Tag: news

Having made many headlines earlier in the year with his rightly apocalyptic perspective on the pandemic, billionaire hedge fund manager Bill Ackman pocketed a tidy $2.6 billion in profits on a massive (credit) hedge he placed amid stock market complacency ahead of its March collapse.

On March 23rd, we completed the exit of our hedges generating proceeds of $2.6 billion for the Pershing Square funds ($2.1 billion for PSH), compared with premiums paid and commissions totaling $27 million, which offset the mark-to-market losses in our equity portfolio. Our hedges were in the form of purchases of credit protection on various global investment grade and high yield credit indices. Because we were able to purchase these instruments at near-all-time tight levels of credit spreads, the risk of loss from this investment was minimal at the time of purchase.

Well, the founder of hedge fund Pershing Square Holdings is at it again, telling The FT that he has put on another massive credit hedge against his long stock book where he sees complacency.

Pershing is up 44% year-to-date, so who can blame him for protecting some of that gain, but what appears to have catalyzed the action is a combination of the vaccine news (which he sees as bearish), the complacency of stocks (seemingly ignoring all possible risks), and the cheapness of the hedge.

The vaccine news “is actually bearish for the market because it will make the whole thing seem less of a threat, people will taker mask-wearing less seriously, and more people will die in the next few months than in the previous period.”

“We’re in a pretty treacherous time generally,” the hedge fund manager warned, “and what’s fascinating is that the same hedge we put on 8 months ago [which was extremely profitable] is available on the same, if not better, terms now… as if there had never been a ‘fire’ and that everything’s going to be fine…”

“At 49bps, the market is saying the world is incredibly safe and everything that is expected to go right will go right…”

Indeed, US HY debt risk premia are now at record lows…

And the cost of credit protection is dramatically cheaper than equity protection…

Ackman said the new hedge is close to 30% the size of the bet he placed in late February, when he bought a set of huge insurance policies linked to $71bn of corporate debt.

Despite commenting that “it’s going to be a depressing, challenging time,” Ackman does offer some silver lining in that he notes “this is different from the hedge we put on in February when we thought it was a near certainty that things would get really, really ugly.” This time, he is apparently more optimistic and still long stocks, adding that “I hope we lose money on this latest hedge.”

We suspect that last sentence is not entirely true, especially given his comments on the asymmetric nature of the hedge payoff if the future doesn’t turn out in the panglossian manner it is priced for.

Watch the full interview below:

With futures big up aggressively and the emini opening for trading around 3,560, traders are wondering what this means for forced dealer flows, and potential market inflection points.

Well, according to our friends at SpotGamma, “we’re seeing a general shift in the options “structure” from <=3500 to >=3600 which is what we like to see to confirm higher SPX prices. 3600 is now the largest gamma strike, and ZeroGamma if shifting up under 3500.”

As can be seen in the chart below, the bulk of positive gamma strikes are now forming around that 3,600 level which indicates that the market has some pull up into that area.

With total S&P gamma quite high at $1.5bn, its interesting to note that SPY notional gamma is $1.1bn of that. As Spot Gamma notes, “this high gamma represents market support and lower volatility.”

Meanwhile, the Risk Reversal indicator has seen a sizeable jump indicating call prices have increased sharply relative to puts. This seems to coincide with the “structure” shift noted above.

In contrast to the S&P, Nasdaq holds a negative gamma level, and while the Russell has increased to the positive side there has not been much call action there. And while SpotGamma is not able to surmise on sector rotations (tech value) it can say that “call volumes in these “covid crushed” names spiked meaningfully the last several days.”

Take the last 5 day call volumes in CCL (Carnival Cruise) which shows a leap in call trading (yesterdays volume is the top row). We’re now seeing some similar action in names like DIS and the airlines with bullish looking options setups. The major “stuck at home” plays like ZM and PTON now have distinctly bearish structures.

For today SpotGamma look for another fairly tight trading range on the day, with 3600 as resistance and 3500 support.

Update (0810 ET): The National Hurricane Center’s (NHC) 0735 ET tropical update has upgraded Tropical Storm Eta to a Category 1 hurricane, with maximum sustained winds of 75 mph or higher. 

“Reports from an NOAA Hurricane Hunter aircraft and Doppler radar data indicate that Eta has re-strengthened into a hurricane offshore the southwestern coast of Florida, with maximum, sustained winds of 75 mph (120 km/h), with higher gusts,” NHC said. 

Hurricane Eta Status As Of 0735 ET

Eta is expected to make landfall north of Tampa on Thursday morning. 

*   *   *

With sustained maximum winds of around 70 mph, Tropical Storm Eta may strengthen to a Category 1 hurricane before it makes a second landfall on Florida’s west coast on Thursday. 

As of the National Hurricane Center’s (NHC) 0400 ET tropical update, Eta is about 175 miles southwest of Fort Myers, with 70 mph winds, moving at about 12 mph. 

NHC 0400 ET Tropical Update

Hurricane watches have been posted from Anna Maria Island to Yankeetown. Weather models shifted Eta’s track east on Thursday. 

NHC 0400 ET Eta Model 

These models also forecast Eta to strengthen to a Category 1 hurricane ahead of landfall expected north of Tampa on Thursday morning. 

Eta’s Latest Spaghetti Models

Eta’s latest projected landfall comes as the storm battered South Florida earlier this week. It’s the 28th named storm in a super active hurricane season for the Atlantic. 

2020 US Storm Landfall Locations 

The 2020 Atlantic hurricane season was officially confirmed as the busiest on record this week, with the development of the 29th named storm called Theta, forming in the open Atlantic near Africa – breaking the 2005 record of 28 tropical cyclones in a given season. 

The good news is that hurricane season “officially” ends on Nov. 30. 

Authored by Mike Shedlock via MishTalk,

Milan is under lockdown since Friday as Covid returned with a vengeance.

Milan Staggers as Hospitals Fill Up

In Italy’s Second Wave, Hospitals Fill and Crematories Cannot Keep up. 

With infections, hospitalizations and deaths linked to Covid-19 rising exponentially, hospitals in Milan are running out of beds even after having converted wards and suspended nonurgent procedures. Ambulances have been forced to wait for hours to drop off patients at hospitals where Covid-19 patients are sometimes kept on gurneys in crowded corridors.

On Friday, the government sealed off Milan and the surrounding Lombardy region, along with three of Italy’s other 20 regions. In these so-called red zones, freedom of movement is severely curtailed, most stores are shut, cafes and restaurants can sell only takeout, and children from the second year of middle school onward have reverted to remote learning. The government said it would assess the situation in two weeks.

A Milan crematory said it couldn’t keep up with the number of deaths and stopped accepting for cremation the bodies of nonresidents who die in the city. A temporary hospital set up in April at Milan’s trade-fair center has reopened.

The Policlinico and Milan’s other hospitals are racing to discharge non-Covid patients as quickly as possible to free up space. 

A month ago, Lombardy had just 41 Covid patients in intensive care and 361 occupying non-ICU beds. On Sunday, those numbers had jumped to 650 and 6,225

Daily Confirmed Cases Per Million

Daily Confirmed Deaths Per Million

The world is so ready for a vaccine that works.

Hoping for early 2021 on news Pfizer’s Covid Vaccine is 90% Effective.

Two days ago, JPMorgan – which just two weeks ago predicted that “an orderly Trump victory was the most favorable outcome for equities (upside to ~3,900)” while arguing that a Blue Wave is viewed “as short-term neutral but long-term negative, as the expected Biden tax policy outweighs the benefits from a larger than expected stimulus package”, engaged in some pretty blatant revisionism and not only flip-flopped on its view of how Congressional gridlock would impact markets, which it now sees as the most favorable outcome for stocks, but in a note saying that the “Vaccine Rotation, Subsiding Risks” are nothing short of “Market Nirvana”, boosted its September price targets and now sees the S&P reaching 3,600 before year-end, 4,000 by early next year, and “a good potential for the market to move even higher (~4,500) by the end of next year.”

Well, since there is never just one revisionist Wall Street strategist, this morning Goldman Sachs copied JPM’s revised forecast almost verbatim, and in a note from David Kostin which sees 2021 as a redux of the “roaring ’20s”, the bank rasied its 2020 S&P 500 target to 3700 from 3600; it also forecasts the S&P 500 will climb by 16% to 4300 at year-end 2021 and gain 7% to reach 4600 by the end of 2022.

The reason? As Kostin, who curiously had already factored in positive vaccine news into his forecasts explains, “a vaccine is a more important development for the economy and markets thanthe prospective policies of a Biden presidency.” In other words, Goldman’s top strategist is double counting positive vaccine news to chase and justify the market’s surge. But hoping that nobody remembers his previous positive take on vaccine news, he says that the results from Pfizer “that its COVID-19 vaccine has an efficacy rate greater than 90% is a positive event that will allow society to gradually normalize during 2021.”

It’s not just covid: as Kostin likes to say, “elections have consequences, both for policies and markets.” And while Goldman sees Biden as the 46th President of the United States, “the upcoming 117th Congress (2021-2023) will likely remain divided but will depend on the results of two run-off Senate elections in Georgia on January 5th. Politics is policy and uncertainty will remain elevated until then. A divided government means little scope for major legislative changes, although trade and regulatory policy stances will likely differ relative to the Trump administration. Unified control would mean more fiscal spending but also higher individual and corporate tax rates.”

Nothing new here; where there is supposedly something new is in Kostin’s latest take on how quickly the vaccine would impact society, and how alleged eradication of the virus will affect the company’s latest 2021 outlook, to wit:

The virus and the vaccine

Despite investor focus on the prospective policy implications of the Biden presidency, the vaccine for COVID-19 is a more important determinant of the path of both the economy and stock market in 2021. The positive preliminary phase 3 trial results from PFE revealed that its COVID-19 vaccine exhibited an efficacy rate greater than 90%, well above what many medical experts had anticipated. However, the timing was consistent with the expectation by Goldman Sachs Biotechnology and Pharmaceutical equity analysts that a vaccine would be identified before year-end. We expect the PFE vaccine, and perhaps other vaccine candidates, will receive emergency use authorization (EUA) by January, and sufficient doses will be available to vaccinate the US population during the first-half of 2021.

In a world where covid is defeated, this clearly would ripple through to corporate earnings, especially at banks where loan loss provisions would tumble. This is what Goldman thinks happens to earnings next:

We lift our S&P 500 EPS growth estimates to $136 in 2020 (-17%), $175 in 2021 (+29%), $195 in 2022 (+12%), $207 in 2023 (+6%), and $218 in 2024 (+5%). Our revised growth estimates are roughly in line with our previous estimates, but the level of 2024 EPS is $4 or 2% higher to reflect the increased starting point of 2020 profits. Our increased estimates primarily reflect much better-than-expected results in 3Q. S&P 500 EPS in 3Q 2020 was expected to fall by 21% but realized growth of just -8% (+$5 swing).

Bottom-up analyst revision sentiment is now extremely positive and we expect consensus estimates will have additional upward revisions. Our 2021 top-down EPS forecast is 4% above the consensus bottom-up estimate of $168 and 13% above the median consensus top-down estimate of $155.

Goldman is also fully bulled up on the broader economic environment next year, seeing a “continued V-shaped recovery”:

Goldman Sachs Economics US GDP growth forecasts reflect a continued “V-shaped” recovery and are well above-consensus at +5.3% in 2021 (consensus +3.8%) and +3.8% in 2022 (consensus +2.8%), followed by growth of +2.4% in 2023. In part due to this optimistic forecast for an economic rebound from the pandemic-induced recession, our 2021 earnings forecast is also above consensus.

Outside of economic activity, a weakening USD and slack in the labor market should support S&P 500 sales and margins, respectively. The US unemployment rate registered 6.9% in October, well above the estimated natural rate of unemployment (4.4%). Our top-down model demonstrates that a loose labor market is typically positive for earnings growth, as wage growth exerts limited pressure on margin growth. Our FX strategists expect the trade-weighted US Dollar is in a structural downtrend, which typically acts as a tailwind to S&P 500 revenues, particularly for international-facing sectors. Their FX estimates assume the USD weakens by 5% vs. the Yen (to 100) and by 6% vs. the Euro (to 1.25).

To be sure, Goldman had some problems justifying a 1000 point surge in 2 years when looking at already record-stretched valuations, which the bank admits are currently in the 92% percentile…

… adding that the bank’s 2022 price target is based on a – drumroll – 22.1x PE multiple!!!

The S&P 500 index levels we forecast imply a modest P/E multiple expansion next year. The market currently trades at 20.3x our top-down 2021 EPS estimate. Our DDM-derived price target implies that during 2021 the forward P/E multiple will expand by 2x to 22.1x. The implied absolute valuation at year-end 2021 would rank at the 94th percentile vs. history.

However, our year-end 2021 forecast for valuations relative to bond yields would rank in just the 51st percentile vs. history. Accommodative Fed policy and low interest rates make equities appear attractive on a relative basis vs. fixed income alternatives, pushing investors out on the risk curve. With the earnings yield gap of 323 bp above the projected year-end 2021 Treasury, our price target implies a relative valuation roughly in line with the long-term average, less extreme than signals from absolute valuation metrics (see Exhibit 12).

… but here too the company found a “deus-ex” loophole:  record low interest rates which will allow the equity risk premium to compress further:

The backdrop of low interest rates and subdued policy uncertainty that we anticipate during the next two years will be constructive for equity valuations. Our valuation framework relies on the cost of equity, which in turn depends on interest rates and the equity risk premium. The key drivers of our ERP model include breakeven inflation, policy uncertainty, consumer confidence, and change in the size of the Fed’s balance sheet.

Interest rates: We assume stable Fed policy and limited yield curve steepening. Given the Fed’s new average inflation targeting (AIT) framework and its forward guidance for the funds rate, Goldman Sachs Economics forecasts the first hike in the funds rate will not occur until 2025. We assume higher breakeven inflation will drive modest yield curve steepening as the ten-year US Treasury yield climbs from 95 bp today to 1.3% at year-end 2021 and 1.7% by the end of 2022. Diminished prospects of massive fiscal spending that might have occurred under a Democratic sweep coupled with extremely low bond yields globally will limit the rise in nominal US yields.

Equity risk premium: Improving growth expectations and falling uncertainty will compress the ERP. Our economists’ baseline forecast for fiscal stimulus and vaccine approval should drive an improvement in growth expectations, breakeven inflation, and consumer confidence, in turn pushing the ERP lower. The economic policy uncertainty index has averaged 227 during the last year, 100% above the long-term average, and has kept the ERP elevated (Exhibit 9). However, we expect a divided government will reduce uncertainty sharply by year-end 2022 (to 125, in line with the long-term average).

So basically the entire thesis falls apart if yields jump as markets start pricing in rate hikes and runaway inflation. But we digress…

Which brings us to Goldman’s baseline assumptions for 2021 which all have to be justified for the S&P to hit 4,600 by the end of 2022:

1. At least one vaccine is approved by the FDA and administered to a large portion of the US population.
2. The federal government is divided with the Republicans maintaining majority control of the Senate following the Georgia elections.
3. Policy uncertainty declines.
4. The economy continues its “V-shaped” recovery.
5. S&P 500 profits rebound sharply from their pandemic lows.
6. The Fed remains on hold with a stable fed funds rate of 0-25 bp.
7. The yield curve steepens but ten-year Treasury yields climb only modestly.

Under these conditions – and really Goldman will immediately flip its view as soon as the S&P tumbles because both JPM and Goldman have demonstrated that it is always and only price that sets the market narrative – Goldman forecast S&P 500 will rise by an additional 11% to reach 4100 by mid-year and end 2021 at 4300 (+5%; for a full-year return of 16% next year) and climb by 7% to reach 4600 by year-end 2022.

To justify this berserk forecast which can only happen in a world where there is no business cycle and where (digital) money literally grows on magic money trees, Goldman writes that “the S&P 500 annual return has been between 10% and 20% roughly 25% of the time since 1982.”

Because, supposedly the logic goes, the current helicopter money, $28 trillion in debt environment is somehow comparable to everything that happened in previous years.

On Monday, Pfizer shares soared 16% following a bullish statement on the company’s experimental COVID-19 vaccine showed 90% effectiveness in preliminary results. Then on Tuesday, according to a Securities and Exchange Commission filing, Pfizer CEO Albert Bourla sold 62% of his stock.

The SEC Form 4 filing showed Bourla sold 132,508 shares at an average price of $41.94 per share, equivalent to $5.6 million – nearly top-ticking the 52-week-high. 

Bourla’s sale was conducted under Rule 10b5-1, established by the SEC, allowing the corporate insider to sell a predetermined number of shares at a predetermined time. A Pfizer spokesperson told Axios that the CEO’s predetermined trading plan was formed in August. 

Despite the sale being perfectly legal under Rule 10b5-1 to avoid accusations of insider trading, the optics aren’t great for Bourla, top-ticking the 52-week-high on the sale on news day. 

Other pharmaceutical companies such as Moderna, also producing a COVID-19 vaccine, experienced similar insider selling over the summer around vaccine news – where insiders dumped tens of millions of dollars of stock. 

Under the cover of Rule 10b5-1, corporate insiders at some pharmaceutical companies are already running for the exits by dumping their stock, of course, it’s easier to commit to pre-plan sales of stock when you know you can pump the price by simply publishing a press release. 

Authored by Bryan Preston via PJMedia.com,

The latest news from Minneapolis is… totally predictable, actually.

Minneapolis officials are considering bringing in officers from other jurisdictions to help the city’s Police Department as they face a wave of violent crime and an officer shortage.

If the mayor and City Council approve the plan, officers from the Hennepin County Sheriff’s Office and Metro Transit Police would temporarily work with the city, primarily helping to respond to violent 911 calls.

So they’re not just going to draft and send social workers?

The proposal comes about five months after a majority of council members promised to work toward “ending” the Police Department following George Floyd’s death.

The city has struggled to combat a wave of violent crime, recording 74 homicides so far this year.

At the same time, an abnormally large number of officer departures following Floyd’s death and the subsequent unrest has strained the department’s resources. Some officers have filed PTSD claims.

According to KSTP there were 48 homicides in Minneapolis in all of 2019. There are still nearly two months to go in 2020. Doubling last year’s homicide number is not out of the question. Minneapolis also faces a lawsuit from residents who say the city is violating its own charter by operating its police department below mandatory staffing levels.

The crime wave many cities including Minneapolis are suffering was completely predictable and totally avoidable. City councils acted rashly to appease activist mobs. In every single case, it was Democrats who made the terrible choice to gut their police departments and turn their cities over to chaos and violence.

It’s going to cost a fortune to get cities that defunded their police to become stable and safe again. They threw away 20 years of progress against violent crime in a few days. Recovery will be long and uncertain.

Summary:

• US reports another daily record in cases
• Russia says Sputnik 5 92% effective
• Tokyo reports another 300+ new cases, most since August
• Iran reports new record jump in deaths
• Hungary makes masks mandatory in public spaces
• Germany reports most new deaths since mid-April
• Bulgaria reports daily record

* * *

In the US, yesterday’s string of record numbers out of Illinois and certain other western states remains the biggest story, as more governors move to tighten restrictions (Maryland’s GOP Gov Larry Hogan and California Gov Gavin Newsom, to name a couple), in the face of rising hospitalizations and deaths.

Meanwhile, in Europe, Germany reported the most new deaths in a single day since mid-April, while Bulgaria reported a record jump as an outbreak flares in the southern European state. Hungary, meanwhile, just made mask wearing mandatory in public spaces, part of new restrictions to curb a spike in deaths.

The US reported another record jump in new cases on Tuesday, according to data collected by Johns Hopkins and the COVID Tracking Project.

In total, the states reported 1.2 million tests and 131k confirmed new cases, the latest in what has become a string of new daily national records this week. What’s more, there are 62k people currently hospitalized with COVID-19, a new record high, surpassing the numbers from April. Deaths came in at 1,347, topping the 1,000/day mark yet again, and bringing the 7-day average for deaths to its highest level since the summer.

Meanwhile, two days after Pfizer announced the initial headline number from its Phase 3 study purporting to show the vaccine is 90% effective at reducing infection, Russia’s sovereign wealth fund, which essentially financed the development of Sputnik 5, Russia’s first-in-the-world vaccine, has just confirmed that its preliminary Phase 3 trial data show Sputnik 5 (which relies on a different technology than the Pfizer-BioNTech vaccine) is 92% effective. That’s two whole percentage points more effective than its western rival.

Russia’s Sputnik V vaccine is 92% effective at protecting people from COVID-19 according to interim trial results, the country’s sovereign wealth fund said on Wednesday, as Moscow tries to keep pace with Western drugmakers in the race for a shot. The initial results are only the second to be published from a late-stage human trial in the global effort to produce vaccines that could halt a pandemic that has killed more than 1.2 million people and ravaged the world economy. Russia registered its COVID-19 vaccine for public use in August, the first country to do so, though the approval came before the start of the large-scale trial in September.

Notably, the Russian vaccine is 2 percentage points more effective than the American vaccine.

Post-registration trials for Russia’s second vaccine are set to begin Nov. 15.

Here’s a roundup of other COVID-19 headlines from overnight and Wednesday morning:

Tokyo confirmed 317 cases of coronavirus Wednesday, the biggest daily total since Aug. 20, pushing the total number of cases in the capital city to 33,377 (Source: Bloomberg).

Malaysia reports 822 new coronavirus cases, raising the total to 42,872, as the Southeast Asian country also recorded two new deaths, taking its total official death toll to 302 (Source: Nikkei).

A total of 462 people, a daily record, die from the new coronavirus over the past 24 hours, Iran’s health ministry’s spokeswoman tells state TV. The number of cases rose by 11,780, also a daily high (Source: Bloomberg).

The Philippine health ministry on Wednesday recorded 1,672 new coronavirus infections and 49 additional deaths. In a bulletin, the ministry said total confirmed cases have increased to 401,416 while deaths have reached 7,710 (Source: Nikkei).

Germany recorded 26,547 new cases in 24 hours, up from 6,522 the previous day, according to data from Johns Hopkins University. That brought the total to 715,693. While it’s a large daily jump, new infections have fluctuated significantly in recent weeks. Fatalities rose by 373 to 11,781, the biggest daily increase since mid-April (Source: Bloomberg).

In Bulgaria, a record-high 4,390 daily cases were reported, with the numbers of hospitalized and patients in intensive care units also at their highest. The total number of positive cases in the Balkan country doubled in the past two weeks. Prime Minister Boyko Borissov, who was treated at home for two weeks and tested negative on Tuesday, has repeatedly rejected the option of a complete lockdown (Source: Bloomberg).

Hungary is making masks mandatory in many public spaces in bigger cities as of Wednesday as part of fresh restrictions designed to curb a spike in virus deaths. Further rules were needed to avoid hospitals being overwhelmed, Prime Minister Viktor Orban said in an interview on state television late Tuesday. The government will review the impact of the measures in two weeks, he said (Source: Bloomberg).

Indonesia reports 3,770 new coronavirus infections on Wednesday, taking its total number of cases to 448,118, according to the country’s COVID-19 task force. It also reports 75 more deaths, taking total fatalities to 14,836 (Source: Nikkei).