Fidelity.com Is Down

Yesterday, in a moment of humiliation for the entire alternative asset management industry, the websites of the largest US roboadvisors were down, blocking traders from accessing their trading accounts during the worst market rout in history.

Well, just hours later, the humiliation has spread to the pinnacle of the traditional asset management industry, because as of this moment the website of Fidelity  has just gone offline, supposedly as a result of record traffic as investors scramble to find out just how big is the damage to their accounts from yesterday’s historic selloff.

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Media, Legislators, Activists Stick By Straw Stats Produced By 9-Year-Old

Dubious statistics can keep thriving in our policy debates long after they’ve been debunked. Take the oft-cited fact that Americans use 500 million straws a day.

The source for this number is an unconfirmed 2011 phone survey of three straw manufacturers conducted by 9-year-old Milo Cress. That’s a pretty shaky foundation for an argument, but that hasn’t stopped media outlets, activist organizations, and government officials from using the figure to justify restrictions on the use of plastic straws.

Many outlets were either oblivious to the figure’s origins or mistakenly attributed it to the National Park Service. Learning its true source did spark some self-reflection from the Washington Post, which had cited the 500 million number in some of its reporting, and which ran a story that was somewhat skeptical of Cress’s findings.

Sadly, that introspection was short-lived. This past Friday, the Post was back to uncritically citing Cress’s research, saying in a story that “by some estimates, Americans throw away 500 million plastic straws a day.”

Others are sticking by the figure too. When the Post ran its skeptical story, a spokesperson for California Assemblyman Ian Calderon (D–Los Angeles), who had sponsored a bill criminalizing the offer of unsolicited straws, told the paper “we have no reason to believe it’s not accurate.” Calderon’s office could cite no other national statistic about straw use in the United States, but because no one had definitively debunked Cress’s number, they were going to stick with it.

A similar line of reasoning has been advanced by the fact-checking website Snopes, which says: “No one has proven that [500 million straws a day] figure wrong, mind you; it’s just that Cress is its only source and no one has confirmed his research independently.”

But more credible estimates of American straw usage do in fact exist.

The marketing analysis firm Technomics specializes in researching the food service industry. Every two years, it performs a study of disposable food service packaging; its most recent effort, from 2016, looked at over 30 different categories of packaging. Those numbers do not include straws purchased for home consumption, but David Henkes, a senior principal at the firm, says the study captures about 95 percent of the straw market.

Technomics found that Americans use 172 million straws each day. Given a growth rate of 2–3 percent per year in the straw market, Henkes estimates the figure today is somewhere around 175 million.

Cress reached his 500 million figure from calling three straw manufacturers, asking for their estimates of the straw market, and then averaging the answers he got. Given the fragmented nature of the food service business, Henkes says that approach is bound to give you a bad figure.

“You tend to get the bias of those three companies. Some of them may have big accounts like McDonald’s or Starbucks or something,” Henkes tells Reason. “What those miss is the parts of the business that aren’t using as many straws. What you’re essentially doing is extrapolating your small part of what you know about the business to the larger food service industry.”

For this reason, Technomics adopts a “triangular” approach, surveying over 1,000 restaurant operators, looking at data from distributors such as Gordon Food Service and US Foods, and examining numbers from packaging companies (several of whom are Techonomics clients).

It seems fair to say that Technomics’ survey is more rigorous than Cress’s.

Getting this number right, is not a mere academic quibble. If we’re going to consider legal sanctions for the use of a product, you need good data on how much the product is used.

“I think restaurants are an easy target to these bans and taxes and things like that,” Henkes says. “I think it’s important to have the right number out there for policy debates.”

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Canadian Short VIX ETF Suspends Redemptions Citing “Extreme Volatility”

It’s not just Credit Suisse that has an ETN problem, Horizons (Canada) has halted trading and suspended redemptions in its Inverse VIX ETF citing “extreme volatility in VIX- futures market.”

Price for the ETF has collapsed in the last few days…

 

Full Statement:

Horizons ETFs Management (Canada) Inc. (the “Manager “) announced today a trading halt on the units of the Horizons S&P 500 VIX Short-Term Futures™ Daily Inverse ETF, which trades on the Toronto Stock Exchange under the ticker symbol (” HVI “).

HVI seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs that endeavour to correspond to the inverse (opposite) of the daily performance of the S&P 500 VIX Short-Term Futures Index™.

The Manager’s decision to halt HVI followed its assessment of the extreme volatility in VIX- futures market that occurred in after-hours market trading yesterday.

The unexpected level of volatility has impaired the trading of the underlying derivatives used by many VIX-related exchange traded products that seek to provide inverse exposure to the S&P 500 VIX Short-Term Futures.

The Manager continues to monitor the trading activities in these underlying derivatives and will advise if any further action on HVI is required in due course. In accordance with HVI’s declaration of trust and subject to any necessary regulatory approvals, the Manager has also temporarily suspended redemptions and new subscriptions until further notice.  

Horizons’ HVI Inverse VIX ETF remains well above its NAV, suggesting notable downside if/when it reopens…

 

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ECB “In Touch With Market Participants” Over Market Crash; White House “Concerned”

In a double whammy of panic about the fate of the artificial “wealth effect” created thanks to $20 trillion in central bank liquidity, officials at both the White House and Europe’s largest hedge fund expressed concerns about the market rout that saw the Dow suffer its biggest point drop in history.

According to Bloomberg, ECB staff “have been in contact with market participants over the current selloff in stocks to gauge if there is any risk to financial stability.”

As Bloomberg adds, the latest communications are part of the ECB’s regular interactions with financial institutions and the central bank isn’t yet overly concerned by the global equity rout. The underlying assumption is that “it’s simply a correction because valuations may have become overstretched.”

Of course, if the VIX explosion continues, the ECB will be far more worried.

As a result, staff are “watching for signs the downturn might enter a self-reinforcing spiral or spread from equities to bonds.”

One worry is that the selloff was triggered by strong U.S. economic data that led to expectations of faster interest-rate increases, a symptom that financial markets are still  relying on monetary support, one of the people said.

Meanwhile, across the Atlatnic, White House Spokeswoman Mercedes Schlapp said on Fox that “obviously we’re concerned about setbacks that happened in the stock market” however, she was quick to hedge that “with that being said, we’re looking at the long term strong economic fundamentals.”

Seeking to distance the White House from Trump’s relentless boasting about every uptick and sudden silence now that stocks have crashed, she instead decided to sound like your typical, worthless sellside analyst, and said that people should focus on “improving fundamentals” instead: “What we’re seeing is a strengthened economic growth, increased wages; we’re focused on the fact that there’s been the lowest unemployment that we’ve seen in a long time, and there’s confidence in our businesses. Consumer confidence is at an all-time high.”

As we said last night, the best outcome from all of this is that Trump will probably not tweet about the S&P for a long, long time.

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Credit Suisse “Terminates” XIV

After it was halted for trading earlier in the day, which many saw as a harbinger of imminent termination – moments ago Credit Suisse confirmed retail vol sellers’ worst fears when it announced that it would indeed be “accelerating” the XIV ETN, i.e. terminating it. From Bloomberg:

  • CREDIT SUISSE REPORTS EVENT ACCELERATION OF XIV ETNS
  • CREDIT SUISSE AG ACCELERATION DATE IS EXPECTED TO BE FEB. 21
  • CREDIT SUISSE SEES TO DELIVER IRREVOCABLE CALL NOTICE ON XIV

How much money will holders of the now defunct XIV get?

  • CREDIT SUISSE: ETN INVESTORS TO GET CASH PMNT AT CLOSING VALUE

Which is bad news for XIV holders, because as we showed last night, the NAV of the ETN crashed  to $4.22 yesterday from 108.36.

… effectively wiping it out, and assuring that longs get nothing in what was until recently one of the best performing investments in the market.

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“All Sex Offender Registries Should Be Abolished”: Reason/Soho Forum Debate, 2/12

Do sex offender registries keep predators like serial child molester Larry Nassar, the former USA Gymnastics team doctor, from becoming abusers—or do the laws actually do more harm than good?

“All the laws requiring those convicted of sex offenses to put their names in a registry should be abolished.”

That’s the highly controversial resolution that will be argued at the next Soho Forum/Reason debate, on Monday, February 12 at New York’s Subculture Theater.

Emily Horowitz will argue the affirmative position. She is professor and chair of the sociology and criminal justice department at St. Francis College in Brooklyn, New York, where she founded a program that helps the formerly incarcerated complete college.

Marci A. Hamilton will take the negative. She is Fox Professor of Practice and Fox Family Pavilion Resident Senior Fellow in the Program for Research on Religion in the Fox Leadership Program at the University of Pennsylvania.

The Soho Forum is a monthly Oxford-style debate, meaning that the audience votes before and after the proceedings and the debater who has moved the most people in her direction is the winner. Soho Forum co-founder Gene Epstein will moderate one of the most-controversial subjects imaginable. Reason is proud to sponsor the Soho Forum, which is held monthly. Each debate is also live-streamed at Reason’s Facebook page and here at Reason.com. Go here for a full archive. To listen to an audio podcast version of the Soho Forum, subscribe to the Reason Podcast at iTunes.

Tickets must be purchased in advance. General admission is $18 and student rate is $10. For this debate, you can bring a friend for free. See details here.

“All the laws requiring those convicted of sex offenses to put their names in a registry should be abolished.”

Mon, February 12, 2018

6:30 PM – 8:30 PM EST

Subculture Theater

45 Bleecker St

New York, New York 10012

View Map

Cash bar opens: 5:45pm

Meeting convenes: 6:30pm

Wine-and-cheese Reception: 8:15pm

Tickets must be reserved in advance.

Watch the most recent debate: “Is Selfishness a Virtue, featuring Yaron Brook and Gene Epstein, and moderated by Judge Andrew Napolitano.

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Here Is What Was Behind The “Largest VIX Buy Order In History”

Less than a month ago, Goldman Sachs presciently published a note research report “VIX ETPs are now net short vega – should we worry“…

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…. which as the title suggested showed that the net position of VIX ETPs has become short over the past few weeks, for only the second time in their eight year history.

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This odd finding – namely that the VIX ETPs had shifted their traditional vol bias from long to short – prompted the Goldman strategist to ask glibly “Should we worry?”

Less than a month later we have the answer: Yes, Goldman, you should worry, because the historic short squeeze that took place overnight in VIX, which sent it over 100% higher – the biggest jump in history – was precisely a result of this Goldman observation, namely that ETPs were now aggressively shorting vol.

Here is what happened – as Morgan Stanley explained overnight – following this first ever shift by ETPs to net short vega, a move that in retrospect will prove to be suicidal for the entire industry, which now faces one giant termination event.

In short, “the VIX market saw the biggest net buying pressure on record.” According to Morgan Stanley calculations, ETPs had to buy 282,000 VIX futures to rebalance their short gamma: “this was the largest VIX buy in history, dwarfing Friday’s previous record of 78,000.” Dealers hedging their short gamma exposures likely contributed to VIX futures demand as well.

And since most of the rally in VIX futures happened after the 4:00 pm cash close, there was no time for investors or the issuers of the VIX ETPs to react.

It gets better: according to Morgan Stanley this move was “incredible” particularly because VIX and VIX futures were already elevated – and the amount of volatility to buy exceeded the bank’s already aggressive estimates (below shows what QDS estimated coming into Monday) and speaks to the size of the short vol exposures in the market:

While this explains the theory, the question is what happens in practice next: will the inverse ETPs – like XIV – continue to exist today? This is up for debate at time of this writing, but for the broader market the implication is clear: the inverse ETPs have effectively delevered down to zero, going from short 230,000 VIX futures to short just 4,000.

The good news from the effective wipeout of a major part of the vol-selling market is that “this means there is much less risk going forward of further vol to buy from rebalancing of these products.”

The bad news: holders of the inverse ETPs lost $3.4bn as the products went nearly bankrupt and this removes a steady source of volatility supply over the last year.

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A.M. Links: House Intelligence Committee Votes to Release Democratic Memo, Stock Market Appears Headed for Third Day of Losses, Space X Plans to Launch Falcon Heavy Rocket Today

  • “President Donald Trump’s attorneys are trying to sway him against agreeing to an interview with special counsel Robert Mueller partially out of concern he might incriminate himself through false statements and could be charged with lying to investigators.”
  • The House Intelligence Committee has voted to release the Democratic memo drafted in response to the Republican “Nunes memo.”
  • Steve Bannon is reportedly thinking about defying a House Intelligence Committee subpoena by refusing to appear before the committee.
  • The stock market seems to be headed for another day of losses today.
  • Elon Musk’s Space X is planning to launch its Falcon Heavy rocket from the Kennedy Space Center in Cape Canaveral today.
  • Polish President Andrzej Duda is expected to sign a bill today making it illegal to accuse Poles of complicity in the Holocaust.

Follow us on Facebook and Twitter, and don’t forget to sign up for Reason’s daily updates for more content.

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‘Keep Your Tyranny Off Our Titties,’ Say New Orleans Strippers

Just in time for Mardi Gras, strippers and their allies have been taking to the New Orleans streets to protest recent police operations at French Quarter strip clubs. The investigations and raids, conducted under the pretense of stopping sex trafficking, have led to the temporary shutdown of eight clubs and are seen by many as part of the city’s plans for a more gentrified Bourbon Street.

“Fuck the cops and fuck the raids, all we want is to get paid,” chanted some protesters last Wednesday, as Mayor Mitch Landrieu and city officials detailed Mardi Gras preparations at a press conference in the background.

The raids—a joint project of the New Orleans Police Department (NOPD) and the Louisiana Office of Alcohol and Tobacco Control—took place over a 10-day period in January. They were the result of months of undercover operations in late 2017.

New Orleans authorities did not find evidence of underage prostitution or human trafficking, their stated reason for the investigations. The worst they turned up was some dancers offering undercover cops a little more than just a lap dance, and a few instances per club of entertainers baring their breasts or genitals. But this was enough to revoke the businesses’ liquor permits, using a law that prohibits alcohol-serving establishments from “permitting any prostitute to frequent the licensed premises or to solicit patrons for prostitution.”

As of last Friday, four clubs (Scores, Stilettos, Rick’s Sporting Saloon, and Rick’s Cabaret) had reached resolutions with the state that would allow them to reopen and serve alcohol again pending a several-week suspension and a $5,000–$7,500 fine. But one club, Temptations, will have its liquor permit permanently revoked. The remaining three are scheduled for hearings this week.

The closures put a lot of dancers and other club employees out of work during the city’s biggest tourism season of the year.

Club workers and their allies showed up during a city press conference on January 31 to protest the closures, which they said will hurt them economically and put more people at risk of violence and exploitation.

“Chants of ‘Let us dance!’ drowning out the press conference,” tweeted one attendee.

The next night, hundreds showed up for a protest that wound through the streets of the French Quarter, chanting things like “Keep your tyranny off our titties” and wielding homemade signs. “You Are Making Us Suffer Not Keeping Us Safe” read one. “I May Strip My Clothes But You Stripped My Rights,” said another.

Other slogans included “Stop Fucking With Our Livelihood,” “Closing Our Clubs Will Only Exacerbate the Sex Trafficking Problem In Our City,” “Decriminalize Sex Work Now,” “#BourbonStNotSesameSt,” and (my personal favorite) “Twerking Class Hero.”

“Starting on Bourbon Street near numerous still-shuttered clubs, the protest [ended with a rally] where strippers shared stories of the hardships they’ve faced without work since the raids and denounced what they said is politically motivated enforcement,” reported The New Orleans Advocate. They “questioned why the raids were timed at the start of Carnival and argued that a crackdown on ‘vice’ in the French Quarter is an attack on the business that fuels the city’s tourism industry.” And they criticized the city for fighting fake sex trafficking at the clubs when there were plenty of sex workers on the streets who could genuinely use some help.

“While the protest largely focused on the recent raids, it also touched on other issues, including a planned City Planning Commission hearing next week on whether to cap the number of adult businesses in the Quarter, plus a state ban on strippers under the age of 21 that is being challenged in federal court,” the Advocate noted.

The City Planning Commission is considering a cap on the number of strip clubs allowed in the French Quarter and ways to reduce the number of existing clubs. Under the proposed motion, drafted by the New Orleans City Council last October, a new strip club could not open in the place of a closing one if there was another strip club on the same block.

The city has justified all this by citing concerns about human trafficking and sexual exploitation.

“The people of New Orleans have been told repeatedly that the months-long investigation and outpouring of law enforcement resources was necessary to uncover widespread sex trafficking in the strip clubs on Bourbon,” said Michelle Rutherford, legal adviser for Bourbon Alliance of Responsible Entertainers, in statement. Yet “neither the undercover investigation nor the raids revealed any instances of trafficking or exploitation of dancers or other women in the clubs.”

You wouldn’t know that to hear the city authorities talk. NOPD Superintendent Michael Harrison cooed last week after the raids about how his department, alcohol regulators, and state police had “worked together over a period of several months to gather intelligence and build strong cases against criminals using these clubs as a hub for illegal activity.” City cops are “committed to keeping Bourbon Street and our entire city free of criminal activity,” Harrison said.

“Many see strip clubs as a symptom of the city’s dark underbelly, a place of exploitation and abuse,” wrote dancer Reese Piper in an op-ed on the raids. “But to me, they represent student loan payments, education and freedom. For the hundreds of people working in the clubs, the crackdowns are a threat to our livelihoods and survival.”

For all the months of undercover investigation, ample taxpayer-funded trips to the strip club, and the myriad raids, the only actual violations the clubs were cited for include a handful of dancers per club offering to engage in paid sex acts with undercover police and/or engaging in “lewd acts” such as briefly baring their full breasts or caressing a patron’s clothed genitals. At a few clubs, dancers also offered to share or sell marijuana and cocaine with undercover officers.

At Hunk Oasis, for instance, two dancers are accused of flashing their genitals at patrons and one dancer sold a small amount of marijuana to an undercover officer. At Hustler’s Barely Legal Club, officers were allegedly solicited for prostitution six times during their month of visits, saw dancers “encouraging the touching of their [clothed] genitals” by customers on two occasions, and saw employees baring their breasts or genitals five times. At Rick’s Cabaret, officers were allegedly solicited for prostitution five times, flashed four times, and offered a bump of cocaine once.

These are the sorts of things—done discretely by individual actors—that cost these clubs their liquor licenses, weeks of business, and thousands of dollars apiece in fines. (If widescale sex trafficking had shown up, it might be hard to argue that club management knew nothing. But how the heck are they supposed to know whether a dancer briefly bares her breasts to a customer in a private room?)

This all highlights how arbitrary rules like anti-lewdness laws and strip club regulations can be. A dancer can grind on someone’s lap legally but crosses a line if her hand brushes over the customer’s clothed penis. She may wear the tiniest of bikinis, but must never expose her nipples for even a second. These are silly distinctions to begin with, made even sillier by the fact that New Orleans cops would spend months of undercover operations enforcing them—especially in a neighborhood where curbside flashing for beads and drinks is commonplace.

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