Tag: news

17 months after Ackman finally capitulated on his famous Herbalife short, and 6 years after the legendary brawl between Ackman and Icahn over the fate of Herbalife, it now appears that Ackman may have been right after all, even if his timing was off.

Moments ago, Herbalife stock crashed over 12%, its biggest drop since March, and was halted after federal prosecutors in New York brought criminal charges against the health supplement maker. 

In sympathy peer companies Nuskin and Usana, both tumbled on the Herbalife news.

According to Bloomberg, prosecutors unsealed an indictment Friday in federal court in Manhattan. Details of the charges were not immediately available.

More as we get it.

Authored by Jeffrey Snider via Alhambara Investments,

After thinking about it all day, I’m still not quite sure this isn’t a joke; a high-brow commitment of utterly brilliant performance art, the kind of Four-D masterpiece of hilarious deception that Andy Kaufman would’ve gone nuts over. I mean, it has to be, right?

I’m talking, of course, about Jackson Hole and Jay Powell’s reportedly genius masterstroke.

There’s a lot that needs to be said about it, and I’ve already written countless times about the puppet show – including specifically symmetry. That’s really all the Chairman said today in Wyoming, the same thing that had been added to the monetary policy statement, and therefore their guiding mandates, all the way back in early May 2018.

A long run average inflation target is no different than the medium-term inflation symmetry which first appeared in the official language at a pretty momentous time in recent history.

Within six weeks, not even two f-ing months, of making a big deal out of symmetry, by mid-June 2018 the eurodollar futures curve had inverted and rather than the economy sailing off into the inflationary acceleration symmetry was invented to invite, more and more markets and data revealed how the economy had already transitioned into the opening stages of globally synchronized downturn.

Four months after symmetry’s introduction, the landmine hit and it was quietly forgotten. They can make promises whatever they like, policymakers never deliver the smallest bit on any of them.

And that’s why it necessitates these kinds of grand strategy reviews; successful policy doesn’t need any.

The economy today in 2020 faces even greater challenges and we’re supposed to believe that, OK, now they’re going to be serious. In one respect, it’s a simple clash between jobless claims and Jay Powell’s mouth; or what specific words tumble out of it. Symmetry. Average inflation target. QE-cloud (that’s where central banks ditch all current pretense and simply start buying up the clouds passing over them in the sky, because at least that form of QE would be the first honest one).

As I’ve written here, there’s even more to write about this utter stupidity and I’ve put together a good deal of it already today for publication tomorrow. Out of Jackson Hole, the puppet show nature of this ridiculous fantasy could not be more obvious. Here’s part of what I described in that regard:

The big story this week is the gross unrest in Wisconsin, the still-hot burning cinders of a substantial bit of Kenosha. A few states further west, over in Jackson Hole, the central bankers are gathered once again for their latest annual conclave whereby they console one another into believing, yes, by God, QE 25 and the nineteenth year of ZIRP will do the trick!

…It began in November 2018 with Powell’s announcement of this grand review. That was followed by fifteen (15!) Fed Listens events “to engage with employee groups and union members, small business owners, residents of low- and moderate-income communities, retirees, and others to hear a wide range of perspectives about how monetary policy decisions affect their communities.” They care, dammit!

That was followed in June 2019, right when rate hikes were “unexpectedly” becoming rate cuts, though that’s not mentioned, by a Conference (with a capital “C”) featuring a dizzying array of research papers from the most studious mainstream scholars, a line up of the most impressive speakers each displaying ever more impressive mainstream credentials.

And if those weren’t enough, the following month, July 2019, the FOMC arranged five (5!) individual working groups each consisting of teams of the brightest mainstream analytical staff toiling over reams of analytical data in order to supply the Committee with every bit of information humanly possible to reach so that when policymakers put together their new monetary policy framework based first upon Fed Listens and conference papers the finished product would be in the most unassailable (looking) fashion.

It’s perfectly evident that they are really putting in the time and effort to show you how much time and effort they have put into this. Policymakers really want you to buy in to this fairy tale, which isn’t even a different story. I mean, look at that major, impressive stuff behind what that’s gone into…the same failed policy they created two years and almost four months ago.

Forget all that, just look at those 15 community events, one huge conference with innumerable papers written up by all the right academics, and then 5 teams of working groups on top of everything else! How can you not be impressed? Results, bah.

Monetary policy in this day and age is a ridiculous sales job, not the purview of an actual central banker working at an actual central bank. The policy itself no longer matters; the packaging it comes in does.

If you aren’t distracted by the shiny wrapping, you realize what Powell’s saying is that after failing to hit the inflation target for over a decade he’s now going to let inflation run over the target none of them could hit because for more than a decade no one could hit their own target. But fifteen community events!

And it’s not about the target, either, not really. It’s what failing to meet it has represented for the realness in the real economy (above). Not the unemployment rate version; no, the inflation and bond “conundrum” of the 2010’s was always how the lack of inflation confirmed the lack of full recovery and therefore the destructive long run absence of actual growth.

Believe it or not, that’s a good part of what this current “grand strategy” reassessment finally, finally admits. Not only is the absence of recovery implicit in this symmetry and average inflation targeting nonsense (they need to average out because they’d failed for so long), the strategy document also spells out the most important part of it all; what Keynes said about deflation and the labor market. I’ve highlighted it below (link to the original).

It used to be that monetary policy was guided in its dual mandate (inflation and employment) by “deviations of unemployment from the Committee’s assessments of its maximum level.” As you’ll notice, that part was stricken and, in its place, “shortfalls of employment” from the estimated maximum level was entered.

What used to be in the framework was deviations, plural; which included the idea that employment could be “too much”, therefore requiring the Fed to raise rates (and other “tightening” hocus pocus) to cool off an overheated labor market. This would be a nonconformity from the maximum in the good direction, which, according to the Phillips Curve, can be inflationary.

Now, there’s only the possibility of a “shortfall”, a single, specific kind of deviation.

Why? Two words: unemployment rate.

According to it over the last several years, going back to 2015, believe it or not, back when this main labor market ratio first tumbled underneath what had been calculated as “full employment”, the unemployment rate has totally confounded monetary policymakers. At every turn, year after year, they judged its decline as consistent with the deviation from the maximum I just described above; the good deviation, the inflationary kind.

Yet, never once an inflationary burst nor the more important acceleration in growth we call a recovery. Because those things didn’t happen, the unemployment rate could only have been false. Yet, denial always persisted if for no other reason than CYA and convenience.

It sure seems like, and it is heavily implied (because they’ll never just come out and state this) here, these charlatans have finally acknowledged how they’ve been misleading themselves, and you, for more than a decade about the real state of the labor market therefore the overall economy.

And this has implications in raw monetary policy terms, too, as we’re seeing right here; the very idea of “maximum level”, what we call potential and full employment. Also implicit in this new monetary policy framework is that, as I’ve shown for years, the economy must never have recovered from the Great “Recession” at any point; it’s been lagging every expectation for growth from the very beginning and that didn’t change in 2017, 2018, and certainly not since

In short, there could only have been a continuous shortfall!

What Economists had done to delude themselves into believing that wasn’t the case is that they recalculated downward their idea of potential (including the R* version) to be more consistent with the unemployment rate; they literally fitted potential to it.

But the more it deviated, the more it contradicted itself and this view the more it created problems – until in 2019 the 50-year low unemployment rate had shattered every idea about full employment being real.

The CBO, like other mainstream models, actually had to push up calculations of potential to then “fit” the unemployment rate into it as it went lower, meaning they had to likewise admit there must’ve remained, there only could have been, still substantial slack in the economy; what I called the smoking gun which is now embedded within the Federal Reserve’s most sacred document.

That’s why there’s now only “shortfall” deviation because the unemployment rate has been downgraded even to the Fed – unless it can be corroborated by something else, something inflationary (the same sort of deviation in the other mandate that they left in the document), it means squat.

Yeah, for the average person on Main Street this would’ve been highly useful to know sometime before today. After banging the drum for the unemployment rate view for years, and costing the world untold damages by doing so, all of a sudden they now want some proof; and rather than contrition, a public confession, this gets buried in heavily jargon-ed, unnecessarily complex policy statements.

Cowards, every single one. Destructive malfeasance. I truly wish this had been a joke.

As I write in that other column, these are not serious people and that is why I keep calling for them to be replaced. The zero lower bound was never a trap for the economy, it was always one for central bankers alone – because they have no idea what they are doing, and now, with symmetry being rerun from 2018 and one-sided deviations put into the strategy language, it’s obvious they don’t even have any ideas.

After preliminary UMich data for August showed a disappointing drop in sentiment, ‘hopes’ remained among analysts that the late-end of the month (and the ever rising stock market) might have improved things to further improvement, and it did.

• The headline sentiment’s 72.8 flash print was replaced with a 74.1 – a modest rise MoM

• Current Conditions rose from the 82.4 flash to 82.9 final – flat MoM

• But ‘hope’ – Expectations – rose from 66.0 flash to 68.5 final – a decent jump MoM

Source: Bloomberg

Sentiment for the wealthiest fell…

Source: Bloomberg

Buying Conditions barely budged…

Source: Bloomberg

Even Democrats saw sentiment improve modestly…

Source: Bloomberg

As UMich explains, the pandemic has created distinctive consumer reactions to the economy:

Since the shutdown of the economy was due to health not economic reasons, a sizable number of consumers thought conditions could hardly get any worse. The natural response was that economic conditions would improve given the absence of any negative economic causes. For example, while nine-in-ten consumers viewed the current state of the economy negatively in August, half of all consumers anticipated the economy would improve in the year ahead. However, although an improved economy was anticipated, when asked to judge the state of the overall economy, 62% still thought that conditions in the economy would remain unfavorable.

On the inflation front, both measures increased:

• Expected change in median prices during the next year rose to 3.1% vs. 3.0% last month.

• Expected change in median prices during the next 5-10 years rose to 2.7% vs. 2.6% last month.

Still, not exactly a “V-Shaped” recovery in sentiment (and remember the Conference Board sentiment crashed).

While August’s Chicago PMI remains in ‘expansion’ at 51.2 (above 50), it was below expectations and below July’s resurgent V-shaped recovery hope…

Source: Bloomberg

Under the hood, it’s a mixed picture:

• Prices paid rose at a slower pace; signaling expansion

• New orders rose at a faster pace; signaling expansion

• Employment fell at a slower pace; signaling contraction

• Inventories fell at a faster pace; signaling contraction

• Supplier deliveries rose at a faster pace; signaling expansion

• Production rose at a faster pace; signaling expansion

• Order backlogs fell at a faster pace; signaling contraction

A temporary blip? Or reflective of the end of the handouts?

Though American and its European allies are quite used to by now Russian drills occurring in places like the Black and Baltic Seas, and even in the Eastern Mediterranean off Syria’s coast, on Thursday into Friday the Russian navy conducted military games near Alaska, in a first such instance since the Soviet Union.

The military games took place in the Bering Sea and surprisingly involved over 50 warships and some 40 aircraft. The significant size given the location will surely be seen as a provocation by Washington, in a region which over the past year has seen multiple NORAD jets scrambled to intercept Russian long-range bombers coming too near Alaska’s coast.

“We are holding such massive drills there for the first time ever,” Russia’s navy chief, Adm. Nikolai Yevmenov said in an official statement.

The AP reports that the timeline of the exercises remains unclear, and they could be ongoing possibly through the weekend. It’s broadly part of a Russian military initiative to better secure the Arctic region and to “protect its resources,” as the AP notes.

The HQ of @NORADCommand and @USNorthernCmd are closely monitoring the Russian submarine that surfaced near Alaska today. We closely track vessels of interest, including foreign military naval vessels, in our area of responsibility.

— U.S. Northern Command (@USNorthernCmd) August 27, 2020

“We are building up our forces to ensure the economic development of the region,” the Ministry of Defense statement said. “We are getting used to the Arctic spaces.”

Interestingly and certainly provocatively both the Omsk nuclear submarine and the Varyag missile cruiser took part in the games, reportedly launching cruise missiles at targets as part of the exercises. 

A Russian submarine surfaced near Alaska on Thursday during a Russian war game exercise, U.S. military officials said. https://t.co/AoimcCdu5f

— Stars and Stripes (@starsandstripes) August 28, 2020

NORAD says it’s closely monitoring as is the US Coast Guard, the latter which was actually tipped off by US fishing vessels which were stunned to apparently observe military activity.

The Moscow Times also confirms that area fishing vessels actually witnessed a Russian nuclear submarine surfacing – something highly unusual:

A Russian nuclear submarine has surfaced near Alaska during navy exercises, spooking American commercial fishing vessels in the area, the U.S. military said early Friday.

Russia’s Defense Ministry announced Thursday that its nuclear-powered cruise missile submarine Omsk and missile cruiser Varyag fired at targets in the Bering Sea as part of its “Ocean Shield 2020” drills. Alaskan media reported that local pollock fishermen had a close encounter with the Russian vessels.

The ultra-rare event of the Omsk nuclear sub surfacing is something that even NATO intelligence is not often able to observe and document.

“We were notified by multiple fishing vessels that were operating out the Bering Sea that they had come across these vessels and were concerned,” a US Coast Guard statement said Thursday.

Via LogicaFunds.com,

“Ce qu’il y a de certain c’est que moi, je ne suis pas Marxiste.”

(“What is certain is that I myself am not a Marxist.”)

– Karl Marx, 1882

Summary:

The bullish narrative of aggressive retail call buying driving markets higher conceals an important market dynamic of decreasing liquidity and an increasing mismatch between buyers and sellers as option volatility selling strategies, like call overwriting, retreat in the aftermath of poor performance.  These dynamics drive a scenario of increased fragility that raises prospects for extreme moves in both directions.

This is going to be short, but sweet. 

Over the past few weeks, media chatter has been steadily increasing with breathless comparisons to the DotCom bubble as many of the momentum favorites have churned higher and higher, and alongside their relentless rise, a consistent rise in the pricing of their Out Of The Money (OTM) call options.

  For starters, it is important to emphasize that this is a single stock rather than an index phenomenon.  As a simple example, Apple (AAPL) 25 delta – 50 delta front month call option implied volatility skew has risen to decade highs while the S&P’s is hanging out in normal territory.

Concurrently, a chart has been making the rounds highlighting explosive call option volumes.  While this is true, what is not represented is that just a few months ago we experienced record high put volumes.  This market has truly been an equal opportunity offender in just the span of a few months.  Given the extraordinary moves we have seen in stocks like AAPL, the obvious question becomes “Are we seeing a replay of DotCom mania?”  Well, “yes, but…”

If we utilize a longer time frame to compare the current exuberance for calls to the heady DotCom era, we come nowhere close.  The current fraction of option volume for calls, at 62%, remains below the average of 65% for the entire period from Greenspan’s “Irrational Exuberance” speech to the crashing of the Nasdaq on March 23, 2000.  What does appear unusual is the near record share of puts as a fraction of option volumes (53.7%) on March 23, 2020 (the day before the recent trough in equity prices and almost exactly 20 years to the day from the record low reached in the DotCom cycle when only 29% of option volume went to puts). 

The unfortunate answer appears to be that the behavior we are seeing is not tied to massive speculation in calls, but rather a predictable dynamic driven by increased dealer hedging costs given an in increasingly illiquid market.  

This is the source of the subtitle of this piece – the well-known disclaimer by Marx that if he were to listen to the Marxist rants of his followers, he would not consider himself to be a Marxist.  At the core of the error in Marxism is the belief in the Labor Theory of Value; that cost determines price.  This is only true in a monopolistic environment, which could only happen if option market making were becoming increasingly dominated by a few large players.  We have seen no evidence of this.  (Narrator: there is evidence for this)

Summary:

• Russia cases top 980k
• Merkel warns Germans outbreak will get worse
• India suffers biggest jump in new cases
• Indonesia suffers 2nd straight record jump
• Japan announces plan to stockpile vaccine as Abe resigns
• South Korea extends social distancing restrictions
• China reports 9 new imported cases, 12th day with no domestic infections

* * *

As we reported last night, the US surpassed 180,000 coronavirus-related deaths last night, by far the largest death toll in the world. Only one other country – Brazil – has a death toll in the six-figure territory. But on Friday morning, Russia’s coronavirus cases surpassed 980,000 after the country reported 4,829 new cases over the past day, cementing its status as the fourth-largest outbreak in the world. 

Russia’s coronavirus taskforce added 110 deaths to the official death toll, bringing its total to 16,914, a total that some experts claim has been deliberately suppressed by the government.

Circling back to the US, the country has added 931 new coronavirus deaths in the past 24 hours, bringing the country’s total death toll to 180,527, along with an additional 42,859 new confirmed cases, bringing its overall caseload to 5,860,397.

In Japan, the big news overnight was that PM Shinzo Abe announced his plans to resign as soon as his party, the Liberal Democrats, elects a new leader. Abe leaves Japan with a parting gift: an initiative to stockpile vaccine doses ahead of next summer’s Olympics. Japan is aiming to secure COVID-19 vaccinations for all citizens by the first half of 2021, said Prime Minister Shinzo Abe, who announced the measures to beef up Japan’s vaccine stockpiles ahead of the upcoming flu season, even as he heads for the exits.

In other vaccine, Moderna shared some more procedural news about its clinical trials, while the European Commission said it had signed a contract with British drugmaker AstraZeneca, which is working with Oxford on a vaccine candidate, for the supply of at least 300 million doses of its as-yet-unproven vaccine. It is the first contract signed by the EU with a vaccine maker, and follows the US, UK and Japan in the race to secure supplies of a vaccine.

India reported yet another single-day record jump of 77,266 cases, pushing the country’s total to 3.39 million with the death toll rising to 61,529, up 1,057 since Thursday morning. With the COVID situation still pretty dire, Indian Health Secretary Rajesh Bhushan affirmed Friday that the country is considering manufacturing and testing Russia’s Gameleya Institute-developed vaccine, known as “Sputnik 5”.

“As far as Sputnik V vaccine is concerned, both the countries are in communication,” Indian Health Secretary Rajesh Bhushan told reporters this week when asked whether New Delhi had been formally approached by Moscow over manufacturing the vaccine.

“Some initial information has been shared [with India, and] some detailed information is awaited,” he said, without providing further details, according to Nikkei.

India has plenty of capacity for manufacturing generic drugs and vaccines, plus a massive population upon which to test the vaccine, which is probably why Russia is seek such a partnership.

Globally, cases continued to slow with just under a quarter million reported yesterday.

South Korea extended the current Phase 2 social distancing measures in the Seoul area for at least another week, though the government stopped short of a threatened return to “Phase 3”. South Korea confirmed 371 cases on Friday, down from 441 a day ago, bringing the country’s total to 19,077 with 316 deaths.

China reported nine new cases on Friday, all of them imported, compared with eight a day earlier. It marked the 12th straight day with no domestic transmission.

President Donald Trump promised to “crush” the coronavirus pandemic with a vaccine by the end of the year during his speech accepting the Republican nomination last night.

“We are marshalling America’s scientific genius to produce a vaccine in record time,” Trump said. “We will have a safe and effective vaccine this year and together we will crush the virus.”

Indonesia’s daily new cases notched a new record high for a second consecutive day at 3,003 on Friday. Another 105 new deaths were slso recorded. Indonesia has clocked 165,887 cases and 7,169 deaths, while Jakarta cases have also set a new daily record at 869.

The Philippines confirmed 3,999 additional infections, up from 3,249 a day earlier, bringing the country total to 209,544. It also reports 91 more deaths, pushing the total to 3,325.

As Germany’s new daily COVID-19 numbers continue to climb, Chancellor Angela Merkel told Bloomberg that the coronavirus crisis represents a serious challenge to Germany’s financial health, largely because the virus could be with us for “a long time.”

Which is why it’s so important for Europeans to work together and to use the emergency financing mechanisms that have been set up.

“That is why a large part of the money will certainly go toward what we have already set out to do in the economic stimulus program and what has not yet been fully financed,” she said. During what was one of her final summer press briefings, Merkel warned Germans to buckle up, because cases will likely continue to climb in the coming months as more schools and businesses reopen, since returning to a lockdown isn’t an option, life probably won’t return to normal until a vaccine is in use, Merkel said.

Even though Germany isn’t expected to fully repay debt incurred by these relief measures until 2058, such stimulus measures are essential as the economy could not be allowed to grind to a halt in the meantime, she said.

“This is a serious matter, as serious as it’s ever been, and you need to carry on taking it seriously,” she told a news conference. And even once this is all over, “not everything will be like it was before,” Merkel added.