Month: June 2021

Earlier today, when we discussed the bizarre sale of AMC stock at a premium to its Friday closing price, we speculated that this was nothing but an extremely shady backroom ploy between AMC CEO Adam Aron and Mudrick Capital to force even the staunchest bears to cover their shorts, in the process allowing Mudrick to offload not just the 8.5 million shares the fund had purchased at $27.12, but the millions of shares it owned from purchases made far lower.

Specifically, we quoted AMC CEO Adam Aron, who will soon be facing a plethora of lawsuits claiming collusion, who said that “with this agreement with Mudrick Capital, we have raised funds that will allow us to be aggressive in going after the most valuable theatre assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities.” And, as we said at 8:28am this morning…

“what he really meant is that Mudrick is only in it for the ride as long as upward momentum remains. Once it reverses, the hedge fund will bail leaving retail investors stuck holding the bag.”

Just 4 hours later we were proven right, because moments ago AMC stock, which was once again the most traded company in the US stock market by value…

… tumbled after Bloomberg reported that Mudrick Capital – which earlier today was the sole buyer in AMC’s entire $230MM equity offering – sold all its stock in AMC Entertainment Holdings.

It gets better: not only did Mudrick no longer hold any AMC shares as of Tuesday and sold its entire position, including what it bought at $27 this morning, at a profit to reddit bagholders (just as we said it would), but the firm “disposed of its stake after concluding that AMC’s stock is overvalued, propped up by a recent wave of day-trader enthusiasm.“

Confused? Here is our post-mortem:

So Mudrick schemed with AMC to buy stock at a premium only to supercharge the short squeeze and dump it all to retail investors.

Where is the SEC?

— zerohedge (@zerohedge) June 1, 2021

And for the visual learners:

$AMC pic.twitter.com/RNAxWxwJGb

— Newsquawk (@Newsquawk) June 1, 2021

What is remarkable is that at this moment, AMC stock should be much, much lower, and yet it is just down $2 from when the Mudrick news hit. How come? Because as the next chart shows, the gamma meltup has been engaged and now has a life of its own…

… as the flood of calls maturing this Friday at a strike price as high as $73 has forced the dealers to scramble and buy the stock, even as the very sophisticated entity that purchased today’s secondary has already flipped it to retail investors who are left holding the bag on a company that is probably worthless.

One month after the Fed’s key benchmark “administered” rate – the effective Fed Funds rate – hit the second lowest on record, or 0.05%, only to stage a modest increase for in the month of May when it traded at 0.06% for most of the month, overnight the closely watched EFF dipped once again, inching back closer to zero overnight, and is just 1 basis point away from the lowest print ever.

The effective fed funds rate, which the central bank is currently aiming to keep within a range of 0% to 0.25%, slipped by 1 basis point to 0.05% on May 28, the lowest since April. A chronically lower level in the EFF raises the possibility that the bank will tweak the rates it sets for interest on excess reserves and its reverse repurchase agreement facility, although according to Goldman simplyy raising the IOER will not be as effective in raising both the RRP and IOER rates. If the Fed did move both rates up by 5bp, Goldman’s model suggests that Fed funds and SOFR would move up to 8bp and 5bp respectively.

The decline was largely expected, and is yet another manifestation of the record liquidity glut that last week pushed usage on the Fed’s reverse repo to $485 billion, the highest on record.

The combination of record high overnight Reverse Repo usage and (almost) record low effective fed funds, is a combination of two things: the tidal wave of cash – a function of continued expansion of the Fed’s balance sheet (from QE) and a simultaneous reduction in cash balances in the Treasury General Account (TGA) at the Fed – which we have discussed extensively here in recent months, and which is keeping downward pressure on short-end rates as investors scramble to find some collateral in which to park reserves, combines with rising inflation concerns which fuel speculation about when the Fed will take its foot off the accelerator and taper.

The decline in the EFF means that an adjustment to these administered rates is now almost guaranteed, according to Wrightson ICAP economist Lou Crandall, who however said that there’s less of a chance the bank will make a balance-sheet adjustment “to address the root of the problem.” He also sees it potentially being smaller than similar prior tweaks. In other words, a 5bps hike in the IOER is now on the table. And, to be sure, the latest FOMC minutes explicitly said that downward pressure on overnight rates in coming months could warrant consideration of a modest adjustment to administered rates.

Discussing the upcoming IOER rate hike, Goldman’s economists wrote last week that according to their analysts, the Fed “will likely have to raise both IOER and RRP rates if it wants to maintain a 5bp buffer between Fed funds and the bottom of the target range in the run-up to the debt limit date (July 31).”

Goldman also addresses how the massive increase in overall liquidity is spilling over from commercial banks, noting that as the exhibits below show, in the early part of this run-up, the increases largely occurred in reserve balances as commercial banks absorbed the bulk of excess liquidity supply on their balance sheets. However, as leverage ratios have become more binding, banks have taken various measures to curtail deposit growth, including a reduction in wholesale funding and FHLB advances, and imposing deposit caps and cutting rates.

And, as regular readers know, while reserve growth has stabilized this quarter, other liabilities — mainly domestic and foreign reverse repo balances — have soared, with Goldman now expecting that Reverse Repo (RRP) facility usage will rise as high as $600-700bn.

What is driving this spike in usage?

Because banks appear unwilling to warehouse new supply of excess liquidity, the marginal amounts being supplied are no longer “inert,”and are instead being channeled into money markets, as evidenced by swelling money market fund AUMs. This has led to a competition for short-term investments, at the same time that Treasury is engaging in significant bill pay downs. The net result is downward pressure on a range of short-term yields, with many spreads to the Interest on Excess Reserves (IOER) close to all-time lows (Exhibit 2). With bill yields in some cases negative, and repo rates close to zero, many funds have chosen to instead leavemoney in the Fed’s RRP facility.

It is worth noting that without the Fed’s RRP facility which offers market participants a zero interest rate alternative (the facility rate is currently set at 0), many of these front end rates would have traded even lower relative to IOER than they are today, with most if not all trading negative today (Goldman calculates that without a RRP facility, effective Fed funds and SOFR would likely have set at 4bp and -2bp without a RRP facility, versus actual observed values of 6bp and 1bp respectively).

And speaking of the Fed’s next meeting – scheduled for June 15-16 – investors will be watching not just for tinkering of administered rates, but also for indications about when the Fe will begin to taper their bond-buying program… or at least start talking about talking.

Incidentally, as we discussed last week, the liquidity glut created by the Fed is a key reason why the Fed’s tapering is already being spun (by the likes of repo guru Zoltan Pozsar) as positive – after all, it will slow down the pace at which excess liquidity is entering the market, currently at $120 billion a month – so once the Fed does build up the courage to discuss tapering, the narrative damage control police will be engaged and the slowdown in Fed liquidity injections will be spun as extremely positive for if not risk, then certainly repo markets which are on the verge of breaking.

For his part, Crandall believes the Fed should engage in another Operation Twist, where the central bank adjusts the maturity mix of its asset purchases to relieve some of the short-end strains. Although the Fed has shown little interest in a “Twist-like combination” of long-end buying and short-end runoffs, he wrote.

“There is no fundamental reason why the Fed should be sitting on more than $1 trillion of Treasuries maturing within one year at a time when nonbank investors are so starved for short-end assets that money funds are forced to recycle half a trillion dollars of surplus cash back into the RRP facility,” Crandall wrote.

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

President Joe Biden has ordered the Financial Stability Oversight Council to prepare a report on how the financial system can mitigate the risks related to climate change. The Financial Stability Oversight Council was created through the Dodd-Frank financial regulatory reform act and is supposed to identify and monitor excessive risk to the financial system. The council is composed of the heads of the major federal financial regulatory agencies, including the Federal Reserve.

Federal Reserve Chair Jerome Powell is no doubt pleased with Biden’s order. Powell has been pushing for the Fed to join other central banks in fighting climate change.

Among the ways the Fed could try to mitigate the risks related to climate change is by using its regulatory authority to “encourage” banks to lend to “green” businesses and deny capital to “polluters.”

The Fed could also use “quantitative easing” to give green industries an advantage over their non-green competitors.

Another way the Fed could “fight climate change” is by committing to monetizing all federal debt created by legislation implementing the Green New Deal.

Climate change is not the only area where the Fed is embracing the agenda of the “woke.” Some Federal Reserve Banks have taken the lead in a series of events called “Racism and the Economy” that are concerned with dismantling “systemic racism.” The Fed’s commitment to ending systemic racism could lead the central bank to requiring that banks and other financial institutions further relax their lending standards for minorities. The role the Community Reinvestment Act played in the 2008 housing meltdown shows that when government forces financial institutions to give loans to otherwise unqualified applicants, the recipients of those loans often are unable to make their payments, lending to foreclosures and bankruptcies.

Racial justice arguments could also justify an easy money, low interest rate policy on the grounds that curtailing money creation slows economic growth, disproportionately harming minorities.

The Fed may court favor with the Biden administration and its congressional allies by going woke. However, it will face a backlash from those who oppose expanding government power to address nonexistent threats of climate change and to promote the lie that free markets are causing systemic racism. This backlash will be fueled by rising anger over widespread price increases. This will increase the already strong public support for the Audit the Fed legislation. A complete Federal Reserve audit will provide to Congress and the American people the truth about the Fed’s conduct of monetary policy, including how politics affects the Fed’s actions.

The use of the woke agenda as an excuse to further politicize the allocation of capital and continue to expand the Fed’s easy money, low interest rate policy will hasten and deepen the next economic crisis. This crisis will either be precipitated by or result in the rejection of the dollar’s world reserve currency status. It will also likely result in the collapse of the entire Keynesian welfare-warfare system. Unfortunately, there is a likelihood that the current system will be replaced with a government even more authoritarian than the current one.

But, if those of us who know the truth can educate enough people about liberty, we can make sure the next economic crisis leads to a rebirth of limited government, free markets, and individual liberty.

Russia is again warning of the impending threat of the West blocking its banks from using the SWIFT payment system amid a broad “spiral of sanctions” – in the words of director of the Economic Cooperation Department (DEC) of the Russian Foreign Ministry Dmitry Birichevsky.

“It’s no secret that there are threats, primarily from the United States, to disconnect Russia from the SWIFT system,” he described in Monday statements to a national broadcaster. It’s certainly not the first time that Western allies have threatened such. The threat to cut off Russia from the global system for financial messaging and cross-border payments which acts as the protector of the dollar reserve system has lingered for the past half-decade, going back to the initial Crimea crisis and the start of war in eastern Ukraine, and recently repeated in an EU resolution.

The top Russian economic officials still said he’s confident Russia won’t be disconnected “anytime soon” or possibly never, but used the lingering threat to reintroduce that the country is pursuing its own international payment mechanism: “Since 2014, Russia has been working on its own payment system. This system already exists,” he said.

“We all use the MIR card. It is also accepted in a number of neighboring countries and in Turkey. Negotiations are also underway with other partners,” he explained.

In recent years Russia has pursued talks with other countries – notably China, India, Iran and Turkey – over establishing major alternatives to the Belgium-based SWIFT system. It began pursuing alternatives in earnest particularly after it was hit with Western-led sanctions after 2014, and is more recently said to be experimenting with blockchain-based solutions. 

It was only in late April that European lawmakers passed a resolution which enabled future severe retaliatory measures if Russia takes offensive actions against neighboring Ukraine, including booting the country from SWIFT.

Earlier that same month, just after new US sanctions were rolled out over alleged hacking and election interference, the Russian foreign ministry had highlighted the weakness of a system “controlled by the West”.  Spokeswoman Maria Zakharova said at the time, “Naturally, all this casts doubt on not only the expediency of using the American currency as a priority payment currency, but also the reliability of using payment mechanisms controlled by the West.”

Authored by Jonathan Turley,

I have previously criticized Sen. Richard Blumenthal, D-Conn., for his almost unrivaled advocacy of censorship and speech controls. Blumenthal previously threatened social media companies not to “backslide” in censoring opposing views.  Now, Blumenthal is taking up the cudgel of court packing with not so subtle threats to conservative justices that, if they do not vote with their liberal colleagues, the Court may be fundamentally altered.  

He is not alone in such reckless and coercive rhetoric.

Blumenthal told The Hill:

“It will inevitably fuel and drive an effort to expand the Supreme Court if this activist majority betrays fundamental constitutional principles. It’s already driving that movement. Chipping away at Roe v. Wade will precipitate a seismic movement to reform the Supreme Court. It may not be expanding the Supreme Court, it may be making changes to its jurisdiction, or requiring a certain numbers of votes to strike down certain past precedents.”

The statement is reminiscent of Senate Majority Leader Chuck Schumer declaring in front of the Supreme Court:

“I want to tell you, Gorsuch, I want to tell you, Kavanaugh, you have released the whirlwind, and you will pay the price.”

Democratic leaders not only have embraced court packing but now openly threaten the Court to vote with the liberal justices or face dire consequences for the Court. The effort seems to be a play for the change in voting on the Court the followed prior threats for court packing in the 1930s. Faced with a conservative majority ruling against his New Deal legislation, Roosevelt called for up to six additional justices, one for every justice older than 70. That was basically the profile of the “four horsemen” blocking his measures.

Like the latest calls, the FDR plan was based on politics rather than principle. When the politics changed, the plan died. FDR dropped his plan as soon as he got what he wanted with a favorable majority. That is why the switch of Justice Owen Roberts in favor of a New Deal case became known as a “switch in time that saved nine.”

The Democrats are pushing to engage in court packing despite polls showing heavy opposition to the move from voters as well as opposition from the justices themselves. Before Ginsburg died, nine nominations had occurred in election years since 1900, and Ginsburg herself said in 2016 that the Senate had to do its “job” and vote on such nominations because “there’s nothing in the Constitution that says the president stops being president in his last year.” Moreover, Ginsburg also opposed expanding the Court, but she is not being cited by liberals as the reason to doing precisely what she opposed as inimical to the functioning of the Court.  Justice Steven Breyer has also denounced the move to pack the court.

None of that matters to Democratic members who know that court packing is popular with the most extreme elements of their party.

Many of us have discussed the expansion of the Supreme Court through the years. Over 20 years ago, I recommended the expansion of the Court to 17 or 19 members. However, that recommendation would occur over many years and would not give advocates the short-term majority that they are seeking. That is the difference between reforming and packing the Court.

It is particularly chilling to see United States senators openly pressuring justices to vote with their side or face severe consequences.  Blumenthal went as far as to mention specific cases and the expected rulings. This follows raw demands in the confirmation hearing of now Justice Amy Coney Barrett that she promise to rule on particular cases “correctly” as a condition for her confirmation.

The question is whether the Democrats are overplaying their hand. Recently, a Democratic “dark money” group called Demand Justice, had a billboard truck in Washington the next day in the streets of Washington warning “Breyer, retire. Don’t risk your legacy.” The group is calling for open court packing to force a liberal majority. (Demand Justice once employed White House press secretary Jen Psaki as a communications consultant, and Psaki was on the advisory board of one of its voting projects.)  The question is whether Breyer will accommodate such demands from the left or feel conversely that he should remain on the bench to show that such tactics do not influence members.

These not-so-veiled threats could have the same inverse impact on members like Chief Justice John Roberts, who could view the attempt to influence the justices as a far greater threat than any court-packing scheme.

Two Republican lawmakers have slammed Vice President Kamala Harris for failing to personally survey the crisis at the southern border, shirking her duty as President Biden’s ‘border czar’ – a role she was given in March and has by all outward appearances, abandoned.

In a Monday statement, Sen. Rick Scott (R-FL) said Harris’ “avoidance” of the border as “getting extreme,” according to Florida Politics.

“Flying over the border at 35,000 feet doesn’t count as a visit. Now, 123 days since taking office, it’s shocking to see the lengths to which President Biden and Vice President Harris will go to avoid seeing the border crisis for themselves. Apprehensions at the border rose above 178,000 in April alone, nearly 6,000 a day. This is about the safety of American families. We must secure the border now,” urged Scott.

“While I welcome cooperation with Guatemala and Mexico,” the statement continues, “Biden and Harris have still not acknowledged the humanitarian and national security chaos their policies have created here in America. They still refuse to actually go to the U.S. southern border, hear from our brave Customs and Border Protection agents and see the U.S. side of this crisis that their failed amnesty and open borders policies have created. It’s time for Harris and Biden to get down to the U.S. border and provide answers to the American people.”

Meanwhile, Rep. Yvette Herrell (R-NM) has invited Harris to visit New Mexico to witness current immigration conditions, according to the Las Cruces Sun News.

In a letter to the vice president May 24, the congresswoman also asked to accompany Harris on her upcoming trip to Mexico and Guatemala.

Herrell, whose congressional district includes nearly 180 miles of the U.S. border with Mexico, called the current border situation a “crisis” in her letter and urged Harris to take a trip to southern New Mexico to get an on-the-ground perspective from borderland residents who Herrell said “continue to fear violence and property damage along the border.”

Harris has not made a trip to the border since President Joe Biden picked her to oversee the task of stemming migration and working to address the conditions in Central America which cause it.

“This crisis can only be solved with bipartisan input and perspective from those who represent areas along the southern border,” Herrell’s letter continues.

Herrell has introduced legislation in the House which would retain Title 42 of the US Code – which has been used to quickly expel illegal immigrants and asylum seekers due to the COVID-19 pandemic – a law the Biden administration has thus far retained. She also slammed the decision to halt construction on the southern US border wall, and urged the administration to restart construction in earnest.

“The most effective way to stop illegal immigration is to ensure consequences for those who break our laws or exploit our asylum system,” wrote Harrell.

The criticism of Harris comes as over 178,000 migrants were stopped at the southern border in April – the highest one-month total in over two decades according to KATC.

And while Harris may be allergic to the border, her stand-up career is going even worse based on her Friday performance at the Naval Academy…