Tag: finance

First JPMorgan admitted that over 500 of its generously paid employees had “illegally pocketed” covid-relief funds  – and then summarily fired most of them – and now it’s chronic lawbreaking recidivist Wells Fargo’s turn.

The bank, whose stock tumbled today after reporting dismal results and then was hit with even more selling after cutting its net interest income outlook, has fired more than 100 employees for illegally getting covid relief funds which were meant to help small businesses, Bloomberg reported citing a person familiar.

Warren Buffett’s favorite bank uncovered dozens of employees who defrauded the Small Business Administration “by making false representations in applying for coronavirus relief funds for themselves,” according to an internal memo reviewed by Bloomberg. Similar to JPMorgan, the abuse was tied to the Economic Injury Disaster Loan program and was outside the employees’ roles at the bank, according to the memo.

“We have terminated the employment of those individuals and will cooperate fully with law enforcement,” David Galloreese, Wells Fargo’s head of human resources, said in the memo. Wells Fargo’s actions follow JPMorgan Chase & Co.’s finding that more than 500 employees tapped the EIDL program which hands out as much as $10,000 in emergency advances that don’t have to be repaid, and dozens did so improperly.

The bank “will continue to look into these matters,” Galloreese added, saying the employees’ abuse didn’t involve customers… for once. “If we identify additional wrongdoing by employees, we will take appropriate action.”

As Bloomberg notes banks were urged by the SBA to look out for suspicious deposits from the EIDL program to their customers and even their own staff, after an analysis identified that at least $1.3 billion was sent out from the SBA for suspicious payments. While the program offers loans to businesses, much of the concern has focused on its advances of as much as $10,000 that don’t have to be repaid.

Wells Fargo is best known for its role in a massive account fraud scandal in which the bank created millions of fraudulent savings and checking accounts on behalf of Wells Fargo clients without their consent over a 14-year period. The fallout led to the bank paying $3 billion to settle criminal charges and former CEO John Stumpf losing his job after a historic Congressional grilling, while also agreeing pay a personal $17.5 million fine. In 2018, Wells Fargo agreed to an unprecedented consent order from the Fed which capped the size of its balance sheet and limited how many loans the bank can issue, one of the factors behind the dismal performance of its stock in recent years, which even prompted Warren Buffett to finally dump some of his Wells Fargo holdings.

Authored by Daisy Luther via The Organic Prepper blog,

We’d all like to believe that the United States is on the road to economic recovery and that things are going to get better. Everyone wants to think the store shelves are just a few cargo ships away from being refilled. People want to believe that once 2020 is over, life will return to “normal” and that we’re just having a really bad year.

But someone pointed out an article I published four and a half years ago and when you look at the things which happened there and compare them to our situation, you may notice some uncanny similarities.

Here’s how Venezuela ran out of food.

In February of 2016, I wrote about what an economic collapse really looks like, using Venezuela as an illustration.

Venezuela:

The article begins when prepping began to be frowned upon by the Venezuelan government.

In 2013, many began to suspect that the outlook for Venezuela was grim when prepping became illegal.  The Attorney General of Venezuela, Luisa Ortega Díaz, called on prosecutors to target people who are “hoarding” basic staples with serious sanctions.

Shortly thereafter, grocery stores instituted a fingerprint registry to purchase food and supplies. Families had to register and were allotted a certain amount of supplies to prevent “hoarding.” (source)

The United States:

Early in 2020, supplies began to be difficult to find due to the outbreak of COVID-19 and the potential of a lockdown. When folks couldn’t find basics like toilet paper, fingers immediately began to point at “preppers” and “hoarders.”

The word “hoarding” is being repeatedly used throughout news reports. They’re already working to paint preppers as bad and selfish people. They’re already vilifying those who hurry out to fill any gaps in their supplies. They’re making it seem like a mental illness to get prepared for what could potentially be a long stretch of time at home with only the supplies you have on hand.

This is a frequent trick of propagandists everywhere. Repeat a word often enough and suddenly everyone begins using it. Everyone begins to believe that the people labeled with an ugly word are terrible, selfish, and threats to decency. (source)

This dialogue is still in place, with people being shamed for large purchases, when in fact, they’re simply getting necessities for a large family. A friend of mine with a large family has said she’d have to shop every two days with the original limits stores posted to keep everyone in her household well-fed.

Venezuela:

It wasn’t long until the basics were incredibly difficult to acquire.

Then, just over a year ago, it became even more apparent that the country was falling. when long lines for basic necessities such as laundry soap, diapers, and food became the norm rather than the exception. Thousands of people were standing in line for 5-6 hours in the hopes that they would be able to purchase a few much-needed items. (source)

The United States:

Writers on this website have talked about the shelves being cleared back in March, what we may see in shortage after halting many imports from China, and the fact that in most parts of the country, the supply chain is clearly broken.

People from all over the country have reported in the comments the bare spots in their local stores, with a few exceptions who say that everything in their part of the nation is back to normal. Many areas still have limits on how many packages of toilet paper, cleaning supplies, and canned goods customers can purchase months after the original panic-fueled shopping sprees.

Venezuela:

Shortly after the story broke to the rest of the world, the propaganda machine shifted into high gear.  As the government began to ration electricity, it was announced that this was not due to economic reasons at all, but instead was a measure of their great concern for the environment. (source)

The United States:

We’re looking at you, California, where PG&E, the largest power provider in the state has shut off the power to people in rural areas repeatedly over the past couple of years to “prevent wildfires.” Millions faced the hottest days of the summer without electricity.

Venezuela:

As stores struggled to provide the essentials to customers, the government stepped in to “help.”

As the situation continued to devolve, farmers in Venezuela were forced to hand over their crops last summer. They assumed control of essential goods like food, and began putting retail outlets out of business. Then, once they had control of the sales outlets, they began forcing farmers and food manufacturers to sell anywhere from 30-100% of their products to the state at the price the state opted to pay, as opposed to stores and supermarkets.

But that wasn’t enough to keep the population fed. (Isn’t it astonishing how much less motivated people are to produce food and supplies when they are no longer allowed to benefit from their hard work? Historically, collectivism and farming have never gone successfully hand in hand.) This January, the government told citizens that they would need to produce their own food. The Ministry of Urban Farming was created to oversee this. While self-reliance sounds great, it isn’t so great in Venezuela. Just so the urban farmers don’t get too self-reliant, a registry of the crops and livestock will be required. (And obviously, they’ve already proven that they have no issue forcing farmers to hand over what they’ve produced.) (source)

The United States:

As our supply chain devolved, it was learned that farmers in the United States were unable to get their products to the market due to logistics issues, closed packaging plants, and a totally different marketplace. The President signed an Executive Order to force people to go back to work at meat packaging plants and also tried to organize a way to get food that was just being thrown out to the people who desperately needed it.

Processing plants across the country are shutting down as more and more employees become ill. At least ten large meat processing plants have closed due to the virus. Distribution issues have farmers dumping thousands of gallons of milk, plowing under vegetables in the fields, and leaving potatoes to rot.

A lot of the food being produced was destined for restaurants, hotels, and cruise ships. Diverting it to grocery stores and the millions of people using food banks right now (because they didn’t get their money from unemployment yet, remember?) is unfortunately not as easy as it should be. This article explains some of the issues with getting food to hungry people.

One of the issues processing. With meat, in particular, this is difficult – most folks aren’t even going to be willing to process their own chickens and it’s wildly unrealistic to imagine a family in the city processing a cow or a pig. With produce, it becomes a little bit easier – anyone can wash fruits and vegetables – but employees are still needed to harvest the food.

A lot of that scarcity could be remedied if we could reallocate things – if janitorial supplies could be sold to the general public, if farmers could sell directly to stores or consumers, and if farmers could donate unpurchased items to food banks.

To summarize, farmers are losing billions of dollars and people are going without food, while the food we have is left to rot. Hopefully, President Trump’s new 19 billion dollar plan will allow the federal government to play matchmaker between frustrated farmers and hungry families. (source)

So while nobody has insisted farmers hand over their crops without compensation, the government is clearly getting involved in the distribution of food.

Venezuela:

Eventually, all the measures the government of Venezuela took to hide the catastrophic collapse from citizens could hold up no longer.

Venezuela is out of food.

After several years of long lines, rationing, and shortages, the socialist country does not have enough food to feed its population, and the opposition government has declared a “nutritional emergency.” This is just the most recent nail in the beleaguered country’s slow, painful economic collapse.

Many people expect an economic collapse to be shocking, instant, and dramatic, but really, it’s far more gradual than that. It looks like empty shelves, long lines, desperate government officials trying to cover their tushes, and hungry people. For the past two years, I’ve been following the situation in Venezuela as each shocking event has unfolded. Americans who feel that our country would be better served by a socialist government would be wise to take note of this timeline of the collapse. (source)

It only took 3 years from the first report (about making “hoarding” illegal) for the once oil-rich country to fall into a ruin so extreme that there wasn’t enough food for everyone.

The United States:

While we are by no means at the point where there is no more food, there are all sorts of warning signs that day could come – and sooner than expected. Many aspects of our system are crumbling, the supply chain is definitely broken, stores are already preparing for the second wave of shortages, and a simulation has predicted a 400% increase in the price of food by 2030.

An important side note

I’m sure it’s merely a coincidence but Venezuelans lost their firearms at around the same time “hoarding” was deemed illegal.

Were you aware that Venezuela banned guns for private citizens a mere four years ago, in 2012? Although the country was already in trouble, it seems like that was the beginning of the end.

Under the reign of Hugo Chavez, the government introduced a law that banned personal purchases of firearms and ammunition in an attempt to “improve security and cut crime”. The law was designed to keep guns in the hands of only police, military, and some security companies.

At the time, Chavez’s government said that “the ultimate aim is to disarm all civilians.” Shortly after the law passed, Chavez lost a battle to cancer, and bus driver Nicolas Maduro became the new president.

Maduro invested $47 million in “disarmament centers” in 2014, where citizens could turn in their firearms without fear of repercussions. This was at about the same time as the government declared that prepping was illegal and those “hoarding” could be detained on criminal charges and when the country instituted a fingerprint registry for purchasing groceries so that they could ensure people only purchased what they were allotted. (source)

Most readers of this website are well aware of concentrated efforts across the United States to undermine the Second Amendment over the past 9 years it has been operating. For more information on these efforts, check out these articles.

How far will we fall in the United States?

This side-by-side comparison is certainly not identical to the crisis in Venezuela, but there are enough similarities that you should be very uncomfortable with our situation. We strongly encourage efforts to become more self-reliant, stocking up on food and other supplies, and frugality in the days ahead.

Those who are prepared may still struggle but they’ll be far better off than those who are completely blindsided by the continued collapse.

Secretary of State Mike Pompeo says the State Department is doing “everything we can” to release emails from Hillary Clinton’s tenure as Secretary of State under President Obama, according to Bloomberg.

“We’ll continue to do the right thing, we’ll make sure that all these emails get to the right place,” Pompeo told reporters on Wednesday. “We will do everything we can to make sure that the American people get a chance to see as much as we can equitably produce.”

The secretary of state has been on the defensive after Trump said last week that he wasn’t happy with Pompeo — one of his closest advisers — because the State Department still hadn’t released some of Clinton’s emails. At the time, Pompeo said there will be “more to see before the election.” On Wednesday he described the release of the emails as an “ongoing” process. –Bloomberg

In 2016, FBI Director James Comey declined to prosecute Clinton for sending classified emails through her private server kept at her home – after the agency downgraded the language regarding Clinton’s conduct from the criminal charge of “gross negligence” to “extremely careless.”

The State Department has published some 35,000 of Clinton’s emails, however President Trump has demanded that thousands more be made public.

Last week, Trump tweeted that he has “fully authorized the total Declassification of any & all documents” related to the ‘Russia Hoax’ and the ‘Hillary Clinton Email Scandal’ with ‘No redactions!’

I have fully authorized the total Declassification of any & all documents pertaining to the single greatest political CRIME in American History, the Russia Hoax. Likewise, the Hillary Clinton Email Scandal. No redactions! https://t.co/GgnHh9GOiq

— Donald J. Trump (@realDonaldTrump) October 7, 2020

Authored by Mark Jeftovic via OutOfTheCave.io,

After the shrieking hysterical shitshow that was the Brett Kavanaugh confirmation hearings, everybody knew that the Amy Coney Barret hearings would be contentious, given the perceived stakes.

An initial attempt was made to paint Coney’s adoption of black children from Haiti as somehow colonial or a thinly veiled attempt to cover her inherent racism.

Some White colonizers “adopted” Black children. They “civilized” these “savage” children in the “superior” ways of White people, while using them as props in their lifelong pictures of denial, while cutting the biological parents of these children out of the picture of humanity. https://t.co/XBE9rRnoqq

— Ibram X. Kendi (@DrIbram) September 26, 2020

That was quickly aborted when pretty well everybody (including me, the adoptive father of a black child) found that indefensible and disgusting.

Now a new front has been opened on the nominee.

This time it’s her use of the word “preference” when she indicated that she would exercise jurisprudence without judging sexual preference.

Senator Mazie Hirono (D-HI) called her use of it “offensive and outdated”, before asking Coney if she’d ever sexually assaulted anyone.

Bluecheck Twitter immediately seized the baton, decreeing in true 1984-style that using the phrase “sexual preference” was offensive, has always been offensive and shall evermore be, offensive.

i’m fucking exhausted pic.twitter.com/gjmsQtgBFh

— Jordan Lancaster (@jordylancaster) October 13, 2020

On it’s own, this would be just another tiresome episode of the Woke Social Order on a mission to be offended, trying to head off what they see as a disastrous outcome for the replacement of the late great Ruth Bader Ginsburg (who, tangentially, described Brett Kavanaugh as “very decent and very smart” after he joined SCOTUS. Oh, and she also used the term “sexual preference” in 2017, btw).

Ruth Bader Ginsburg, who Mazie Hirono called “our champion” on Monday, used the term “sexual preference” in 2017. Hirono jumped on Amy Coney Barrett for saying it Tuesday, calling it “offensive and outdated.” pic.twitter.com/8bHIQTSVFk https://t.co/JlcRA35g59

— David Rutz (@DavidRutz) October 14, 2020

But it has been pointed out that the venerable institution that documents the literal meaning of words, Merriam Webster, quickly modified the definition of “preference”, to include:

5 offensive, see usage paragraph below : ORIENTATION sense 2b sexual preference:

Usage of Preference

The term preference as used to refer to sexual orientation is widely considered offensive in its implied suggestion that a person can choose who they are sexually or romantically attracted to

This negative connotation was not there before Hirono’s remarks.

“Widely considered” my ass. Literally nobody in the world thought this yesterday morning. Seriously. Twitter is alight with countless examples of Leftist mavens using the exact phrase which offended exactly zero people, anywhere, until now (Meanwhile, I imagine woke bluechecks are frantically scrubbing their timelines of “sexual preferences” as you read this).

As recently as last month, Webster’s Dictionary included a definition of “preference” as “orientation” or “sexual preference.” TODAY they changed it and added the word “offensive.”

Insane – I just checked through Wayback Machine and it’s real.

(via @ThorSvensonn & @chadfelixg) pic.twitter.com/oOq1SNtCP2

— Steve Krakauer (@SteveKrak) October 14, 2020

Merriam Webster’s page for “preference” shows that it was updated on October 13, 2020, which would have been immediately after all this  broke loose.

Screengrabs via Waybackmachine and archive.is show that there was no offensive meaning in the word definition prior to this manufactured outrage.

This is important

Because it means that words no longer mean what is defined in an ostensibly impartial dictionary. 

They now mean what politically über-correct social justice warriors say they mean. And if that’s the case, it means nobody can ever take issue or dissent from the Woke Social Order’s belief system without being, literally “by definition”, morally reprobate and wrong headed.

When I imagine “the word committee”, or whoever it is at Webster’s who decide what goes into the dictionary or when to change the meaning of a word, I always pictured a musty boardroom lined with books and a bunch of stodgy, learned academics slumped over the table, adorned with cobwebs … and every 10 or 20 years some clerk comes in with a list of word additions or meaning modifications and one of them just lifts up a rubber stamper that says “NO” and wordlessly hammers it down, sending the hapless intern on their way.

I guess I was wrong, and what it really must be now is some energized, hipster cultural Marxists cobbling new words and meanings off of Twitter and fashioning them to suit the far-left outrage du jour. Maybe we should be contacting the staff at MW and asking them about the review and vetting process that has them arbitrarily changing the meaning of words in their dictionary based on a twitchunt.

Oil prices rallied today on the back of a weaker dollar and somewhat optimistic report from IEA, which decided to leave its 2020 forecast for oil demand unchanged at 91.7 million barrels per day while painting a picture of contracting supply, penciling in a 4-million-barrel-a-day drop in the fourth quarter.

But there is a lot of noise in the data still…

“Inventories are famously all over the board as a hurricane comes in,” said Flynn, in a note. Hurricane Delta made landfall on Louisiana’s Gulf Coast last week. The supply numbers “will be skewed enough and will cause more confusion than really shed any light.”

But the algos will get triggered one way of the other…

API

• Crude -5.422mm (-2.3mm exp)

• Cushing +2.199mm

• Gasoline -1.513mm (-1.8mm exp)

• Distillates -3.93mm (-2.5mm exp)

After last week’s surprise crude build, analysts continue to expect another draw and got a really big one (-5.42mm vs 2.3mm exp). Products also showed notable draws…

Source: Bloomberg

WTI hovered around $41 ahead of the print and held those gains after the bigf draws…

Going forward, OPEC+ members “will likely adopt a wait-and-see approach and not pursue new policies, since the market seems to be in balance and they will be cautious not to mess with the fragile recovery recently achieved,” said Manish Raj, chief financial officer at Velandera Energy.

“OPEC+ has shown its willingness to step in to rebalance the market, should that be necessary, but they will not risk prematurely tilting the balance in either direction,” he told MarketWatch.

 

 

Authored by Charles Hugh Smith via OfTwoMinds blog,

Better not to risk any radical evolution that might fail, and so failure is thus assured.

When times are good, modest reforms are all that’s needed to maintain the ship’s course. By “good times,” I mean eras of rising prosperity which generate bigger budgets, profits, tax revenues, paychecks, etc., eras characterized by high levels of stability and predictability.

Since stability has been the norm for 75 years, institutions and conventional thinking have both been optimized for incremental change. This is an analog of natural selection in Nature: when the organism’s environment is stable, there’s little pressure to favor random mutations, as these can be risky.

Why risk big changes when everything’s working fine as is?

Absent any big changes in their environment, organisms’ genetic programming remains stable. Unlike natural selection’s process of generating random mutations and testing their efficacy and advantages over the existing programming, human organizations quickly habituate to stable eras by institutionalizing incremental changes as the only available process for reform / change.

Radical reforms are not just frowned on as 1) unneccesary and 2) needlessly risky, there is no institutionalized process to propose, test and adopt radical changes because there is no need for such a process.

Nature has such a process: punctuated equilibirium. When faced with a rapidly changing environment, organisms face intense evolutionary pressure to adapt or die. Mutations which confer a significant advantage in the new environment become part of the species’ genetic programming as those with the adaptation bear offspring who carry the advantageous adaptation. Those without the advantageous adaptation die and those with the adaptation thrive and multiply.

Once the environment stabilizes in “the new normal,” the evolutionary pressure lets up and the species returns to the stability of relatively few changes in its genetic programming.

Organisms which have lost the ability to adapt to rapid change die off once they encounter instability. Species that constantly face instability and rapid change will selectively favor genetic traits which optimize rapid evolution.

Nature tends to retain a basement closet full of fast-evolution tricks just in case the organism faces novel challenges.

Alas, human organizations and conventional thinking have no such closet of fast-evolution tricks. Rather, human organizations and conventional thinking marshal formidable forces to suppress anything which threatens the status quo, because why risk upsetting the feeding trough unless it’s absolutely necessary?

Therein lies the fatal problem: radical adaptation is never absolutely necessary in human organizations and conventional thinking until it’s too late–and even then, the leadership and conventional thinking will fatalistically accept oblivion rather than opt for a risky strategy of testing every mutation and fast-tracking whatever has promise, even though the odds of failure are high since 1) the challenge is novel and therefore unpredictable and 2) most mutations will fail to provide the radical advantages needed to meet the challenge.

In other words, what’s absolutely necessary to human organizations and conventional thinking is the suppression of potentially dangerous novel ideas because the worst-case scenario is that the novel ideas upset the feeding trough all the insiders have come to depend on.

Unfortunately for human organizations and conventional thinking, novel challenges demand precisely what they’re incapable of: risky rapid evolution. The risks will never seem worth it because some insiders might lose their spot at the feeding trough.

Since this loss is viewed as catastrophic by those at risk, they will fight with everything they have to stymie any radical reforms. Ironically, their resistance to rapid evolution only guarantees the demise of the entire organization / status quo, including the spot at the trough they were so eager to defend at all costs.

As the crisis deepens, the default setting in organizations and conventional thinking is that incremental changes and reforms will be enough, because they’ve been enough for four generations. I call this entirely natural default setting the delusional faith in incremental change because this faith isn’t guided by history or the logic of causality; it’s simply convenient and easy.

Nobody gets fired or demoted for agreeing to do more of what’s failed spectacularly.

I’ve prepared a chart of the delusional faith in incremental change showing how each new crisis is met by incremental institutionalized defaults that are completely inadequate to the novel challenges that have arisen. The blindness to the need for radical adaption has been institutionalized as well: this is what worked in the past, so it will work now. Why risk everything when we have procedures that have worked well?

Each stage of the crisis draws whatever conventional response causes the least pain. First, the “rainy day fund” is drained to keep everyone at the feeding trough. Studies of options are funded, and so on.

The recommendations are either too timid and clearly inadequate or they’re too bold and risky. So incremental policy and budget tweaks are adopted as acceptable institutional defaults.

But rifts open in the leadership as the farsighted few demand rapid, radical adaptations and the conventional risk-averse crowd digs in their heels. The farsighted few are pushed out or quit / retire, eliminating the only people who had the ability and experience to actually pull off a radical change of course.

A reshuffling of leadership evokes hope that the modest reforms will work magic. Alas, incremental tweaks only work in eras of stability. They fail miserably in unstable eras of rapidly-evolving challenges.

As everything runs to failure, the only acceptable path is to do more of what’s failed spectacularly, a default to low-risk incrementalism that only accelerates the final inevitable collapse.

The delusional faith in incremental change guarantees systemic failure. Better not to risk any radical evolution that might fail, and so failure is thus assured.

This is why our status quo is doomed:

*  *  *

My recent books:

A Hacker’s Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook coming soon) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

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Barron Trump, the youngest of the president’s five children, was diagnosed with coronavirus, Bloomberg reports.

BREAKING: BARRON TRUMP had coronavirus.

— Jennifer Jacobs (@JenniferJJacobs) October 14, 2020

The timing of the infection is unclear.

Cue the outrage mob, as the world demand why the White House concealed this critical fact from the public.

The youngest of the Trump children, and the only one to reside in the White House, has drawn attention for his height (at 14, he has already outgrown his father).

Mnuchin’s “difficult to get a deal done before the election” prompted weakness in stock markets but a glance at Nasdaq and it would seem that as op-ex looms on Friday, the ‘gamma-squeezers’ have backed off…

Source: Bloomberg

It’s a mad, mad world for sure…

While Trannies managed gains today, all the majors ended clustered together in the red, led by Nasdaq and Small Caps (ugly close)…

With The Dow and Small Caps back into the red for the week…

Banks were battered again…

Source: Bloomberg

Led by BofA and Wells Fargo…

Source: Bloomberg

Financials continue to track the Treasury curve…

Source: Bloomberg

Election uncertainty improved modestly today but remains highly elevated…

Source: Bloomberg

HY bond spreads reached back to their tightest since COVID…

Source: Bloomberg

Treasury yields were modestly bid today, led the long-end…

Source: Bloomberg

With 30Y back at 1.50%…

Source: Bloomberg

The dollar dumped today (as cable rallied), erasing yesterday’s gains…

Source: Bloomberg

Cryptos were broadly lower today…

Source: Bloomberg

Gold futures rallied back above $1900…

Silver futures bounced higher off $24…

And oil gained with WTI back above $41 ahead of tonight’s API inventory data…

Finally, “do you even lift?”

Source: Bloomberg

1000% since the March lows – ‘natural’ gains!

Three weeks ago, when looking at the latest EPFR fund flows we said that traders are getting whiplash after the “fastest ever fund flows swing from euphoria to despair” as US equity funds and ETFs reported $26.87 BN of outflows in the last week of September, the we observed 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 third the biggest weekly swing in fund flows in history, and showed “how extreme market sentiment has become, and how it can seemingly swing overnight from euphoria to despair.”

We also showed that similar, if even more acute swings, were observed in the QQQs the world’s largest tech ETF which tracks the Nasdaq, saying that “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.”

In retrospect, this was not a bug but a feature, because today Bloomberg follows up on these wild swings, which have only gotten wilder since, and writes more than two weeks after our original observations that the “amount of cash cycling through one of the world’s largest exchange-traded funds is turning heads across Wall Street.”

According to Bloomberg’s calculations, the$146BN QQQ ETF, the largest tech ETF in the world, has seen a staggering $1.5 billion in daily flows (either in or out) over the past month, following the previously discussed largest withdrawal in two decades in late September, followed by its largest influx in the same time period one day later. The ETF saw $3 billion of inflows the following week, ahead of a $3 billion exit the next day. This week brought another $3.7 billion inflow in a single day.

The startling spike in the size of flows is clearly visible in the chart below, where the new “regime” is highlighted in yellow…

… with the consistency and sheer magnitude of the “mega flows” has analysts at odds over what’s driving them, Bloomberg’s Katherine Greifeld writes, “given that they don’t appear to line up with any rebalancing schedule or model portfolio shifts.

One possible explanation is that the recent surge in retail option trading has left the ETF as a hedging vehicle, while some say that renewed appetite among retail investors is fueling the flows. Others speculate that the cash churn amounts to a massive tug-of-war over the outlook for technology shares, which have staged a remarkable 73% rally since the March lows.

Another argument validating that this is largely a byproduct of retail traders is the just observed record inflows in the 3x inverse SQQQ Nasdaq ETF (see our post “Robinhooders Discover 3x Levered ETFs” from a month ago on how retail traders are flooding into 3x levered ETFs).

“That tells me there is a lot of day trading going on related to the Nasdaq 100,” said Tribeca Trade Group CEO Christian Fromhertz. “They’re super liquid and really move on Covid-related headlines.”

That said, options certainly play a role too. As Bloomberg explains, the “massive cash movements may be a byproduct of building options appetite” as roughly 3.7 million options contracts tied to Apple traded on Tuesday, well above the stock’s 20-day average of 1.95 million, in what many saw another attempt by SoftBank to forced a gamma short squeeze, which coupled with a near-record short position in Nasdaq futures unleased a massive 4% surge in the tech index.

Meanwhile, the latest sighting of “Nasdaq whale” SoftBank, meant that call open interest in Facebook, Amazon.com, Netflix, Alphabet, Apple and Microsoft averaged 12.9 million contracts over the 30 days through Friday, the highest since early 2019.

And here is another brief explanation of how dealer gamma works (for a much more comprehensive take, please read “All You Ever Wanted To Know About Gamma, Op-Ex, And Option-Driven Equity Flows.)” As Bloomberg notes, dealers selling calls will typically buy the underlying stock in order to delta hedge their position. However, with FAANGs comprising nearly half of QQQ, buying the ETF works as a “quick and dirty hedge,” according to Steve Sosnick.

“This is where the concentration comes into play,” said Sosnick, chief strategist at Interactive Brokers. “It would not be surprising that dealers would find themselves hedging the huge call activity with QQQ — especially when Facebook and Google followed along.”

Finally, it’s possible that this is nothing more than institutions using the QQQ to express a view on the future of the tech sector, and getting caught in the recent whiplash forcing them to be stepped out on both sides of the trade.

Whatever the reason, there is no sign of the outsized flows ending any time soon: “There’s a battle between top callers and those who believe tech has further to run,” said ETF Store president Nate Geraci. “The swings between massive inflows and outflows reflects that battle.”

While the latest Fund Manager Survey from BofA revealed that a vast majority of investors are concerned about a contested election, and the resulting volatility this may entail especially if (when) the Supreme Court is called in to decide the next president…

… no matter the ultimate outcome, investors are curious how to trade – and hedge – the various possible outcomes, so much so that BofA’s Jared Woodard writes that the impact of various election scenarios is the “top question investors are posing.”

So, in the latest note from BofA’s Research Investment Committee, Woodard and team proceed to give an answer, highlighting that the most important consequence of the US election “will be the amount and composition of fiscal stimulus” and noting that since Congress controls the budget and the House majority is likely to stay Democratic, the Senate outcome is the most important one to watch. The 4 key scenarios are laid out in the chart below, whose investment implications BofA dissects next:

Before going into the details, Woodard gives some “general tips for investing around elections”:

1. For a trade, buy political dips;
2. For an investment, watch the first 200 days;
3. Don’t touch the core portfolio.

With that in mind let’s dig in starting with…

1. President Biden + Democratic Senate = Bullish Elevation

While many investors say they fear the impact of a “Democratic sweep” because of higher expected taxes and greater regulation, BofA counters that a unified government would be bullish:

1. The desire to maintain majorities through midterm elections in two years incentivizes a pro-growth, pro-employment agenda now (fiscal stimulus, industrial policy) & redistribution only later (if ever). This is particularly urgent for Democrats, who have struggled historically to motivate voters in midterms;
2. Even if progressives impose new taxes & regulations, the bank expects that the planned consumption and investment incentives would more than offset the drag.

As an aside, Woodard notes that voters are tired of gridlock citing a recent Gallup Governance survey, where only 23% said they favor a  Congress and Presidency controlled by different parties, the 2nd-lowest reading in history. Markets also seem prepared to accept a “blue wave”, with equities rising and the yield curve steepening in tandem with odds of a Democratic Senate majority (Chart 3).

Unified governance (by either party) is also the key condition for BofA’s bullish macro Elevation scenario, as continued CARES Act-style economic support can, at best, return the US economy to the levels achieved at the end of 2019. That was still lead to an  environment of stagnant growth and scarce profits. As such, a step-change to 3%+ GDP & higher productivity requires major new investments in R&D, capex, and a broader base of household demand; such policy shifts “require bold leadership and a governing majority, not tepid incrementalism.”

Next, Woodard claims that the timing is certainly right, citing a new IMF study which found that public investment is most effective in periods of high uncertainty, like this one. Using data across 107 countries over the last 30 years, the study found that, on average, new public investment worth 1% of GDP raised economic growth over the subsequent two years by 2.7%, private sector investment by 10%, and employment by 1.2% (Chart 4).

Trades: as has already been widely priced in by the market, expect a continued 2016-style “rowdy rotation” away from crowded secular stagnation beneficiaries (large caps, defensives, tech, bonds) and toward inflation assets (small caps, cyclicals, financials, commodities).

• Likely winners: renewable energy, advanced industrials, electric vehicles, telecommunications, banks and silver;
• Likely losers: health insurers, mega-cap tech, for-profit education, and media (NY Times +326% since Trump win vs. +4% in the 4 years prior).

2. President Biden + Republican Senate = Bearish Gridlock

Hardly “rocket surgery”, if Republicans retains the Senate they are very likely to block further stimulus under a Democratic President, which BofA says would be bearish for economic growth, corporate profits and financial markets (but it would be bullish for more stimulus from the Fed). In any case, as BofA sarcastically puts it, “after $21tn of monetary & fiscal stimulus in 2020, $0 of follow-on support would be deflationary.”

Indeed, political parties historically have used obstructionist tactics when out of power to thwart key legislation, most often through the “rediscovery” of commitments to “fiscal discipline”. As an example, BofA cites the budget austerity during 2012-2015 as a major reason for the slow economic recovery.

Trades: “in this scenario investors should prepare for lower returns and higher volatility. Raise cash and buy Treasuries, munis, and high-quality corporate bonds.”

3. President Trump + Any Senate = Uncertain Stagnation

This is the “status quo” scenario: after the election, basic support packages may be easier to pass, but BofA doubts whether President Trump and a Democratic House would find enough common ground to pass transformative, pro-growth legislation. The case of infrastructure is instructive: both parties agree on the need for more resources for transportation, energy security, etc., but talks have always broken down over “red line” issues like immigration. That said, with a GOP Senate, investment may come more easily for R&D and industries relevant to national security.

However, the risk of volatile stagflation also rises with a divided government. Policies that have increasingly bipartisan appeal, such as regulating Silicon Valley or countering the threat from China, would require massive (and in this case, unlikely) domestic public investment to offset related frictions.

Trades: long stagnation winners e.g. tech, consumer discretionary, large caps, IG bonds…but with less leverage and lower market beta.

4. Contested election = Buying Opportunity

Contrary to various doomsday predictions for what happens on Nov 4, BofA’s Nitin Saksena points out that options markets imply a move of 3.6% in the S&P 500 the day after November 3rd, only modestly above the recent historical average of 2.9%. However, instead of focusing on the day after, markets are pricing in greater odds of a contested election than ever before, with more volatility possible through December (although forward vol has certainly declined substantially in recent weeks).

According to BofA, “there are several unusual but plausible scenarios and no real historical precedent.” The bank does note that in 2000 the Supreme Court decided the election, but it suggests returns from that period are hardly analogous “since the set of possible outcomes now is wider and more politically fraught.”

That said, according to Woodard, the most important thing to know is that “the same features of the US economy that made every investor in the world desperate to buy US assets in 2020 will still exist in 2021, no matter the election outcome: the deepest and most liquid financial markets, strong institutions, the rule of law, and the most productive, creative workforce”. 

BofA’s recommended trades for a contested election: treat any market decline on a contested election as an opportunity to buy risky assets and sell volatility (and if the worst case scenario happens, investors can just hope that they get a bailout… just like America’s banks.)