Month: May 2022

By John Kemp, Senior Market Analyst

Portfolio investors turned cautious on oil again last week after a sharp burst of buying the week before, amid uncertainty about whether recession or sanctions will dominate prices over the next six months.

Hedge funds and other money managers sold the equivalent of 5 million barrels in the six most important petroleum-related futures and options contracts in the week to May 24.

Renewed sales came after investors purchased 56 million barrels the week before, the fastest buying for four months, according to data from ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

In the most recent week, Brent buying (+13 million barrels) was more than offset by sales of NYMEX and ICE WTI (-8 million), U.S. gasoline (-4 million), European gas oil (-3 million) and U.S. diesel (-2 million).

The hedge fund community still has a strong bullish bias towards petroleum, with long positions outnumbering bearish short ones by a ratio of almost 6:1, in the 78th percentile for all weeks since 2013.

But their conviction remains modest, with a combined long position of only 599 million barrels, only in the 47th percentile, reflecting the conflicting risks from recession and sanctions.

Prices are already well above the long-term average in real terms, especially for refined fuels such as diesel and gasoline, increasing the risk of a reversal, while elevated volatility makes maintaining positions more expensive.

In a sign of the growing threat of an economic slowdown, funds continued to cut their positions in middle distillates such as diesel and gas oil, the most cyclically sensitive part of the petroleum market.

Fund managers have trimmed their positions in mid-distillates in 12 of the last 16 weeks by a total of 78 million barrels (54%) since the start of February, as fears of a slowdown have intensified.

Michael Sussmann, a lawyer representing Hillary Clinton’s campaign, has been found not guilty of a single count of lying to the FBI.

Sussmann sits back down. His face is impassive. Judge thanks jury and dismisses them. /12

— Charlie Savage (@charlie_savage) May 31, 2022

Developing…

Having extended gains (in futures markets) yesterday from last week’s mega-squeeze higher, this morning cash-equity open in US markets (after being closed for Memorial Day) brought renewed selling pressure, erasing solid overnight gains…

All triggered by an epic short-squeeze (which has now stalled)…

Enabled by a dramatic evaporation in market liquidity (which is now on its way back)…

As SpotGamma notes this morning, price movements can be often be exaggerated in these environments – we think this was a big reason that the S&P was able to pull off a 6% rally last week. We think this mornings ES pullback is some much needed consolidation.

Of particular note – for those in the ‘dead cat bounce’ camp –  last week’s rally did not appear to be supported by material call buying (blue line) as shown in the OCC data. There was also a very sharp drop in put purchases (yellow, red, brown lines).

This sudden decline in put demand likely gave call buying a bit more strength on a net basis, but the point here is that there was not a profound grab for upside positions (despite the huge rally).

After Friday’s OpEx, expect 420/4200 to be a resistance point for the next several sessions, and into June OPEX, 400/4000 should offer some strong support if the market does break lower.

Overall SpotGamma remains suspect that the market can squeeze all that much higher over the next 2 weeks, due to a few factors. The forces of negative gamma & vanna reduced sharply last week, and “tap out” on a move over 4200. Large traders are quite likely to hold downside protection into 6/15 which keeps some bid in IV, particularly as we approach 6/15. It seems like we are starting to form a larger range of 4000 to 4200 for 6/15.

Authored by Scott Hill via BombThrower.com,

The collapse of the Terra ecosystem in May rocked the Crypto world. The Luna token dropped to near zero from a prior high over $100. The stablecoin UST was trading down as much as half from its peg of one dollar.

This was the nightmare scenario.

Over $40 billion of market cap was wiped out over the space of a week. Both retail investors and Crypto funds got caught in the collapse. Such a widespread collapse of a reasonably credible project hadn’t previously occurred in Crypto. The closest comparisons are Bitconnect in 2018, which was flagged as a scam by everyone in the industry, and Mt Gox in 2014, which occurred in the early days of the industry when the risk of exchange failures and exit scams was front of mind.

In August last year, Senator Elizabeth Warren warned that a “run on Crypto” might need a Federal bailout citing a lack of basic consumer protections afforded to investors in the traditional asset space.

What we saw last month was a run on Crypto. We saw what can happen with no government backstop and no quality guarantees. We saw retail investors wiped out. We saw Crypto funds taking heavy losses.

But there was no government bailout.

That’s not to say that government involvement in regulating Crypto assets would be a good thing. It almost certainly would not be. As Ronald Reagan said there is no more terrifying phrase than “I’m from the government, and I’m here to help.” It’s simply important to remember that there is no oversight body ensuring that Crypto protocols work and that tokens maintain value.

Even the Korean government, whose citizens were much more heavily invested in Luna than their stateside counterparts, didn’t flinch at the loss of wealth. They’re pursuing Luna’s founder Do Kwon and looking to do everything from freezing assets to holding a parliamentary hearing. The Korean government even resurrected their elite financial crimes division, nicknamed the Grim Reapers, to investigate Kwon and Terraform Labs.

But there was no government bailout. Retail investors will not be made whole.

Nothing in Crypto markets broke. Losses were taken and the market moved on.

Self Funded Bailout

However, there was something that looked a lot like a bailout slightly earlier in the Luna timeline.

In February, the Luna Foundation Guard, the entity which was created to hold a Bitcoin reserve fund for the Luna protocol, raised $1B from investors including Jump Crypto and Three Arrows Capital. These funds were used to bolster the Bitcoin reserves with the intention of using them to defend the stablecoin peg.

In retrospect it’s pretty clear that this fundraise represented large Crypto funds bailing out Luna ahead of time.

The failing protocol also looked for an additional $1B in bailout funds from Crypto industry heavy hitters as the collapse was occuring. These industry bailouts have become reasonably common recently. Jump Crypto bailed out the Wormhole bridge to the tune of $320M after a hack drained its funds in February.

We need to pay attention to what is going on here.

Firstly, governments are uninterested in bailing out retail investors who lose money in Crypto collapses. Do not expect the same level of investor protection and compensation in a Crypto industry failure as you would from a stock exchange failure or a bank collapse. This sometimes hamfisted government financial protection often does more harm than good as was the case with the Cypress bank failures and IMF global. But it’s important to remember that in Crypto the government isn’t coming to save you. Nor would we want them to attempt to do so.

Secondly, the industry will intervene if it’s in their own interests. Jump Crypto is not interested in protecting your investment, but they will defend their investment.

But Jump won’t throw good money after bad. They weren’t willing to bail out Luna a second time.

Jump Crypto is not the Fed or the US Government. They can’t print infinite money to save the system.

Bearer Assets are Different

Crypto assets are fundamentally different to modern stocks or bonds. They are bearer assets. You are in charge of their safe custody and how you manage that is up to you. You aren’t shepherded into a government approved asset custody scheme like you are in traditional assets.

There is no FDIC insurance if an exchange disappears overnight. Your assets are gone. There is no customer service department that can recover your private keys if you lose them. If your Bored Apes get stolen, the Apes are gone.

The catchphrase, “not your keys, not your coins,” is just as applicable now as it has ever been.

As we enter a downturn where the financial stability of entities in the Crypto industry will be tested, it’s important to understand which risks you are taking. Decide who you trust to custody your assets and ensure you understand how your security solutions work.

If you have no security plan for your digital assets, you have no security.

It’s quite an odd adjustment to make as we’ve all only ever lived in a world where your bank, your government and your exchange have layers of security and guarantees to protect your assets. But it’s a crucial difference to understand. Literally no one in the world cares if you lose your Bitcoin so it’s up to you to ensure you have the ability to protect your assets.

If you haven’t done it already, it’s time to review your security. Get a hardware wallet and learn how to use it safely. Decide how you want to spread your assets among exchanges. Make active choices about your risk and your security rather than leaving it to chance.

Do Your Own Research

The other thing that the Luna collapse teaches us is that knowing what you’re invested in is more important than ever. Luna was actively promoted and suggested by several big industry experts. I don’t call them out to throw rocks or to say, “I told you so.” They are all financial product salesmen of one type or another. They get things wrong, that’s to be expected. It happens all the time and is completely normal.

My point is that these people are used as a source of guidance and advice by the investing public. They are clearly good resources over the longer term. But we’re no longer in the sort of asset market where you can throw a dart at the wall and make money. The experts are getting things wrong. It’s more important than ever to understand what you are invested in and why. Form your own conclusions from a number of sources. Seek to understand, rather than blindly follow.

If you can’t explain the difference between Luna’s tokenomics and Bitcoin’s tokenomics, then you need to do more research.

You don’t have to become an expert or understand everything, but you do need to take responsibility for your own investment decisions and understand why you are making them. No one else cares if you lose money by making bad decisions and taking too much risk.

In Crypto, there is no stock exchange listing board making sure that assets are safe for the public or that the issuance of tokens is done in a reasonable way. In Crypto, if you don’t understand how many protocol tokens exist today and how many will exist next year, then it’s important to recognize that and take your risk accordingly. We don’t want the government telling us what we’re allowed to invest in, but that means that the responsibility to investigate assets falls on each investor personally.

Following the Luna collapse, the financial press is filled with anecdotes of people who took out a mortgage or a margin loan to take excessive risk on Luna. There’s no excuse to ever be surprised when this sort of bet fails. There’s a reason every newsletter on Crypto will always say, “don’t trade on margin, don’t lever up, don’t risk more than you can afford to lose.”

It’s time to listen to those warnings, especially if you feel yourself trying to chase losses and make it all back in one big trade.

You will have more opportunities to make money in these markets, but only if you don’t destroy your finances chasing losses.

Risk is Opportunity

Crypto is a really strange market compared to what traditional financial markets have become. In traditional financial markets, we have become used to governments and central banks intervening if things break. Support of risk asset markets and the continual lowering of interest rates have become entrenched in the way western economies work.

With inflation above 7%, it’s not clear we can assume these features will continue.

While Crypto does get impacted by Fed policy and macro conditions, it is mostly at the mercy of them rather than dictating them. If the treasury market crashes, you can bet the Fed will be in there the next day propping it up. If Bitcoin crashes, the Wall Street Journal will gloat and remind you that you should have just been paying Blackrock their cut by buying index funds.

We are investing in the frontier of what could be a new and fairer financial system design but this is all untested theory; we have no guarantees. That is a big part of why the returns have been so large. We are taking excessive risk for the chance at excessive reward. We are providing capital to the dreamers and the builders, the people who want to remake the world in a way that doesn’t just funnel wealth to Goldman Sachs.

This piece isn’t intended to scare you, only to open your eyes to the risk. If we don’t discuss risk then we can’t mitigate risk. You can do all sorts of things to reduce your risk: research protocol design, look to multiple sources to inform your thinking, listen to the skeptics and judge how credible their critique is.

In Crypto, there is no FDIC insurance. There is no Fed bailout. There is no one in government who cares about protecting your assets. Your security is your own responsibility. You can take insane risk and no one will stop you from doing something stupid. If you make a mistake, own it and learn from it. Don’t expect to be made whole.

No one is coming to save you. You have to save yourself.

*  *  *

Try The Crypto Capitalist for 30 days for $7, fully refundable.

In spontaneous remarks on the White House lawn this morning, President Joe Biden pointed his shaky gun control sights at the most popular self-defense cartridge in America.   

Recalling a trip to a New York trauma center, Biden said: 

“They said a .22-caliber bullet will lodge in the lung, and we can probably get it out—may be able to get it and save the life. A 9mm bullet blows the lung out of the body. So the idea of these high-caliber weapons is, uh, there’s simply no rational basis for it in terms of…self-protection, hunting.” 

It’s not the first time Biden has condemned 9mm weapons. In 2019, Biden noted that Americans aren’t allowed to own machine guns or bazookas before asking, “Why should we allow people to have military-style weapons including pistols with 9mm bullets and can hold 10 or more rounds?”

As the New York Post notes, 9mm pistols dominate Americans’ holsters, nightstands and gun cabinets: 

According to Shooting Industry magazine, 9mm pistols accounted for 56.8% of all handguns made in the US during 2019. In all, more than 15.1 million 9mm guns were produced in this country during the 2010s. The possibility of outlawing or otherwise regulating such weapons are likely to be a non-starter among conservatives and gun rights advocates.

Aside from the complete implausibility of enacting restrictions on 9mm weapons and ammunition, Biden’s scatterbrained commentary betrays his fundamental misunderstanding of the very nature of armed self-defense when faced with the threat of death or great bodily harm.

When using a pistol or any firearm to stop such a threat, it’s understood that one is using deadly force. It isn’t a game of “tag, you’re it.” The popular Active Self Protection YouTube channel has real-life examples of assailants reanimating after being struck multiple times by police ammunition—likely 9mm or larger .40-caliber—to say nothing of Biden’s kindler, gentler .22.    

Which brings us to the next point: Biden singling out 9mm ammunition as supposedly “high-caliber” is laughable, given its place along the pistol caliber continuum—to say nothing of deer-hunting rifle ammunition with which he’s apparently at peace.  

We’d love to know what nearby Secret Service agents were thinking as Biden said “high-caliber” 9mm ammunition “blows the lung out of the body” and therefore has “no rational basis” in self-defense. Will Biden order them to switch to a .22 so would-be assassins have better odds of making it out of surgery?   

Finally, as absurd as Biden’s latest commentary was, it failed to outdo his preposterous 2013 advice that women should always arm themselves with 12-gauge shotguns rather than AR-15s—because AR-15s are supposedly “harder to aim” and “harder to use.” This classic video does a great job demolishing Biden’s premise:

  

Joe Biden suggests he wants to ban “high caliber” 9mm handguns.

“There’s simply no rational basis for it in terms of self-protection.” pic.twitter.com/lPITAN5kEU

— RNC Research (@RNCResearch) May 30, 2022

 

By Ven Ram, Bloomberg Markets Live commentator and analyst

Interest-rate traders in the U.S. are perhaps starting to sense that the Fed may not need to raise rates by increments of 50 basis points beyond July. They need to be wary about their calculus.

Fed funds’ futures and overnight index swaps are yo-yoing between 180 basis points and 190 basis points of tightening in the remainder of the year, having declined from near-firm pricing of 200 basis points a while ago. Given that the Fed has committed to moving by 50 basis points in both June and July, traders are factoring in just three and fractional 25-basis point hikes at subsequent meetings this year.

Yet that looks like complacency. If proof were needed, look no further than yesterday’s inflation numbers out of Germany and Spain. Price pressures in Europe’s biggest economy reached further than most economists had penciled in for May. Barely 300 miles to the west, in Belgium, inflation surged to levels a whole generation hadn’t seen before. (Meanwhile, Brent crude, a barrel of which hadn’t seen a price tag of $120 in a while, made yet another leg of ascent yesterday and is now hovering around $125.)

And yet, popular press would have wanted us to believe that we were already past “peak inflation” in March. Then April. And we still don’t know. You could split hairs trying to work out the top of inflation, but it seems more like a pedantic preoccupation at this stage than a calculus that may then tell us about how central bank pricing may evolve. For, regardless of when the peak occurs, elevated inflation — numbers running several times the Fed’s target — is here to stay.

It says something about the state of demand in the global economy that the dollar is hovering near its strongest in decades and yet commodity prices are still surging. And you only need to look at the tell-tale part of the Treasury yield curve to know that this economy can handle the Fed’s bigger-than-usual rate hikes. Even if late to acknowledge the severity of inflation, the Fed is now intent on getting it under control. And it may be nifty not to forget that the US goes into mid-term election in November. So even if headline inflation is still running at, say, 5%+/- around September, it may be premature and hasty to conclude that the Fed would make peace with a number that will represent a deceleration from current levels of around 8%+.

So, we may still get more than 50-basis point increases — in other words, there is still life in those meeting-dated swaps.

German federal police raided Deutsche Bank AG and its asset management arm, DWS Group, in Frankfurt, Germany. DWS has faced accusations of greenwashing ever since the firm’s former head of sustainability said it overstated how much capital was allocated to sustainable investing last August. 

Bloomberg reports the Tuesday morning raid on Germany’s largest lender and DWS is directly related to greenwashing, though precisely what federal police are investigating and who the probe is focused around is unknown. 

DWS’ former chief sustainability officer, Desiree Fixler, went public last year about how the firm exaggerated its use of sustainable investing criteria to manage its assets. DWS has since denied the claims, and the U.S. Securities and Exchange Commission (SEC) and German financial regulator, BaFin, have been investigating the asset management arm. 

*U.S. PROBING DEUTSCHE BANK’S DWS OVER SUSTAINABILITY CLAIMS: DJ

— zerohedge (@zerohedge) August 25, 2021

DWS shares fell as much as 4.6% on the news. Deutsche Bank owns an 80% stake, and its shares slumped a little more than 2%. 

Fixler has said DWS misrepresented its ESG investing in its 2020 annual report, in which it claimed to have over half of its $900bln assets invested in ESG. 

The Frankfurt public prosecutors’ office said the investigation had been “triggered by reports in the international and national media that the asset manager DWS, when marketing so-called ‘green financial products’ had sold these financial products as ‘greener’ or ‘more sustainable’ than they actually were.”

“After examination, sufficient factual evidence has emerged that, contrary to the statements made in the sales prospectuses of DWS funds, ESG factors . . . were not taken into account at all in a large number of investments,” the prosecutors’ office said, calling this “prospectus fraud”.

Since Fixler left the firm and publicly voiced concern about DWS’ ESG investing, DWS changed its ESG criteria and said it only had $123 billion “ESG assets” for 2021, a 75% decline from a year earlier when it said half of its assets were “ESG integrated.”

The latest raid comes one month after the Deutsche Bank was raided in Frankfurt over suspected money laundering — certainly not a good look for the bank. 

Authored by Jonathan Turley via jonathanturley.org (emphasis ours),

The Supreme Court appears to be ratcheting up its investigation into the leaking of the draft opinion in Dobbs v. Jackson Women’s Health Organization.

According to CNN, the Court is asking clerks to provide cell phone records and sign affidavits.

Some of us have been surprised by Chief Justice John Roberts’ decision not to ask for assistance from the FBI, which is the world’s leading law enforcement agency on computer and forensic investigations.

Yet, the affidavits may come with the most worrisome change for the leaker. Once signed, the leaker will reaffirm his or her potential criminal liability.

The cellphone records raise obvious privacy concerns.

Communications with Politico or intermediaries can be masked or concealed as casual or personal exchanges. An email entitled “Leaked Confidential Dobbs Draft” is not likely to exist. That means that any meaningful review would require a broader review, creating challenges in how to filter messages and emails.

The affidavit may be a greater concern for the leaker. After all, the leaker may have wisely avoided using the cellphone or creating digital tracks. The affidavit is a sworn statement to federal investigators. If false, it would establish that a federal crime has been committed. Under 18 U.S.C. 1001, it is a federal crime to knowingly and willfully make a materially false, fictitious, or fraudulent statement in any matter within the jurisdiction of the executive, legislative, or judicial branch of the United States.

That would mean that any doubt would be removed for the leaker. If he or she were to go public or be uncovered in the future, there would be a risk of not simply disbarment but criminal prosecution. The leaker may expect that they will be lionized for this effort in the media, though that is more likely if it was a liberal rather than a conservative leaker. This could frustrate such plans. Frankly, I am surprised that such affidavits were not required in the first week.

Despite claims that the leaker is clearly coming from one side or the other, there are equally plausible theories for a leaker on the right or the left. What is clear is that this was a disgracefully unethical act that shattered the long traditions of the Court. The affidavits will make it more difficult for this individual to later try to capitalize on this wrongful act.