented reality, which Apple is pushing a core feature of its mobile devices.  None of the new models will include 5G, but next year’s will. They’ll also have rear-facing 3-D cameras that will boost augmented reality capabilities. 

iPad:

  • The 11-inch and 12.9-inch iPad Pros will get similar upgrades to the iPhones, gaining upgraded cameras and faster processors. Otherwise, the new iPads will look like the current versions.  The low-end iPad’s screen will be 10.2-inches. That means Apple will likely no longer sell a new model with a 9.7-inch display, discontinuing the original display size after using it for nearly a decade. 

Mac: 

  • Apple is planning a revamped MacBook Pro with a screen over 16-inches diagonally. The bezels on the new laptop will be slimmer so the overall size of the laptop will be close to the current 15-inch models. The new laptop would mark Apple’s largest since the 17-inch MacBook Pro was discontinued in 2012. It’s part of an effort by Apple to retain and woo professional computer users.  Apple is also launching the previously announced Mac Pro and 32-inch XDR Pro Display later this year. 

Apple will also launch a refreshed Mac Pro and accompanying monitor, while software updates for iPhone, iPad, AppleTV, Mac and Apple Watch will also be on their way.

via ZeroHedge News https://ift.tt/2Z9psdP Tyler Durden

Videographers Have First Amendment Right Not to Make Same-Sex

From this morning’s 2-to-1 Eighth Circuit decision in Telescope Media Group v. Lucero, written by Judge David Stras and joined by Judge Bobby Shepherd (Judge Jane Kelly dissenting in major part):

Carl and Angel Larsen wish to make wedding videos. Can Minnesota require them to produce videos of same-sex weddings, even if the message would conflict with their own beliefs? The district court concluded that it could and dismissed the Larsens’ constitutional challenge to Minnesota’s antidiscrimination law.

Because the First Amendment allows the Larsens to choose when to speak and what to say, we reverse the dismissal of two of their claims and remand with instructions to consider whether they are entitled to a preliminary injunction.

I’ll blog much more extensively about it this morning, but I thought I’d just pass along the news.

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