iftttwall

As we showed recently, single stock open-interest has increased to all-time-high levels, which is why today’s expiry is important for stocks, especially for names with large open interest in at-the-money (ATM) 15-Jan options, because as Goldman notes, market makers delta-hedging their unusually large options portfolios are likely to be very active (see the odd report on Exxon from the WSJ which has crashed the stock just as call open interest exploded, leaving countless investors suddenly out of the money). This flow is exacerbating stock price moves in an already jittery market.

As Goldman further explains, at major expirations, options traders track situations where a large amount of open interest is set to expire. In situations where there is a significant amount of expiring open interest in at-the-money strikes (strike prices at or very near the current stock price), delta-hedging activity can impact the underlying stock’s trading that day. If market makers or other options traders who delta-hedge their positions are net long ATM options, expiration-related flow could have the effect of dampening stock price movements, causing the stock price to settle near the strike with large open interest. This situation is referred to as a “pin” and can be an ideal situation for a large investor trying to enter/exit a stock position. Alternatively, if delta-hedgers are net short ATM options (have a “negative gamma” position), their hedging activity could exacerbate stock price moves, read accelerate sell offs.

Who is most exposed?

As Goldman’s Vishal Vivek notes, expiration-related trades are causing trading activity to pick up for stocks with a significant amount of ATM open interest. As a result, the bank has identified possible focus stocks with large ATM 15-Jan open interest, and compare this to the average daily volume of the underlying stocks. Expiration-related activity is likely to have more of an impact if the open interest represents a significant percentage of the stock’s volume.

The table below lists those stocks where a large percentage of contracts, relative to their average daily volume traded, expire today leading to acute “pinning”.

Last night, in our post-mortem of Biden’s hyperambitious $1.9 trillion stimulus plan we warned that “the bigger size, and inclusion of Democratic priorities such as a minimum-wage hike, also means that it will be next to impossible for Republicans to vote for Biden’s proposal.” Additionally, we said that “there is a distinct risk that the recent market euphoria will fade soon once traders realize, that Bide’s use of the phrases “paying their fair share” and “closing loopholes” could spark a tax-hike driven selloff since the stimulus boost is already fully priced in.”

We echoed this warning this morning, when we said that equities are hit “as attention turned to how much of the package will ultimately get passed by Congress, with the go-big price tag and the inclusion of proposals set to be opposed by many Republicans.”

And judging by the market’s reaction, traders are finally paying attention, and with good reason: according to Goldman, which just last week said it expects a $750BN stimulus to pass in the aftermath of the Democrats’ blue sweep after their victory in the Georgia runoff, overnight hiked its assumption for how much stimulus will ultimately pass.

And therein lies the problem, because at a revised $1.1 trillion, Goldman estimate of a realistic stimulus, is just 60% of the number proposed by Biden.

Here is how Goldman frames its current thinking on Biden’s $1.9 trillion proposal and what could realistically happen:

President-elect Biden has released the details of his COVID-relief plan, which the transition team estimates to cost $1.9 trillion (8.6% of GDP). We do not expect all of the elements of the proposal to pass, but we are increasing our assumption of additional near-term fiscal measures from $750bn (3.4% of GDP) to $1.1 trillion (5% of GDP). We expect to make modest further upward revisions to our forecast in light of these revised assumptions.

And here are the reasons behind Goldman’s skeptical take on how much helicopter money will be unleashed:

• President-elect Biden is proposing $1.9 trillion in new fiscal relief measures, in addition to the roughly $950bn Congress approved in December 2020. He has proposed substantial spending in all of the areas, including an additional $1,400/person in stimulus payments, further extension of expanded unemployment benefits (through September 2021 and including a $400/week top-up payment), state fiscal aid ($370bn in direct aid plus a number of indirect measures), and public health funding ($190bn). He has also proposed $170bn in new funds for schools to respond to COVID-19, expansion of the child tax credit and earned income tax credit (we expect these would cost around $150bn), and extension of health insurance premium subsidies (the cost is unclear but could be similar to the roughly $100bn cost of the May 2020 House Democratic proposal).

• The proposal faces hurdles in Congress. Biden transition officials and congressional Democrats have indicated they hope to pass this proposal via regular order, not the budget reconciliation process. This means that it would need 60 votes in the Senate, and therefore the support of at least 10 Republicans. Goldman does not expect ten Republicans to support a $1.9 trillion relief package. While Democratic leaders might use the budget reconciliation process to circumvent potential Republican opposition, there are two arguments against doing this. First, recent political events put a greater premium on finding areas of bipartisan support, if possible. Second, the reconciliation process has never been used before to pass discretionary spending, and it appears that around half of the proposal—state fiscal aid, education grants, public health spending, to name a few areas—falls into this category. While it is possible that congressional Democrats might find a way to do this, it looks more likely that the need to find bipartisan support might constrain the size of the package.

• Nevertheless, Goldman is increasing its fiscal assumptions and now assumes that Congress will enact $1.1 trillion (5% of GDP) in additional fiscal support. As shown in the table below, around half of the difference reflects an assumption of greater spending on education and public health. Most of the remaining difference relates to various safety net programs and unemployment insurance.

• Adding insult to injury, most of the incremental spending Goldman now expects is likely to take slightly longer to reach the economy than the amounts the bank had previously assumed. Last month Congress approved $82bn in education grants and $69bn in public health funding, and those funds look likely to be used first before any additional funds are spent. Moreover, spending in some of these categories is likely to be driven by the need for spending—on vaccinations or testing, for example—rather than simply the amount of funding available.

• Even so, the bank continues to expect passage between mid-February and mid-March, but the timing depends on several factors. Specifically, the potential impeachment trial in the Senate could consume much of the calendar over the next few weeks, as could presidential nominations. Timing also depends on whether Democrats ultimately fall back on the reconciliation process, which would require multiple legislative steps, or pass the bill under regular order, which could be quicker but depends on how long it takes to negotiate an agreement.

There is a silver lining: as Biden mentioned last night, this is likely to be the first of two major proposals. and a second proposal dealing with taxes, infrastructure, and benefit programs to pass around mid-year. In other words, more trillions are coming.

Biden will likely outline this second proposal in a few weeks, potentially around the time the White House submits a preliminary annual budget proposal to Congress.

Last night, in our post-mortem of Biden’s hyperambitious $1.9 trillion stimulus plan we warned that “the bigger size, and inclusion of Democratic priorities such as a minimum-wage hike, also means that it will be next to impossible for Republicans to vote for Biden’s proposal.” Additionally, we said that “there is a distinct risk that the recent market euphoria will fade soon once traders realize, that Bide’s use of the phrases “paying their fair share” and “closing loopholes” could spark a tax-hike driven selloff since the stimulus boost is already fully priced in.”

We echoed this warning this morning, when we said that equities are hit “as attention turned to how much of the package will ultimately get passed by Congress, with the go-big price tag and the inclusion of proposals set to be opposed by many Republicans.”

And judging by the market’s reaction, traders are finally paying attention, and with good reason: according to Goldman, which just last week said it expects a $750BN stimulus to pass in the aftermath of the Democrats’ blue sweep after their victory in the Georgia runoff, overnight hiked its assumption for how much stimulus will ultimately pass.

And therein lies the problem, because at a revised $1.1 trillion, Goldman estimate of a realistic stimulus, is just 60% of the number proposed by Biden.

Here is how Goldman frames its current thinking on Biden’s $1.9 trillion proposal and what could realistically happen:

President-elect Biden has released the details of his COVID-relief plan, which the transition team estimates to cost $1.9 trillion (8.6% of GDP). We do not expect all of the elements of the proposal to pass, but we are increasing our assumption of additional near-term fiscal measures from $750bn (3.4% of GDP) to $1.1 trillion (5% of GDP). We expect to make modest further upward revisions to our forecast in light of these revised assumptions.

And here are the reasons behind Goldman’s skeptical take on how much helicopter money will be unleashed:

• President-elect Biden is proposing $1.9 trillion in new fiscal relief measures, in addition to the roughly $950bn Congress approved in December 2020. He has proposed substantial spending in all of the areas, including an additional $1,400/person in stimulus payments, further extension of expanded unemployment benefits (through September 2021 and including a $400/week top-up payment), state fiscal aid ($370bn in direct aid plus a number of indirect measures), and public health funding ($190bn). He has also proposed $170bn in new funds for schools to respond to COVID-19, expansion of the child tax credit and earned income tax credit (we expect these would cost around $150bn), and extension of health insurance premium subsidies (the cost is unclear but could be similar to the roughly $100bn cost of the May 2020 House Democratic proposal).

• The proposal faces hurdles in Congress. Biden transition officials and congressional Democrats have indicated they hope to pass this proposal via regular order, not the budget reconciliation process. This means that it would need 60 votes in the Senate, and therefore the support of at least 10 Republicans. Goldman does not expect ten Republicans to support a $1.9 trillion relief package. While Democratic leaders might use the budget reconciliation process to circumvent potential Republican opposition, there are two arguments against doing this. First, recent political events put a greater premium on finding areas of bipartisan support, if possible. Second, the reconciliation process has never been used before to pass discretionary spending, and it appears that around half of the proposal—state fiscal aid, education grants, public health spending, to name a few areas—falls into this category. While it is possible that congressional Democrats might find a way to do this, it looks more likely that the need to find bipartisan support might constrain the size of the package.

• Nevertheless, Goldman is increasing its fiscal assumptions and now assumes that Congress will enact $1.1 trillion (5% of GDP) in additional fiscal support. As shown in the table below, around half of the difference reflects an assumption of greater spending on education and public health. Most of the remaining difference relates to various safety net programs and unemployment insurance.

• Adding insult to injury, most of the incremental spending Goldman now expects is likely to take slightly longer to reach the economy than the amounts the bank had previously assumed. Last month Congress approved $82bn in education grants and $69bn in public health funding, and those funds look likely to be used first before any additional funds are spent. Moreover, spending in some of these categories is likely to be driven by the need for spending—on vaccinations or testing, for example—rather than simply the amount of funding available.

• Even so, the bank continues to expect passage between mid-February and mid-March, but the timing depends on several factors. Specifically, the potential impeachment trial in the Senate could consume much of the calendar over the next few weeks, as could presidential nominations. Timing also depends on whether Democrats ultimately fall back on the reconciliation process, which would require multiple legislative steps, or pass the bill under regular order, which could be quicker but depends on how long it takes to negotiate an agreement.

There is a silver lining: as Biden mentioned last night, this is likely to be the first of two major proposals. and a second proposal dealing with taxes, infrastructure, and benefit programs to pass around mid-year. In other words, more trillions are coming.

Biden will likely outline this second proposal in a few weeks, potentially around the time the White House submits a preliminary annual budget proposal to Congress.

Authored by Zachary Stieber via The Epoch Times,

Officials have not identified “specific, credible threats” ahead of Inauguration Day, a top homeland security official said Friday.

“There’s no specific credible threats at this point in time. There’s just this raised level of tension. And so we’re raising our security level. And we’re doing it across the country,” Ken Cuccinelli, acting deputy secretary of the Department of Homeland Security, said on CNN’s “New Day.”

FBI Director Christopher Wray told Vice President Mike Pence in a briefing on Thursday that the bureau was seeing an “extensive amount of concerning online chatter” of potential threats before and during the inauguration.

“We’re concerned about the potential for violence at multiple protests and rallies planned here in D.C. and in state capitols around the country in the days that come that could bring armed individuals within close proximity to government facilities and officials,” Wray said.

Security fencing surrounds the White House in Washington on Jan. 14, 2021. (Stefani Reynolds/Getty Images)

National Guard soldiers maintain a watch over the U.S. Capitol in Washington on Jan. 14, 2021. (Joshua Roberts/Reuters)

Cuccinelli, who was at the briefing, said he agreed “there is a good deal of online chatter” regarding both Washington and state capitols, though no specific state capitols have been mentioned or identified.

At this point in time, officials are not raising the terrorism threat level, but are taking a number of actions to try to be ready if a threat does manifest.

“We’ve prepared our own civilian law enforcement around the country to be ready to assist state and local allies to the extent they call on us to do so. We are prepositioning people on alert statuses around the country so that we can respond more quickly,” said Cuccinelli, a former Virginia attorney general.

During a separate appearance on Fox News’ “Mornings with Maria,” Cuccinelli said officials expect “a safe, smooth inauguration, and nothing has happened to change that,” including the Jan. 6 breach of the U.S. Capitol.

“While it has raised attention to the security around the inauguration, this planning has been going on across the U.S. Government with state and local partners since last May. It is a very secure event. We are prepared for orders of magnitude or sorts of problems that happened on January 6th, and that was before January 6th,” he said. “So America can be very confident this is going to be a safe, smooth inauguration and transition of power.”

US and European stocks are getting monkeyhammered after Pfizer notified EU officials that it will be unable to deliver the vaccines it promised in the short term.

Pfizer has notified the EU Commission that it won’t be able to deliver scheduled vaccine volumes in full during the next 3-4 weeks due to renovations at Puurs plant, German government says in emailed statement

The news has also hit EURUSD…

After rebounding in December, on a surge in Democrats’ hope, UMich Sentiment was expected to weaken in preliminary January data as lockdowns persisted and election tensions grew and it did with the headline number dropping from 80.7 to 79.2 (below the 79.5 exp).

The gauge of current conditions fell 2.3 points to 87.7, while a measure of expectations dropped 0.8 point to 73.8, according to the survey conducted Jan. 2-13.

Source: Bloomberg

Meanwhile the rich get richer…

“When asked to explain how their financial situation had recently changed, higher incomes were more likely to be cited by those with incomes in the top third and by consumers under age 45, and higher net wealth holdings by consumers aged 65 or older as well as among those with incomes in the top third.”

“Across all households, an annual income gain of 1.7% was anticipated in January 2021, between last month’s 1.5% and last year’s 2.3%.”

Source: Bloomberg

But, most notably, inflation expectations are surging. Consumers expect a year-ahead inflation rate of 3, up from 2.5% readings both last month and a year earlier. The five-year estimate rose to 2.7% from 2.5%.

Source: Bloomberg

The weakness overall came as Democrats’ sentiment soared further as Republicans’ confidence tumbled…

Source: Bloomberg

The Trump and Biden partisan gaps in expectations are too extreme to be justified by economic fundamentals. Rather, the partisan gaps are rooted in sharply different policy preferences, with one side favoring economic growth and efficiency, and the other side giving top priority to greater equity and fairness in the distribution of income and wealth. Nonetheless, the most critical task for Biden is to not only accomplish his promised vaccination of 100 million in his first 100 days, but to accelerate on that pace for the balance of the population.