As a result of high taxes and government debt, combined with a nightmarish looming pension liability, Chicago’s housing market continues to collapse, according to a new write-up in the City Journal.
Average home prices in Chicago have still not recovered from the downturn that started in 2009, despite the fact that property taxes continue to climb. This is part of the reason Illinois ranks highest among states losing people to other areas of the country. Chicago homeowners are also taking big losses when they sell their homes.
Ball State economist Michael Hicks said last month:
“Taxes are high, the services [that taxes] pay for are terrible, and the debt load is so high, so palpably unsustainable that people have no belief that the resources can be found to turn it all around.”
“You won’t recruit a business, you won’t recruit a family to live here,” Chicago mayor Rahm Emanuel said in 2012, warning about the city’s pension problems. And that looks to be the case: Realtor.com predicted that Chicago would have the weakest housing activity this year among the nation’s top 100 markets.
But unions in Chicago continue to push for higher pension contributions, even while efforts to curb the problem have failed. This has resulted on the money having to come from somewhere – and that somewhere is taxes. According to the report, Chicago’s annual pension payments have doubled over the last few years, to nearly $1.2 billion, and are set to rise to $2 billion in 3 years.
In 2015, the city approved $543 million in property tax increases as a result. Chicago schools also raised local homeowner taxes by $224 million in 2017. “Every penny” of these taxes goes into the pension system and Chicago now bears the title of “highest residential property-tax rates of any American city.”
And not surprisingly, residents are leaving Illinois and Chicago as a result. From 2011 to 2017, the state ranked second among states in outmigration, losing 640,000 more residents than it gained:
A recent Bloomberg study of metropolitan-area migration data found that the city had a net migration loss of 105,000 in 2014; it got worse in 2017, with the net loss totaling 155,000.
And while some governors, like New York’s Andrew Cuomo, acknowledge that taxes are driving people out, Illinois’ new governor Jay Pritzker has instead introduced legislation for more taxes on the wealthy, offering them a great excuse to leave Chicago, and the state. The city is losing its luster with millennials, too. Chicago now ranks as third-least attractive among the 53 largest metro areas in the U.S., losing an average of 19,000 young adults per year. Illinois ranks behind all but two states in trying to attract young adults.
The city’s economy is also sputtering, averaging less than 1% growth in private sector jobs in each of the last 2 years.
And when residents flee the city, they put a home up for sale in the market without buying one in the same market. This has caused the price of housing to plunge – according to the report, the “average price of a single-family home in Chicago is lower than it was before prices began plunging back in 2009.”
The national average is a rise of 30% in home prices since the crash. Housing speculators in the city have been decimated:
Crain’s Chicago Business told the story of a Chicago-area executive who lost more than half a million on the sale of his home when he retired to move elsewhere. If he had invested the money in the stock market instead, he said, “I’d probably have $6 million now.”
This has led to a slew of underwater mortgages – the most in any major US market. It’s estimated that 135,000 mortgages may risk default during the next economic downturn.
In early April, we noted that Chicago pension funds looked like a “collapsing ponzi scheme”. Back in December 2018, we noted that each Chicagoan owed $140,000 to bail out the city’s pensions.
And we’d love to say, “Let this be a lesson to the rest of the nation” who believes that government financial problems and pension liabilities are simply “no big deal”, but we’re certain they’re not listening anyway.
via ZeroHedge News http://bit.ly/2wyBLj6 Tyler Durden
The newest 2019 Call Of Duty: Modern Warfare features missions involving the pro-al-Qaeda “humanitarian organization” White Helmets and a “Bana al-Abed-esque” girl killing “bad Russians.”
The following is a description of the second mission in which a flashback shows how two children become “rebel fighters” on the side of the US, after Russian soldiers raided their house.
“The scene starts off with a big explosion in a country in the Middle East. After the explosion occurs, we are taken into the perspective of a female child who is stuck under all of the rubble caused by the explosion. The explosion was a drone strike (by I believe Russia). She is panicking and yelling for help. Another girl is stuck next to her but unresponsive. She tries to push around the fallen rocks and cement slabs off of her, but she is too small. We then hear someone come from above them and remove the rubble to see the girl stuck in there. Frantically, many more people come to remove the remaining rubble (even using a saw at one point). Once it’s removed, they pull the girl out, and she goes to her father’s hand, who starts asking where is her brother. The other girl with her in the rubble does not appear to survive. Now, another airstrike drops on the location.”
Popular video game “Call of Duty” released a trailer on Thursday about its latest installment portraying the efforts of civil defense forces in Syria. https://t.co/zefitez0Az
“The father picks up the girl and they both start running to find where her brother is. The sister says the brother stayed at home to study, so he wasn’t with her. They have to get back home to find the brother, but during the run back, Russian soldiers come in on vehicles, jump out of the vehicles, and just start shooting everyone — you can hear women, children screaming not to be shot; men and women yelling in pain. The father puts the kid down and tells her to follow behind him. As they start running and getting closer to their house, the Russian soldiers throw some sort of nerve/lethal gas. They bust inside their house, shut the door, and find the brother. They converse about what they must to do next (and the girl/boy are given cell phones). The father reveals that their mother has been killed. The father hands the boy a gas mask, tells him that the daughter will be okay without a mask right now, and prepare to leave.”
“A Russian soldier is ordered to check door to door and comes into their house before they can leave. The father pleads with him not to shoot because there are children in the house. The father then lunges towards the attacker to take the weapon away and stab him. The little boy tries to help the father take down the attacker, but the attacker throws the boy into the door, knocking him out. The Russian soldier is a lot stronger and shoots the father numerous times — in front of the daughter. The daughter runs for her cover. The soldier starts to search for her around the house, and she starts to run into vents. This begins a little cat and mouse style chase. She picks up a screwdriver, runs at him, stabs him in the leg. He yells. The girl runs again, back for cover as the attacker is not subdued. They go around in this cat and mouse style chase for two more times with the girl stabbing him repeatedly in the legs with a screwdriver, and then, the brother wakes up. The action movies to the kitchen of the house, where a fight ensues again. The daughter stabs this attacker, alongside the brother trying to choke him out. As the man is brought down, the daughter finally gets a hold of the AK of the attacker and shoots him numerous times. The brother and sister converse about what they need to do, and the girl takes off the attacker’s gas mask to use for herself.”
* * *
Following that, the father passes away and the two children with gas masks sneak around on the streets, while Russian soldiers are laughing and killing civilians.
At the end of the mission, they reach an impasse and they need to pass, with the boy coughing, so it is all in the girl’s hands.
“They come up on another area not too far where they see a truck they need to take in order to get out. Since the boy is coughing, the girl says she will grab a gun and kill them both but needs a distraction. The boy walks to the other side of this fence, while the girl starts to slowly go closer. She sees a gun on the table, a .44 Magnum, and needs a distraction to get it. She pulls out her phone and calls her brother’s phone, which leads the two Russian soldiers to investigate that ringing. The girl runs over and grabs the weapon, and starts to make her way into a position to shoot the Russian soldiers. She pulls up the gun, shaking a lot, and points it at the head of the attacker. We hear a *bang* and the screen goes black.”
It can’t even be said that this sort of propaganda is taking it too far, since it is part of the norm nowadays.
In 2017, Caitlin Johnstone directly pointed at the problem, saying that the “Bana al-Abed” psychological propaganda operation proved how the West was “Saturated in War Propaganda.”
“The reason for all of this, of course, is that US hegemony is fully dependent on its massive military power. Since the heavily-armed American people would grow upset if they were told that the oligarchs who rule their country are spending an unfathomable amount of the nation’s money and resources trying to depose Bashar al-Assad because Syria occupies a crucial strategic location in US world dominance (risking a direct confrontation with the nuclear-armed Russia in the process), they make it about saving children instead.”
In some cases, modern video games, movies and even comic books are infested by war propaganda even more than news pieces released by CNN and similar media outlets.
Only recently, DC Comics came out with a series incorporating “the Russians’ puppet” Assad that “gassed” multiple civilians.
So, American youth are already “informed” who are the “good guys” in Syria, even if there have been no conclusive evidence to blame Assad for the Douma chemical attack and these “good guys” have appeared to be a rebranded branch of al-Qaeda.
Really love how comic books continue to be propaganda outlets for the US war machine pic.twitter.com/ELTJa2jvmY
This situation is a demonstration of how little propaganda capabilities Syria, Venezuela, China, Iran or Russia possess in comparison with their Western rivals.
In most cases, the US and the EU use bogeyman stories about the mighty Russian, Chinese, Iranian and even Syrian propagandists as a formal justification to tighten censorship and increase own propaganda efforts.
via ZeroHedge News http://bit.ly/314M3Wv Tyler Durden
The Trump administration has implemented a new policy, effective on Friday, that now asks most applicants for U.S. visas to provide information on their use of social media, according to The Hill.
Even temporary visitors will be required to list their social media identifiers in a drop-down menu, along with other personal information, when applying. Applicants for visas will be given the option to say that they don’t use social media, but if they are found to be lying, they could face “serious immigration consequences”, according to a U.S. Department of State official.
A spokesperson for the Department of State said:
“This is a critical step forward in establishing enhanced vetting of foreign nationals seeking entry into the United States. As we’ve seen around the world in recent years, social media can be a major forum for terrorist sentiment and activity. This will be a vital tool to screen out terrorists, public safety threats, and other dangerous individuals from gaining immigration benefits and setting foot on U.S. soil.”
These identifiers will be incorporated into more traditional background checks and examined against watchlists that are generated by the US government. In the future, applicants are also going to be required to disclose more extensive information on their travel history. These two changes result from a March 2017 executive order targeting “extreme vetting”, issued by President Trump. The state department had since noted its intent to implement the policy in March 2018.
The order is partly a result of the deadly shooting of 14 people in San Bernardino, California in 2015. The Obama administration faced criticism after the shooting since the shooter’s wife, Tashfeen Malik, had declared “terrorist sympathies” on social media before she was granted a U.S. visa.
Trump’s executive order is called “Protecting The Nation From Foreign Terrorist Entry Into The United States.”
via ZeroHedge News http://bit.ly/2KkYjMr Tyler Durden
Pardon me for being blunt, but it would be difficult to find anything more idiotic than the war on drugs, an ongoing federal program that has been enacted and enforced by both Republicans and Democrats for decades. The program is sheer idiocy in that its supporters continue to keep it going despite the manifest failure, violence, ruination of lives, expense, racism, and destruction of liberty and privacy that this federal program has produced and continues to produce.
But hope springs eternal in the minds of the drug war’s supporters and enforcers. Each new drug bust over the decades, oftentimes accompanied with a large amount of hoopla from the mainstream press, provides these people with confirmation that victory is just around the corner. Just a few more drug busts and the long drug-war nightmare will finally be over.
It has never happened, More important, it will never happen. And to believe it will happen is, well, sheer idiocy. There is a simple reason why victory is impossible in the drug war: the laws of supply and demand. Although the members of Congress, having heard of the laws of supply and demand, oftentimes think they can be repealed by Congress, that’s just more idiocy. That’s because these laws are natural laws, not man-made laws. Like the law of gravity, the laws of supply and demand cannot be repealed by the members of Congress.
In the absence of drug laws, the prices for drugs would be set by the laws of supply and demand, much like the price of alcohol is set. In a free market — that is, a market that is free of government regulation — if an item is scarce, the price will tend to be higher, assuming it is in demand by consumers. But that high price then encourages producers to produce more of it to capitalize on the profits that can be made by selling it. The increased supply of the item tends to bring the price down.
Today, booze is reasonably priced. By that I mean that a wino is able to afford a cheap bottle of wine by making a relatively small legal effort, like working an odd job or doing some panhandling. It’s not worth it to him to mug someone, burglarize a house, or rob a bank to get the money to buy a bottle of wine because the risk of getting caught and the potential consequences of getting caught far outweigh the small effort to legally acquire the money to buy the bottle.
Now, suppose the price for a cheap bottle of wine suddenly goes from $5 to $250. The situation for the wino now changes. Assuming he is unable to break his addiction, he now is compelled to get a much larger sum of money to satisfy his addiction. Odd jobs and panhandling won’t cut it. He now must revert to violent crimes to get the money to pay for his wine.
That’s what drug illegality has done. It has caused the price of illicit drugs to soar. In the absence of the drug war, drugs would be reasonably priced, so that drug addicts would be able to afford to pay for their addiction. Once drugs are made illegal, they don’t disappear. Instead, they continue to be sold on the black or illegal market. But because of the scarcity that illegality produces, the black-market price is much higher than it was when the drugs were legal. And the fiercer the crackdown — i.e., the more drug busts they make and celebrate as “progress” — the higher the price goes. That means more muggings, robberies, and thefts to get the money to finance the addiction.
The drug warriors believe that they will be able to continue the crackdown to such a point that they squeeze all the drugs out of society. However, that’s just more idiocy, The reason is because as the black-market price soars, more people are tempted to become drug sellers to capitalize on the big money that can quickly be made in the drug trade. That’s why the drug warriors can never “win” the war on drugs. The more they fight, the bigger the problem becomes.
Consider, for example, a 42-year-old Japanese man identified only as Uno N. On a recent flight from Colombia to Japan, he began having seizures and died mid-flight. An autopsy revealed that he died from a swelling of the brain caused by a drug overdose. During the autopsy, 246 plastic bags of cocaine were found lodged in his stomach and intestines. Apparently one or more of them ripped open during the flight.
Now, why would anyone do such a thing, knowing the life-and-death risks involved? The most likely reason is money. I don’t know how much money 246 bags of cocaine would bring in Japan but my hunch is a very hefty sum. I wouldn’t be surprised if it turns out that Uno N was in financial straits and was looking to make a big score.
If a man is willing to risk his life to smuggle bags of cocaine inside his body, it is impossible to imagine all the other ways that drugs are being smuggled around the world. And remember: they more they crack down, the higher the price, which then induces more people to enter the trade.
There is but one solution to this drug-war idiocy: end drug prohibition, just as previous Americans ended alcohol prohibition after it produced nothing but failure, death, violence, ruination of lives, corruption, and destruction of liberty.
via ZeroHedge News http://bit.ly/2Z2eXEM Tyler Durden
The massive growing conglomerate that is Amazon has been famous for moving into new industries over the last decade. But it is one proposed move – a foray into the wireless industry – that has one Wall Street analyst calling the company “batshit crazy”, according to Bloomberg.
Amazon could be interested in purchasing prepaid phone service Boost Mobile from Sprint and T-Mobile, Reuters reported last week. The move may align with Amazon’s recent strategy to “broaden the value of its offerings to lower-income shoppers”, Bloomberg noted. Both Amazon and Wal-Mart have recently been tapped to try out a pilot program to accept U.S. government food assistance for online orders.
MoffettNathanson’s Craig Moffett didn’t mince words in a note to clients about the possibility of such a purchase: “Every once in a while, a news item comes along that is so batshit crazy – sorry for the profanity, but your author is at a loss for a better word here – that one is simply brought up short.”
T-Mobile and Sprint are proposing the sale of some airwaves in order to win Justice Department approval of their pending merger. Amazon may also be interested in any wireless spectrum that would be divested between the two groups, it was reported. FCC Chairman Ajit Pai said he would recommend that his agency approve the $26.5 billion T-Mobile and Sprint merger, but under the condition that they sell Boost, build a 5G network in the next 3 years, and pledge not to raise prices while the new network is being constructed.
Moffett, who has 30 years of experience in the telecom business, continued: “Amazon may harbor long-term visions of wirelessly piloted delivery drones and driverless delivery vehicles, but the idea that one would want to operate their own proprietary network for such purposes is economically insane.”
While Amazon already leases proprietary undersea cables and long-haul facilities, Moffett explained that it is still a far cry from operating a full coverage network: “Networks must, out of economic necessity, be open to all comers. So running your own wireless network to gain a competitive advantage in another business, like drone delivery or autonomous delivery trucks, is a fool’s errand.”
via ZeroHedge News http://bit.ly/314GMhF Tyler Durden
Not satisfied with silencing Trump supporters because it was Her Turn, Twitter last week banned hundreds, and by some reports thousands of Chinese dissidents from the platform – three days before the 30th anniversary of the Tiananmen Square massacre.
Forbidden City next to Tienanmen Square in Beijing
It hit human rights lawyers, activists, college students and nationalists, who use workarounds to get access to Twitter, which is banned in China. Just about every part of the raucous, if small, Chinese language Twitter world was affected.
The accounts began rapidly disappearing just days before the 30th anniversary of the crackdown on a student-led pro-democracy demonstration in Tiananmen Square in Beijing. Many online assumed the worst: a coordinated attack by Beijing to project its suffocating internet censorship outside its own digital borders. –New York Times
Put another way, the San Francisco-based, very liberal Twitter stripped a small minority of mostly powerless Chinese people of the ability to criticize their monolithic, human rights-violating government – on the anniversary of said government murdering hundreds, if not thousands of dissidents.
Or maybe the ccp hacked Twitter. That would make more sense to me.
Twitter said in a statementthat they had ‘inadvertently gone after a number of legitimate Chinese-language accounts’ as part of routine efforts to stop spam and inauthentic behavior.
“These accounts were not mass reported by the Chinese authorities — this was routine action on our part,” said Twitter in a statement, ading “Sometimes our routine actions catch false positives or we make errors. We apologize.”
What an amazingly timed coincidence…
Maybe Jack Dorsey still hasn’t forgiven the Dalai Lama from talking shit about his nose ring and has gone all in for the CCP?
Of note, Chinese censors blocked access to Twitter in 2009, two days before the 20th anniversary of the crackdown. And given the social media giant’s documented record of censoring large groups of people for political purposes, people aren’t buying Twitter’s explanation.
And this just so happened to occur right before the anniversary of Tiananmen? Sounds like BS to me
One human rights lawyer, whose account had been taken down, said that in protest he tweeted an image of Twitter’s bird mascot colored red with five yellow stars to evoke the Chinese flag.
The routine action set off real fears. In China, the June 4 anniversary of Tiananmen brings an extra dose of censorship to one of the world’s most controlled corners of the internet. Tools that help users jump the Great Firewall to get access to the broader online world often sputter inexplicably.
Within China, Twitter users have faced escalating pressures. At the end of 2018, China’s Ministry of Public Security began to target Chinese Twitter users. Although Twitter is blocked, many use virtual-private network software that enables access.
In a campaign carried out across the country and coordinated by a division known as the internet police, local officers detained Twitter users and forced them to delete their tweets, which often included years of online discussion, and then the accounts themselves. The campaign is continuing, according to human rights groups.
Twitter said that all the dissidents hould be able to recover them shortly, however as the Times reports, some accounts remain locked.
Commonly known in mainland China as the “June Fourth Incident,” the Chinese government forcibly suppressed the 1989 student-led demonstrations against the slow pace of reforming the country’s authoritarian political system, as troops killed hundreds to thousands of protesters with assault rifles and tanks.
At 1am on June 4, 1989, Chinese troops began firing on demonstrators. As many as 10,000 people were reportedly arrested during and after the protests, with several dozen executed.
Great job Twitter, you’re really changing the world.
Want to learn more about #TiananmenSquareMassacre not white-washing by the US-China Exchange Foundation?
Across the US – particularly in crowded urban markets like New York City – a shortage of new, affordable housing has helped home prices eclipse their highs from the pre-crisis years, leaving the dream of homeownership hopelessly out of reach for millions of heavily indebted millennials.
With homes so unaffordable, it’s hardly surprising that existing home sales are mired in a 14-month-long slump – though the return of mortgage rates to multi-year lows in May is certainly cause for cautious optimism among real-estate brokers.
But there’s one segment of the housing market that, judging by all available anecdotal evidence and the data, has continued to soften after posting its worst quarterly slump in years during the opening months of 2019.
From Greenwich to the Hamptons to Billionaires’ Row, sellers of luxury homes have struggled to find buyers amid a glut of oversupply and the disappearance of the marginal bid from wealthy Chinese buyers, who were once willing to pay a premium for real-estate in places like NYC.
And in the latest indication that the American real estate market has finally topped out, WSJ reports on a troubling new trend on the West Coast: A foreboding glut of luxury spec homes in Los Angeles that is creating serious headaches for developers and lenders alike.
Some real-estate experts estimate that 50 ultra-high-end spec homes have either recently hit, or are about to hit, the market.
The boom in development has its roots in the torrid market of 2014 and 2015 inspired by a few eight-figure deals in the area.
Now maybe some of these developers will get lucky and manage to reel in a relatively price-insensitive buyer (one spec home in the area recently sold to a Saudi buyer for more than $40 million, and to our knowledge, Griffin has yet to purchase a pied-a-terre in LA).
But even the most naive or impatient buyer probably understands that, with close to 100 homes in LA County priced above $20 million by WSJ’s count, the luxury real estate in LA has transformed into the ultimate buyer’s market.
One real-estate agent lamented that there will soon be “years” of inventory of these “white boxes” out there.
Now, there are simply too many, and not enough buyers to go around. “It’s created its own monster,” says Stephen Shapiro of Westside Estate Agency. “We have an enormous oversupply of these white boxes. There’s years of inventory out there.”
Even some of the private lenders who helped finance these spec homes are getting nervous, which is extremely understandable: Given the dimensions of the glut, nobody wants to get stuck with one of these white elephants.
In a strategy that reeks of desperation, some developers are throwing blowout parties instead of open houses and resorting to other gimmicks as they go to “extraordinary” lengths to make their homes stand out. This can sometimes involve hiring a “branding consultant.”
In this environment, and amid signs that prices are falling, developers and their agents are going to extraordinary lengths to differentiate their listings from the pack. They are throwing themed bashes in lieu of traditional open houses, thinking up gimmicky new amenities and hiring marketing experts to reimagine homes as individual brands with their own names, logos and stories. Some developers are relisting plots of land, hoping to get their money out without sinking more money into construction.
“People come to us because they want to stand out,” says Alexander Ali, whose marketing and public relations firm the Society Group is finding a growing business in creating brands for megamansions. “There are so many new homes coming to the market every day.”
One developer decided to re-brand a spec mansion in Trousdale as “WARHOL 90210”, lining the walls with Warhol prints and even throwing in a Rolls Royce once owned by Warhol, which will be included with the house.
Mr. Ali’s latest exercise: Turning a roughly 7,600-square-foot contemporary home in Trousdale into “WARHOL 90210,” a property branded around artist Andy Warhol. Mr. Ali and the developer, Wystein Opportunity Fund, joined with a local gallery to display Warhol prints in the home. At a Warhol-themed disco to be held on site, a Warhol look-alike will be filmed striding through the party; the resulting video will be blasted out on social media. (The house has no connection to Mr. Warhol.)
Mr. Ali convinced the agent that Mr. Warhol’s onetime car – a 1974, two-toned, Rolls-Royce Shadow – and the Warhol prints featured in the home should be included in the deal. “It defines the house as a collector’s dream,” Mr. Ali says. The whole package seeks $17.75 million. The house can be sold separately for $15.625 million.
More than five years after the ‘Great Gatsby’ movie remake bombed in theaters, one developer threw a ‘Gatsby’ themed party at a mansion with a price tag north of $35 million.
The party featured models and acrobats who poured champagne while swinging from a trapeze.
In Bel-Air, real-estate brokerage firm the Agency recently threw a “Great Gatsby” themed event to launch a $35.5 million spec house. A female performer in a bedazzled costume hung upside down from a trapeze to pour champagne for guests, while another floated on the pool in a transparent bubble.
Another strategy that’s growing in popularity is installing unique amenities. One LA spec home features a secret room designed for growing and smoking marijuana. Another features a roughly 300-gallon shark tank.
But even installing a steel-encased panic room, or a menagerie designed to house exotic pets, or fully equipped in-house night club won’t change the fact that the real estate cycle is turning. And with Powell, Williams, Clarida seeing little incentive to cut rates (unless, ironically, growth falls off a cliff), the odds that these homes will find buyers without first swallowing painful price cuts will remain slim.
via ZeroHedge News http://bit.ly/2JSEz3w Tyler Durden
Two months ago, BofA appeared to stumble (with a five year delay after this website did) upon the holy grail of investment strategies: as we reported at the time, the bank’s analysts echoed what we first said in 2013, when e presented what we then viewed (and still view) as the best trading strategy of the New Abnormal period, when we said that buying the most shorted names while shorting the names that have the highest hedge fund and institutional ownership is the surest way to generate alpha, to wit:
… in a world in which nothing has changed from a year ago, and where fundamentals still don’t matter, what is one to do to generate an outside market return? Simple: more of the same and punish those who still believe in an efficient, capital-allocating marketplace and keep bidding up the most shorted names.
Fast forward to April, when Bank of America confirmed once again that with just one exception, the historically unvolatile 2017, this strategy has continued to be consistently profitable, as “over the last several years, buying the most underweight stocks by large cap active funds and selling the most overweight stocks by large cap active funds has consistently generated alpha.”
Then, in an attempt to drill down on how this highly contrarian strategy generates its returns, Bank of America strategists broke down the universe of most disliked stocks by both hedge funds and long long only funds. Next, when analyzing the returns of the “most shorted” basket of stocks by hedge funds, BofA found that those stocks which also have high crowding risk among long-only funds lagged the market significantly (-12.9% vs. +4.7% for the equal-weighted S&P 500).
However, when looking at the most shorted by hedge fund basket, that quintile of stocks neglected by long-only funds outperformed the universe by a big margin, tripling the return of the broader market (+16% vs. +4.7%). Similarly, within the most neglected basket of stocks by long-only funds, hedge funds’ overweights have generated a modest, 3.3% return, underperforming the universe by 1.4% – and “surprisingly” their underweights (“shorts”) by 13%.
This, to Bank of America suggested that “Long Onlies” and hedge fund positioning data could complement each other as alpha signals.
Alternatively, one could have simply done what we said back in 2013, and go long the most shorted stocks (by the entire market, including hedge funds and mutual funds) while shorting the most crowded positions, and generate an average annual alpha of 6.6% (i.e., return on top of the market) in the past 6 years without doing anything labor intensive but merely rebalancing the trade basket every quarter based on publicly available information.
Which begs a parallel question: is extreme crowding in select positions during times of market stress an additional, and underappreciated, source of downside risk?
Apparently the answer is yes, because in an exercise conducted by Goldman’s chief equity strategist, which was clearly plagiarized from Bank of America’s April report, David Kostin writes that Goldman’s famous hedge fund VIP and mutual fund overweight baskets each underperformed the S&P 500 on Friday, demonstrating once again the risk to popular positions during risk-off events, and confirming that just as popular positions take the escalator up, they then take the elevator down as one after another hedge fund liquidate their positions in a rush to frontrun other panicking sellers.
Of course, this is a mirror image of what is seen on the way up, and so far the highest conviction fund positions have still out performed the S&P YTD.
According to Kostin, “our Hedge Fund VIP basket, which tracks the most popular long positions (GSTHHVIP), has outperformed the S&P 500 and our basket of short positions by 120 bp and 715 bp YTD, respectively. Similarly, the most overweight mutual fund positions (GSTHMFOW) have outperformed the S&P 500 and most underweight stocks by 240 bp and 140 bp so far this year.”
Of course, what goes up must come down. Yet is it inevitable that the most crowded positions will eventually suffer a greater crash than the average S&P stock as violent mean reversion is re-stablished? For now, days of extreme market stress such as Friday indicate that the answer is yes. That said, Kostin’s answer is somewhat more nuanced:
Despite posing a tactical risk, concentrated ownership has generally been a positive signal for subsequent stock returns. Investors often ask us to include fund positioning in stock screens, expressing concern about stocks that are already extremely popular. However, empirically, the top 20% of stocks based on number of hedge fund owners have outperformed the least popular quintile in 65% of quarters since 2009, with an average excess return of 90 bp during the three months between filings. We also found that the signal is particularly strong when combining popularity and valuation: popular, high valuation stocks have posted a median 12-month return of +13% return vs. +8% for unpopular, low valuation stocks.
A similar observation emerges for mutual fund holdings, where an analysis reveals that the most popular quintile has outperformed by an average excess return of 67 bp during the three months between quarterly filings. As with hedge funds, including valuation improves the signal: a median 12-month return of +13% return for most overweight, high valuation stocks vs. +8% for most underweight, low valuation stocks, as shown in the chart below which bears an eerie similarity to the BofA chart presented 2 months ago.
Putting this together, Goldman notes that stocks popular among mutual funds and hedge funds (“shared favorites”) have generated an annualized return of +19% since 2013, higher than hedge fund VIPs (+14%), mutual fund overweights (+14%), and S&P 500 (+13%).
“An equal-weighted list of shared favorites has outpaced the S&P 500 in 66% of months compared with 55% for both hedge fund VIPs and mutual fund overweights. Shared favorites have also delivered a modestly higher total return/volatility ratio (1.1) than GSTHHVIP (0.9) and GSTHMFOW (1.0) during this period as seen in the chart below. “
Of course, all the above suggests is that reflexivity is alive and kicking, and as a rising market take popular stocks higher, by the simple fact that they are “popular”, they tend to rise even more.
The problem is what happens on the way down, and as Kostin admits here, “intuitively, crowded positions have tended to underperform in falling equity markets” adding that “since 2013, our list of shared favorites outperformed in 60% of weeks where S&P 500 posted a positive return, but just 44% of weeks where S&P 500 posted a negative return.”
So while Goldman will certainly not tell its top clients to short the stocks they are all long – even though everyone knows that it is those stocks that would suffer the most if were about to enter another bout of extreme volatility – the bank is “kind enough” to show 12 stocks which screen as the most popular holdings for hedge funds and mutual funds. The “shared favorites”, which “wink wink” may be most at risk of crowded position unwinds, this quarter are: ADBE, BKNG, C, CMCSA, CRM, DAL, GOOGL, MA, NOW, PYPL, UNH, and V.
And, as Kostin further notes, 11 of the 12 stocks that overlap in our Hedge Fund VIP and Mutual Fund Overweights baskets were also shared favorites last quarter. Citigroup was the only stock to enter the shared favorites list while EA and TMUS dropped out. “GOOGL is the only stock that has been a shared favorite in every quarter during the past five years,” which probably means that GOOGL will be crushed during any real mean-reversion episode.
While the shared favorites above (up +18% YTD) have outperformed both Goldman’s hedge fund VIP (+13%) and mutual fund overweight baskets (+15%), the median stock trades at a higher P/E (26x) than the median S&P 500 stock (16x), hedge fund VIP (19x) and mutual fund overweight (17x). It also means that any event that triggers a widespread multiple collapse – such as a trade war escalation-driven market crash – will have the most adverse impact on those companies, whose PEs are almost 100% above the market average.
And now that investors know which stocks will suffer the biggest drop due to their high beta on both the way up and way down, the only question is what will catalyze such a drop. Conveniently, president Trump lately has been providing numerous triggers for just such a drop, and one of these days the market – unable to infinitely digest the endless barrage of Trump tweets – will finally break.
via ZeroHedge News http://bit.ly/2wyjBhw Tyler Durden
Several explosions rocked an explosives plant in the central Russian city of Dzerzhinsk, according to RT.
“A big explosion roared, my ears popped and then sirens went off. In a minute, there was another blast, windows shattered, and a column of smoke rose, and there was fire,” one witness told RT.
The facilities damaged in the blast are part of Russia’s scientific and research institute ‘Kristall’. It specializes in scientific and technological support for work related to the production of explosive materials and devises its safety measures.
This is the third blast suffered by the TNT-maker over the past year. Last August, five workers were killed in an explosion at the site, and in April an explosion destroyed a one-story building but caused no injuries. –RT
SOUND WARNING:
At least 79 people were injured with 16 hospitalized, while nearly 200 buildings were damaged. Authorities report that 38 plant employees and four local residents were among the injured, and were treated for burns and glass cuts.
A first explosion triggered two other blasts at the same facility and then fire. Five buildings were destroyed at the plant and 200 others were damaged throughout the city. People saw their windows shattered and ceiling coverings collapse.
…
More than 300 people and 50 technical units were involved in the response to the blast. It took firefighters several hours to extinguish the blaze that covered 800 square meters. –RT
A criminal investigation has been launched into the explosions.
via ZeroHedge News http://bit.ly/2IifR9c Tyler Durden
Trade wars are rapidly turning into subprime mortgages. A few billion in tariffs will have wrecked the entire global economy, they’ll claim. Just like all that toxic waste subprime mortgage fiasco led inevitably to the Great “Recession” and global panic. Neither will be true, except insofar as both were symptoms of the far greater cause. The other thing actually responsible for messes.
Both of them.
For one of the few times, I have to agree with what Ben Bernanke said when he told the Financial Crisis Inquiry Commission (FICC) an inconvenient fact about specifically high risk housing loans.
Prospective subprime losses were clearly not large enough on their own to account for the magnitude of the crisis.
Though the Commission heard this testimony, that’s not quite the conclusion they reached. Either of them. There were actually two final reports: one written and published by the majority Democrats, the other written and published by the minority Republicans. The Panic of 2008 all-too-predictably became tainted with partisan politics at the expense of the truth.
Among the more than 1,100 pages that in both versions make up the official account of the Great Financial Crisis of 2008, there are together zero instances of the words “offshore” and “eurodollar.” Pace Bernanke, how then could something like subprime turn into a massive global disruption? Without eurodollar and offshore, you have no idea.
And that’s why “we” are going to be blaming trade wars. It’s 2019, all the warning signs have gathered and have been sharpened. There’s an economic storm brewing, maybe a big one. The markets are all saying, get ready.
There was some initial hope after last year’s disruption this would all blow over. Transitory factors, many claimed. From Europe to DC, central bankers will always tell you “subprime is contained.” They won’t tell you how even if that was true, it still wouldn’t matter because subprime wasn’t really the problem. Most of them really don’t know any better.
Much of the distress and uncertainty surrounds China. This is quite convenient, or inconvenient in my case. China just so happens to be the epicenter of these trade wars. And the same country remains the major focus of the offshore eurodollar system’s revived decay impulse. The first will help hide the second.
On April 1, China’s National Bureau of Statistics (NBS) reported a pretty substantial rebound in its manufacturing Purchasing Managers Index (PMI). Having sunk below 50 for three straight months up to and including February 2019, a low of 49.2 in that month, the index managed a 1.3 point rebound in March alone. At 50.5, disregarding the noise of the series, it looked to many like green shoots, good evidence for transitory factors.
Those hopes have been predictably dashed. Last month, the NBS calculated its manufacturing PMI fell to 50.1. Today, the Chinese government says in May it was 49.4; just 0.2 above the low in February.
Leading the decline was the component for, you guessed it, New Export Orders. These had staged a much milder comeback than the headline, rising only to 49.2 in April. The current estimate is an atrocious 46.5, a decline of nearly three points in just this latest month.
While that looks like tariffs and indeed those have almost surely contributed to the very clear contraction in China’s global trade conditions, the PMI as well as other similar accounts from around the world, not just China, tell a different story. In this one index alone, orders have been under 50 in every month going back to last May (CNY DOWN = BAD; May 29).
Separate statistics from the WTO on the subject of global trade display remarkable consistency. What was termed globally synchronized growth even into the middle of last year had already shifted to globally synchronized downturn. Consistent with this Chinese data, a sentiment indicator, and a government one at that, the WTO export figures align with market not political events.
And so on. Each points toward January 2018 as the high water mark for the last expansion, such that it was. At the end of January 2018, while inflation hysteria was in full throat, global markets were rocked by a liquidation event which for several weeks even managed to capture stock markets. Global trade is first susceptible to the squeeze of tight global money.
The dollar stopped falling at that point. It would soon turn around just in time for April’s EM fireworks and then May 29 last year. There weren’t imposed trade restrictions at that time, but there were very unnerved Japanese banks who have been right at the center of global dollar redistribution in that offshore eurodollar system.
Ever since the global eurodollar panic ten and eleven years ago, Tokyo has become a vital center for global “dollar” redistribution. Some people call it the yen carry trade, but in doing so they leave out several important distinctions: first and foremost, Japanese banks don’t need to borrow in yen, they’re already stuffed with “bank reserves.” They only need, therefore, two additional factors: someone to swap into US$’s with, before then “re-investing” them elsewhere (redistribution), and the willingness to do so.
This doesn’t have to be an either/or situation. Tokyo’s dollar market participants might find FX funding a bit too expensive which then makes them less willing to engage in redistribution; which makes global dollars even more expensive, and so on.
So much of that dollar focus was aimed at China, the last of the growth prospects in the post-2008 world’s “new normal.” Except, after 2011 the new normal grabbed onto China’s economy, too, strangling likewise from within and without. It wasn’t until the outset of 2014 that this became the accepted view of most non-Japanese global money participants (CNY DOWN).
And it wasn’t until October 2017 that it was finally broadcast as the official view of the Chinese government. Apparently this was the last straw for Tokyo’s institutions. Western leaders, authorities, and the financial media were all too busy focused on the emotional tug of globally synchronized growth masquerading as analysis to notice.
Everyone is still too distracted; thus, it may seem to most that this is all some very new development, an unexpected setback that must be due to a few billion in tariffs. Like toxic waste a decade ago, it’s all anyone is talking about.
Trade wars are already very close to becoming 2019’s subprime mortgages.
It doesn’t matter that just like the middle 2000’s bond market, Greenspan’s “conundrum”, the yield and eurodollar curves throughout all of 2017 were telling you this offshore eurodollar restraint was likely to happen. Again.
via ZeroHedge News http://bit.ly/2JS1mfM Tyler Durden
