Failure To Launch New Fiscal Stimulus Would Have Catastrophic Consequences For The US Economy

Failure To Launch New Fiscal Stimulus Would Have Catastrophic Consequences For The US Economy

Tyler Durden

Fri, 09/25/2020 – 14:14

The covid-related shutdowns were expected to result in unprecedented economic devastation, and for the most part they did, although that as bad as the US economy suffered in Q1 and Q2, it would have been far, far worse had the government not stepped in. Recall that as DB’s Jim Reid pointed out in July, this has been the strangest recession in history“, one defined by a surge in personal income – very much unlike the usual collapse observed during recessions.

The reason for this is simple: as we explained a few weeks prior to Reid’s report, the massive fiscal stimulus unleashed by the US government led to the biggest surge in personal income in history…

… making government transfer payments an unheard of 30% of all personal income!

Putting that number in perspective, in the 1950s and 1960s, transfer payment were around 7%. This number rose in the low teens starting in the mid-1970s (or right after the Nixon Shock ended Bretton-Woods and closed the gold window). The number then jumped again after the financial crisis, spiking to the high teens. And now, the coronavirus has officially sent this number into the mid-20% range, after hitting a record high 31% in April.

So for all those who claim that the Fed is now (and has been for the past decade) subsidizing the 1%, that’s true, but with every passing month, the government is also funding the daily life of an ever greater portion of America’s poorest social segments.

Of course, many won’t object to such reliance on the government: after all “welfare for everyone” means more money for doing nothing (and if the Fed gets its way and it can deposit digital dollars directly, it means much more money – all with the intent of inflating away the debt).

The problem is that should this firehose of benefits slow – or close completely – the economic collapse that was mitigated drastically thanks to the covid fiscal stimulus, will come back with a horrific vengeance. Alas, with Congress gridlocked on a 5th fiscal stimulus round, and the economy clearly rolling over as we warned one month ago following the July 31 fiscal cliff which led to a collapse in spending among people who receive unemployment insurance…

… the result of continued inaction could be catastrophic. Here’s why.

As BofA writes this morning, the Brookings institution regularly updates a model that estimates the impact of fiscal policy— Federal State and Local and “automatic stabilizers” —on GDP growth. The impacts depend on both the “multiplier effect” of each action on spending and the lags. For example, the model assumes that people spend 90 cents out of every dollar of unemployment benefits, but that the “propensity to consume” for a number of other programs is much lower. After all a lot of the stimulus funds went to households and firms that are not in distress. Hence the surge in the savings rate.

And, as the chart below shows, according to their estimates, stimulus resulted in a huge 14.1% boost to GDP growth in the second quarter. Since actual GDP fell by 31.7% this implies that the stimulus offset almost a third of the shock to the economy (= 14.1 / (31.7 + 14.1)). It also means that without stimulus, the GDP collapse could have been nearly 50%!

So far so good, but while the record stimulus kept the party going until now, the stimulus is rapidly fading and turns negative starting in the second quarter of next year.

It gets worse: as BofA chief global economist Ethan Harris writes, “the Fiscal Impact data also reminds us of the dangers of policy gridlock coming out of a major recession. The last recession also featured a huge fiscal stimulus—the $831bn (5.8% of GDP) American Recovery and Reinvestment Act of 2009 (ARRA). However, that proved to be the one and only stimulus package.”

As a result, Democrats lost the House in 2010 as a wave of “Tea Party” Republican’s came into the House, freezing discretionary spending. From the end of 2010 to the end of 2015 fiscal policy sliced an average of 1.0% off of GDP growth. The  result was a slow recovery, chronic low inflation and sustained super easy Fed policy.

Needless to say, Americans want more, and as we reported earlier this week, a Gallup poll found that 90% of US consumers demand a new stimulus, while blaming republicans and democrats equally. Meanwhile, as Harris adds, polls suggest that gridlock is one of the more likely outcomes in this election, with Democrats taking the House and White House, but Republicans retaining the Senate; that is also BofA’s baseline forecast. At the same time, Senate Republicans have already begun pushing back against more deficit financed spending, and that is happening before an election and with a Republican President who wants a package.

Naturally, Senate republicans may be even more resistant to deficit spending after the election, particularly if there is a Democrat in the White House. The problem as the final chart shows, is that absent a new stimulus, not only will the delayed aftereffects of the existing stimulus come back to haunt the economy…

… but the lack of new spending will result in a massive double whammy crashing the economy in 2021, which averted a full blown meltdown in Q2, but will find itself scrambling in the coming quarters as the mother of all double dips emerges, and which incidentally is also why the market has been sliding for the past two weeks as the reality of an indefinite stimulus-free future looms all too real.

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The Reckoning Is Upon Us: Precious Metal Plunge Is “True Dip-Buying Opportunity”

The Reckoning Is Upon Us: Precious Metal Plunge Is “True Dip-Buying Opportunity”

Tyler Durden

Fri, 09/25/2020 – 13:50

Authored by Kevin Smith and Tavi Costa via Crescat Capital,

Dear Investors:

The Reckoning Is Upon Us

Decades of fiscal profligacy are culminating in an explosion of government debt that is poised to bring simmering monetary debasement to a boiling point. Central bank interventions have aided and abetted reckless government spending that has obfuscated poor underlying organic growth fundamentals. Instead of laying the groundwork for future real economic growth, monetary authorities have fostered a euphoric investment environment with delusional asset valuations. Paradoxically, we are past the point of no return where the stimulative policies that have created this frenzy are the death knell for the economy. The world is suffering from a debt overdose. It now must face the inevitability of collapsing financial asset prices and synchronized fiat currency devaluation.

In the US, we have recently seen a precipitous increase in government deficits to World War II levels, which are now accompanied by a significant decline in the trade balance. The recent shrinkage in net exports strongly suggests that a deep new slump in the current account is underway. Based on Crescat’s estimates, the US twin deficit is on track to reach over 25% of nominal GDP which should soon be the worst level ever reported.

Fortunately, the severity of these long-standing macro imbalances helps set the stage for an incredibly optimistic outlook for precious metals, especially relative to equity markets. In the chart below, we can see a clear relationship between twin deficits (inverted) and the gold-to-S&P 500 ratio. During times of fiscal disorder, monetary metal tends to outperform overall stocks which suggests that a significant move in this ratio is still ahead of us. Let us not forget that this time around policy makers are also fighting “deflation” tooth and nail. The necessary expansion of the monetary base to suppress interest rates and thereby create a negative and declining real interest environment should serve as a major tailwind for the gold-to-S&P 500 ratio to continue to rise.

A Forthcoming of a Key Macro Event

By the end of 2021, $8.5 trillion of US Treasuries will be maturing and, at the current macro conditions, the US government will have no option but to roll over its debt obligations. Consequentially, this will likely cause a shift in the role of monetary policy. Allow us to elaborate. Foreign investors now own the lowest percentage of outstanding US government securities in 20 years. Historically, they funded over 50% of all marketable Treasury securities. Today, that number has dropped to 35%. The Federal Reserve, meanwhile, has increasingly become the buyer of last resort. It now owns a record 22% of all marketable Treasuries. This convergence of ownership is particularly dangerous and appears irreversible. Given the current record government debt to GDP, high unemployment, and large budget deficit, we expect the Fed to monetize the government’s debt burdens at the highest rate ever, from now through 2021. To reiterate our views from prior letters, over-indebtedness and the need for further monetary expansion is a global phenomenon that we believe will lead to the value destruction of all fiat currencies relative to gold, not just the US dollar.

Policy makers are indeed hamstrung. The dependency on extreme monetary policies to maintain the stability of financial markets has become a key part of every central bank mandate. What is puzzling however, is the fact that asset prices have never been so detached from underlying fundamentals. US households are now worth over 6x today’s GDP, a number far higher than any other Fed-induced asset bubble, including both the dotcom mania in 2000 and the housing bubble that preceded the 2008 global financial crisis. Today’s excesses are anything but business cycle low behavior. It is quite the opposite. We are still at a major asset bubble peak. Meanwhile, the economy is already in a recession, one that is pre-destined to linger based on our macro analysis. As we have seen throughout history, the unwinding process from absurd asset valuations leads to real damage in the overall economy. Asset bubbles always burst. There is a business cycle and it is intertwined with security prices. Today, the two have diverged in the short term in a perverse and unsustainable way based on massive raw speculation. There will be a reckoning.

There Is Only One Way Out: Monetary Debasement

The overarching message from central banks remains consistent; none of them can sustainably afford having a strong currency. The set-up of artificially low rates combined with ballooning fiscal deficits, extreme monetary dilution, and inflated risky assets creates, in our view, a veritable utopia for gold and silver. We are in a debt trap globally. Monetary debasement is unavoidable. In such scenario, precious metals miners remain one of the very few industries with substantial fundamental improvement in the stock market today. Balance sheets are notably cleaner across most mining names. Capital spending also remains historically constrained and, in combination with strong cash flow growth, median free cash flow for the top 20 miners more than doubled in the last 12 months. It is astonishing that an entire industry which truly benefits from today’s macro backdrop is worth less than 3.5x the market cap of Apple! The level of asymmetry remains insanely attractive, especially after the recent pull back in precious metals prices over the last week. We believe gold and silver stocks are poised to move significantly higher in the months and years ahead.

A Stellar Month for our New Precious Metals Fund

We are pleased to report that the Crescat Precious Metals Fund was up 86.2% net in its debut month. This was the biggest single month’s performance for any Crescat strategy ever. It was accomplished in an overall flat market for the precious metals industry in August. In our view, the strong relative performance is important early validation for the potential of our activist strategy. While the fund cannot not have such incredibly strong performance every month, and there will be pullbacks along the way, we strongly believe there is substantial return potential over the next several years in this fund. Our macro analysis shows that we are in the early stages of a new secular bull market for precious metals.

Crescat’s Hedge Funds Lead the Pack Again

We are also excited to share that our Global Macro and Long/Short hedge funds made the top of Bloomberg News’ hedge fund monthly performance table for the third straight month and the fourth month this year with net performance of +8.5% and +11.2% respectively in August. These two funds are up 51.6% and 49.1% net year-to-date. It is important to note that Crescat’s two hedge funds were also at the top of Bloomberg’s table in March, the month when the market crashed. We capitalized overall on that environment via our short positions, even though our long gold positions underperformed at that time. We remain significantly short today in both hedge funds and are determined to capitalize on the re-ignition of a new tactical bear market that we foresee based on our macro models.

Performance Across All Crescat Strategies

Global Macro Fund Profit Attribution by Theme

September Selloff in Precious Metals Likely a True Dip-Buying Opportunity

After we published our Blood in the Streets letter on March 17 saying it was time to buy gold stocks, precious metals miners have been far and away the best performing industry in the stock market. From April through July, the Crescat Precious Metals SMA Composite delivered a 142.2% net return versus 96.1% for our benchmark Philadelphia Gold and Silver Index.

Since the benchmark’s recent highs on August 5, it has retraced about 15.8% of its gains through yesterday’s close with most of the correction happening in just three of the last four trading sessions.

A pullback from such strong levels is not only natural but healthy at what we believe is only the early stages of a new precious metals cycle after a ten-year bear market.

The stock market at large has been selling off and remains extremely over-valued, unlike gold stocks. It is more likely the beginning of a much bigger downturn for stocks. Meanwhile, in our analysis, gold mining stocks are still highly undervalued today and setting up to diverge to the upside like historical analogs in 1930-32, 1973-74, and 2000-02.

Fed Balance Sheet Expansion Set to Resume to New Record Levels

In the past several days, it seems the combination of gold bulls, stock market bulls, and dollar bears are getting nervous that the Fed balance sheet expansion has stalled since its peak in early June. In our analysis, Fed liquidity injections have been the number-one driver for gold since the Fed’s quantitative tightening experiment in 2018 and the repo crisis which pivoted it back to quantitative easing in late 2019 as shown in the chart below.

We believe there are at least six structural forces that will pressure the Fed to further expand its balance sheet at new record levels and propel undervalued gold and silver prices much higher in the near term:

  1. The stock market bubble bursts and the Fed must intervene

  2. The Treasury needs the money and the Fed must intervene ($8.5 trillion in Treasuries coming due by year end 2021 and a record budget deficit that must be funded)

  3. Left to their own devices, interest rates start rising and the Fed must intervene

  4. Unemployment remains too high and the Fed must intervene

  5. Inflation remains to too low and the Fed must intervene

  6. The dollar keeps strengthening versus other fiat currencies and the Fed must intervene

Today, the precious metals industry represents a deep value, high growth industry that has only just begun to shine after a long bear market.

With the help of world-renowned exploration geologist, Quinton Hennigh, PhD, Crescat is investing in a portfolio of the most promising new, large, and high-grade gold and silver deposits in viable jurisdictions across the planet in our hedge funds and precious metals strategies. We believe we can unlock tremendous value through de-risked, high probability future discovery and growth in this portfolio.

Strong outperformance over complete business cycles remains Crescat’s goal. We are particularly excited about our potential to perform over the next few years because of our macro research supporting where we sit in both the precious metals cycle and the overall stock market and business cycle. We believe there is a strong opportunity to extract performance on both fronts over this time frame given our firmwide position at this critical juncture in the global economy and stock market today.

On the activist precious metals front, we have many incredible new funding opportunities in front of us right now for October, the type of activist deals like those we had teed up in July that led to our great August.

In our strong view, this is a much-needed correction in gold stocks to shake out the weak hands. We strongly believe it is an excellent buying opportunity in what is still the very early stages of a new secular bull market for precious metals. We encourage those who want to take advantage of this buying opportunity to contact us before the end of this month.

Download PDF Version here…

via ZeroHedge News https://ift.tt/3cuJGlI Tyler Durden

Traders Get Whiplash After Fastest Ever Fund Flow Swing From Euphoria To Despair

Traders Get Whiplash After Fastest Ever Fund Flow Swing From Euphoria To Despair

Tyler Durden

Fri, 09/25/2020 – 13:30

For those following retail order flow as an indicator of how to trade, well… you just got stopped out.

Last Friday we observed that in the week ending Sept 16, which saw $26.3BN of new capital deployed into equities, the largest inflow since March 18…

… investors flooded into tech names with the weekly inflow into tech funds the 9th largest on record.

While this may have been sparked by hopes of a BTFD rally following the early September swoon in tech names, we mused that investors are flooding into the very names which according to Wall Street professionals were the “most crowded trade” of all time…

… with fund managers telling BofA in its latest Fund Manager Survey that the “tech bubble” is now the second biggest tail risk for the market after a “second wave” of COVID-19.

Well, maybe someone read our bemused commentary on the persistently schizophrenic state of the market, or more likely, investors were disappointed by the lack of upward momentum in stocks coupled with the whiplash-inducing surge in volatility, because just one week later, EPFR reported that after last week’s near record inflows, US equity funds and ETFs reported $26.87 BN of outflows, the largest weekly outflow since December 2018 and the third largest outflow ever, more than reversing a $22.67bn inflow one week earlier.

This was the biggest weekly swing in fund flows in history, and shows just how extreme market sentiment has become, and how it can seemingly swing overnight from  euphoria to despair.

Not surprisingly, tech funds which saw the 9th biggest inflow ever last week were rocked by the biggest redemption since Jun’19, as passive investors – who have been the backbone of the Nasdaq’s rally this year –  seem to have lost their nerve according to Reuters, which added that in the week ending Sept. 23, tech-focused ETFs suffered $1.23 billion worth of outflows, the largest since December 2018, when global stock markets tanked, according to Lipper data. September was also the first month of outflows for the tech sector since the March crash.

The figures are significant because ETFs such as the QQQ Nasdaq tracker have taken some $20 billion between January and July, however in recent days we have seen some rather massive swings in QQQ flows: for instance, the QQQ fund posted record $3.5 billion outflows on Monday amid a Nasdaq slump, then got $4 billion the following day as sentiment recovered.

“We think the latest pullback in U.S. equities, from frothy levels, is a chance for investors to diversify their allocation to those parts of the equity market so far left behind, which could benefit Europe,” said Maneesh Deshpande, a U.S. equity strategist at Barclays.

According to Saxo Bank’s Peter Garnry, QQQ volatility pointed to “widespread speculation in U.S. technology stocks and that this is increasingly becoming the leading index for sentiment.”

Other ETF service providers also showed outflows. On a three-month rolling basis, the most active ETFs tracking the U.S. technology and growth sectors saw $1.7 billion of outflows, the first negative reading this year, according to Wisdom Tree.

To be sure the reversal is long overdue: for much of the past 6 months, money has poured in to chase the outperformance of technology shares. Total net assets for a group of technology focused ETFS nearly doubled to $113 billion at the end of August from $64 billion a year ago, according to Morningstar data.

The whiplash has been painful: the giga techs are down more than 13% from a September peak and account for nearly half of the S&P 500 decline over that period. Even with that correction, valuations remain in nosebleed territory, near 22 times forward earnings for the S&P 500 index, the highest since the dotcom bubble in early 2000. Multiples of some tech stocks are as high as 100 times forward earnings.

For many, however, this is just another opportunity to buy the dip: Sumant Wahi, a portfolio manager at Fidelity International, said this is just a temporary correction: “I think the market is digesting some of the large flows we have seen in recent weeks and this is a temporary correction. “Big tech is here to stay.”

Sumant is probably correct: with central bank liquidity injections tapering, Congress gridlocked over fiscal stimulus and stocks sliding, it is only a matter of time before the Fed is forced to launch another market bailout.

via ZeroHedge News https://ift.tt/332pVyV Tyler Durden

Ron Paul Appears To Suffer Medical Emergency During Live Show

Ron Paul Appears To Suffer Medical Emergency During Live Show

Tyler Durden

Fri, 09/25/2020 – 13:12

It appears that former Texas Congressman and longtime Libertarian icon Dr. Ron Paul just had a stroke – or some other type of serious medical issue – during a live stream of his “Liberty Report” web series, which garners hundreds of thousands of viewers with every episode.

A flood of tweets wishing Paul well followed the emergence of the footage above on social media.








We have yet to receive any kind of confirmation about the Congressman’s status from the Paul camp. Notably, his son, Rand Paul, is currently serving as the junior Senator from Kentucky.

After the popularity of his 2008 presidential bid, Paul announced in July 2011 that he would forgo seeking another term in Congress to focus on his 2012 bid for the presidency. After performing strongly once again, Paul refused to endorse the Republican nominations of John McCain and Mitt Romney during their respective 2008 and 2012 campaigns, and on May 14, 2012, Paul announced that he would not be competing in any other presidential primaries but that he would still compete for delegates in states where the primary elections had already been held.

Paul’s fervid supporters helped him achieve the second highest tallies for delegates during both the 2008 and 2012 Republican National Conventions, behind only McCain and Romney respectively. In January 2013, Paul retired from Congress, though he continued to speak at colleges and work on his “Liberty Report” program.

via ZeroHedge News https://ift.tt/3cvsM6w Tyler Durden

#RemoveRogan – Spotify Staffers Threaten Strike Unless ‘Hate-Filled’ Podcasts Removed

#RemoveRogan – Spotify Staffers Threaten Strike Unless ‘Hate-Filled’ Podcasts Removed

Tyler Durden

Fri, 09/25/2020 – 12:45

Who could have seen this coming?

Having blown $100 million to lock in infamously-outspoken-and-uncensored podcaster Joe Rogan, Spotify is facing an internal revolt from the woke mob who have demanded broad-based editorial control, censorship, and even removal of the world’s most-popular podcasts… or else!!

Just  three weeks ago, we reported that dozens of Rogan’s past episodes with “controversial guests” like Alex Jones, David Seaman, Owen Benjamin, Stefan Molyneux, Milo Yiannopoulos, Gavin McInnes, Charles C. Johnson, and Sargon of Akkad did not make the migration over to Spotify, according to Entertainment Weekly.

And now, the ‘woke’ are demanding more…

As DigitalMusicNews.com reports, Spotify employees were demanding direct editorial oversight over the recently-acquired Joe Rogan Experience podcast

That would include the ability to directly edit or remove sections of upcoming interviews, or block the uploading of episodes deemed problematic.

The employees also demanded the ability to add trigger warnings, corrections, and references to fact-checked articles on topics discussed by Rogan in the course of his multi-hour discussions.

If they are not granted these ‘ministry of truth’ oversights, the mostly-New-York-based staff have threatened to walkout or strike.

As DigitalMusicNews (DMN) notes, for Spotify, the decision to offer some concessions may have only emboldened demands for wide-scale editorial oversight.

It is worth remembering the words of Joe Rogan himself, who said of the deal in the past:

“They want me to just continue doing it the way I’m doing it right now. It’s just a licensing deal, so Spotify won’t have any creative control over the show. It will be the exact same show. We’re going to be working with the same crew doing the exact same show.”

While the c-suite may want that (and the eyeballs, or earholes?), it seems the outrage mob of employees does not.

Finally, one wonders why exactly Spotify should give a shit… doesn’t America have 20-30 million suddenly unemployed people who we are sure would appreciate the opportunity to work in a large and growing tech company and could manage to leave their political/social-justice-virtue-signaling egos at home.

As DMN notes, Spotify employees reportedly enjoy comfortable salaries in the $120-$130,000 annual range, with considerable perks and benefits.  These are plum jobs in extremely uncertain economic times, making a strike a risky move. It also appears that Spotify management – including CEO Daniel Ek – has a limited tolerance for the mutiny on deck (especially since Rogan’s entire identity revolves around unfiltered discussion and opinion, and audiences could abandon the podcast if it becomes censored or controlled).

via ZeroHedge News https://ift.tt/366f5tF Tyler Durden

World War II memorial cancelled for being too white

Just when you think it couldn’t get more bizarre… we give you this week’s absurdity.

Mural dedicated to WWII Vets cancelled for being too white

70 years ago, a decorated Veteran from World War II painted a mural on the campus of the University of Rhode Island to honor the fallen who lost their lives in the war.

The 95 year old artist is still alive today, to see his artwork being cancelled.

Students complained that the lack of diversity in the mural made them feel uncomfortable. There were too many white people depicted, and not enough minorities.

The university quickly bowed to the mob, covered up the painting, and plans to remove it entirely.

It’s ironic that in 2020, questioning the woke mob is liable to have you labeled a Nazi.

So a man who had the balls to fight the actual Nazis will have his memorial painting destroyed to appease the snowflakes who can’t even look at a painting without an emotional fit.

Click here to read the full story.

Former Marine commits suicide after the mob targets him

A Nebraska bar owner, Jake Gardner, was inside his bar when the windows were shattered by “peaceful protesters.”

Gardner, a former Marine who served in Iraq, went outside to try to diffuse the situation. He saw his father (a man in his 60s) shoved violently to the ground by peaceful protestors. But still, Gardner maintained his composure.

A video then shows that Gardner tried backing away from three men when they attacked him.

Gardner ends up on the ground, with an attacker on top of him. Gardner fired his weapon, and the attacker died.

The county prosecutor reviewed the video evidence and confirmed that Gardner acted properly and in self defense. The video confirms this. And he stated that he would NOT charge Gardner.

But the mob was not willing to accept this outcome. So they surrounded the courthouse and peacefully protested… at which point the Grand Jury caved and decided to charge Gardner with manslaughter.

This sadly appeared to put Gardner over the edge. And he took his own life last week.

Click here to read the full story.

Escaped Prisoner in UK tried to turn himself in seven times

An British inmate incarcerated in the UK recently escaped; apparently he was worried about his mother and wanted to visit her.

But once the visit was over, he was ready to go back to prison and serve out the remainder of his sentence.

So he went down to the local police station to turn himself in. But they refused to arrest him. It appeared there was no outstanding warrant for his arrest.

It took SEVEN tries before this escaped convict was able to successfully turn himself in to police.

Perhaps the cops were too busy trying to catch people illegally watching TV without a license (seriously, that’s a thing in the UK).

Click here to read the full story.

Election supervisor investigates a toilet

A homeowner in Michigan put a toilet on his front lawn, along with a sign that says “place mail-in ballots here.”

For anyone familiar with the debate about whether mail-in ballots increase voter fraud, the display is an obvious joke.

However the local election supervisor thinks it’s a crime, so she called the police to investigate.

She said, “It is a felony to take illegal possession of an absentee ballot… Elections in this country are to be taken seriously and there are many people who are voting by mail for the first time this election.”

Such sensitive little authoritarians…

Let’s hope that any eligible voter would not mistake the front yard toilet for an actual official ballot depository.

And if that’s the level of intelligence among voters, we have bigger problems to worry about.

Click here to read the full story.

New Jersey Doubles Down on Chasing the Rich Away

About 4 years ago, billionaire David Tepper left New Jersey and moved to Florida.

New Jersey instantly lost hundreds of millions of dollars every year in tax revenue just from this one guy.

But it wasn’t only Tepper fleeing New Jersey’s 8.97% income tax rate. In 2018, for example, New Jersey lost 5,700 millionaires.

Not coincidentally, 2018 was the same year that New Jersey hiked it’s income tax rate to 10.75% for those earning more than $5 million.

And now, with a massive government budget shortfall thanks to COVID shutdowns, New Jersey will double down on its bad idea.

They didn’t learn their lesson in 2018… so now the state will increase its tax rate to 10.75% for everyone earning more than $1 million per year.

Click here to read the full story.

Tased and arrested for not wearing a mask

An Ohio mother sat with her family in the stands at her son’s middle school football game.

They were outside, and a good 15 feet from any other fan.

But the school resource officer confronted the woman, and asked her to put a mask on.

She refused, citing asthma. She wasn’t sitting near anyone and was properly distanced, so she clearly posed no threat.

That really should have been the end of it. But instead the woman ended up being tased and forcibly removed from the stands.

Ironically the police officer had his mask hanging around his neck the whole time (instead of covering his nose and mouth), and another officer who also responded wasn’t wearing a mask at all.

In the end, it doesn’t even appear that the school’s mask mandate was legally enforceable. So they charged the mom with ‘trespassing’… at her son’s football game.

Click here to read the full story.

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Playing The Housing Recovery…

Playing The Housing Recovery…

Tyler Durden

Fri, 09/25/2020 – 12:25

Submitted by Adventures in Capitalism

Over the past few months, I’ve been writing a lot about Event-Driven strategies, mainly because I see an unusual amount of opportunity there. That said, Event-Driven remains a small piece of my book. The core of what I do is inflection investing—finding a theme that’s inflecting better and get there before anyone else realizes it.

With that preamble out of the way, today the government announced that seasonally adjusted new home sales for August hit 1.011 million. For those keeping score at home, this is the highest that this figure has been since 2006 and up 43% from last year.

Of course, that figure is backwards looking. Fortunately, two prominent home builders announced results this week giving us some added color on future trends. I’ll let them tell the story;

Beazer Homes (BZH – USA) today announced that, based on preliminary operating results, net new orders for the first two months of its fiscal fourth quarter were up 37% year-over-year with a 26% increase in July and a 48% increase in August. This performance was primarily related to a higher pace, as sales per community per month rose to 4.4 from 3.0 in the previous year.

Meanwhile at KB Home (KBH – USA)

“Housing market conditions strengthened during the third quarter, fueled by the combination of historically low mortgage interest rates, a limited supply of resale inventory and consumers’ desire to own a single-family home,” continued Mezger. “Reflecting this strength, our net orders expanded 27% year over year, with growth in each of our four regions. We achieved a monthly absorption pace that accelerated to 5.9 orders per community, an increase of 36%, while we also increased prices in most of our communities. We believe that our Built-to-Order model is a key factor driving our sales pace, with this quarter’s results underscoring the robust demand for the choice and personalization we offer to our homebuyers….”

Net orders for the quarter grew 27% to 4,214, the Company’s highest third-quarter level since 2005 (my bolding), with net order value increasing by $367.5 million, or 29%, to $1.64 billion. Both net orders and net order value increased in all of the Company’s four regions.

The Company’s net order growth accelerated during the quarter, with monthly net orders up 11% in June, 23% in July and 50% in August. The Company’s cancellation rate as a percentage of gross orders for the quarter improved to 17% from 20%.

Company-wide, net orders per community averaged 5.9 per month, compared to 4.3.

I hope you get the point; things in housing are good and getting better. When it comes to inflection investing, if you cannot answer the “why,” you’re just a slave to monthly data. With that in mind, what’s driving sales growth? I think it is the confluence of many trends, from generationally low interest rates and affordability pressures in cities, to a decade of below-trend housing construction caused by Millennials postponing family creation until now. However, you could have said the same thing a few years ago and not made money. The real catalyst is the sudden panic migration from cities.

Remember when cities were awesome back in January?? They were full of great food and bars—all your friends were around and there was always something interesting going on. Then COVID hit and the restaurants closed down and they won’t allow you into the bars. A 600-foot studio apartment is fine if you never spend any time there. If there’s nowhere else to go, a studio feels like a prison. Even worse, everyone is now doing some version of Work From Home (WFH), so those four walls are all you see each day. Suddenly, a home sounds attractive. However, in my mind the real catalyst isn’t COVID, it’s the riots.

I don’t know why Democrats think that burning their cities is going to bring about social justice, but lots of things suddenly make little sense to me. Rather than go into politics, it’s useful to remember that increased crime, arson and tear-gas don’t make things enjoyable in a city—especially when your rent is eating up most of your paycheck. As a result, there’s been a massive flight from cities by those who can afford to leave. As these macro and social trends converge, there’s been a huge increase in demand for single family and multi-family property in the suburbs and exurbs—particularly in more affordable parts of the country.

As many of us have learned, homebuilding is a mediocre business at best. Instead, I’m playing this trend through the suppliers to single-family and multi-family homebuilders. These suppliers have had dramatic consolidation during the decade-long bear market in housing and as a result have some pricing power in what should be a commodity industry.

Let’s look at Cornerstone Building Brands (CNR – USA). CNR is one of the largest US players in multiple verticals including; vinyl windows, doors, siding, trim, gutters, shutters, stone façade and plenty of others—essentially the components of a home. While they also have a commercial business that has been suffering a bit lately, warehouses and medical have been white hot.

Normally, I’d think of these component manufacturers as mediocre sorts of businesses, but when you run the numbers, over the past year, CNR has earned a low-20% adjusted return on tangible assets. Assuming that they can achieve the planned merger synergies (CNR is a roll-up of various businesses), the return would likely be in the mid-20% (indicative of an unusually good business). Now, if I’m right about the macro and both revenue and margins increase, why couldn’t they earn around 30% on tangible capital. Throw a few turns of debt on that and you’re earning pretty stunning returns on equity for many years into the future, as I tend to think this trend towards the suburbs has multi-year legs.

Of course, inflection investing is all about the price you pay in order to see the upside. In this case, the company had $215 million of free cash flow to equity over the past 12 months and that includes two weak quarters with COVID—not so bad when you consider that the market cap is around $900 million—though the valuation is much more stretched on an enterprise value basis.

When I look at inflections, I often gravitate towards the more financially and operationally leveraged players once it is clear that the inflection is happening. While you take on more risk if you get it wrong, you also take on a whole lot more upside. With that in mind, CNR has a lot of debt, some may even say it has too much debt—a legacy of multiple acquisitions. As a result, the risks are elevated here. Then again, a quick look at insider buying (they’ve bought millions worth of stock when a lot less was going right), ought to tell you that when they talk about de-leveraging, they’re probably serious about it.

I had planned to write about CNR and a few others earlier this summer—then they all ran like they stole something and I chose to hold off saying anything. With the recent pullback into the low-$7s, I’ve added to my already chunky exposure and figured I might as well flag it for those who care—especially as housing is my largest sector exposure.

Caveat Emptor

via ZeroHedge News https://ift.tt/3hXNf52 Tyler Durden

Citadel Now Controls 41% Of All Retail Trading… And Is Making A Killing In The Process

Citadel Now Controls 41% Of All Retail Trading… And Is Making A Killing In The Process

Tyler Durden

Fri, 09/25/2020 – 12:05

The last time we heard from Citadel was two weeks ago when, in the aftermath of the furious “gamma meltup” reversal, investors and regulators starting asking pointed questions about who was behind all this option frenzy. It was then that David Silber, the head of institutional equity derivatives at Citadel Securities decided to preemptively come to the defense of option-heavy market-makers, such as Citadel, and told Bloomberg to stop blaming options for the recent market drop.

Going a little further back to July, we reported that Citadel Securities – one of the world’s biggest market-makers – had just been find by industry regulator FINRA (the whopping sum of $700,000) for frontrunning of at least 559 client orders while masking “hundreds of thousands” of orders from its pre-trade control logic. This happened at a time when Citadel emerged as the biggest Robinhood client, paying hundreds of millions to route retail investor orderflow (something that we first reported in 2018 in “Robinhood Is Said To Get 40% Revenue From HFT Firms Like Citadel ) in both stocks and options, as the latest Robinhood 606 reveals:



Source: Robinhood

Needless to say, whether with or without frontrunning orderflow, Citadel hit the jackpot because in the past few months, option trading – mostly by retail accounts – has exploded with traded volumes doubling over the past year and hitting a record 18.4 million in August according to the CBOE.

As a result of some combination of the facts above, coupled with Citadel Securities’ unprecedented domination of US equity markets, the Chicago based market-maker has made an absolute killing and as Bloomberg reports, Citadel’s trading operation, which is separate from Griffin’s hedge fund business, generated $3.84 billion of revenue in just six months, more than the $3.26 billion for all of 2019. Net income was $2.36 billion in the first six months of 2020, more than double the $982 million for the same period a year earlier.

The numbers were revealed, ironically enough, in a presentation to Citadel investors which is seeking a $300 million loan (it appears Citadel’s massive organic cash flow is not enough for whatever Citadel owner Ken Griffin has planned next).

To be sure, it’s not just “benefitting” from the historic retail option trading frenzy that led to this revenue bonanza: while most of its competitors were scrambling to figure out continuity plans in March when institutional trading on Wall Street was effectively frozen, Citadel Securities abandoned its Chicago and New York offices and set up shop at the Four Seasons Palm Beach, moving dozens of employees and their families as Bloomberg reported at the time, while others went to an emergency facility in Connecticut in moves designed to keep his market-making firm operating seamlessly as the rest of the financial world dealt with wild swings and extraordinary trading volumes from makeshift home offices.

The efforts clearly paid off, and Citadel Securities has now become a behemoth of unprecedented proportions, with Bloomberg reporting that it now handles more than a quarter of all U.S. equity volume in the first half of the year.

One wonders if there is a magic number of market dominance that will prompt the FTC and/or DOJ, which are busy pursuing Google and Facebook for antitrust, to take a look at Citadel Securities’ creeping monopolization of the entire US equity market.

If there is, it clearly has not been reached, and meanwhile Citadel Securities, led by CEO Peng Zhao, has continued to increase its market share, and in the U.S. options market, it climbed to 32% from 27%. In the three months through August, 28% of U.S. equity volume went through Citadel, up from 22% in 2019.

That’s right: one-in-four stock trade and one-in-three option trades taking place now effectively goes through the Citadel pipe. Meanwhile, in the retail market, Citadel dominates with an mindblowing 41% of the marketshare! And now you know why been paying so generously to dominate Robinhood’s orderflow.

As a result of this creeping monopolization, Citadel’s owner is about to get even richer. Ken Griffin owns 85% of the securities business and has a $15.3 billion fortune, according to estimates by the Bloomberg Billionaires Index.

Bottom line: having already purchased the trophy properties many of the world’s most desirable cities, Ken Griffin will soon be in the market for even more homes…

… showing the Robinhooders – with their get rich quick dreams and whose furious daytrading makes Griffen richer by the day – what to do if they too miraculous somehow strike it rich one day.

via ZeroHedge News https://ift.tt/3cujNTb Tyler Durden

Buchanan: All The Chips Are On The Table Now

Buchanan: All The Chips Are On The Table Now

Tyler Durden

Fri, 09/25/2020 – 11:50

Authored by Pat Buchanan via Buchanan.org,

“As everyone knows, I made it clear that my first choice for the Supreme Court will make history as the first African American woman justice.”

So Joe Biden promised. Since the death of Justice Ruth Bader Ginsburg, however, Biden has refused to produce a list of Black female judges and scholars whom he would consider for the now-vacant seat.

What is his problem?

Donald Trump had no such reluctance. In 2016, he listed a slew of candidates from among whom he promised to pick his justices. True to his word, Trump elevated federal appellate court judges Neil Gorsuch and Brett Kavanaugh.

Since the Kavanaugh confirmation, Judge Amy Coney Barrett has been openly discussed as a potential Trump choice to succeed liberal icon Ginsburg. Why is Biden so reluctant to reveal some highly qualified Black female judges? His refusal suggests that the kind of high court judges that America wants is not the liberals’ issue. It is Trump’s issue.

The president will announce his choice Saturday, after the mourning period for Ginsburg is over. Mitch McConnell’s Senate is expected to confirm the new justice in late October.

With the court’s ideological balance at stake, the battle from now to Nov. 3 is thus for all the marbles: control of the House, the Senate, the presidency and the U.S. Supreme Court.

Rarely has there been an election in which the stakes were so high, the ideological gulf so great and the outcome in such doubt.

The polls show Biden ahead, but Democrats are visibly nervous. Of greatest concern — the possibility that, Tuesday night, Biden, in the first debate, with his verbal and mental lapses occurring frequently now, could kick it all away in front of millions of voters.

On the court issue, Democrats are exhibiting something akin to panic. They are warning that if a conservative jurist like Barrett is confirmed, Democrats may retaliate by “packing” the Supreme Court — increasing the number of justices from nine to 11 and installing two new liberals — if they win the presidency and Senate.

If a Scalia constitutionalist is nominated and confirmed this year, says Sen. Chuck Schumer, “nothing is off the table next year.”

Other Democrats are threatening to pack the Senate by granting statehood to D.C. and Puerto Rico. This would add four new Democratic Senators and formally convert the United States into a bilingual nation.

Nancy Pelosi has threatened a new impeachment of the president if he appoints a new justice to fill Ginsburg’s seat. Yet, this is what Article II of the Constitution directs Trump to do.

Activists are talking about “burning down” the system, and given what we have witnessed in Portland, Seattle, Minneapolis and Louisville, the BLM crowd and its media camp followers should be taken seriously.

Should Democrats win the Senate and White House, they will face one obstacle to imposing the Biden-Bernie-Socialist-AOC agenda on the nation. Only the filibuster, the ability of a Senate minority, through extended debate, to delay, and occasionally frustrate, the will of the majority, would stand in the way of their turning their radical agenda into law, as LBJ did with his massive majorities in 1965.

This is no idle threat. Even Barack Obama is calling for abolition of the filibuster, stripping a Republican Senate minority of its last weapon of resistance in the world’s greatest deliberative body.

Another danger facing the GOP is its demographic demise if it fails to control immigration.

Currently, white folks, who produce the vast majority of GOP votes, are 60% of the nation. The Black population is 12-13%, Hispanics 18%, Asian Americans 7%.

The GOP demographic crisis: The white population is steadily diminishing as a share of the electorate. Hispanics and Asians, who vote 2-1 Democratic in presidential elections, are the fastest-growing minorities and are being fed by the largest streams of migration.

A few years hence, the GOP will face the fate it failed to avert in California. Once the Golden State was Nixon and Reagan country, as those two Republicans carried California on all seven presidential tickets on which they ran from 1952 to 1984.

Moreover, former red states such as Florida, Georgia, North Carolina and Arizona are now swing states, and Texas is trending that way.

Democrats, too, have a white folks problem.

At the party’s apex are Speaker Pelosi and Majority Whip Steny Hoyer, both octogenarian white folks. Senate Minority leader Schumer and Minority Whip Dick Durbin are white septuagenarians.

Presidential nominee Joe Biden is a 77-year-old white man who would be older than our oldest president, Ronald Reagan, was the day he left office.

The last white man appointed to the Supreme Court by a Democratic president was Stephen Breyer back in 1994. At 82, he is now the oldest justice serving.

The days of white liberals dominating the rising party of America’s people of color may be over this decade.

via ZeroHedge News https://ift.tt/330JTtF Tyler Durden

Fire Breaks Out At Huawei’s 5G Antenna Research Lab

Fire Breaks Out At Huawei’s 5G Antenna Research Lab

Tyler Durden

Fri, 09/25/2020 – 11:35

As the seemingly never-ending squabbling over TikTok’s deal with Oracle and Walmart drags on, the Trump administration’s battle with tech giant Huawei Technologies has seemingly taken a backseat over the last couple of weeks to this newest distraction.

But in a shocking new developing, a Huawei research lab in Dongguan caught fire on Friday, according to Reuters and local Chinese press. 

The Chinese state-controlled Global Times confirmed reports of the fire but assured the public that nobody was injured.

“The lab in the city’s Songshan Lake area is a steel structure and the main material burning is sound-absorbing cotton,” Dongguan city fire-rescue department said in a statement.

The lab is allegedly the site for where the tech giant conducts testing for 4G and 5G antennas related to Huawei’s base station business, sources told Reuters.

The Global Times noted the building was under construction at the time of the blaze. Videos from social media show thick black smoke pouring from the research lab. 

NBC’s Janis Mackey Frayer tweeted a picture of the blaze. 

“There are images on Chinese social media of a big fire at Huawei’s Dongguan campus near Shenzhen. More to come…,” Frayer tweeted.

And the video has also surfaced online. 

The fire comes at a critical time for Huawei, as it has continued to supply components for 5G infrastructure to many European nations, much to the Trump Administration’s chagrin. 

As for the cause of the fire, right now it’s unclear. But we’re certainly curious to learn more. 

via ZeroHedge News https://ift.tt/3kNOMwu Tyler Durden