Reza Aslan refused to apologize after calling for the “eradication” of Kellyanne Conway and Trump Supporters, with Twitter saying his rhetoric didn’t violate their rules.
Following the mass shooting in El Paso, Aslan, a former CNN host, tweeted, “After today there is no longer any room for nuance. The President is a white nationalist terror leader. His supporters – ALL OF THEM – are by definition white nationalist terror supporters. The MAGA hat is a KKK hood. And this evil, racist scourge must be eradicated from society.”
After today there is no longer any room for nuance. The President is a white nationalist terror leader. His supporters – ALL OF THEM – are by definition white nationalist terror supporters. The MAGA hat is a KKK hood. And this evil, racist scourge must be eradicated from society.
After people reported the tweets, Twitter said that they didn’t violate the site’s rules.
Despite being ‘ratioed’ numerous times, Aslan refused to apologize for his language and subsequently doubled down.
The President is a violent hate leader who daily promotes terrorism against Americans who look like me and my children, so if you’re someone who thinks I should “watch my language” in responding to this racist pig you can go fuck yourself too.
What’s particularly disturbing about the first tweet is that if you replaced Trump supporters with hispanics as the target, it could have been lifted straight from the shooter’s manifesto.
Aslan’s incendiary rhetoric is only going to fuel more extremism and tit for tat violence that will radicalize people like the Dayton, Ohio mass shooter who was a fringe left-wing radical.
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via ZeroHedge News https://ift.tt/2KgWzn0 Tyler Durden
With stocks rebounding dead-cat-like overnight, Fed’s Jim Bullard may have just stolen the jam out of the market’s donut, confirming Powell’s more hawkish comments that “this is a mid-cycle adjustment” and sees no recession on the horizon.
The normally outspoken dove commented that he “would not consider the latest tit-for-tat with China an intensification” and added that “now is the time to see if we bought enough insurance.”
All of which is problem for a market now demanding almost 3 more rate-cuts this year.
Additionally, Bullard warned apparent doves that “we are not in a situation like 207-8” and said that he “wouldn’t rule out more policy changes ahead.”
Finally, Bullard spoke optimistically, saying “lots of good things going on in the economy.”
Markets, for now, are entirely ignoring this sentiment shift from a noted dove.
via ZeroHedge News https://ift.tt/2ZC0T5y Tyler Durden
With a national debt approaching $23 trillion and a trillion dollar deficit for this year alone, Congress last week decided to double down on suicidal spending, passing a two year budget that has the United States careening toward catastrophe. While we cannot say precisely when the economic crash will occur, we do know that it is coming. And last week Congress pounded down on the accelerator.
We are told that the US economy is experiencing unprecedented growth, while at the same time the Fed is behaving as it does when we are in recession by cutting rates… and dodging insults from the President because it’s not cutting fast enough. This is not economic policy – it’s schizophrenia!
But that’s only the beginning.
Take what they call “national defense” spending. This is the misnomer they use to try and convince us that pumping trillions into the military-industrial complex will make us safe and free. Nothing could be further from the truth: probably ninety percent of the “defense” budget is aggressive militarism and welfare for the rich.
Under this budget deal the military budget would increase to nearly $1.4 trillion for two years. Of course that’s only a fraction of real military spending, which is, all told, well over one trillion dollars per year.
What do we get for this money? Are we safer? Not at all. We are more vulnerable than ever. We spend billions fighting “terrorism” in Africa while terrorism has actually increased since the creation of the US Africa Command – “AFRICOM” – in 2007. Meanwhile we continue to spend to maintain our illegal military occupation of a large section of Syria – which benefits terrorist groups seeking to overthrow Assad.
We’re sending thousands more troops to the Middle East including basing US troops in Saudi Arabia for the first time since 2003. Back then, even neocon Paul Wolfowitz praised our departure from Saudi Arabia because, as he rightly stated, US troops on Saudi soil was a great recruiting tool for al-Qaeda.
Now we’ve pulled out of the Intermediate-range Nuclear Forces (INF) treaty so that we can deploy once-forbidden missiles on China’s front door. A new arms race with China will mean a new boon for our new Defense Secretary’s former colleagues at Raytheon!
Senator Rand Paul (R-KY) pronounced the Tea Party dead with the adoption of this budget. He’s right of course, but only when it comes to Congress. Given the opportunity, I still believe a good part of the American people will vote for candidates who promise to rein in the national credit card. President Trump himself ran on a platform of ending deficit spending and even paying off the national debt!
So the Tea Party may be dead in Washington, but I am not convinced it was ever really alive in Washington. With a few exceptions, most politicians saw the Tea Party as just the flavor of the month. Spending is what keeps Washington alive and keeps the DC suburbs rich. They’re not about to cut back on their own.
But the spending will end. The trillions thrown down the drain on militarism will end. The only question is whether it will end when we are completely bankrupt and at the mercy of countries we’ve kicked around for decades or whether Americans will demand an end to bipartisan addiction to war and spending in Washington!
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As the situation in Hong Kong continues to deteriorate, Beijing has issued a warning that protesters would soon be punished for “criminal acts,” and has refused to rule out military force to quell ongoing anti-government demonstrations, according to The Telegraph.
According to a spokesman for the Beijing-controlled Hong Kong and Macau Affairs Office, demonstrators are causing “Hong Kong to slide into a dangerous abyss,” adding “As for their punishment, it’s only a matter of time.“
The Chinese government will never allow any acts that challenge national unity, sovereignty or security, he said, sternly reminding residents that the People’s Liberation Army was a “strong and reliable force that defends every inch of its territory.”
In a jab at protesters, Mr Yang referred to their main slogan, “Reclaim Hong Kong, revolution of our times,” by reminding them Hong Kong was a part of China, saying, “I want to ask those people shouting this, ‘what of Hong Kong do you want to reclaim? Where exactly do you want to reclaim Hong Kong to?” –Telegraph
Meanwhile, over 12,000 Shenzhen police officers conducted a publicly broadcasted crowd-control drill – offering protesters a taste of what’s to come.
“A drill will be held to increase troop morale, practise and prepare for the security of celebrations, [and] maintain national political security and social stability,” according to police.
In live videos of the police drills shown on the Yizhibo network, officers in body armour, helmets and shields confronted groups of people in black shirts and red or yellow construction safety helmets – similar to those worn by Hong Kong protesters – who were holding flags, banners, batons and wooden boards. –SCMP
Police on Monday fired over 800 rounds of tear gas, 140 rubber bullets and 20 sponge rounds (according to official figures), while 148 people were arrested between the ages of 13 and 63.
Monday represented a significant escalation of violence. Until then, police had fired 1,000 rounds of tear gas, 150 of sponge grenades and 160 rounds of rubber bullets in two months of protests. –SCMP
Hong Kong authorities, meanwhile, have refused to meet any of the protesters’ demands – after what began as a protest against an extradition bill – and has expanded into a general anti-government protest.
Beijing has accused foreign actors – including the United States – of “meddling” in Hong Kong in order to destabilize Chinese rule over the region. Also blamed? Poor family values and education for encouraging degeneracy among the youth, while “stressing that better national education was needed to promote patriotism,” according to the report.
The ominous words came as official state media circulated a video of mainland Chinese police engaging in anti-riot drills in Shenzhen, a city just across the border from Hong Kong, shooting tear gas and charging at protesters dressed in black in scenes that resemble the current clashes.
On Monday, Hong Kong was paralysed with more than 200 flights cancelled, widespread disruption to subway services, and tumult on the roads as protesters cut electricity to traffic lights and flooded main avenues. –Telegraph
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One week after a series of rather disappointing auctions, the US treasury has launched the week’s refunding sales, starting with today’s sale of $38 billion in 3Y notes, which moments ago stopped at a high yield of 1.562%, stropping 0.1bps through when issued 1.563%, and the lowest yield for the tenor since September 2017. This was the third consecutive 3Y auction that has stopped through the When Issued, a sign that investors still have substantial appetite for the short-end.
There was less enthusiasm if one looks at the bid to cover, which despite rebounding from last month’s 2.39, was still the second lowest since March 2009.
Finally, the internals were generally in line, with foreign buyers, or indirects awarded 46.7% of the auction, right on top of the 6 auction average; Directs saw a modest increase to 19.3% from 17.9% a month ago, and above the 16.3% average, while dealers ended up with 34% of the auction, unchanged from last month and just below the recent average.
Overall, a solid auction and one which sets up nicely for tomorrow’s sale of benchmark, 10Y paper.
via ZeroHedge News https://ift.tt/2Kk04Jl Tyler Durden
When they write the history of this crash at least there will not be any doubt about who to pin the blame on! Trade war. Great idea.
Stocks take a spanking! Bond yields tumble! High yield bonds offered only! China stops buying US agriproducts. Renminbi breaks 7. Trump calls China a “Currency Manipulator”! China responds with a FROAD! The global bull market stops. Suddenly. Crash, bang, wallop…
So much for Fed Juicing the markets and pandering to Trump by stopping Quantitative Tightening with last week’s minor rate ease. Utterly pointless. Global Markets now pay the consequences. Market is focused on the real stuff again – the implications on growth of a serious trade war between the US and China. Currency moves are at the forefront – China lets Rmb slip and then shows it can restrain it. This is way past a simple business cycle move – this is about fundamentals. China is serious and is not going to cave. What just moved the markets was real stuff – and you don’t need to be a genius to figure out Trump’s Trade War is not great news.
It probably doesn’t help Larry Summers tweeting: “We may well be at the most dangerous financial moment since the 2009 Financial Crisis with current developments between the US and China.” A No-Sh*T Sherlock award for stating the downright obvious is on its way to him. (But 2009? Where were you in 2008 Larry?)
Does this market have further to correct? Markets are lower – when to start buying again? Steady – lets figure out the reality:
We’ve got a politically inspired global trade war that isn’t going to end any time soon – which is likely to trigger global recession and slower growth – but also opportunities. Wars usually do.
Strong dollar is horrible news for EM. Competitive weakening by others will go nowhere.
Real economy – such as it still exists, is pretty much at top of cycle – witness earnings and full employment.
We’ve got massive financial bubbles – caused largely by artificially low interest rates and QE – in financial assets: global stocks and bonds – likely to see correction, and investors trying to exit illiquid bond markets – feels very 2008/2009 where illiquidity was major crisis.
We’ve got central banks out of policy options – so we’re likely to see them do the same as they done before, the danger being they fuel asset bubbles further.
We’ve now got over $14.5 trillion of global bonds yielding less than 0%.
The reality is pulling money from overvalued stocks to invest in overvalued bonds doesn’t look a very attractive option – even though it might be the loss limiting one.
Put all the market factors together, and the outlook for financial assets looks poor. But so much money is tied up in inflated stocks, I suspect it’s a correction rather than a crash. Where else can you go? Sell stocks to buy zero yield government bonds? That’s a choice… ?
I suspect the credit market takes a spanking – and an outbreak of illiquidity across bond markets. I’d keep any eye on fixed income ETFs – everyone says they are safe.. Yeah.. sure they are. Watch carefully…
The upside is wobbly markets spell massive opportunity to buy performing assets on the cheap. I’m looking for sellers of illiquid bonds and private assets. There are going to bids out there – just not bids sellers are going to like.
Blain’s Brexit Watch
Even as the global economy trips and tumbles, back here in Blighty, its same-as, same-as. Sterling gets a bit of a respite from the fact the rest of the world now looks as daft as the UK! Whoopee! B ut it won’t last long.
Jeremy Corbyn is vaguely suggesting a no-confidence vote in September. Gosh! How original? With Boris holding a majority of one, how long did Jeremey take to come up with that not-so-cunning plan? Boris’ chief strategist and headsman Dominic Cummings is quite clear in his strategy – doesn’t matter if Boris loses a no-confidence vote, it will be too late to avoid the Oct 31st deadline.
Facing out a confidence vote is Boris’ apparent strategy, but we’d prefer something a little more positive. The longer Boris can hang on without the distractions of a hostile parliament, the longer it gives him to reach a new agreement with Europe. But there aren’t many signs or signals of any meaningful discussions with Brussels (which is exactly why I suspect they might be happening?).
I suspect the odds of No-Deal on Oct 31st are shortening. Even if Boris does get Europe to agree an acceptable solution to the BackStop, his wafer-thin majority means he has a slim chance of getting it approved pre-Oct 31 in Parliament. Boris is betting he can win an election, but only after Brexit. If the plan is to deliver, as he promises, it’s difficult to see any alternative to No-Deal.
So stay short of sterling and… er, that’s the best I can suggest.
In many ways I prefer Trade Wars to Brexit.
via ZeroHedge News https://ift.tt/2KA2zpI Tyler Durden
After yesterday’s unprecedented revocation of an over 50-year old constitutional article which gave Indian-administered Kashmir special autonomous status, Pakistan’s army has shot back in provocative statements saying it will “go to any extent” to support Kashmiris amid an Indian military crackdown. “Pakistan Army firmly stands by the Kashmiris in their just struggle to the very end,” said General Qamar Javed Bajwa after meeting with top commanders over the crisis.
“We are prepared and shall go to any extent to fulfill our obligations in this regard,” he added, without specifying what form this might take. At the same time Pakistan’s foreign minister informed the United Nations it is prepared to act in response to the “critical situation”.
Indian soldiers recently patroling the Jammu-Srinigar National Highway, via the AFP.
The now voided Article 370 is legally and historically what assured a high degree autonomy for the Indian administered Muslim-majority state, enshrined in the constitution, which inhabitants there see as justifying remaining part of India. The Hindu nationalist Bharatiya Janata leadership in New Delhi, led by Prime Minister Narendra Modi, revoked the Jammu and Kashmir’s (J&K) status quo ability and rights to maintain their own local governance on Monday.
We noted this could put India and Pakistan on a direct collision course for war, following reports of weekend shelling in the contested region by Indian forces — indeed CNN has reported Indian-controlled Kashmir is on “lockdown” with phone lines and internet cut, as tens of thousands of Indian troops have been freshly deployed, and with key prominent local politicians under house arrest.
Videos out of Jammu posted to social media showed uniformed Indian soldiers filing through the streets in densely populated towns immediately following the revocation of Jammu and Kashmir’s special status.
A broad communications blackout is still in place, with a security crackdown likely to escalate, as Indian forces claim to continue operations aimed at rooting out Islamic militants.
Meanwhile, in stunning new statements, Pakistan’s Prime Minister Imran Khan predicted new suicide bombings will target Indian troops in the region, per The Telegraph:
As Pakistan’s parliament met to discuss the move, Mr Khan predicted there would be more terrorist attacks in Kashmir like the blast which killed 40 paramilitary police in Pulwama in February. India blamed that attack on Pakistan and the two sides came close to war.
“With an approach of this nature, incidents like Pulwama are bound to happen again. I can already predict this will happen,” Mr Khan said.
The Pulwama attack is what precipitated a series of events which led to Pakistan shooting down an Indian Air Force jet, briefly holding its downed pilot in detention. Thus Khan’s words represent a huge provocation likely to be met with fierce reaction from New Delhi.
Khan is also reported to have told Pakistan’s parliament in his address Tuesday that there’s “risk of genocide” as India’s army initiates its clamp down.
India has deployed thousands of troops to the Kashmir region, also asking tourists in the area to leave along with restricting internet as wellpic.twitter.com/wflV9ifWF7
A huge build-up of forces precipitated Monday’s revocation of Article 370, possibly in the tens of thousands.
Doval plan in Indian Occupied #kashmir: 280 companies of security forces are being deployed in the Kashmir valley. Sudden deployment of 28,000 extra troops is a clear sign oppression by force
All major entry and exit points of Srinagar have been taken over by Occupation Forces pic.twitter.com/X9u7dNAqNP
Also on Tuesday one of Pakistan’s foremost radical clerics, Maulana Abdul Aziz, former imam of the notorious Red Mosque in Islamabad, called for popular jihad in response to the Kashmir crisis.
“Jihad is now obligatory for Muslims in Pakistan because our Kashmiri sisters are waiting for our help,” Abdul Aziz said.
He said if Pakistan’s army isn’t willing, then authorities should open the border for militants to assist in the Kashmiri Muslim struggle.
via ZeroHedge News https://ift.tt/2MGZMxL Tyler Durden
Three major opioid distributors have offered to pay $10 billion to settle claims that the helped fuel the ongoing US opioid epidemic, as nearly 2,000 lawsuits loom against the drug giants, according to Bloomberg.
McKesson Corp, Cardinal Health Inc. and Amerisource Bergen Corp – which account for the majority of prescriptions supplied to pharmacies – made the verbal proposal while negotiating with a group of state attorneys general, according to three people familiar with the offer who aren’t authorized to speak publicly on the matter.
The proposal marks the first time in two years of discussions that the three distributors have put an actual dollar figure on a resolution.
Responding to the offer, the National Association of Attorneys General countered with a demand for $45 billion paid over decades to cover the costs of the public health crisis brought on by opioid abuse, addiction and overdoses.
Whether the distributors and attorneys general can agree to a deal remains uncertain. But reaching a compromise may not be the toughest hurdle. The distributors face almost 2,000 additional lawsuits brought by cities and counties across the U.S., with a separate group of lawyers leading the litigation. Getting them to sign on to any deal could prove challenging.
McKesson spokeswoman Kristin Hunter Chasen said in an emailed statement, “We regularly engage with the state attorneys general, but the company has made no settlement offers.”
The people familiar with the matter reiterated the companies — including McKesson — have made an opening proffer of a settlement price. Chasen declined to elaborate on McKesson’s discussions to resolve the litigation.
Spokeswomen for AmerisourceBergen and Cardinal Health declined to comment on the discussions or on what one company said was “speculation.” –Bloomberg
In July, UK-based drugmaker Reckitt Benckiser Group (RB Group) paid the US government a record $1.4 billion to end criminal and civil probes into allegations of illegal marketing of opioid addiction treatment medication, according to the US Justice Department.
According to Nephron Research analysts, a global settlement covering all opioid manufacturers could cost between $30 billion and $55 billion, while Wells Fargo analyst David Morris says it could reach $100 billion.
The ongoing lawsuits revolve around the claim that drugmakers – including Johnson & Johnson and Purdue Pharma LP – downplayed the risks of highly-addictive opioids, while overselling their benefits via ‘hyper-aggressive marketing campaigns,’ according to Bloomberg. Distributors, meanwhile, are accused of ignoring rampant painkiller abuse while illegally flooding states with pills.
One pharmacy in Kermit, West Virginia — population 400 — received almost 5 million doses from McKesson between 2005 and 2006, records show. About 30 miles from Kermit, the company shipped more than 5.8 million to a pharmacy in Mount Gay — population 1,800 — between 2006 and 2014. Another 2.3 million went to a pharmacy three miles away.
McKesson, Cardinal Health and AmerisourceBergen, along with other distributors, shipped a total of 76 billion pain pills over a six-year period starting in 2006, according to the U.S. Drug Enforcement Agency. The companies deny the governments’ allegations and have advanced dozens of legal and factual defenses, saying they complied with all state and federal laws. –Bloomberg
On Tuesday, lawyers from all sides will appear in federal court in Cleveland, Ohio, where many of the opioid lawsuits have been consolidated by US District Judge Dan Polster. The first trial was set to start Oct. 21, however the defendant companies have requested a dealy on the grounds that they need more time to prepare for “one of the most complicated trials in legal history.”
In an indication of how complicated settlement talks will be, local governments are pressing to set up their own negotiating class to represent more than 24,000 cities and counties to work a separate deal with the pharmaceutical industry. Many state attorneys general oppose the bid by cities and counties, an issue likely to come up at Tuesday’s hearing. –Bloomberg
“Fifty state attorney generals are better representatives of the people of their state,” said Ohio Attorney General Dave A. Yost in a July 23 letter to Judge Polster, adding that private attorneys hired by local governments would profit handsomely from any settlement.
That said, there may be issues with an omnibus settlement, according to University of Georgia law professor Elizabeth Burch.
“So it’s hard to see how this deal would fly given it can’t be crammed down on all the cities and counties,” she said, adding “The companies want closure. They don’t want to have to do two settlements.”
In order to overcome this obstacle, the state attorneys general are looking to structure a deal with the distributors which offers incentives for cities and counties which agree to the terms, according to Bloomberg‘s sources. Those who join early will likely reap a greater share of the settlement.
University of Richmond law professor Carl Tobias also thinks it’s going to be a tough nut to crack.
“It just may not make sense for the cities and counties to join this from a financial standpoint because they may be able to get more” through the cases they brought.
The cities and counties are worried any state deal would get used for general state expenses rather than local needs. They point to the $246 billion settlement in 1998 with tobacco companies in which few funds made their way to municipalities.
There already have been some state settlements.
In May, West Virginia agreed to accept $37 million from McKesson to resolve a suit brought by that state’s attorney general alleging it improperly distributed opioids there. West Virginia has the highest rate of drug-overdose deaths in the U.S.
Oklahoma, which sued drug makers rather than distributors, agreed in March to a $270 million payment from Purdue and then two months later accepted an $85 million accord with Teva Pharmaceutical Industries Ltd. A judge will rule later this month on Oklahoma’s claim J&J should pay as much as $17.5 billion for its role as the opioid crisis’ “kingpin.” The state plans to use the money for treatment of opioid addiction and research into the problem. –Bloomberg
Last week, in the aftermath of the Fed’s “mid-cycle” rate cut which sparked a tantrum in the market demanding the start of an easing cycle (which Trump appeared to deliver when he announced an escalation in the trade war with China which resulted in a devaluation in the yuan below 7.00 just days later), Nomura’s quant team cautioned that as a result of surging economic uncertainty, it anticipated the loss of the “buying support it has been getting from macro-oriented funds and longer-term investors” and the result would be systematic selling pressure which “could gain the upper hand for a while.”
This, as Charlie McElligott detailed, is precisely what happened on Monday when the S&P dipped below key CTA selling thresholds, as we discussed yesterday in “Here Comes The “Extreme Negative Gamma” Selling Avalanche” which materialized almost instantly, sending the S&P on its biggest daily drop of 2019:
Another reason why Nomura’s quants were worried was simpler: the calendar, i.e., August is a month where liquidity is especially thin as traders are on vacation, and the result tends to be a “volatility shock.”
And most remarakble was Nomura short-term forecast, according to which the Japanese bank saw “the S&P 500 being taken down into the 2,850-2,900 range.”
Just a few days later that’s precisely what happened.
But while Nomura should be commended for correctly predicting the dramatic market plunge that followed Thursday’s chaos, even if it did not necessarily anticipate the catalysts that caused it, what is more concerning is what Nomura sees happening next, namely that the “arrival of first volatility spike sets up the possibility of another one in late August or early September.“
As Nomura’s Masanari Takada recaps recent events, “equity markets in the US and worldwide were hit with a massive selloff yesterday. As market participants with a focus on fundamentals would have it, a somewhat hawkish FOMC meeting outcome dashed expectations for another exercise of the “Fed put”, and the US’s invocation of a fourth round of tariffs on Chinese goods added to fears of an intensifying battle between the US and China on the twin fronts of trade and currency policy.”
So far so good. What is not is the punchline, namely that Nomura has been expecting the “vol-up” scenario to arrive in two waves, and yesterday’s developments confirmed that the first wave had arrived.
To be sure, there was nothing shocking about this: as Nomura’s own forecast last week indicated, and going by an analysis of speculative traders’ methods and the available quantitative data on various market anomalies, Takada notes that the present selloff looks like a mostly predictable affair that has unfolded just as one might expect: yesterday’s selloff met the criteria for a “vol-up” scenario in that as of the 5 August market close,
the VIX had broken above 20,
the VIX futures term structure had gone into backwardation (between UX1 and UX2), and
the VVIX had broken above 100.
In attempting to pinpoint what supply-demand factors set the stage for the arrival of the first wave of higher volatility, Nomura highlights that hedge funds, after building up bullish positions in equities starting in mid-June and throughout July, have had their positions suddenly and seriously undermined.
As McElligott hinted yesterday when he slammed being short gamma in an environment such as this, the quintessential examples of such positions are:
trend-following strategies targeting the topside for US equities; and
bets on continued low volatility including short gamma strategies (like the selling of S&P 500 puts) and short positions in VIX futures.
Meanwhile, as we warned last weekend, speculative traders had piled into these positions in lockstep to the point of herding,so their moves to buy back puts (thereby pushing up implied volatility) and sell futures (whether to unwind positions or to hedge other positions) set off a chain reaction of selling in the stock market. The data show that hedge funds had in fact started reducing their net exposure to US equities (estimated 30-day rolling beta) on 1 August.
The risk-off mood also gained momentum, with Nomura’s proprietary gauge of US stock market sentiment registering a more negative reading (indicative of risk avoidance) than at any time since January 2019. Speculative traders of all stripes sold off US equities so as to reduce their net exposure. From the other direction, some global macro hedge funds and ultra-short-term traders hoping to partake in a near-term spontaneous rebound may well step in to buy stocks in a hunt for bargains. Nevertheless, Nomura thinks conditions on balance are such that among speculative traders, trend-following algos are especially likely to continue looking for opportunities to close out long positions. This is particularly true of CTAs, which may well exit the entirety of their existing net long positions in S&P 500 futures and NASDAQ 100 futures so as to make their positioning market-neutral, even without an assumption that a US economic recession is imminent.
What happens next?
In laying out the sequence of events, the Nomura quants predict that once the first wave of volatility has passed, global equity markets are likely to experience a spontaneous rebound. Contributing factors to such a relief rally could include expectations for a substantial rate cut by the Fed at the September FOMC meeting and stock purchases made by short-term contrarian investors.
However, for three specific reasons, Nomura expects any near-term rally to be no more than a head fake, and thinks that any such rally would be best treated as an opportunity to sell in preparation for the second wave of volatility that the bank expects will arrive in late August or early September. Worse, Takada warns that “the second wave may well hit harder than the first, like an aftershock that eclipses the initial earthquake. At this point, we think it would be a mistake to dismiss the possibility of a Lehman-like shock as a mere tail risk.”
The bank then lists the three reasons:
1. The first reason for expecting any near-term rally to be short-lived is the seasonal pattern in US stock market volatility. The VVIX index (which measures the volatility of the VIX index, itself a measure of volatility) tends to spike twice in August, once in the first half of the month and once in the latter half. Whether these spikes occur in a given year depends to a large extent on whatever imbalances in supply-demand have built up in the market just ahead of the event, but the risk of a vol-up scenario in August does tend to materialize in years like this one, with speculative traders having staked out rather hefty bullish positions in equities through the end of July.
2. The second reason we cite is the positioning of trend-following algo traders in equity markets. Like hedge funds, trend-following algos including CTAs and risk-parity funds have been sucked into the aforementioned chain-reaction selloff. Even so, CTAs’ net long position in S&P 500 futures is still only about 45% smaller than it was at its most recent peak on 16 July. With much of the unwinding still left undone, we think CTAs are likely to continue selling futures for loss-cutting purposes. Meanwhile, we estimate that heightened stock market volatility will leave risk-parity funds having to dispose of another USD 15-20 billion worth of DM country equities in order to rebalance their portfolios. On this point, we need to emphasize that rebalancing trades by risk-parity funds tend to be clustered at the end of each month.
3. Third, global stock market sentiment is collapsing in an irregular way. Nomura reads the current trend in sentiment as suggestive of both deterioration in supply-demand for equities and a sharp downward break in fundamentals. Above all, the pattern in US stock market sentiment has come to even more closely resemble the picture of sentiment on the eve of the 2008 Lehman Brothers collapse that marked the onset of the global financial crisis.
Of course, Nomura caveats that the resemblance could “turn out to be merely superficial” however, Takada also warns that “it could also be that the market’s repeated pendulum swings between optimism and pessimism over how the US-China standoff might end have a meaningful historical parallel in the market’s long-ago mood swings over how the subprime mortgage crisis might play out.”
Therefore the quant thinks that even if US stock market sentiment were to start picking up, it may well collapse again in late August or early September. His conclusion: “we accordingly see a non-negligible threat of tail risks materializing in a way that shocks the market into panic selling.”
via ZeroHedge News https://ift.tt/2Zzff6M Tyler Durden
