Inflation Never Mattered Much For Crypto… Until About A Year Ago

Inflation Never Mattered Much For Crypto… Until About A Year Ago

Inflation never mattered much for crypto… until about a year ago.

As UBS notes in its latest Crypto Keys note last week, forward-looking measures of US consumer prices today rank among the most prominent correlations for digital assets…

…. something we first pointed out a month ago.

Sensitivity to actual data prints is also mounting accordingly…

… and as UBS notes, BTC, ETH and a range of more established tokens screen statistically on par with traditional instruments that are considered classic inflation winners or losers.

Co-movement is weaker for newer coins like BNB as well as ADA, SOL, DOT and AVAX, which have strongly outperformed in 2021, along with meme plays like DOGE. But to UBS that seems encouraging rather than surprising when idiosyncratic factors have clearly been driving their price action.

But while inflation clearly has be driving the top cryptocurrencies in the past year, the risk now according to UBS is that more powerful drivers will emerge to dislodge the status quo. Potential candidates could be things like stablecoin regulation, tighter exchange and account registration requirements reducing activity in CeFi and DeFi, and new restrictions on bank participation, all of which could be near-term negatives affecting market liquidity and activity but longer-term positives paving the way for institutional participation. While such things may sound crypto-specific, they mirror conditions that govern how conventional inflation hedging instruments behave. 

Tyler Durden
Sun, 11/28/2021 – 19:00

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Futures, Oil, Cryptos Soar As Omicron Panic Fades

Futures, Oil, Cryptos Soar As Omicron Panic Fades

It appears that Goldman was right again.

As we reported yesterday, the bank’s traders (not the worthless research analysts whose output is evaluated by the pound not P&L) blasted a report to their best clients, claiming that “we can have reasonable degree of confidence that this mutation is unlikely to be more malicious and that the existing vaccines will most likely continue to be effective in preventing hospitalizations and deaths. As such, while we would monitor the situation in Gauteng closely over the next month, we do not think that the new variant is sufficient reason to make major portfolio changes.” That position was bolstered overnight by two of South Africa’s top doctors (not worthless propaganda quacks like Anthony Fauci) including the one who first discovered the so-called “Omicron”, said that the latest strain was “Extremely mild” and speculated that the numerous mutations in the spike protein “destabilize” the virus.

And at least in early Sunday night trading, after suffering their worst post-Thanksgiving plunge since 1941, futures are euphorically ramping higher, unwinding a substantial portion of the Friday puke, with Eminis trading as high as 4630 after trading as low as 4577 on Friday…

… oil surging, with WTI spiking as much as 5.7% even if it clearly still has a ways to go recover its Friday losses when WTI plunged $10 as international travel restrictions were reimposed by many countries and airline stocks plummeted. And yet, as Goldman explained on Friday, even with a worst Omicron case scenario, Brent below $80 is a steal here:

Meanwhile, in FX we are seeing safe havens such as the Yen and Swiss Franc slide more than 0.2%, with epicenter pairs like the ZAR surging.

Peter Tchir, head of macro at Academy Securities Inc., said he’s watching emerging-market currency and bond markets, and Bitcoin, “as leading indicators of potentially more risky asset unwinds to come.” Well, in that case Peter should be happy because in in crypto both bitcoin…

… and ethereum…

… are storming higher, maybe because they are finally realizing that they live in the best of all worlds, one where new Omicron lockdowns would lead to much more money printing (bullish for cryptos which are a hedge to central bank idiocy) while the quick elimination of negative Omicron consequences would just lead to more inflation (also bullish for cryptos which have emerged as inflation hedges).

Still, confusion remained. “We really need some more answers to figure out the impact on growth,” said Priya Misra, global head of rates strategy at TD Securities. “Risk assets are pricing in uncertainty.”

Naturally, Moderna’s chief medical officer – sniffing out an opportunity to buy an even bigger yacht – said a reformulated shot to combat the new strain could be available early in the new year. In other words, everything that has been done so far has been for nothing, because science, and because let’s do more of what hasn’t worked to fight what is coming.

Tyler Durden
Sun, 11/28/2021 – 18:51

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Biden Admin Pushes Higher Fees For Offshore, Onshore Oil & Gas Companies

Biden Admin Pushes Higher Fees For Offshore, Onshore Oil & Gas Companies

Authored by Nathan Worcester via The Epoch Times,

A new Department of the Interior (DOI) report on oil and gas leasing in federal lands and waters advises the DOI’s Bureau of Land Management (BLM) to raise royalties, rental rates, and other fees on oil and gas companies but has not moved to halt new leasing entirely.

During his 2020 presidential run, President Joe Biden’s campaign website claimed that his climate plan would include “banning new oil and gas permitting on public lands and waters.”

The DOI report (pdf), issued in response to Biden’s Jan. 27 executive order, was quietly published on Black Friday after months of delays. DOI Secretary Deb Haaland claimed in March that the report would be released in “early summer.”

Oil prices and gasoline prices have become a hot-button issue, with many blaming the Biden administration’s freeze on oil and gas leasing, shutdown of the Keystone XL pipeline, and other policies for helping to drive up those costs in recent months.

“So, begging OPEC+ for more supply, raiding our strategic reserve to try to lower prices at the pump, and now increasing leasing fees on U.S. producers. Yep, makes perfect sense—if you’re a Democrat,” wrote Dan K. Eberhardt, CEO of Canary, on Twitter in response to the DOI report.

In the days and weeks since the COP26 summit ended, the Biden administration has held the largest ever U.S. offshore drilling auction and released 50 million barrels of crude oil from the United States’ emergency oil stockpile, the Strategic Petroleum Reserve (SPR).

The offshore auction came months after U.S. District Judge Terry Doughty ruled against the Biden administration’s pause on new oil and gas leases on public lands and waters, finding that such auctions are mandatory under federal law.

Specifically, Doughty determined that the DOI is required to hold quarterly lease sales under both the Mineral Leasing Act (MLA) and the Outer Continental Shelf Lands Act (OCLSA).

Although the Biden administration claimed its 50 million gallon SPR release was motivated by a desire to “lower prices,” some analysts have argued that the release would not significantly impact oil prices.

Oil prices dropped following the late November emergence of the COVID-19 variant B.1.1.529, which the World Health Organization (WHO) dubbed “Omicron” on Nov. 26.

The DOI report claimed the U.S. oil and gas leasing program “fails to provide a fair return to taxpayers, even before factoring in the resulting climate-related costs that must be borne by taxpayers.”

In addition to recommending higher onshore and offshore drilling fees, new screening procedures for bidders, and a “Fitness to Operate” standard for prospective offshore operators, the report states that the DOI’s Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) would “study the most appropriate method” to develop and apply pricing for methane, carbon dioxide, and nitrous oxide for offshore operators.

The new report has already met with criticism from the oil and gas industry.

“During one of the busiest travel weeks of the year when rising costs of energy are even more apparent to Americans, the Biden administration is sending mixed signals. Days after a public speech in which the White House said the president ‘is using every tool available to him to work to lower prices and address the lack of supply,’ his Interior Department proposed to increase costs on American energy development with no clear roadmap for the future,” said Frank Macchiarola of the American Petroleum Institute (API), a key oil and gas trade association, in a statement.

The report prompted a mixed response from the Sierra Club, which endorsed Biden during his 2020 presidential campaign.

“We applaud the Biden administration for recognizing the serious flaws in the current oil and gas leasing program and making long-overdue reforms. But to truly tackle the climate crisis, we need to phase out all new leasing for fossil fuels on public lands and offshore—activities that contribute to nearly a quarter of this country’s greenhouse gas emissions,” said Sierra Club Lands Protection Program Director Athan Manuel.

Colin Rees, U.S. program manager for Oil Change International, went further in a statement from that group.

“President Biden promised to end the leasing program entirely due to its deadly threat to the climate. Interior’s recommendations fall far short of that goal and ring particularly hollow days after the largest lease sale in U.S. history,” he said.

“Secretary Haaland and President Biden must end all federal leasing and permits for oil and gas extraction. Anything less is unacceptable and a damning failure of their climate promises and responsibility to future generations,” he added.

Rep. Bruce Westerman (R-Ark.), ranking member on the House Natural Resources Committee, also denounced the report.

“After keeping the entire energy industry in limbo for months, DOI’s report shows they have only just begun their war on safe, reliable, domestic energy,” said Westerman in a statement.

“They will bog small energy companies down in years of regulatory gridlock, place millions of acres of resources-rich land under lock and key, ignore local input, and sell out to overseas suppliers. Ultimately, the American consumer will pay the price,” he added.

Westerman’s remarks were echoed by Sen. John Barrasso (R-Wyo.), ranking member of the Senate Committee on Energy and Natural Resources.

“Shutting down energy production on federal lands will not fix climate change. It will just push production off federal lands, including to countries that have lower environmental standards than the United States,” Barrasso said in a statement.

“Now we know why the Biden Administration quietly dropped their ‘Bleak Friday’ Oil and Gas Leasing Report the day after Thanksgiving. It spells higher gas prices for hardworking families—while Biden bows to OPEC instead of producing cleaner, lower-cost American energy right here,” wrote House Republican Whip Steve Scalise (R-La.) on Twitter.

Tyler Durden
Sun, 11/28/2021 – 18:30

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South Dakota’s Governor Succeeds in Blocking Voter-Approved Marijuana Legalization


Kristi-Noem-7-16-21-Newscom

South Dakota voters made history last November by simultaneously approving ballot initiatives aimed at legalizing recreational and medical use of marijuana. The success of the broader initiative, Amendment A, was especially striking because it prevailed by an eight-point margin in a state that is mostly Republican and largely conservative. But thanks to a legal challenge backed by Gov. Kristi Noem, Amendment A was almost immediately tied up in litigation, and last Wednesday the South Dakota Supreme Court definitively overturned it, ruling that the measure violated the “single subject” rule for constitutional amendments.

The court’s 4–1 decision does not affect Measure 26, which authorizes medical use of marijuana and passed with support from 70 percent of voters last November. But unless the state legislature independently implements the policy embodied in Amendment A, the ruling means supporters of broader legalization will have to try again next year with an initiative that addresses the court’s legal objections.

Article XXIII, Section 1 of the South Dakota Constitution says “a proposed amendment may amend one or more articles and related subject matter in other articles as necessary to accomplish the objectives of the amendment,” but “no proposed amendment may embrace more than one subject.” According to the South Dakota Supreme Court, that rule aims to “prevent the ‘pernicious practice’ of combining unrelated provisions in one amendment to ensure passage of a provision that might otherwise fail had the provisions been submitted separately.”

The court accepted that most of Amendment A, including the parts dealing with licensing, regulation, and taxation of cannabis production and distribution, addressed a single subject: the legalization of recreational marijuana for adults 21 or older. But it held that provisions instructing the legislature to authorize medical use of marijuana and cultivation of industrial hemp addressed two additional subjects.

The initiative’s backers argued that it complied with the single-subject rule because all of its provisions dealt with the same species of plant. But the court noted that  the medical marijuana provision, unlike the recreational marijuana provisions, did not impose a minimum consumption age. The justices also pointed out that Amendment A itself defines hemp, a nonpsychoactive variety of cannabis with a minimal amount of THC, as distinct from marijuana. They said treating “the regulation of products with a shared biological origin as having the same object or purpose would extend Amendment A into abstraction and obviate the purpose for which Article XXIII, § 1 was adopted.”

In the court’s view, combining the hemp and medical marijuana provisions with broader legalization improperly forced voters who favored one or both of the narrower changes to approve recreational use as well. That concern seems largely misplaced in the context of last November’s election, since voters could vote against Amendment A while voting for Measure 26, the medical marijuana initiative, as many of them did.

Writing in dissent, Justice Scott Myren notes that “anti-logrolling measures such as a separate vote requirement are not intended to ‘prohibit a single constitutional amendment from being complex or multi-faceted, or from containing a variety of specific prescriptions and proscriptions.'” In his view, “it is plain that the Amendment was intended to provide a comprehensive plan for all phases of legalization, regulation, use, production, and sale of marijuana and related substances.”

Myren argues that “all of these propositions relate to marijuana or hemp and are ‘incidental to and necessarily connected with the object’ or purpose of providing a comprehensive plan for all phases of legalization, regulation, use, production, and sale of marijuana and related substances.” And while the majority “concludes Amendment A represents precisely the type of logrolling Article XXIII, § 1 forbids,” he says, it “makes no assertion that voters were misinformed about or confused by the Amendment.”

Because the court concluded that Amendment A violated the single-subject rule, it did not address the question of whether the initiative’s provisions were so sweeping that they amounted to a “revision” of the state constitution, which requires a constitutional convention rather than a popular vote. Last February, Sixth Judicial Circuit Judge Christina Klinger ruled that Amendment A was invalid for that reason as well.

The South Dakota Supreme Court disagreed with Klinger’s conclusion that the original plaintiffs in the November 20 lawsuit challenging Amendment A—Pennington County Sheriff Kevin Thom and Col. Rick Miller, superintendent of the South Dakota Highway Patrol—had standing to sue. But the court said Noem, who “ratified the commencement of this lawsuit” via an executive order she issued on January 8, did have standing. Noem’s blessing therefore was crucial to the lawsuit’s success.

Noem’s determination to block Amendment A seemed to be driven more by her anti-pot prejudices than by her commitment to upholding the abstruse rules governing amendments to the state constitution. “I was personally opposed to these measures and firmly believe they’re the wrong choice for South Dakota’s communities,” she said after voters approved the two marijuana initiatives. “We need to be finding ways to strengthen our families, and I think we’re taking a step backward in that effort. I’m also very disappointed that we will be growing state government by millions of dollars in costs to public safety and to set up this new regulatory system.”

State legislators proved more willing to set aside their personal views on marijuana in deference to the policy preferred by voters. “In my mind, [legalization is] inevitable because we’ve already seen the support from the public,” Senate Majority Leader Gary Cammack said after Klinger’s decision. “I didn’t vote for recreational marijuana, but my constituents did,” added Greg Jamison, another Republican senator. “Rarely do we get a chance to enact a law and not for sure know what our constituents think of that. Here we know.”

In response to such comments from members of her own party, Noem threatened to veto any legalization bill the legislature might decide to pass. Noem later suggested she might be open to decriminalizing low-level marijuana possession. Possessing two ounces or less is currently a misdemeanor punishable by up to a year in jail and a maximum $2,000 fine.

Amendment A’s backers criticized the South Dakota Supreme Court’s decision, saying there was no evidence that voters were confused about what the initiative would do. “The court has rejected common sense and instead used a far-fetched legal theory to overturn a law passed by over 225,000 South Dakota voters based on no logical or evidentiary support,” Matthew Schweich, campaign director at South Dakotans for Better Marijuana Laws, told Marijuana Moment. “The ruling states that Amendment A comprised three subjects—recreational marijuana, medical marijuana, and hemp legalization—and that South Dakotans could not tell what they were voting on when voting for Amendment A. It’s a legal stretch and one that relies on the disrespectful assumption that South Dakota voters were intellectually incapable of understanding the initiative.”

Schweich’s organization is collecting signatures for a 2022 ballot initiative that would legalize recreational marijuana. Meanwhile, the state legislature is expected to consider two legalization bills during its next session, although their fate is uncertain given Noem’s opposition.

“South Dakota is a place where the rule of law and our Constitution matter, and that’s what today’s decision on Amendment A is about,” Noem said on Twitter after last week’s ruling. “Today’s decision does not affect my Administration’s implementation of the medical cannabis program voters approved in 2020. That program was launched earlier this month, and the first cards have already gone out to eligible individuals.”

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Security Guard For TV News Crew Killed While Covering Organized Looting In Oakland

Security Guard For TV News Crew Killed While Covering Organized Looting In Oakland

A security guard protecting a San Francisco Bay Area news crew has died after being shot in the abdomen during an attempted robbery near downtown Oakland on Wednesday, according to the Associated Press.


Security guard Kevin Nishita, a former police officer, was shot while a group tried to rob a KRON news crew of its television camera.

Former police officer-turned armed guard Kevin Nishita was protecting the KRON-TV news crew while they reported on a smash-and-grab theft related to a spate of organized retail crime in the area, when a group of thugs attempted to steal their equipment.

The KRON-TV crew was covering the late Monday night burglary of Prime 356, where about 30 people wearing black clothing and latex gloves broke in and snatched clothing from the shelves. –AP

A reward of $32,500 has been offered for information leading to the arrest of Nishita’s killer.

“This senseless loss of life is due to yet another violent criminal act in the Bay Area. We hope that offering a reward will help lead to the arrest of those responsible so they can face justice for this terrible tragedy,” said KRON-TV’s vice president and general manager, Jim Rose in a Saturday statement. “Our deepest sympathy goes to Kevin’s wife, his children, his family, and to all his friends and colleagues.”

There have been several organized lootings across California and other states, as two Nordstrom stores were looted for more than $25,000 in high-end goods just days after a Louis Vuitton store in San Francisco was hit.

The thefts are believed to be part of ‘sophisticated criminal networks’ that recruit looters and then sell the merchandise they make off with, according to AP.

Tyler Durden
Sun, 11/28/2021 – 18:00

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South Dakota’s Governor Succeeds in Blocking Voter-Approved Marijuana Legalization


Kristi-Noem-7-16-21-Newscom

South Dakota voters made history last November by simultaneously approving ballot initiatives aimed at legalizing recreational and medical use of marijuana. The success of the broader initiative, Amendment A, was especially striking because it prevailed by an eight-point margin in a state that is mostly Republican and largely conservative. But thanks to a legal challenge backed by Gov. Kristi Noem, Amendment A was almost immediately tied up in litigation, and last Wednesday the South Dakota Supreme Court definitively overturned it, ruling that the measure violated the “single subject” rule for constitutional amendments.

The court’s 4–1 decision does not affect Measure 26, which authorizes medical use of marijuana and passed with support from 70 percent of voters last November. But unless the state legislature independently implements the policy embodied in Amendment A, the ruling means supporters of broader legalization will have to try again next year with an initiative that addresses the court’s legal objections.

Article XXIII, Section 1 of the South Dakota Constitution says “a proposed amendment may amend one or more articles and related subject matter in other articles as necessary to accomplish the objectives of the amendment,” but “no proposed amendment may embrace more than one subject.” According to the South Dakota Supreme Court, that rule aims to “prevent the ‘pernicious practice’ of combining unrelated provisions in one amendment to ensure passage of a provision that might otherwise fail had the provisions been submitted separately.”

The court accepted that most of Amendment A, including the parts dealing with licensing, regulation, and taxation of cannabis production and distribution, addressed a single subject: the legalization of recreational marijuana for adults 21 or older. But it held that provisions instructing the legislature to authorize medical use of marijuana and cultivation of industrial hemp addressed two additional subjects.

The initiative’s backers argued that it complied with the single-subject rule because all of its provisions dealt with the same species of plant. But the court noted that  the medical marijuana provision, unlike the recreational marijuana provisions, did not impose a minimum consumption age. The justices also pointed out that Amendment A itself defines hemp, a nonpsychoactive variety of cannabis with a minimal amount of THC, as distinct from marijuana. They said treating “the regulation of products with a shared biological origin as having the same object or purpose would extend Amendment A into abstraction and obviate the purpose for which Article XXIII, § 1 was adopted.”

In the court’s view, combining the hemp and medical marijuana provisions with broader legalization improperly forced voters who favored one or both of the narrower changes to approve recreational use as well. That concern seems largely misplaced in the context of last November’s election, since voters could vote against Amendment A while voting for Measure 26, the medical marijuana initiative, as many of them did.

Because the court concluded that Amendment A violated the single-subject rule, it did not address the question of whether the initiative’s provisions were so sweeping that they amounted to a “revision” of the state constitution, which requires a constitutional convention rather than a popular vote. Last February, Sixth Judicial Circuit Judge Christina Klinger ruled that Amendment A was invalid for that reason as well.

The South Dakota Supreme Court disagreed with Klinger’s conclusion that the original plaintiffs in the November 20 lawsuit challenging Amendment A—Pennington County Sheriff Kevin Thom and Col. Rick Miller, superintendent of the South Dakota Highway Patrol—had standing to sue. But the court said Noem, who “ratified the commencement of this lawsuit” via an executive order she issued on January 8, did have standing. Noem’s blessing therefore was crucial to the lawsuit’s success.

Noem’s determination to block Amendment A seemed to be driven more by her anti-pot prejudices than by her commitment to upholding the abstruse rules governing amendments to the state constitution. “I was personally opposed to these measures and firmly believe they’re the wrong choice for South Dakota’s communities,” she said after voters approved the two marijuana initiatives. “We need to be finding ways to strengthen our families, and I think we’re taking a step backward in that effort. I’m also very disappointed that we will be growing state government by millions of dollars in costs to public safety and to set up this new regulatory system.”

State legislators proved more willing to set aside their personal views on marijuana in deference to the policy preferred by voters. “In my mind, [legalization is] inevitable because we’ve already seen the support from the public,” Senate Majority Leader Gary Cammack said after Klinger’s decision. “I didn’t vote for recreational marijuana, but my constituents did,” added Greg Jamison, another Republican senator. “Rarely do we get a chance to enact a law and not for sure know what our constituents think of that. Here we know.”

In response to such comments from members of her own party, Noem threatened to veto any legalization bill the legislature might decide to pass. Noem later suggested she might be open to decriminalizing low-level marijuana possession. Possessing two ounces or less is currently a misdemeanor punishable by up to a year in jail and a maximum $2,000 fine.

Amendment A’s backers criticized the South Dakota Supreme Court’s decision, saying there was no evidence that voters were confused about what the initiative would do. “The court has rejected common sense and instead used a far-fetched legal theory to overturn a law passed by over 225,000 South Dakota voters based on no logical or evidentiary support,” Matthew Schweich, campaign director at South Dakotans for Better Marijuana Laws, told Marijuana Moment. “The ruling states that Amendment A comprised three subjects—recreational marijuana, medical marijuana, and hemp legalization—and that South Dakotans could not tell what they were voting on when voting for Amendment A. It’s a legal stretch and one that relies on the disrespectful assumption that South Dakota voters were intellectually incapable of understanding the initiative.”

Schweich’s organization is collecting signatures for a 2022 ballot initiative that would legalize recreational marijuana. Meanwhile, the state legislature is expected to consider two legalization bills during its next session, although their fate is uncertain given Noem’s opposition.

“South Dakota is a place where the rule of law and our Constitution matter, and that’s what today’s decision on Amendment A is about,” Noem said on Twitter after last week’s ruling. “Today’s decision does not affect my Administration’s implementation of the medical cannabis program voters approved in 2020. That program was launched earlier this month, and the first cards have already gone out to eligible individuals.”

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Hillary: “Americans Just Don’t Appreciate What Joe Has Done For Them”

Hillary: “Americans Just Don’t Appreciate What Joe Has Done For Them”

Via 21stCenturyWire.com,

This might be the longest-ever Thanksgiving weekend for Joe Biden. While he’s been enjoying a warm blanket and a hot cup of Ovaltine with his family in Nantucket, the President’s poll numbers have been in virtual free-fall. It seems that the nation is fast losing confidence in his ability to handle important issues like the economy, the border, foreign policy and crime running wild on America’s streets. In short, the majority of Americans, both Democrat and Republican, do not believe Joe is capable of fulfilling his duties as the chief executive of the world’s premier superpower.

At present, Biden’s average job approval rating stands at around 40%, a steep drop from the 55% percent average approval rating he enjoyed last May.

No one really knows just how low Joe will go.

Still, this hasn’t stopped his ardent allies from rushing to his defense, and blaming his flagging numbers on social media trolls (see deplorables).

Carlos Garcia from The Blaze writes…

Former presidential candidate Hillary Clinton tried to explain away President Joe Biden’s poor polling by accusing Americans of not appreciating what Biden has done for them, and blamed social media.

Clinton made the comments while a guest on Rachel Maddow’s MSNBC show Tuesday evening.

“You know, democracy is messy. You know, a lot of people got, oh I think, kind of frustrated looking at the messy process of legislation,” said Clinton.

“And they didn’t really appreciate that, within a year, the Biden administration has passed two major pieces of legislation through both the House and the Senate, they passed another major piece through the House that will be soon be in the Senate,” she continued.

“By any measure those are extraordinary accomplishments and they really will help many millions of Americans with healthcare and prescription drug prices, as well as climate change and so much else,” said Clinton.

“But because of the way we are getting our information today,” she concluded, “and because of the lack of gatekeepers and people who have a historic perspective who can help us understand what we are seeing, there is a real vulnerability in the electorate to the kind of demagoguery and disinformation that, unfortunately, the other side is really good at exploiting.”

Both Maddow and Clinton accused Republicans of undermining the results of fair elections and calling for violence as a political solution in the interview.

Biden’s poll numbers have suffered greatly after a cascade of damaging incidents plaguing his administration. Among the worst were the disastrous retreat from Afghanistan, the painful cost of high inflation, and the crisis of illegal immigration at the border.

One poll from October found that only 38% of Americans thought Biden deserved a positive job rating.

Watch Hillary’s clip here: 

Tyler Durden
Sun, 11/28/2021 – 17:30

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Suspect Arrested In Philadelphia’s Record 500th Homicide This Year

Suspect Arrested In Philadelphia’s Record 500th Homicide This Year

Just hours ago we wrote about how Philadelphia had tied its all time homicide record after a shooting that occurred in broad daylight in South Philadelphia.

A person of interest has now been arrested over what was the city’s 500th homicide of the year.

The victim’s estranged husband is believed to be behind the attack, Philly Voice reported this weekend. We noted days ago that the shooter had been caught casually walking away from the crime scene on surveillance video. 

The couple broke up about two weeks ago and the victim, 55 year old Eloise Harmon, was known as “an engaged community member and activist who worked to keep her block free of drugs and violence as far back as the nineties”.

The suspect was taken into custody on Friday, the report says, after he barricaded himself into a home on the 500 block of North Gross Street in West Philadelphia. 

The murder occurred at 7th and Jackson streets in South Philadelphia at 4:30pm on Wednesday. With more than a month to go in the year, Philadelphia’s homicide total is now even with the record it set in 1990 amidst a massive crack cocaine epidemic in the city, Philly Voice reported.

Mayor Jim Kenney spoke out about gun violence the day before the murder, stating: “We continue to act with urgency to reduce violence and save lives.” 

Kenney has been pushing for state lawmakers to pass more gun laws and allow him more power to introduce new gun laws in Philadelphia. 

Philadelphia Police Department Commissioner Danielle Outlaw commented: “We remain committed to proactively patrolling neighborhoods and encourage community members to continue to work alongside the police.”

Tyler Durden
Sun, 11/28/2021 – 17:05

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Free Trades – A World Without Payment-For-Order-Flow

Free Trades – A World Without Payment-For-Order-Flow

Authored by Marc Rubinstein via ‘Net Interest’,

Anyone who’s seen the Apple TV show Ted Lasso will be well versed in the differences between American and British behaviours. Tea and biscuits, football draws, the underhand nature of the British press – it’s all in there.

One thing that’s not in there, though, is financial services. Which is a shame because there are lots of differences between financial practices in the US and the UK. One of them is the role of payment for order flow in retail stock trading. Payment for order flow underpins the business model of Robinhood, an American company named after a British legend. Yet in the UK, it is banned. If Ted were to pull out his phone to buy some UK-listed shares, the way his order is routed to the market would be very different to anything he may be used to back home. 

It’s a topic worth exploring because European regulators are in the process of banning payment for order flow too and US regulators may very well follow. Against this backdrop, new business models are emerging.

What is Payment for Order Flow?

Payment for Order Flow (PFOF) is a fee that a broker receives in return for routing trades to specific exchanges or dealers for execution. Hit confirm on the purchase of a few shares of Citigroup in your trading app [this is not investment advice] and rather than sending it to the stock exchange to be executed, your broker will typically send it to a wholesale market maker.

There are about eight of these market makers active in the US. The largest is Citadel Securities, then there’s Virtu, G1 Execution, Goldman Sachs, Jane Street, Two Sigma Securities, UBS Securities and Wolverine. Their pitch is that they can deliver a better price for the end customer than if the trade was routed direct to an exchange. That’s because as well as trafficking between exchanges, these market makers tap into so-called dark pools of liquidity. And increasingly, that’s where the action is. These days, more shares can be executed in private, dark venues than on public exchanges. In the case of some stocks, where retail participation is high, 60-70% of trading can occur in the dark.

One such dark venue is the market maker’s own balance sheet. Given their scale, market makers are often able to match up trades from within their flow. There are around 200 retail brokers in the US but once their orders are aggregated among the eight wholesalers, there is ample opportunity for matching. Retail orders tend to be small, dispersed and uninformed, so the chances that a Citigroup sell order comes in on the same day as a Citigroup buy order are quite high. Virtu, one of the largest market makers, reckons that around 60% of the retail volume it handles is dealt with internally. 

The advantage for the customer is a better price. Brokers are required to offer the best available price, but only with reference to what’s posted on public exchanges. For Citigroup, that price may be $67.20 to sell or $67.40 to buy. Scour these dark pools and better prices emerge. If the market maker itself can execute the trade at $67.25 for the seller and $67.35 for the buyer, both are better off and there’s still something left in the middle for the market maker.

In aggregate, market makers reckon they delivered $3.6 billion of price improvement to retail investors last year. Virtu argues that if you adjust for order size, price improvement is even higher and on that metric they alone delivered $3 billion of improvement. 

In order to attract flow, market makers offer payments. This is where the payment for order flow comes in. Some brokers – Fidelity, for example – don’t take it, but many do. In particular, several have crafted a business model around it, using payment for order flow to subsidise the cost of trades. Over the full year 2020, Robinhood earned $691 million in payments for order flow, representing 72% of its total revenue. 

Payment for order flow allows the broker to share in any value captured by channeling orders through wholesalers, along with the wholesaler and the end customer (through price improvement). Bloomberg estimates that for every $100 of value captured, around $49 stays with the wholesaler, $13 goes to the broker and $38 ends up with the customer.

Neat as all this sounds, it is highly controversial. There’s a reason they don’t allow it in the UK (or Canada). The issue is the potential conflict of interest it presents. The European Securities and Markets Authority sounds the alarm: “PFOF causes a clear conflict of interest between the firm and its clients, because it incentivises the firm to choose the third party offering the highest payment, rather than the best possible outcome for its clients when executing their orders.”

Such conflicts were exposed at Robinhood last December, leading to the firm being fined $65 million. The Securities and Exchange Commission (SEC) discovered that Robinhood had locked in unusually high payment for order flow rates but wasn’t getting much price improvement on customer orders. According to the SEC, inferior trade prices deprived customers of $34.1 million in the 30 months up to June 2019, even after taking into account the savings from not paying a commission.    

The controversy around payment for order flow is nothing new, it’s just that entire business models have been built while it’s been simmering. Twenty years ago, Bernie Madoff defended the practice – not someone you really want fighting your corner.

“No one tells a firm how they can advertise. If I want to hire salesmen to generate order flow, no one is going to object. I don’t have them. So if I want to use Fidelity’s salesmen and pay part of my trading profits in the form of a rebate, why shouldn’t I be allowed to do it? It was characterized as this bribe and kickback and something sinister, which was very easy to do. But if your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated.”

In the UK, financial regulators classified payment for order flow as an inducement at odds with best execution back in 2012 and banned it just as it was beginning to take off. A study has since shown that the ban did not have a detrimental effect on pricing, with customers benefiting from a more competitive market for retail orders. 

This week, Europe has followed suit. The European Commission updated a broad set of rules around capital markets, including amendments “to stop the controversial practice of trading operators offering incentives to brokers for directing client orders to them, regardless of whether or not doing so is in their clients’ best interests (‘payment for order flows’).”

For new brokers like Trade Republic in Germany – valued in a recent funding round at $5 billion – this is potentially very damaging. Payment for order flow accounts for around half their revenue. Another broker, flatexDEGIRO has disclosed that payment for order flow makes up only 3% of its revenues, leaving it better placed. 

Nowhere is payment for order flow more embedded though than in the US. Yet here, too, there are rumblings that it may be banned. The newly appointed Chairman of the Securities and Exchange Commission has put a full ban “on the table.” Interviewed by my close namesake David Rubenstein recently, he added:

“You’re supposed to get best execution out of your broker and is that happening when…a few wholesalers are buying the order flow and a lot of that’s getting concentrated around a few wholesalers?”

A World Without Payment for Order Flow

A ban on payment for order flow would leave brokers with two choices:

They could reverse into the market making business themselves. Historically, retail brokers including E*Trade, Charles Schwab and Interactive Brokers did operate such businesses. But the rise of electronic and high frequency trading narrowed bid/offer spreads, convincing them to sell to scale providers. Charles Schwab sold its execution services business to UBS in 2004, E*Trade sold to Susquehanna in early 2014, and Interactive Brokers sold to Two Sigma in 2017.

When it sold to Susquehanna, E*Trade argued it wouldn’t suffer a decline in profit because new sources of payment for order flow would offset lost trading profits. Payment for order flow is a higher margin activity than market making, so E*Trade may have been right at the profit level. But on the revenue line, the firm did lose out. In the three years prior to the sale, E*Trade earned an average of $90 million a year from trading, of which around 60% was internal flows; payment for order flow increased by only around $30 million a year subsequent to the sale.

Source: E*Trade financial reports

If payment for order flow disappears, a reverse back into trading could make sense for E*Trade, especially now it has access to a better trading platform as part of Morgan Stanley (which bought it in 2020). More broadly, larger brokers have a particular advantage at being able to internalise trades. Robinhood alone does more retail equity trading than any market maker outside the big two (Citadel Securities and Virtu). 

A second option is to seek out alternative revenue sources. This is where the UK experience comes in. In 2016, a new broker was founded in the UK, Freetrade. The firm set out to offer Robinhood-style trading without recourse to payment for order flow: “We do not receive financial or non-financial benefit from any trade execution venues or counterparties in return for sending our customers’ orders to them (sometimes known as ‘payment for order flow’).”

Freetrade now has around 600,000 funded accounts in the UK, of which 475,000 have been active in the last thirty days. In the third quarter of this year, it processed 2.6 million trades. Like Robinhood, it has an engaged user base with a similar average age (34). Unlike Robinhood, it has used that customer base to fund its growth. Following an original crowdfunding raise in 2016 (for £170,000), the company has launched seven further rounds. This week, Freetrade launched its latest round, valuing the company at £650 million. Within a few hours, the company raised £3.7 million from existing investors and a further £1.3 million from others who signed up for early access. After four hours, the company had raised £8 million from over 6,000 investors.

Unusually, Freetrade sometimes offers investors secondary trading opportunities, allowing them to lock in profits. How much of that gets recycled back into the platform though is unknown. The company has over £1 billion in assets on its platform, the two largest cohorts being the pre-Dec 2019 cohort and the first quarter 2021 cohort. 

Freetrade funding rounds

So how does Freetrade make money? 

Here’s how the company puts it:

I’m not too sure how optimising costs enables free investing, but looking beyond that, Freetrade makes money from subscriptions with upside from FX and interest income. 

In 2020, the company made £3 million revenue. For 2021, they are forecasting £15 million, less than original projections because of a slower rollout into Europe. Leaving 2021, they are doing £2 million in revenue a month, so that’s around £40 per funded account on an annualised basis. The projection for 2022 is £50 million of revenue. Gross margins are around 90% but staff and overhead costs are expected to continue to consume revenues until 2023. 

The core subscription model creates an alignment with customers – Freetrade isn’t incentivised to get them to trade more. Which is a good thing! Its customers trade an average 17x per year compared with Robinhood’s 25x (in equities) as at the third quarter. It’s also a more resilient model – revenues won’t collapse with trading velocity, although they are subject to churn. With higher interest rates, Freetrade will be able to secure a larger stream of interest income on uninvested cash.

Freetrade remains very small next to the giants in the industry like Robinhood. But it’s an interesting model to watch, particularly as payment for order flow comes under pressure. The model may be foreign to Ted Lasso but, as Rebecca tells him, “every disadvantage has its advantage.”

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This is a free version of Net Interest, my newsletter on financial sector themes. For additional content and supplementary features, please consider signing up as a paid subscriber.

Tyler Durden
Sun, 11/28/2021 – 16:40

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Black Friday Shopping Down 28% Over 2019 Levels Despite Improvement Over Last Year

Black Friday Shopping Down 28% Over 2019 Levels Despite Improvement Over Last Year

The good news: Black Friday retail traffic was up 47.5% over last year. The bad news: It was still 28.3% lower vs. 2019 levels, according to CNBC, citing preliminary data from Sensormatic Solutions.

“It’s clear shoppers are shopping earlier this season, just as they did last season,” according to Sensormatic senior director of global retail consulting, Brian Field, who added that two primary reasons shoppers are concerned about the supply chain and Covid.

The peak time for Black Friday shopping in stores was 1 p.m. to 3 p.m., similar to trends in past years, Sensormatic said. Black Friday is still predicted to be the busiest in-store shopping day of the season, according to Sensormatic.

On Thanksgiving day, visits to brick-and-mortar stores cratered 90.4% from 2019 levels, Sensormatic found. Retailers including Target, Walmart and Best Buy opted to keep their doors closed to customers on the holiday. Target has said it will be a permanent shift. -CNBC

According to Field, shopping picked up the most in the Southern US, followed by the Midwest, West and Northeast.

“If you start seeing outbreaks in the U.S., the thing that I think would drive [traffic down] would be if governments and communities start locking down again,” he said. “Otherwise, I think the trends will be very similar to what we expect them to be.”

Online spending fell from 2020 levels, meanwhile, with e-retailers ringing up $8.9 billion in Black Friday sales – down from $9 billion last year, according to Adobe Analytics, which noted that this is the first year that growth reversed from the prior year as long as records have been kept. The company analyzes over 100 million items in 18 product categories spanning 1 trillion visits to US retail sites.

Thanksgiving day online sales were flat from one year ago at $5.1billion, according to Adobe.

The numbers provide even greater evidence that the holiday season has been stretched out as more Americans began their shopping as early as October. Retailers have been spreading out their promotional offers, too. According to a survey from the National Retail Federation, the retail industry’s leading trade group, 61% of consumers had already started purchasing holiday gifts before Thanksgiving. -CNBC

“Shoppers are being strategic in their gift shopping, buying much earlier in the season and being flexible about when they shop to make sure they get the best deals,” said Adobe lead analyst, Vivek Pandya.

The company forecasts Cyber Monday sales to be between $10.2 billion and $11.3 billion.

Tyler Durden
Sun, 11/28/2021 – 16:15

via ZeroHedge News https://ift.tt/3rdZfrq Tyler Durden