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Shorts are stepping in to bet against Cathie Wood and her firm, ARK Invest, in a big way. Short interest as a percentage of shares outstanding for the firm’s flagship $21 billion ARK Innovation ETF spiked to an all time high of 1.9% from just 0.3% one month ago, according to data from IHS Markit Ltd. and Bloomberg. 

Shorts are also piling into the firm’s other ETFs, including its $9.4 billion Genomic Revolution ETF and its $5.9 billion Ark Next Generation ETF. ARKK rose almost 150% in 2020 and brought in $9.6 billion in new money. 

The fund’s success in 2020 was largely tied to the parabolic move in Tesla. 

Dave Nadig of ETF Trends told Bloomberg: “You can’t expect any shortable asset to have the kind of meteoric rise ARKK has had and not attract almost mechanical short-selling. There are, quite literally, traders who have screens for ‘ETFs that went up X far over Y time’ to use as contrarian short indicators.”

ETF expert Eric Blachunas commented: “The Ark phenomenon is the first time ever that a rock-star portfolio manager has been shortable. Typically, they’re in a mutual fund or a hedge fund, which you can’t short. This is breaking new ground in a way.”

We noted just a day ago that ARK funds had seen a record inflows over $1 billion a week ago. The massive volume in ARK’s funds has continued from 2020 into 2021, as Balchunas had predicted late last year when he pointed out several reason the fund could actually become a victim of its own bloated size.

On Friday of last week, ARK funds set new inflow and turnover records, as Jim Bianco of Bianco Research pointed out on Twitter Sunday evening. ARK’s funds saw inflows of over $1 billion last Friday – something “not even Vanguard did,” Balchunas noted Monday morning. 

ARK’s flagship ETF, its “Innovation” ETF, saw inflows of $626.49 million on Friday, Bianco’s charts noted. Again, this was just days after we noted a $136 million outflow for the ETF.

The Innovation fund inflows helped post records for total dollar turnover, Bianco noted, as measured by the price of their ETF times their volume. The firm saw $3.43 billion in total turnover between all of its funds, with the company’s Innovation ETF shattering records and posting $1.83 billion in total dollar turnover. 

Recall, late last year we published a report highlighting Bloomberg’s ETF expert Eric Balchunas’ take on how ARK Funds could wind up becoming victims of their own success. 

Many of Balchunas’ assumptions pointed out sustained massive inflows into the ARK family of ETFs – notably its ARKK ETF – which we noted late last year was seeing inflows of hundreds of millions of dollars per day. In fact, ARK’s haul was so massive that Balchunas noted that it had a chance of taking in more cash than Blackrock in December 2020. 

“This one ETF has more in assets than the other 240 actively managed equity ETFs combined,” Balchunas wrote in late 2020. 

Authored by Jonathan Turley,

District of Columbia Attorney General Karl Racine has declared that he is considering arresting President Donald Trump, Donald Trump Jr., Rudy Giuliani and U.S. Rep. Mo Brooks with inciting the violent invasion of the U.S. Capitol.  He noted that, while the Justice Department does not believe you can charge a sitting president, he can do so in a matter of days. Ironically, I believe Trump can be indicted immediately as a constitutional matter but that his prosecution would ultimately collapse on free speech grounds.

The Justice Department itself concluded during the Clinton administration that “[n]either the text nor the history of the Constitution” is “dispositive” on this question but has rendered an internal opinion against indictments of a sitting president as a matter of “considerations of constitutional structure.”  I have long disagreed with the view that there is a constitutional barrier to indicting a sitting president.

My problem with this criminal case is not the timing of an indictment but the basis for the indictment. As I wrote earlier, the governing legal standard for violent speech is found in Brandenburg v. Ohio. As a free speech advocate, I have long criticized that 1969 case and what I consider its dangerously vague standard. However, even Brandenburg would treat Trump’s speech as protected by the First Amendment. Under that case, the government can criminalize speech that is “directed to inciting or producing imminent lawless action and is likely to incite or produce such action.”

Despite widespread, justified condemnation of his words, Trump never actually called for violence or a riot. Rather, he urged his supporters to march on the Capitol to express opposition to the certification of electoral votes and to support the challenges being made by some members of Congress. He expressly told his followers “to peacefully and patriotically make your voices heard.”

Such electoral-vote challenges have been made by Democrats in past elections under the Electoral Count Act, and Trump was pressing Republican lawmakers to join the effort on his behalf. He stated: “Now it is up to Congress to confront this egregious assault on our democracy…And after this, we’re going to walk down – and I’ll be there with you – we’re going to walk down … to the Capitol and we’re going to cheer on our brave senators and congressmen and women.”

He ended his speech by saying a protest at the Capitol was meant to “try and give our Republicans, the weak ones … the kind of pride and boldness that they need to take back our country. So let’s walk down Pennsylvania Avenue.” Such marches are common — on both federal and state capitols — to protest or to support actions occurring inside.

For a court, the speech notably does not include a direct call for lawless action by Trump. Instead, there was a call for a protest at the Capitol. Moreover, violence was not imminent; the vast majority of the tens of thousands of protesters present were not violent before the march, and most did not riot inside the Capitol. Like many violent protests we have witnessed over the last four years, including Trump’s 2017 inauguration, the criminal conduct was carried out by a smaller group of instigators.

Once again, I criticized the President’s speech when he was still giving it.  I opposed the challenge to the electoral votes from the outset. I praised Vice President Michael Pence for defying the President. Rather than impeachment, I have called for a vote of censure from both houses on a bipartisan basis.  However, this impeachment could cause lasting damage to our system.

If Racine was unwise enough to charge on this basis, it would at least allow for a real legal review of the claims of so many legal experts that this clearly constitutes criminal incitement. I would welcome such a review. Even if Racine could find a trial judge to allow this to go to trial, I expect it would fail quickly on appeal if based exclusively or largely on this speech.

Racine declared “Whether that comes to a legal complaint, I think we’ve got to really dig in and get all of the facts. I know I’m looking at a charge under the D.C. Code of inciting violence, and that would apply where there’s a clear recognition that one’s incitement could lead to foreseeable violence.”

Racine’s public statements heavily suggest that these individuals, including the President, have committed criminal acts.  The question is whether this was just a pandering to the public of whether he will now make those arguments in a court of law to allow for a legal challenge.

Many academics and legal experts have insisted that free speech is no barrier to such charges.  I believe that they are fundamentally wrong on the controlling law.  Often such commentary is left unchallenged because of the lack of any actual charge in court. Racine could change that, though I am not sure it will be ultimately be celebrated when these claims are tested in the court system.

What’s being called “an extraordinary snub” to the Trump administration by EU leaders has resulted in US Secretary of State Mike Pompeo issuing a last minute cancelation of his scheduled trip to Europe which had been set for Wednesday.

“Luxembourg’s foreign minister and top European Union officials declined to meet him, European diplomats and other people familiar with the matter said,” according to Reuters.

The trip was scrapped Tuesday afternoon, though Pompeo was in due to land in Brussels tomorrow, with the ostensible reason given that Pompeo would stay in Washington to aid in the transition to the Biden administration.

JUST IN: #Pompeo cancels Europe trip and will stay in Washington to help transition to #Biden in 8 days.

VP Pence also canceled travel plans this week. Pompeo was due in Brussels tomorrow. pic.twitter.com/06ddL9uLA2

— Joyce Karam (@Joyce_Karam) January 12, 2021

The nation’s top diplomat was expected to meet with Minister for Foreign Affairs Jean Asselborn in Luxembourg and other EU leaders.

“Pompeo had originally planned to go to Luxembourg, but that leg of the trip was scrapped, one diplomatic source said, after officials there showed reluctance to grant him appointments. The Brussels leg was still on until the last minute,” Reuters underscores in a report which crucially also includes:

A third diplomatic source said allies were “embarrassed” by Pompeo after the violence in Washington last week.

Indeed it appears the current social media and even financial institution frenzy to “cancel” and isolate Trump and all his closest officials is now going global. 

Luxembourg Foreign Affairs Minister Jean Asselborn

However, an official “update on department transition efforts and travel” simply noted that “We are expecting shortly a plan from the incoming administration identifying the career officials who will remain in positions of responsibility on an acting basis until the Senate confirmation process is complete for incoming officials.”

Because of this it said: “As a result, we are cancelling all planned travel this week, including the Secretary’s trip to Europe.”

By Greg Miller of FreightWaves.com,

It has never been more expensive to get a container of goods across the ocean. But it’s not just containers. Liquified natural gas (LNG) shipping is also rewriting the record books.

Argus reported that BP has just employed the ship LNG Abalamabie for $350,000 per day. That makes it the most expensive vessel charter in maritime history, surpassing the $300,000-per-day peak previously recorded in the very large crude carrier (VLCC) segment.

What’s different about the LNG record — compared to container and crude shipping highs — is that LNG deals remain extremely profitable for cargo shippers.

The cost of LNG in Asia is now so much higher than the cost in the U.S. that shippers can pocket massive profits even when paying record rates to transport cargoes from the Atlantic to the Pacific Basin.

When the VLCC sector hit its pinnacle, crude transport costs reached the point where they erased refiners’ margins; refiners stopped booking cargoes and rates fell back. In the container sector, rates appear to be near the point where they erase importer profit margins. Some importers may even be transporting goods they will have to sell at a loss, because the alternative is to halt imports and lose market share to competitors.

In LNG shipping, there is plenty of room for rates to rise and for shippers and traders to still profit on the cargo move.

The problem — similar to what is happening in the container sector — is that there are not enough LNG ships in existence to handle demand.

Why LNG shipping rates are so high

Clarksons Platou Securities explained, “The Platts Far East assessment surpassed $21 per MMBtu [million British thermal units] at the end of last week, which compares to U.S. Henry Hub natural gas prices below $2 per MMBtu. This has fueled LNG spot vessel demand, leading to rates above $300,000 per day. While the rate jumps off the page, the freight cost equates to around $5.50 per MMBtu — well within the wide $18 per MMBtu spread between the regions,” said Clarksons.

Clarksons assessed average rates for modern two-stroke LNG carriers at $215,000 per day. At this time last year, rates for a comparable ship were $103,000 per day. But some shippers cannot find vessels to load even when offering to pay Guinness Book rates.

According to Argus, “A number of U.S. offtakers opted to turn down February volumes in December, because of an inability to find the vessels to load their contractual cargoes. Offtakers that opted not to turn down their February volumes are now finding themselves with cargoes that they cannot find the tonnage [for].”

How long could rate spike last?

In the case of container shipping, COVID has supercharged rates as consumers switch purchasing from services to goods. In the case of LNG, shipping rates have been driven up by extreme winter weather in Asia (LNG is used to generate power for heating), LNG production outages in Asia and Panama Canal congestion.

According to Stifel shipping analyst Ben Nolan, “The tightness …will doubtless ease with moderating weather. However, we believe the fact that prices are as high as they are is indicative of stronger underlying demand even after seasonal adjustments.”

According to Jefferies analyst Randy Giveans, “We expect LNG carrier spot rates will remain robust during Q1 2021 as the arb [arbitrage] window remains open.”

Newbuilds in the pipeline

Toby Dunipace, head of gas at brokerage SSY, is bearish on the prospects beyond Q1. One reason for concern is the large wave of newbuildings about to be delivered.

Unlike the container industry, where ordering has been low, the LNG orderbook is prodigious. Alphaliner estimated that the container-ship orderbook represents just 10.4% of the capacity of the on-the-water fleet. According to Clarksons, the orderbook-to-fleet ratio in LNG shipping is more than double that, at 26.1%.

In SSY’s annual outlook released Monday, Dunipace warned, “The [LNG] market will more than likely slide during March at the latest, when a significant amount of LNG newbuildings are delivered. Newbuildings will continue to deliver through Q2 and Q3 and ships also come off time charter during this period. Overall, the market projections are very bearish for Q2 and Q3 2021.”

Spot exposure, right place, right time

In the near term, listed LNG companies with ships in the spot market or with variable-rate time charters stand to benefit.

On the Nov. 17 conference call, Flex LNG CEO Øystein Kalleklev reported that his company has three ships on fixed time charters, three on variable hire and four in the spot market. Flex LNG’s share price is up 68% over the past six months.

Golar LNG has less exposure to current rates, as well as significant non-LNG exposure. Iain Ross, Golar’s CEO, said on the company’s Nov. 30 call, “We do have ships on index-linked charters and a couple of ships that could potentially be in the spot market. But the vast majority of the fleet is on a fixed-rate structure, some of it up to a year and some slightly longer.”

On Nov. 10, GasLog LNG reported that half of its ships were in the short-term or spot market, or had variable charters.

But even for companies with spot exposure, it ultimately comes down to timing.

A round-trip voyage from the U.S. to Asia takes two to three months. Very few LNG carriers are on spot, unemployed and in the right position to take advantage of today’s unprecedented rates.

The same dynamic held true in the VLCC market in October 2019 and March 2020. Headlines blared about the highest reported rate. Yet only a handful of owners had tankers in position to actually earn the rates in the headlines.

FANG Stocks have plunged to two-month lows…

And ahead of this week’s option-expirations, the S&P seems pinned around its critical Gamma level of 3800…

And as SpotGamma notes, realized volatility is further coiled ahead of the large expiration. This volatility could manifest in either SPX price direction as we “unpin” the 3800 level. The VIX (24) remains well above post Covid lows (20) indicating the market is pricing in higher forward volatility as well.

And Treasury yields continue to push higher…

All of which could be potential catalysts for a big move in Growth/Value, as The Bear Traps Report warns:

West Coast CIO: Keep an eye on the ratio IWF / IWD (Russell 1k growth to value) and its major neckline…

We’ve touched this multiple times in the last 8 months.

If we break this level, growth equities are in big trouble, Tesla is of course a huge weight in the Growth ETF.

You want to short this ratio on a break, very good risk/reward technically. Short with a 2% stop, with a 12% target on the ratio. (This comes from one of the most knowledgeable tech/growth equity managers we know, very important).

This neckline has held as each of the growth to value tremors have picked up with the intensity, a break will trigger colossal selling.

We look for volatility to arrive next week as large positions roll off Friday.