As we end the week, the question - according to JPMorgan's trading desk - is whether the bear market current rally has ended and what that means for stocks moving forward.
While the Banks painted a picture of strength in Consumer and Corporate sectors, bears will point to (lack of) hiring (and outright firing) in Tech and headlines from companies such as AT&T that consumers are behind on payments on their phone bills! Recall AT&T’s management said “we're seeing an increase in bad debt to slightly higher than pre-pandemic levels, as well as extended cash collection cycles. However, it's important to note that customers are making their accounts today consistent with historical patterns and previous economic cycles.”
Here, JPM flow trader Andrew Tyler notes that his conclusion is that the economy is clearly slowing but it is not falling off a cliff, and "while recession risk (within 12 months) is elevated it may take a bit more time to eat through Consumer (~$2T remains in excess cash relative to 2019 level) and Corporate cash piles (SPX had record high cash levels coming into 2022 with near record interest coverage ratios)." Here, we find it amusing how everything still keeps harping about this "excess cash savings" (which have been spent long ago) some two years after the fact, yet nobody talks about the "excess savings" in the form of stock market investments and which are $10 trillion lower in the past 6 months. Or is the psychology of cash savings somehow different from those of short-term speculative market holdings.
Goldman trader Rich Privorotsky concludes the week with a far more downbeat take: it's been a long week, he writes, and the "market has absorbed lots of bad news very well and I think little doubt how one side positioning has been." Privorotsky is amazed that despite negative ytd performance equites have still seen little to no outflows. He thinks that this means "the asset management community cashed up waiting for redemptions that haven’t come."
And echoing what we have been saying for days, the Goldman trader says that in his view, positioning (including the fact that this is the "most hated rally" and certainly including the tens of billions in buying by systematic funds) is largely to blame here, as the "market is pricing all of the upside from rate compression but ignoring the cause (what would drive commodities to go down this much when supply is so constrained...negative growth revisions) and the rally is meant to be sold."
Perhaps, but the question on every trader's mind is how long with the rally last? After all, just one violent bear market rally can make one's entire year in days.
For one answer, we turn again to Nomura's Charlie McElligott who first points to the dramatic action in bonds, where following this morning's contractionary PMI prints out of Europe which confirm a recession has arrived...
... Bonds have gone full tilt VaR event spasm - with the German 2Y yield plunging -25bps, the largest move since 2008..
... as the short-squeeze panic - having now turned into new “long” risk being added - turns violently unstable.
According to Charlie, in a world where all performance dynamics over the past 1-2Y period have been about having a “short” view on Duration (vs “Long” on Inflation / Cyclicality), the sudden and violent return of “Bonds as Hedge” spells further looming pain and reversal for all things “Trend / Momentum”, where positive performance has almost entirely been dictated by “Bond / Duration” Shorts and “Cyclical Inflation” Longs.
Case in point, the SG Trend (CTA) Index is now -5.6% over the past one month (through 7/20/22, and that will update much worse later today), while the Nomura-Wolfe Long Term Momentum Factor is -10.2% over that same 1m period, as UST 10Y has explosively rallied off the lows and seen yields collapse from 3.47% high mid June to this morning’s 2.79%
Nomura then notes that even before this morning's freakish rally, we were already in the strike-zone for more forced short-covering from CTA Trend space in Bonds (USD, AUD, CAD) and MMs (ED$ and ER):
As McElligott puts it "we all get the joke: the post COVID response of unprecedented fiscal and mon policy from global CBs, the pent-up demand release post vaccine, the start-stop lockdowns thereafter, the already broken supply-chain getting broken-er off the back of that, the “bull-whip” effect on demand / inventories, the under-capitalization of traditional Energy / Oil / Gas in the ESG era, the Russia / Ukraine war….has conspired to create this synthetic and steroidally-charged business cycle, where phase shifts are turning faster-and-faster, with break-neck speed."
It's also why we disagreed with McElligott's view presented yesterday that the Fed will take a loooooooong time to pivot, and won't do it in 2023 - not only will the Fed pivot, but it will do it so fast once the economy trapdoors into recession at a record speed, heads will spin.
In any case, amid this liftathon in rates, Nomura here echoes Goldman above and writes that "equities futures refuse to crack lower under the barage of what feels like “perpetual pessimism” and “bad news” and not just recent European “goings-ons,” but also US, where we witnessed SNAP, STX, SIVB, COF, CRSR, SAM etc earnings / guide disasters yesterday on “macro headwinds” stories... but Spooz “no cares.”
Such “trading firm despite calamity” matters, as it relates to Charlie's recent observation that this Equities rally is acting VERY differently from the prior bear market bounces during this now 9 month long sell-off, as it indicates a mismatch between extremely negative sentiment & positioning from dour views about economic growth due to the surge of FCI tightening…versus seemingly what might have already been “priced-into” the market.
This goes back to the belief that Markets and the Economy are not synonymous, as Equities/Rates/Credit all have very well captured a large part of this anticipated turn in the business cycle, and well-ahead of the actual “realization” (and Fed pivot).
Indeed, a re-fresh on Nomura's “SPX Sentiment Index” shows “live” sentiment scrambling to “catch up” to the market, versus the legacy “doldrums” we have been immersed in as per the the 50d rolling avg, and currently 3.1% since 2004.
If one plugs this 3.1% 50-day avg trigger in an SPX forward returns test/signal”, it further illuminates what this “mismatch” dynamic has tended to mean moving-forward for US Equities: i.e. a standard “extreme negative sentiment = bullish forwards” signal, with significant SPX excess returns and high “hit rates” on nearly all time series! Or said otherwise, extremely bearishness is extremely bullish!
Here’s the rub: one can argue, of course, those all the prior trigger “hits” with this test do not necessarily occur against a “Stagflationary” backdrop of unmoored inflation into a growth slowdown, that, for at least an additional window of time here, will not allow the “urgent and immediate” Central Bank rescue which we’ve grown accustomed to, versus the past decade’s conditioning to the standard “Cut Rates / Buy Bonds” drill at the first sign of crisis or growth slowdown, which is the point Charlie has been been making this week regarding the inability for CB’s to “pivot” as soon as market’s currently expect (once again, we completely disagree, and we are confident the Nomura x-asset strategist will soon change his mind too once we get a -200K print in an upcoming payrolls report).
As an aside, Charlie is nice enough to observe that the topic of the “Fed Pivot” has illicited an enormous amount on emotion from clients to this week’s notes, and from both sides of the aisle.
- Some are saying that US is already deep recession, that July will be the Fed’s last hike, and that the first Fed cuts will come as early as Dec ’22 or Feb ’23 meetings…
- Others believe that due to inflation staying sticky higher and with lagging inputs (like Rent), that the only Fed “easing” next year will come in the form of a premature end to QT in 2H23, and that the currently anticipated “weak” recession will not be enough to slow Labor enough to put any dent into Inflation…hence, the Fed will be forced to stay “tighter for longer”
But going back to equities, and the ongoing short-term rally (as a reminder, we are all trying to figure out how long it will last), the signs of angst from the “earnings shoe to drop” shorts or those simply “underweight” continue to mount, where the negative earnings shoe is dropping real-time (names as noted earlier above), and yet the market isn’t going lower - instead, it continues to grind higher in what Goldman dubbed the "most hated rally" since everyone is positioned bearishly!
The lack of upside positioning is also in single-names too, as everybody's "low risk" tilt has them with no portfolio "beta to beta" on the move higher, especially long-short hedge funds!
All this goes to the now “pulled-forward” bullish point McElligott has been making about a strong report from MSFT being a real potential catalyst next week to seeing this Equities rally go melt-up, before his bearish point about the Fed being “stuck tighter” than the market currently anticipates can take hold out in the medium-term thereafter
- Everybody in the “top down” macro space has been expecting the “negative earnings revision” in US equities to act as the next risk-off impulse, which then “cleanses” you down to that (arbitrary) 3200-3400 “interesting valuation case” level noted by a handful of prominent Street strategists that many clients said they’d get constructive on market and want to buy on the washout.
- But as we are beginning to realize the negative earnings events, Equities index refuses to go lower, but that “dip that was supposed to be bot” didn’t materialize, and now, that risks a scenario where these folks are forced into being “buyers higher”
Meanwhile, as discussed yesterday, systematic funds are getting more “signal” on both Price and cratering short-dated trailing realized Vols (SPX 1m rVol from 36 mid-May to now 18), with ongoing CTA covering / long buying now, and Vol Control set to take the baton in weeks ahead, leading to even more circular buying (lower VIX, more buying, leading to lower VIX and even more buying).
CTA trend signals and buy triggers
VOL control setup to "buy" almost all daily change scenarios over the next month!
Looking at the Vol space, McElligott notes that this is what we’ve continued to see for months: Skew flattening a lot with demand for Index Calls over Puts, as most just don’t have the exposure on. This is why Index Call Skew remains bid, Put Skew and Skew remain offered—that same theme over the past few months where the real concern became about “missing the Right tail,” since exposure was so slashed for most managers, hence no need for further downside (VVIX at 2 year lows yesterday, no need for “crash” if by-and-large you don’t have the exposure on).
However, the change seen just the past few days this week on the desk, is that we actually now traders are again seeing resumption in downside hedge interest, which paradoxically adds to the “bullish” point: that they are again nibbling back into underlying exposure, hence, they need to again hedge!
What is actionaly, is that this is actually “unstable” type behavior that does often coincide with “Spot Up, Vol Up” periods:
- Scramble to grab upside obvious in the megacap Tech faves of old yesterday: TSLA (1.1mm Calls bot yday), META (295k Calls) and GOOGL (250k Calls)
- Take TSLA alone, which “IS” the US Equites Options market in one singular security, the numbers added-up to an absolutely “un-possible” ~+$1.4B of Net $Delta ADDED yesterday btwn bot Calls / sold Puts alone…blowing out anything we’ve seen over at least the past 1m period
And over the course of the day yday, we saw massive screen buying of over 200k contracts in SPX strikes from 3980 to 4020 in the same day / yesterday Calls, in an attempted “Gamma Squeeze” which was the driver of that move into the close!
And lo-and-behold, the S&P rally has seen us scramble back into stabilizing “Long Gamma” territory for Dealers across risky-asset Options, on just ridiculous “Net $Delta” added in recent days and off the lows last month—US Equities (SPX, SPY, QQQ, IWM combined) at +$670B vs 1m ago and +$429B versus 1 week ago:
As McElligott concludes, "between the moves in Bonds and Equities, it all adds up to one word: PAIN", which will likely be the prevailing condition at least until Powell gives the all clear in either direction.
Tesla rival Polestar reveals lineup of its new electric vehicles
The Sweden-based electric vehicle maker completes key testing before launching production of its new SUV.
Tesla's Model Y crossover, the best-selling vehicle globally, is the standard that electric vehicle makers strive to compete with. The Austin, Texas, automaker sold about 267,200 Model Y vehicles in the first three months of the year and continued leading the pack well into the second quarter.
It's no wonder that the Model Y is leading all vehicles in sales as it retails for about $39,390 after tax credits and estimated gas savings. Ford (F) - Get Free Report hopes to compete with the Model Y about a year from now when it rolls out the new Ford Explorer SUV that is expected to start at $49,150.
Plenty of competition in electric SUV space
Mercedes-Benz (MBG) however, has a Tesla rival model with its EQB all-electric compact sports utility vehicle with an estimated 245 mile range on a charge with 70.5 kWh battery capacity, 0-60 mph acceleration in 8 seconds and the lowest price of its EVs at a $52,750 manufacturers suggested retail price.
Tesla's Model X SUV has a starting price of about $88,490, while the Model X full-size SUV starts at $98,490 with a range of 348 miles. BMW's (BMWYY) - Get Free Report xDrive50 SUV has a starting price of about $87,000, a range up to 311 miles and accelerates 0-60 miles per hour in 4.4 seconds.
Polestar (PSNY) - Get Free Report plans to have a lineup of five EVs by 2026. The latest model that will begin production in the first quarter of 2024 is the Polestar 3 electric SUV, which is completing its development. The vehicle just finished two weeks of testing in extreme hot weather of up to 122 degrees in the desert of the United Arab Emirates to fine tune its climate system. The testing was completed in urban cities and the deserts around Dubai and Abu Dhabi.
“The Polestar 3 development and testing program is progressing well, and I expect production to start in Q1 2024. Polestar 3 is at the start of its journey and customers can now visit our retail locations around the world to see its great proportions and sit in its exclusive and innovative interior,” Polestar CEO Thomas Ingenlath said in a statement.
Polestar plans 4 new electric vehicles
Polestar 3, which will compete with Tesla's Model X, Model Y, BMW's iX xDrive50 and Mercedes-Benz, has a starting manufacturer's suggested retail price of $83,000, a range up to 300 miles and a charging time of 30 minutes. The company has further plans for the Polestar 4, an SUV coupé that will launch in phases in late 2023 and 2024, as well as a Polestar 5 electric four-door GT and a Polestar 6 electric roadster that the company says "are coming soon."
The Swedish automaker's lone all-electric model on the market today is the Polestar 2 fastback, which has a manufacturer's suggested retail price of $49,900, a range up to 320 miles and a charging time of 28 minutes. The vehicle accelerates from 0-60 miles per hour in 4.1 seconds. Polestar 2 was unveiled in 2019 and delivered in Europe in July 2020 and the U.S. in December 2020.
Polestar 1, the company's first vehicle, was a plug-in hybrid that went into production in 2019 and was discontinued in late 2021, according to the Polestar website.
The Gothenburg, Sweden, company was established in 1996 and was sold to Geely affiliate Volvo in 2015.
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Fauci And The CIA: A New Explanation Emerges
Fauci And The CIA: A New Explanation Emerges
Authored by Jeffrey A. Tucker via Brownstone Institute,
Jeremy Farrar’s book from August 2021…
Jeremy Farrar’s book from August 2021 is relatively more candid than most accounts of the initial decision to lock down in the US and UK. “It’s hard to come off nocturnal calls about the possibility of a lab leak and go back to bed,” he wrote of the clandestine phone calls he was getting from January 27-31, 2020. They had already alerted the FBI and MI5.
“I’d never had trouble sleeping before, something that comes from spending a career working as a doctor in critical care and medicine. But the situation with this new virus and the dark question marks over its origins felt emotionally overwhelming. None of us knew what was going to happen but things had already escalated into an international emergency. On top of that, just a few of us – Eddie [Holmes], Kristian [Anderson], Tony [Fauci] and I – were now privy to sensitive information that, if proved to be true, might set off a whole series of events that would be far bigger than any of us. It felt as if a storm was gathering, of forces beyond anything I had experienced and over which none of us had any control.”
At that point in the trajectory of events, intelligence services on both sides of the Atlantic had been put on notice. Anthony Fauci also received confirmation that money from the National Institutes of Health had been channeled to the offending lab in Wuhan, which meant that his career was on the line. Working at a furious pace, the famed “Proximal Origin” paper was produced in record time. It concluded that there was no lab leak.
In a remarkable series of revelations this week, we’ve learned that the CIA was involved in trying to make payments to those authors (thank you whistleblower), plus it appears that Fauci made visits to the CIA’s headquarters, most likely around the same time.
Suddenly we get some possible clarity in what has otherwise been a very blurry picture. The anomaly that has heretofore cried out for explanation is how it is that Fauci changed his mind so dramatically and precisely on the merit of lockdowns for the virus. One day he was counseling calm because this was flu-like, and the next day he was drumming up awareness of the coming lockdown. That day was February 27, 2020, the same day that the New York Times joined with alarmist propaganda from its lead virus reporter Donald G. McNeil.
On February 26, Fauci was writing: “Do not let the fear of the unknown… distort your evaluation of the risk of the pandemic to you relative to the risks that you face every day… do not yield to unreasonable fear.”
The next day, February 27, Fauci wrote actress Morgan Fairchild – likely the most high-profile influencer he knew from the firmament – that “be prepared to mitigate an outbreak in this country by measures that include social distancing, teleworking, temporary closure of schools, etc.”
To be sure, twenty-plus days had passed between the time Fauci alerted intelligence and when he decided to become the voice for lockdowns. We don’t know the exact date of the meetings with the CIA. But generally until now, most of February 2020 has been a blur in terms of the timeline. Something was going on but we hadn’t known just what.
Let’s distinguish between a proximate and distal cause of the lockdowns.
The proximate cause is the fear of a lab leak and an aping of the Wuhan strategy of keeping everyone in their homes to stop the spread. They might have believed this would work, based on the legend of how SARS-1 was controlled. The CIA had dealings with Wuhan and so did Fauci. They both had an interest in denying the lab leak and stopping the spread. The WHO gave them cover.
The distal reasons are more complicated. What stands out here is the possibility of a quid pro quo. The CIA pays scientists to say there was no lab leak and otherwise instructs its kept media sources (New York Times) to call the lab leak a conspiracy theory of the far right. Every measure would be deployed to keep Fauci off the hot seat for his funding of the Wuhan lab. But this cooperation would need to come at a price. Fauci would need to participate in a real-life version of the germ games (Event 201 and Crimson Contagion).
It would be the biggest role of Fauci’s long career. He would need to throw out his principles and medical knowledge of, for example, natural immunity and standard epidemiology concerning the spread of viruses and mitigation strategies. The old pandemic playbook would need to be shredded in favor of lockdown theory as invented in 2005 and then tried in Wuhan. The WHO could be relied upon to say that this strategy worked.
Fauci would need to be on TV daily to somehow persuade Americans to give up their precious rights and liberties. This would need to go on for a long time, maybe all the way to the election, however implausible this sounds. He would need to push the vaccine for which he had already made a deal with Moderna in late January.
Above all else, he would need to convince Trump to go along. That was the hardest part. They considered Trump’s weaknesses. He was a germaphobe so that’s good. He hated Chinese imports so it was merely a matter of describing the virus this way. But he also has a well-known weakness for deferring to highly competent and articulate professional women. That’s where the highly reliable Deborah Birx comes in: Fauci would be her wingman to convince Trump to green-light the lockdowns.
What does the CIA get out of this? The vast intelligence community would have to be put in charge of the pandemic response as the rule maker, the lead agency. Its outposts such as CISA would handle labor-related issues and use its contacts in social media to curate the public mind. This would allow the intelligence community finally to crack down on information flows that had begun 20 years earlier that they had heretofore failed to manage.
The CIA would hobble and hamstring the US president, whom they hated. And importantly, there was his China problem. He had wrecked relations through his tariff wars. So far as they were concerned, this was treason because he did it all on his own. This man was completely out of control. He needed to be put in his place. To convince the president to destroy the US economy with his own hand would be the ultimate coup de grace for the CIA.
A lockdown would restart trade with China. It did in fact achieve that.
How would Fauci and the CIA convince Trump to lock down and restart trade with China? By exploiting these weaknesses and others too: his vulnerability to flattery, his desire for presidential aggrandizement, and his longing for Xi-like powers over all to turn off and then turn on a whole country. Then they would push Trump to buy the much-needed personal protective equipment from China.
They finally got their way: somewhere between March 10 or possibly as late as March 14, Trump gave the go ahead. The press conference of March 16, especially those magical 70 seconds in which Fauci read the words mandating lockdowns because Birx turned out to be too squeamish, was the great turning point. A few days later, Trump was on the phone with Xi asking for equipment.
In addition, such a lockdown would greatly please the digital tech industry, which would experience a huge boost in demand, plus large corporations like Amazon and WalMart, which would stay open as their competitors were closed. Finally, it would be a massive subsidy to pharma and especially the mRNA platform technology itself, which would enjoy the credit for ending the pandemic.
If this whole scenario is true, it means that all along Fauci was merely playing a role, a front man for much deeper interests and priorities in the CIA-led intelligence community. This broad outline makes sense of why Fauci changed his mind on lockdowns, including the timing of the change. There are still many more details to know, but these new fragments of new information take our understanding in a new and more coherent direction.
Jeffrey A. Tucker is Founder and President of the Brownstone Institute. He is also Senior Economics Columnist for Epoch Times, author of 10 books, including Liberty or Lockdown, and thousands of articles in the scholarly and popular press. He speaks widely on topics of economics, technology, social philosophy, and culture.
North Korea Enshrines “Permanent” Nuclear Power Status In Constitution
North Korea Enshrines "Permanent" Nuclear Power Status In Constitution
On Thursday North Korean state media quoted leader Kim Jong Un as saying…
On Thursday North Korean state media quoted leader Kim Jong Un as saying more advanced atomic weapons are needed to counter the threat from the United States.
This signals the death knell for Washington's long stated policy goal of denuclearization of the Korean peninsula, given that the remarks came as Kim enshrined the DPRK's status as a permanent nuclear power in its constitution.
North Korea's "nuclear force-building policy has been made permanent as the basic law of the state, which no one is allowed to flout," Kim told the State People's Assembly, according to state-run KCNA.
Starting last year he declared the north as an "irreversible" nuclear weapons state, and has in the last couple months ramped up ballistic missile tests in response to intermittent, ongoing joint US military drills with the south. This has already been a record year in terms of the number of Pyongyang's missile tests.
The north's rubber-stamp parliament, which met Tuesday and Wednesday, has approved the nuclear update to the constitution. Kim described that this was necessary as the United States has "maximized its nuclear war threats to our Republic by resuming the large-scale nuclear war joint drills with clear aggressive nature and putting the deployment of its strategic nuclear assets near the Korean peninsula on a permanent basis."
In July, the nuclear-armed USS Kentucky Navy ballistic missile submarine made a port call in South Korea, which marked a first in decades. It has stayed there since, enraging Pyongyang.
Kim in his Thursday address also blasted growing defense cooperation between Washington, Seoul and Tokyo as the "worst actual threat," saying that as a result "it is very important for the DPRK to accelerate the modernization of nuclear weapons in order to hold the definite edge of strategic deterrence."
A similar message was delivered in New York on Tuesday by Kim Song, North Korea's representative at the UN, who said in an address to the UN General Assembly that the region is close to the "brink of a nuclear war".
NEW: North Korea’s ambassador to the U.N. issued a stark warning that the Korean Peninsula has reached a “hair-trigger situation with imminent danger of nuclear war breakout,” delivering a speech at the 78th U.N. General Assembly in New York on Tuesday. https://t.co/Rwtxf37wkW— NK NEWS (@nknewsorg) September 27, 2023
"Owing to the reckless and continued hysteria of nuclear showdown on the part of the US and its following forces, the year 2023 has been recorded as an extremely dangerous year that the military security situation in and around the Korean peninsula was driven closer to the brink of a nuclear war," he said.
"Due to [Seoul’s] sycophantic and humiliating policy of depending on outside forces, the Korean peninsula is in a hair-trigger situation with imminent danger of nuclear war," the ambassador continued. He further blasted the US for attempting to erect an "Asian NATO" that will bring a "new Cold War structure to northeast Asia."
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