Tag: news

Oil prices fell for the fourth day in a row – its longest losing streak since March – as a strong dollar and dismal US economic data following weak China data (combined with the ongoing spread of Delta around the world) prompted growth scares everywhere.

“Poor data coming out of China is ground zero for reignited global concern surrounding Covid-19,” says Phil Flynn, senior market analyst at Price Futures Group.

“Although indicators in the U.S. shows a better situation than China, as the second largest economy, what happens in the region has huge market impact.”

Additionally, U.S. gasoline demand falls for third-straight week, dropping less than 1% to 9.423m b/d in the week ended Aug. 13, Descartes Labs says in survey based on movements of cellular devices.

Algos will be desperately hoping for a bullish surprise from tonight’s inventory data.

API

• Crude -1.163mm (-3.1mm exp)

• Cushing -1.735mm

• Gasoline -1.1979mm

• Distillates +502k

After the prior week’s disappointingly small crude draw, analysts expected a sizable drop in inventories but they were disappointed once again when API reported a mere 1.163mm draw (vs 3.1mm exp)…

Source: Bloomberg

WTI hovered around $66.75 ahead of the API print and extended losses after…

Despite the fact that OPEC has kept its demand forecast for 2021 unchanged from the previous month at 96.6 million bpd, it has slashed its demand forecast by 1.1 million bpd for 2022 to stand at 99.9 million bpd, up by 3.3 million bpd y/y. The IEA report, on the other hand, is sending a warning signal that growth in demand may slow in the remaining period of 2021 and OPEC+ needs to take a more cautious path towards its policy in 2021.

The next OPEC+ meeting is scheduled to take place next month and the key question here is whether the alliance will consider recent calls from the White House to bring back supply sooner than the group had originally agreed on. Under the current plan, the group will end its supply cuts by September 2022. According to S&P Platts, the production of OPEC+ rose by 750,000 bpd m/m standing at 40.21 million bpd, with 510,000 bpd produced by Saudi Arabia.

Authored by Jack Phillips via The Epoch Times,

A spokesman for the Taliban warned that U.S. troops in Afghanistan have to leave by Sept. 11 – the anniversary of the terrorist attacks that launched the United States into the war – after troops were re-deployed to the Kabul airport to oversee an evacuation.

Suhail Shaheen, a member of the Taliban’s political office, told Sky News on Tuesday that “we are committed not to attack them,” but he stressed they have to leave by that date. It’s not clear what will happen if American forces remain in Afghanistan after Sept. 11.

The United States had previously planned to withdraw all its troops by the end of August, but the Pentagon was forced to send thousands of soldiers to the beleaguered country to facilitate evacuations from Kabul, which was quickly captured by the Taliban—considered a terrorist group by many countries—on Sunday.

The Biden administration has faced widespread criticism for how his office handled the pullout and evacuation, with some likening it to previous military failures such as the 1975 fall of Saigon. Meanwhile, the sudden arrival of the Taliban sparked panic and triggered mass waves of people at the Kabul airport, as many hoped they could be airlifted out of Afghanistan.

German President Frank-Walter Steinmeier told reporters on Tuesday that “the images of despair at Kabul airport shame the political West,” referring to the mass evacuations. “We are experiencing a human tragedy for which we share responsibility,” he also said.

During their 1996-2001 rule, also guided by their interpretation of Islamic law, or shariah, the Taliban stopped women from working and administered punishments including public stoning. Girls were not allowed to go to school and women had to wear all-enveloping burqas to go out.

Another spokesman, Zabihullah Mujahid, said the Taliban would not seek retribution against former soldiers and members of the Western-backed government, adding the movement was granting amnesty for former Afghan government soldiers as well as contractors and translators who worked for international forces.

President Joe Biden, in his only comments after the Taliban took over the country, said Monday that the Afghan government and army were to blame for the quick Taliban takeover.

The president appeared not to take much responsibility for the government collapse and mass evacuations, although he said that the group took over the country “faster than we had anticipated.”

Also Monday, Biden promised a “swift and forceful” response if the Taliban attacks U.S. soldiers or disrupts evacuations at the airport.

A spokesman for the Pentagon, John Kirby, said on Monday and Tuesday that American forces were forced to fire on armed assailants at the airport who fired at them first.

Ugly retail sales, industrial production strong, homebuilder sentiment slammed, and the Kiwis locking down over one (yes one) COVID case… All added up to ‘growth scare’ time as US macro data is declining/disappointing at the fastest rate since March 2020…

Source: Bloomberg

It seems that without the government constantly puking cash into Americans’ pockets (for doing nothing) that this ‘blistering recovery’ is just an illusion.

As Goldman’s Chris Hussey noted, putting it all together, the combination of lower-than-expected retail sales and auto production in July, and given an increasingly likely drag on services consumption from the Delta variant, our economists will likely revise our second-half growth assumptions.

After yesterday afternoon’s ridiculous gamma-squeezed meltup in stocks, today was rewind day as all the major indices lost their gains and fell below yesterday’s lows, led by Small Caps. Of course, as is the way of the new normal, around 1300ET everything was suddenly panic-bid again…

Small Caps tumbled down towards their 200DMA and bounced. Nasdaq fell back to its 50DMA and bounced…

TSLA has been clubbed like a baby seal this week…

Overall, the last two days have seen “back to the old normal” stocks hammered relative to “hunker down” stocks…

Source: Bloomberg

Credit markets are not buying whatever stocks have been smoking…

Source: Bloomberg

Treasuries were all over the place again today – with yields dumping overnight then accelerating higher (bonds being sold) after the dismal data hit only to stall at the cash open as stocks puked, ending the day basically unchanged…

Source: Bloomberg

The dollar soared today, scrambling up to last week’s highs and running stops…

Source: Bloomberg

Kiwi hammered overnight as a single case of COVID sparked a national lockdown!!

Source: Bloomberg

Cryptos were lower today with Ethereum trading back to the low end of its recent channel…

Source: Bloomberg

Bitcoin also tested the low-end of its recent range…

Source: Bloomberg

Gold was down today, but only modestly given the big jump in the dollar…

WTI fell back to a $66 handle again today ahead of tonight’s API inventory data…

Finally, VIX started to catch up to VVIX’s warnings this week…

Source: Bloomberg

And don’t forget the debt ceiling is starting to stress the Bill curve…

Source: Bloomberg

‘probably nothing’

It was no sooner we mentioned how spectacularly the blowup of Pershing Square’s Tontine Holdings SPAC was for some retail investors, than the entity is being sued.

The lawsuit seeks to prove that Pershing Square’s SPAC was an investment company and not a SPAC, according to Bloomberg Tuesday morning. As we noted days ago, this is the exact reason the SPAC got pushback from the SEC when it announced its intention to make an investment in Universal Music, leaving cash left over to acquire, invest and/or merge with other companies. 

The suit was filed by shareholder George Assad, according to the report. If it is found to be meritorious, it could have implications for how SPACs are viewed in the future since Assad is trying to make the case that PSTH was an investment company.

In response to the suit, Bill Ackman told Bloomberg on Tuesday:  “PSTH has never held investment securities that would require it to be registered under the Act, and does not intend to do so in the future. We believe this litigation is totally without merit.”

Bernstein Litowitz Berger & Grossmann is lead counsel for the suit. 

Recall, earlier this week we wrote that Ackman wound up torching retail investors when Pershing Square Tontine Holdings failed to find a merger partner after months of bluster from Ackman and blind faith from investors.

The failure of PSTH to get off the ground resulted in large losses for retail investors, like one 35-year-old unmarried Chicago psychiatrist who lost nearly $1 million “investing” in call options on the pre-merger entity, a new profile by Institutional Investor pointed out several days ago. 

PSTH had been touted by Ackman to be an “investor friendly” SPAC. Ackman even “tweeted a rap video about SPACs minting money” in February 2021. Ackman even joked about “marrying a unicorn” when talking about his SPAC’s launch last July. 

“That video literally single-handedly caused the stock to rise 10 percent,” the investor told II. “It was like, okay, this is coming very soon. If you don’t get in now, you’re going to miss it.” 

“Just because I have specialized training doesn’t mean I can’t be just as much of a fool as the guy next door,” the investor said. “Whatever money I had, I pretty much was putting it all into buying more of it,” he said of his purchases of June 18, 2021 $25 strike call options. The stock traded at $23 at the time, leaving the options to be a total loss.

But reality hit on June 4 when PSTH announced a deal to take a 10% stake in Universal Music Group. It was a small slice of an investment that left money over for other deals. Then, “hell came” when the SEC told Ackman that the deal didn’t meet NYSE’s requirements for a SPAC, all but killing the deal. 

In fact, II talked to 16 other people who invested in PSTH and though it was a “safe, calculated bet”. “Nine of the 17 men II contacted were either immigrants or first-generation Americans,” the report noted.

One 31 year old German college student put about $294,000 in savings into the SPAC. He had lost about $100,000 on the investment. “I looked up to Ackman,” he said, noting that he was impressed by Ackman’s SPAC doing away with free sponsor shares and encouraging holding shares post-merger through special warrants. “It was clear to me that this was a new kind of vehicle. To me, the warrants were the unique selling point of PSTH,” he said.

Another investor who lost $600,000 on PSTH options told II: “The gambler’s fallacy is always the high end. You think you’re invincible until you’re not, and that’s generally what happened to me.”

The biggest loss came from a 39 year old software engineer, who saved $1.6 million over 20 years. He set up an account at Fidelity last year and, behind the back of his parents whom he was helping support, put the entire $1.6 million into PSTH. 

“Ackman just sounded very confident. I trusted the guy. I thought he knew what he was doing,” the engineer said.

It was then that he transferred his shares into in the money call options with a strike price of $22. The stock was trading at $30 at the time. His account hit $2 million at one point before his options expired worthless on July 16. 

He said of the resulting depression he is suffering from: “I’m not mentally there. I’ve got to pick myself up or this is going to ruin my life even further.” 

Adding to Tesla’s woes on Tuesday, a day where the stock was slammed alongside a broader market selloff, was Goldman Sachs. The investment bank came out and commented on yesterday’s news that the NHTSA had opened a broad-reaching investigation into Tesla’s Autopilot feature. 

In its note, Goldman appeared anything but optimistic that the probe into Autopilot would be resolved quickly. “Given the current probe is related to a Level 2 driver-assist system, one solution could be for an enhanced driver monitoring system to ensure driver compliance with Tesla’s terms of use,” the investment bank wrote Tuesday morning.

The bank also said that although past NHTSA investigations had varied in length, that this some have taken as long as multiple months or years to complete. 

Recall, yesterday we reported that regulators in the United States had finally come to their senses and opened the long-overdue investigation. The U.S. National Highway Traffic Safety Administration (NHTSA) said the investigation includes Tesla’s Model X, S and 3 for model years 2014-2021. The broad range of models and model years means that this could be the large-scale investigation that skeptics have been requesting for years, we noted.

The NHTSA said the investigation would assess technologies, methods “used to monitor, assist, and enforce the driver’s engagement” during autopilot operation, according to Bloomberg.

GLJ Research’s Gordon Johnson was the first analyst to weigh in yesterday, stating that the investigation could result in sentiment turning “decidedly downward” if sell-side peers begin to understand that Tesla’s proclaimed autonomy prospects are nowhere near what many think.

Johnson’s note opened by describing the situation and noting the investigation covers 765,000 vehicles: “The U.S. government has opened a formal investigation into TSLA’s Autopilot partially automated driving system, saying it has trouble spotting parked emergency vehicles. The investigation covers 765,000 vehicles, almost everything that TSLA has sold in the U.S. since the start of the 2014 model year.” 

“Autopilot has frequently been misused by TSLA drivers, who have been caught driving drunk or even riding in the back seat while a car rolled down a California highway,” he wrote.

Johnson spoke to two lawyers about the investigation this morning and relayed their thoughts:

“…in our discussions with two attorneys this morning with knowledge of the matter, we see problems here for TSLA. More specifically, we believe TSLA’s biggest weakness is its weak measures (which have been alleged to be intentional) to make sure the driver is paying attention (which is EXACTLY what the NHTSA is investigating) – this is the opinion of both lawyers we spoke to this morning. More specifically, in the words of one lawyer: “Whether the system is weak at detecting emergency vehicles compared to other “FSD” systems or just insufficient overall, it shouldn’t be used at all if the system is not taking appropriate steps to make sure the driver is paying attention”.

He concluded by making the case that this investigation could be the first of many dominoes to fall that could reveal Tesla’s autonomy prospects to be far worse than many have believed, resulting in exactly what we saw today: downward pressure on the stock.

Authored by Lance Roberts via RealInvestmentAdvice.com,

In this past weekend’s newsletter, I discussed the rarity of 6-positive market months in a row. To wit:

“An additional ‘red flag’ is the S&P 500 has had positive returns for 6-straight months. As shown in the 10-year monthly chart below, such streaks are a rarity, and when they do occur, they are usually met by a month, or more, of negative returns.“

(It is also worth noting that when the 12-Month RSI is this overbought, larger corrective processes have occurred.)

As stated, I only went back 10-years in the chart above. Such generated several email questions asking about the number of historical occurrences over the long term.

6-Positive Market Months – Long Term

Using Dr. Robert Shiller’s long-term nominal stock market data, I calculated monthly positive returns and then highlighted periods of 6-positive market months or more.

There are several important takeaways from the chart above.

1. All periods of consecutive performance eventually end. (While such seems obvious, it is something investors tend to forget about during long bullish stretches.)

2. Given the extremely long-period of market history, such long-stretches of bullish performance are somewhat rare.

3. Such periods of performance often, but not always, precede fairly decent market corrections or bear markets.

The table below shows all periods where there were 2-months or more of consecutive positive returns.

What the table shows is that nearly 40% of the time, a two-month stretch of positive performance is followed by at least one month of negative performance. Three consecutive positive months occur 23% of the time, and only 14% of occurrences stretch to 4-months.

Since 1871, there have only been 12 occurrences of 6-month or greater stretches of positive returns before a negative month appeared. In total there are just 40 occurrences, out of 245 periods of 2-months or more, the market ran 6-months or longer without a correction.

However, in every period, the run ended in at least a negative return month, but the vast majority ended with much deeper corrections.

This Time Is Different

At the current time, there is no concern about “risk” in the financial markets as the “bullish bias” remains unfettered. With the Fed still applying $120 billion a month in liquidity, investors learned the meaning of “the beatings will continue until morale improves.”

It is certainly possible the market advance can continue unabated into one of the historically lengthier stretches. The only question is when will it end, and how big of a correction will it be?

What will cause the correction is unknown? The reason is that if the market becomes aware of an issue, participants “price” that “risk” into markets. Such is why, particularly when investors are aggressively positioned in the market when an unexpected, exogenous, event occurs prices decline rapidly as “risk” gets reduced.

Such is why the market was holding up fairly well in the face of the “Pandemic” in February of 2020. However, what market participants were not prepared for, the “exogenous” event, was the complete “shutdown” of the economy.

So, whatever event causes a rush of investors to the “exits,” is not something we are currently discussing or worried about in the financial media.

Size Of The Correction

The magnitude of the correction is an easier question to answer.

Currently, the market is extremely deviated above its 2-year (24-month) moving average. Such extreme deviations are a historical rarity and have often resulted in corrections of 20% or more.

As we showed in “Past Performance Is No Guarantee,”

“This is also where investors should be paying attention to the ‘risk’ they are taking on. As shown, there are few points in history where the index, monthly, is this extended, deviated, and bullish.”

There have only been 6-previous points in history where markets were simultaneously this extended, bullish, and overbought. Each of those periods marked more historical performance peaks – 1929, 1937, 1946, 1957, 1987, 1999.

Importantly, the 72-month moving average has acted as long-term running support for the market going back to 1925. Violations of that moving average are rare and only occur during “mean-reverting” bear markets. Currently, a correction to the 72-month moving average would require a 36.5% decline.

Currently, such a correction seems unlikely given the current “bullish sentiment.” However, the same sentiment abounded in February 2020 just before the market tested that support.

Given the massive deviations from long-term means, our suspicion is that at some point we will likely again test that support in the future.

Into The Belly Of The Beast

The market is currently priced for perfection. Investors continue to disregard warnings of slowing economic growth on hopes that monetary interventions will continue indefinitely. While such could indeed be the case, that does not preclude the market from having a correction or worse.

Interest rates continue to decline sharply suggesting that economic growth is weakening rapidly. Such will lead to earnings disappointment in the months ahead at a time when valuations remain excessive on many levels.

August and September historically sport weak performance for the market for a variety of reasons. However, given 6-positive market months already, the risk of a correction has risen markedly.

The first year of a new-President also sports weak performance during the August-September period. With the “debt ceiling” approaching, the Fed potentially discussing “tapering” asset purchases, and the potential for disappointment in economic reports, there are plenty of things to “spook” markets.

The point is simply that the “risk” of a correction is now elevated.

What This Means And Doesn’t Mean

Let me repeat the following just so there is no confusion.

“What this analysis DOES NOT mean is that you should ‘sell everything’ and ‘hide in cash.’”

As always, long-term portfolio management is about managing “risk” by “tweaking” things over time.

If you have a “so so” hand at a poker table, you bet less or fold.

It doesn’t mean you get up and leave the table altogether.

What this analysis does suppest is that we should use rallies to rebalance portfolios. 

1. Trim Winning Positions back to their original portfolio weightings. (ie. Take profits)

2. Sell Those Positions That Aren’t Working. If they don’t rally with the market during a bounce, they will decline more when the market sells off again.

3. Move Trailing Stop Losses Up to new levels.

4. Review Your Portfolio Allocation Relative To Your Risk Tolerance. If you have an aggressive allocation to equities at this point of the market cycle, you may want to try and recall how you felt during 2008. Raise cash levels and increase fixed income accordingly to reduce relative market exposure.

Could I be wrong? Absolutely.

But what if the indicators are warning us of something more significant?

What’s worse:

1. Missing out temporarily on the initial stages of a longer-term advance, or;

2. Spending time getting back to even, which is not the same as making money.

As I noted recently in our blog on trading rules: 

“Opportunities are made up far easier than lost capital.” – Todd Harrison