Month: February 2017

A Two-State Solution… For The West?

Submitted by Erico Matias Tavares via Sinclair & Co.,

There's a cold war raging.

No, not the one between the US and Russia. That’s old news.

We're talking about the NEW cold war: the one for the soul of the West.

On one corner we have the globalists, basically political and financial elites who after the disasters of World War II decided that eliminating borders was the way to ensure a peaceful future. Increasingly diverse (multicultural) societies would now be governed by supranational institutions, the only way to confront problems that are global in nature: environmentalism, terrorism, epidemics, consumerism and so forth. And much of this has become mainstream, with the powerful backing of the liberal media, the entertainment industry, much of academia and influential think tanks.

While people from all political persuasions support this ideology, it appears to be more closely associated with the political left, sometimes from the hard left even, as shown by the picture above taken in a very progressive US neighborhood.

On the other corner we have the nationalists (also known as patriots, populists, and deplorables). They took a good look at the downsides of that brave new (open) world and said to heck with its ongoing destruction of national identities, borders, traditional cultures and religion, and constant foreign military interventions especially when they are incapable of protecting their own borders from mass immigration.

There is no question that 2016 was a pivotal year in this struggle, which is now playing out in the open.

First the British voted to pull out of the European Union, against all odds. Then the Americans elected a brash Republican outsider for President, also against ‎all odds.

After ceding cultural and political terrain for decades, the nationalists seem to be making a comeback. And now the cracks within Western countries are visible for anyone to see.

Take the United States, the leader of the Free World. Here is a recent survey of the approval ratings of that outsider, President Donald Trump:

Source: The Washington Post, ZeroHedge

Notice the huge disparity between Republicans and Democrats. It could not be any more striking than this – and just a few weeks after Trump’s inauguration.

This reflects of what is going on across much of the US, down to family and friends. It is clearly not confined to just “millennial snowflakes”, although these tend to be the loudest. Try walking in that very progressive US neighborhood wearing a 'Make America Great Again' cap and see how that cold war can turn ‎hot very quickly.

The two sides no longer seem to agree on what a country is: if it should have borders, who has the rights and obligations in their societies and what it should stand for. Those are pretty basic – and fundamental – differences that look more and more irreconcilable by the day. Heck, there isn’t even an agreement on who is a woman and who is a man.

So what can be done about this?

Well, since everyone seems so keen in implementing a two-state ‎solution in the Israel-Palestine conflict, why not do the same across the West?

With one key difference: these two “states” would remain formally linked through a very limited federal/national government. Mainland Chinese public officials even have a name for it: one country, two systems.

If people in New York, Massachusetts, Illinois, Oregon and California want to become openly multicultural and consistently vote accordingly, why stop them? Let them welcome anybody they want and implement whatever education system, gender identifications and values they desire. Good for them. Provided of course that all this should be funded strictly by their own state and local taxes, which is only fair (no doubt very rich globalists like George Soros, Bill Gates and Richard Branson will gladly pitch in).

On the other hand, if Texas and all others in flyover country believe they are entitled to bear arms, speak however they like in one language only, promote their values and culture and fully decide on who can live in their communities, what’s wrong with that? If you long to hear church bells on Sunday morning, sing the national anthem and use gender-segregated bathrooms you can always visit or move to those communities.

Source: Prof. Mark Newman, Department of Physics and Center for the Study of Complex Systems, University of Michigan

And that arrangement can be fined tuned further by going down to the county level, such that the views of local communities would be more accurately represented. In that case the map shown above provides an indication of how a two-state US could look like, with red being a proxy for the nationalist counties (i.e. majority Republican voters in the 2016 Presidential election).

Similarly, the same concept could be implemented across the European Union. If Germans, Swedes, French and the Dutch want their countries or municipalities to go full multicultural, good for them. What they shouldn't do is impose their vision of the world through the supranational mechanisms of the European Union on the Poles, Hungarians, Finns and many others who do vigorously want to retain their culture and identities.

And that’s what we have in every election cycle, with one party seeking to push its values onto the rest of society, which is increasingly divided and at odds with each other. So the pushback from either side is predictable. New “populist” movements across Europe already threaten the very existence of that federal government (except that in Europe’s case it is anything but limited), and they will not go away any time soon.

This two-state system might be a seemingly fair way to achieve the best of both worlds, allowing both ideologies to coexist within a common governmental framework. A large scale version of Belgium if you like. But the reality is not so simple (just look at Belgium!)

First, Western nations for the most have accumulated debts at the supra-regional level so large that apportioning them ‎between the two “states” is likely to be extremely contentious. With their sustainability already dubious in many cases, and without even considering all the crushing healthcare and retirement contingent liabilities, any division would be really problematic. As such the federal/national government would likely continue to be much larger than what would be desirable to disentangle differing political views.

 

Second, transitioning into a multicultural society can be very problematic, as evidenced by the debate on Sweden’s immigration policies that has now gone viral, at least until a consensual set of rules and behaviors can be forged. The inherent security risks could force some parts of the other “states” to curtail the free flow of people. This is already happening in many parts of Europe as a result of the recent refugee crisis.

 

Third, Western alliances would likely have to be redrawn along this split in Western aspirations. Donald Trump has more in common with Hungary’s Prime Minister Viktor Orbán than Sadiq Khan, the Mayor of London, who will likely never welcome him in his city despite the special relationship between his country and the US.

 

Indeed, Trump proposes core nationalistic values not too dissimilar from his Russian counterpart Vladimir Putin (a key reason why the globalist media and intelligence are so keen to demonstrate a formal connection between the two). On the other hand, German Chancellor Angela Merkel – a hardcore globalist – could not be farther apart from either one.

 

Fourth, how can each “state” coordinate on international commercial policies with the other one, as many companies have extensive operations across the two? This cold war is now spreading to the corporate sector, with some employees feeling alienated and consumers on each side threatening boycotts and sanctions. It has come to that.

 

And finally, a divided West is a weak West. China is not worried about any of these existential social issues. Neither is Russia, Turkey or Iran‎. There aren’t any mainstream cultural hesitations in any of these countries (although each has its own fairly large share of dissidents, with good reason). As such, this split is a sure way to accelerate the erosion of the West's standing in global affairs, although the current state of affairs is not exactly helpful in that regard either.

Let's have no illusions: this is a deep division and it's unlikely that we will ever return to a level of unity and understanding in Western societies like we had in the recent past. We're at a major crossroads in History.

Will we be able to live together even if our backs are turned against each other, or will one side try to impose its will on the other with backlashes turning more violent each time? This will not be solved with simple calls for unity since the two sides are so far apart at this point.

More importantly, which “state” will YOU choose?

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Goldman Perplexed By The “Relentless Bull Market”

It has now become a weekly ritual: Goldman warns the market is overvalued and poised for a selloff, market proceeds to ramp to new all time highs.

It was just last weekend when Goldman’s chief equity strategist, David Kostin warned that investors will soon realize they were too optimistic, pointing out that the “S&P 500 has returned 10% since Election Day while consensus 2017E adjusted earnings have been lowered by 1%”, and adding that “we are approaching the point of maximum optimism and S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected.”

What happened next is familiar: the Dow proceeded to notch five consecutive all time high in the following week, closing at a new record on Friday afternoon.

So has Goldman thrown in the towel? Not at all, and in a note over the weekend, Kostin is now clearly perplexed by what he dubs a “relentless bull market”, is now making not only short-term predictions, but urging Goldman’s clients to “replace long equity positions with calls or sell unlikely upside to fund protection.”

Some more details: in a note from Friday evening, asking “How to position in a relentless bull market given a long list of near-term drawdown“, Goldman observes that “It has been a year since the last 10% US equity market drawdown but long periods of stability are not good indicators of drawdown risk. In recent years, investors have bled premium by hedging positions while stocks continued to climb. Looking ahead, the distribution of market outcomes appears asymmetrical. Near-term downside catalysts include (1) investor recognition that lower corporate tax rates may not take effect until 2018; (2) multiple Fed hikes; (3) European elections. We forecast S&P 500 will peak in 1Q at 2400 and end the year at 2300. Given extremely low volatility, investors should replace long equity positions with calls or sell unlikely upside to fund.”

In short, while Goldman’s top equity strategist is perplexed (or at least so he would like to appear, even though virtually all of Trump’s economic advisors are his former colleagues and Goldman’s stock has soared over 30% since the election), his advice is for clients to get out in the next 5 weeks (when Q1 ends), and to “replace long equity positions” while selling unlikely upside to take advantage of the extremely low volatility.

Below are the details of Goldman’s latest bearish thesis:

“August in February” describes both the weather and trading activity this week. As temperatures in Manhattan climbed into the high 60s (20º C), equity volatility continued to fall. S&P 500 realized 3-month volatility now ranks in the 1st percentile of the last 50 years. It has been more than two months since S&P 500 moved more than 1% intraday. Earlier this month marked a full calendar year since the last 10% US equity market drawdown. The S&P 500 declined by 14% in February 2016. It has been more than seven months since the last 5% drawdown (6% in June 2016), and 93 trading days – more than four calendar months – since the S&P 500 last experienced a daily decline of 1% in early October. The last time the market exceeded that stretch was 94 days in 2006.

Long periods of market stability are not good indicators of drawdown risk. Since 1980, there have been only six instances of the S&P 500 trading for 80 or more consecutive days without a 1% decline. Following the end of these stable market periods, the S&P 500 actually registered a positive three-month return in five of six episodes, with a median 6-month return of 9% and a 12-month return of 15% (Exhibits 2). In short, following previous periods of market stability, the S&P 500 usually continued to march higher.

Extreme positioning of US equity investors is generally a contrarian indicator, but the market has continued to climb amid widespread bullishness. Our Hedge Fund Trend Monitor published this week showed that hedge funds currently carry their highest net long exposure since 2015. Similarly, our Sentiment Indicator based on S&P 500 futures positions reads a 100 this week on a scale of 0 to 100.

Although the indicator is more useful in signaling market upside following low values, readings above 90 have been statistically significant indicators of modest downside risk during the subsequent month.   The S&P 500 has continued to reach new record highs despite SI readings above 90 for nine of the last 10 weeks.

The clearest potential tailwinds for S&P 500 upside include government policy and acceleration in US economic data, but neither catalyst looks likely. Investor optimism in recent months has been driven in large part by hopes for lower corporate tax rates. However, our Washington, D.C. analyst believes the political climate suggests that tax reform likely will not go into effect in 2017. Meanwhile, recent economic data have been strong, but the high level of our economists’ MAP index of data surprises as well as the 3.6% pace of US economic growth signaled by their Current Activity Indicator place a high bar for upcoming data releases to maintain the current pace of economic acceleration and drive further share price appreciation.

The distribution of market outcomes appears asymmetrical in our view, but the market will likely continue to grind higher until a catalyst sparks a drawdown. Upcoming weeks include a number of major risks:

  1. US government policy: Next Tuesday, Feb. 28, President Trump will present his State of the Union to Congress. Trade with China has been notably absent from recent headlines despite constituting a central pillar of his campaign. Protectionist trade policy is a risk lurking under the surface.
  2. US monetary policy: Although most investors expect two or three FOMC rate hikes this year, the market prices just a 22% likelihood of a hike at the FOMC meeting on March 15. PCE inflation data released on March 1, Chair Yellen’s planned speech on March 3, and/or the monthly jobs report on March 10 could raise the odds of a hike sooner than is currently expected.
  3. European elections. In a busy calendar of European elections, the first round of the French presidential election will occur on April 23, with a potential run-off scheduled for May 7.

Fund managers are currently caught between a long list of risks and a market climbing steadily to new record levels.

Our 2017 outlook remains that S&P 500 will peak in 1Q at 2400 and then fade to 2300 by year-end. Firms will not benefit from lower tax rates until 2018 and the Fed’s bias is to tighten. But following years of watching cash and hedges drag on returns, it is difficult for investors to miss out on potential upside or spend premium for protection in a market that continues to grind higher. Although European implied volatility shows a “kink” around the French elections, US equities reflect little to no implied risk from the events listed above. Unfortunately, drawdowns rarely announce themselves to investors in advance.

Investors seeking to own US stocks while protecting against upcoming risks can take advantage of extremely low volatility by replacing cash equity holdings with calls. Call options offer unlimited upside participation but risk just the cost of the option if the market falls or stops rising. Investors who are already long but find themselves concerned with the asymmetric risk profile can sell unlikely upside to protect against drawdown risk. An investor can sell a 2410 (+2%) S&P call with a June 30 expiry and use the premium to buy a 2240 (-5%) put. This strategy protects investors from a drawdown of 5% or more during the next four months while allowing participation to our upside forecast level of 2400. June 30 expiry captures the potential event risks listed above as well as the June 14 FOMC meeting. Our economists assign a 90% probability of at least one Fed hike by then while futures imply a much lower 67% likelihood.

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Nexit Looms – Dutch Parliament To Debate Leaving The Eurozone

Submitted by Michael Shedlock via MishTalk.com,

Potential Eurozone disruption possibilities keep compounding.

For example, the Netherlands Parliament will now debate leaving the Eurozone.

In long-winded wording for a potential “Nexit”, Reuters reports Dutch relations with euro up for debate after lawmakers commission probe

The Netherlands’ future relationship with the euro will be comprehensively debated by its parliament following elections in March after lawmakers commissioned a report on the currency’s future.

 

The motion approving the investigation by the Council of State, the government’s legal advisor, coincides with a rising tide of euroscepticism in Europe, which populist parties are hoping to tap into in a series of national elections this year also taking in eurozone powerhouses France and Germany.

 

The probe will examine whether it would be possible for the Dutch to withdraw from the single currency, and if so how, said lawmaker Pieter Omtzigt.

 

Omtzigt, of the opposition Christian Democrats, tabled the parliamentary motion calling for the investigation, which legislators passed unanimously late on Thursday.

 

It was prompted by concerns the ECB’s ultra-low interest rates are hurting Dutch savers, especially pensioners, and doubts as to whether its bond purchasing programs are legal, he said.

 

Its findings will be presented in several months, by which time the make-up of parliament will have changed dramatically.

 

While most Dutch voters say they favor retaining the euro, the eurosceptic far-right party of Geert Wilders is expected to book large gains though it is unlikely to win enough votes to form a government.

 

The most probable outcome of the March 15 vote is a new centrist coalition including some parties, such as Omtzigt’s Christian Democrats, that have been vocal in their opposition to current ECB policy.

 

“The problems with the euro have not been solved,” Omtzigt said. “This is a way for us to look at ways forward with no taboos.”

Analysis

Geert Wilders is likely to “win” the Dutch election. In this case, “win” means get more votes than any other political party.

However, the odds that Wilders can form a stable coalition with Wilders heading up the government is slim.

Netherlands Polls

dutch-elections-2017-02-24

The first line in the above table of Netherlands Polls is from the 2012 election, the rest of the lines are from February of this year.

History suggests those polls may be wildly inaccurate, but most of the parties ruled out a coalition with Wilders’ PVV.

In terms on “Nexit”, if Wilders can get 26% of the vote with another 24% agreeing, there just may be enough votes in parliament for the Netherlands to abandon the Euro, assuming the public would go along.

And 'Nexit' odds are increasing…

h/t @Schuldensuehner

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Most Illegal Immigrants Live In America’s Metropolitan Areas

Having exposed $27 Billion reasons why a number of America's city officials are up in arms over President Trump's sanctuary city defunding decision, we thought it worth investigating just where the most illegal (or undocumented or unauthorized – pick your politically correct term) immigrants reside in America.

Across America, there are over 300 governmental jurisdictions claiming "sanctuary status." Of those governments, there are 106 cities, while the rest are states, counties or other units of government.

The new U.S. administration wants to overhaul America’s migration system, cracking down on undocumented migrants. As Statista's Dyfed Loeche reports, in total there are an estimated 11.1 million unauthorized migrants in the U.S. of which some 6.75 million took refuge in the big metropolitan areas, according to data collected by the Pew Research Center. Some of these metro areas have so-called sanctuary cities at their center.

Infographic: Most Migrants Live in Americas Metropolitan Areas | Statista

You will find more statistics at Statista

Under Trump’s order, mayors defending their sanctuary city status are essentially imposing a defiance tax on local residents. On average, this tax amounts to $500 per man, woman and child. Major cities like Washington, D.C., New York and Chicago have the most to lose, and nearly $27 billion is at stake across the country.

The threat of losing nearly $27 billion in federal funding seems to be having an effect on some cities. In fact, Miami already reversed their sanctuary city policy.

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After Trump Trolls Perez On Twitter, New Democrat Leader Vows To Be “Trump’s Worst Nightmare”

For an indication of the current state of US political discourse, look no further than twitter.

Shortly after Democratic establishment favorite Tom Perez defeated Keith Ellison as the new DNC Chair, the Republican National Committee issued a statement slamming Democrats for being out of touch with the American people, a sentiment shared once again by many Bernie Sanders supporters, who say the loss of Ellison as a symbolic perpetuation of the status quo.

“By selecting a D.C. insider, Democrats only create deeper divisions within their own party by pushing a far left agenda that rejects a majority of their base outside Washington,” said chairwoman Ronna McDaniel.

“The DNC would be well-served to learn from two straight election cycle losses, encourage the leaders in their party to listen to what the voters want, and get to work with Republicans to fix the mess they created.”

However it was Donald Trump’s trolling of Perez on twitter over his victory, saying he could not be happier for Perez or the GOP, that was the punchline of the day.

“Congratulations to Thomas Perez, who has just been named Chairman of the DNC. I could not be happier for him, or for the Republican Party!”

Perhaps Trump’s compliment was sincere: on Wednesady Trump weighed in on the DNC chair election, praising Keith Ellison for his 2015 prediction that Trump could win the Republican nomination. “One thing I will say about Rep. Keith Ellison, in his fight to lead the DNC, is that he was the one who predicted early that I would win!”

Then again perhaps not, because shortly after Trump’s tweet, Perez – best known during the Obama administration for getting accolades for “seasonally adjusting” America’s transformation into a part-time worker society, responded as follows: “Call me Tom. And don’t get too happy. @keithellison and I, and Democrats united across the country, will be your worst nightmare”

And just like that, another classic Twitter war was born, because while Americans may await (a long time) for Trump’s economic plans to be implemented, they will surely be entertained.

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Darrell Issa Demands Special Prosecutor Probe Trump-Russia Connections

Republican congressman Darrell Issa – who Trump called “a very good man” during the campaign – called Friday for a special prosecutor to oversee the investigation into Trump associates’ contacts with Russia.

Three months ago, then Donald Trump tweeted…

We suspect he has a different opinion today.

Rep. Darrell Issa said on HBO’s “Real Time” that Attorney General Jeff Sessions — who Trump appointed as the nation’s top law enforcement officer — should not handle the problem.

“You cannot have somebody, a friend of mine Jeff Sessions, who was on the campaign and who is an appointee,” the California Republican said in response to a question from host Bill Maher.

 

“You’re going to need to use the special prosecutor’s statute and office to take — not just to recuse. You can’t just give it to your deputy. That’s another political appointee.”

Notably, as Politico points out, Issa emphasized that “there may or may not be fault” with Trump’s associates but said Russian President Vladimir Putin’s brutality toward political enemies highlighted the need for such a probe.

Issa supported Trump during the 2016 election, a fact that Democrats exploited in an attempt to topple Issa in his bid for a ninth term in the House. Issa prevailed by less than a percentage point, and Democratic presidential nominee Hillary Clinton beat Trump in the district by a wide margin. That result immediately left Issa as a top Democratic target for 2018.

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The U.S. Nuclear Energy Dream Is Dying

Submitted by Michael McDonald via OilPrice.com,

The United States was once a projected leader in the nuclear energy race. In the 20th century, the world dreamed of finding a way to provide safe, cheap, and renewable energy, and nuclear power seemed to be the manifestation of those dreams. All of this, however, seems to be coming to an end.

This past week, Toshiba decided to sell its American nuclear power subsidiary at a $6 billion loss. Westinghouse Electric Company, an American company that Toshiba acquired 10 years ago, is in the business of building and constructing nuclear power facilities. This isn’t the first time that Toshiba attempted to offload controlling interest in Westinghouse – all previous efforts, however, have failed.

Many reasons have been cited for this sell-off. Firstly, demand for electricity has been slowing down as of late. Secondly, natural-gas prices have been declining, making it harder to justify the measures necessary to make nuclear power work – one of the primary motivators for these projects was the increasingly high cost of natural-gas. Finally, integration of renewable energy sources (such as wind and solar) have been becoming more prevalent. Again, this makes it harder to justify nuclear energy projects.

However, the biggest barrier to entry for nuclear energy providers is the trade-off between safety and cost. The production of this type of energy can be fast and cheap, but not if companies comply fully with the U.S. nuclear regulatory body. Nuclear energy in America is simply becoming an uneconomic option.

This is problematic on the global scene for a variety of reasons, chief of which is safety standards. The U.S. remains the exemplary model to follow when it comes to regulation of new technologies. If nuclear power in America slows down substantially, the influence the U.S. has over global safety standards wanes, and the world becomes less willing to comply with basic guidelines. Without that scale of market presence from the U.S., the industry can suffer.

This slowdown from the U.S. may be advantageous for state-owned nuclear facilities. Without America as an example, Russia, parts of Asia, and the Middle East become the example to follow – their lack of standards and regulation would be to the benefit of nuclear facilities owned by governments.

However, many privately owned nuclear facilities simply do not have the capital to sustain these plants, even when the government helps subsidize their operations. This is evidenced by Toshiba’s termination of their Westinghouse project. Projects on the private side take much longer to complete, so that safety concerns change along the way, locking them into a cycle of never ending regulation updates.

In the last 20 years, the U.S. has seen only one new nuclear reactor that is functional, constructed by a government entity – the Tennessee Valley Authority. Further, the Nuclear Regulatory Commission shows that there are only four reactors currently under construction in the entire country. Two would be at the Alvin W. Vogtle station in Georgia, and two at the Virgil C. Summer plant in South Carolina.

These projects are implementing reactors manufactured by Westinghouse. Construction on all four are currently delayed over three years and are billions over-budget. Westinghouse itself was one of the last private companies to be commissioned for the manufacture of nuclear reactors – before over-budget, inefficient projects such as these pushed them into ruin. Westinghouse has said that these four projects, as well as two more in China, will be completed. But it remains doubtful that the dozens of other projects it has been commissioned to complete – and yet to begin – will ever reach fruition.

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JPMorgan Explains What Causes The Market’s 3:30pm Ramp

While over the past several years many have observed the peculiar last half-hour ramp in the stock market, leading to a variety of amusing knock-off phenomena, perhaps nowhere was it more noticeable than what happened on the last two Friday afternoons, and especially the most recent one when with the market down notably going into the last 30 minutes of trading, the Dow soared in the last minute, turning green with 7 seconds of trading left, continuing the streak of 11 consecutive all time highs, the longest such stretch since early 1987. 

While traditionally the “serious” media has ignored this odd last hour/minute/second ramp, on Friday even Bloomberg was compelled to chime in.

It isn’t over till it’s over. Especially on Friday. For the second time in two weeks, a final-hour ramp in the S&P 500 turned the index green for bulls, with the benchmark equity gauge jumping 6 points in a little over 30 minutes to close with a 0.1 percent advance and help preserve a fifth straight weekly gain. A similar spike salvaged gains seven days earlier.

 

 

“The machines kicked in and brought all the averages positive at the close,” Andrew Brenner, head of international fixed income for National Alliance Capital Markets, wrote in a note to clients. “We think markets move big time next week off the Trump speech Tuesday.”

 

After the financial crisis, traders were afraid of bad news coming out over the weekend. Now it’s the other way around, according to Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey.

Maybe it was the machines, maybe it was hedge funds covering (although as we reported earlier, they have actually been selling to retail investors in recent weeks), maybe it was a last minute tap on the shoulder by a certain central bank’s trading team.

However, what is known is that these farcial moves, which are draining what little confidence in a “fair and efficient market” remains, have attracted the attention of none other than the best quants at JPMorgan.

Earlier today, we showed how, according to JPMorgan (and BofA), the recent market levitation has been entirely on the shoulders of “animal spirited” retail investors plowing money into ETFs, coupled with CTA’s forced to cover into a gamma squeeze, even as hedge funds and institutions have been selling to retail investors. Well, as it turns out, the mechanics behind the recent move higher also explain such observations as Friday’s last second levitation.

As JPM’s Nikolaos Panigirtzoglou explains, “the picture we get is of institutional investors either lowering their equity exposure YTD or keeping it unchanged. This apparent unwillingness by institutional investors to raise their equity exposures YTD reinforces the argument that it is retail rather than institutional investors that most likely drove this year’s strong inflows into equity ETFs and as a result this year’s equity rally. And the fact that retail investors use passive rather than active funds to express their bullish equity views has important implications.”

The main implication is that this shift towards passive funds is elevating the importance of retail investors in driving markets. And retail investors’ sentiment is transmitted to markets more quickly via passive funds. This is because these passive funds have to rebalance by the end of the day, different to active funds that have the discretion to wait before they deploy their cash balances.

In turn, JPM adds, this end of day rebalancing means that equity trading becomes even more concentrated at the end of the day as passive funds grow. Passive funds typically rebalance at the end of the day because transacting at the closing price better aligns the performance of passive funds to the performance of the index they track.

And this end of day trading concentration is reinforced by the secular reduction in market depth and liquidity since the Lehman crisis. As market depth declines, the execution of large trades is postponed until the end of the day when more trading takes place, reinforcing the end of day trading shift induced by the expansion of passive funds. To get a sense of the underlying market transformation, YTD 37% of the NYSE trading volume took place during the last 30 mins of trading.

So the next time someone points a finger at the market’s last 30 minute levitation, one very likely culprit is the retail investor whose choice of ETFs as a “long-instrument”, leads to such ramps in the market as those shown above. It also means that as per the parallel JPM analysis, the institutional money continues to sell to the ultimate bagholder: Joe Sixpack.

As a side note, any time institutions start dumping to retail, whether with last minute ramps or not, the market’s inflection point has always been just around the corner. We see no reason why this time should be any different.

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Trump Says He Will Skip White House Correspondents’ Dinner

Donald Trump announced Saturday afternoon that he will not be attending the annual White House Correspondents’ Association dinner in Washington, D.C.

One day after the White House announced it had barred CNN, The New York Times, Politico and several other major media outlets from a media “gaggle” in the White House leading to angry protests from the press and several threats of boycotts of future media briefings, in a tweet the president said he will pass on the journalism scholarship benefit dinner in April traditionally attended by major media outlets, celebrity guests and the president and vice president.

“I will not be attending the White House Correspondents’ Association Dinner this year. Please wish everyone well and have a great evening!” he wrote on Twitter.

His refusal to attend comes amid reports that media outlets like CNN and MSNBC have been considering skipping the event at the Washington Hilton. Trump’s move comes in the heat of his ongoing battle with the media, which he has labeled the opposition party and “fake news.”

Various prominent political correspondents promptly responded to Trump’s announcement:

A high-profile comedian usually hosts the event in which the president is roasted by the comedian and the president roasts the media. The annual dinner began in 1920, and was scheduled to take place on April 29 at the Washington Hilton.

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