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Three-Card Monte, Wall Street-Style

Three-Card Monte, Wall Street-Style

Their operation was in jeopardy, their ‘business model’ at risk. Their reaction was typical for the brazen barons of finance, writes Michael Brenner.

Surer than Three Card Monte, from the Tricks with Cards series (N138) Duke, Sons & Co. to promote Honest Long Cut Tobacco, 1887. (Metropolitan Museum of Art/Jefferson R. Burdick Collection)

This week witnessed an historic event – one that deserves to be memorialized. A band of financial speculators were beaten at their own game, losing $3 billion. A bunch of clever young guys used the hedge fund’s own methods to turn the tables on them.

For years, those white-collar cheats have been dealing 3-card monte on Wall Street with impunity. Now, their operation was in jeopardy, their ‘business model’ at risk. Their reaction was typical for the brazen barons of finance.

They rushed to Washington to complain to their retainers, demanding protection of their constitutional right to pillage the American economy.

What they are demanding is a police escort to secure their 3-card monte scam by screening out anyone who might know their tricks. So, what happens?

Nearly everyone in power from Nancy Pelosi to the head of the SEC quickly pledges to investigate this affront to the country’s financial markets – evidently having no other affronts to tend to.

“Guilty is a word unspoken except where innocence dares to plead.”

The electronic trading services went so far as to bar the mavericks from using their facilities; only marks welcome. All agree that it is a national emergency.

I am shocked! Shocked to hear reports of an attempt to manipulate the financial markets – the most transparent, fairest in the world. Some of my best friends are hedge fund directors; they’re the finest, most honest people you’d ever want to know!

…click on the above link to read the rest of the article…

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

Over the weekend we showed a chart which demonstrated that the bulk of the 21st century has been characterized by equity retail fund outflows offset by a tsunami of bond inflows, i.e. a reverse “great rotation.” The chart also illustrated that periods of “big bond inflows often preceded big policy changes”, hinting that some major event was coming; meanwhile big bond outflows (e.g. 2008/13/18) tended to coincide with the most bearish returns across asset classes, which may explain why in a time of record bond inflows, i.e., right now, stocks are trading near all time highs…

… even if it did – as we said on Sunday – pose a question: “just who is buying stocks here?”

Now, in his latest Flow Show weekly report, BofA CIO Michael Hartnett confirms that the flows continued for one more week, as another $11.4 billion flowed into bonds, while $8.4 billion was redeemed from stocks (a clear sign investors are not worried about bond bubble for now, with chunky inflows to both IG ($7.9bn) & govt bond ($3.5bn) funds).

More importantly, when looking at the bigger picture and finding $213 billion in redemptions from equity funds stands in stark contrast to $337bn inflows to bond funds; Hartnett answered our pressing question: who is buying stocks here? 

His answer: “the sole buyer of US stocks remain corporate buybacks, not institutions” as shown in the chart below.

This is notable not only because it means that without the buyback bid (made possible by record cheap debt, which is used to fund corporate stock repurchases) stocks would be far, far lower, but because it is a carbon copy of what we observed almost exactly two years ago, suggesting that between the summers of 2017 and 2019 absolutely nothing has changed.

 …click on the above link to read the rest of the article…

Weekly Commentary: Monetary Disorder 2019

Weekly Commentary: Monetary Disorder 2019

The S&P500 advanced 6.5% in 2019’s first 13 trading sessions. The DJ Transports are up 9.2% y-t-d. The broader market has outperformed. The small cap Russell 2000 sports a 9.9% gain after 13 sessions, with the S&P400 Midcap Index rising 9.3%. The Nasdaq Composite has gained 7.9% y-t-d (Nasdaq100 up 7.2%). The average stock (Value Line Arithmetic) has risen 9.7% to start the year. The Goldman Sachs Most Short index has jumped 13.6%.

Some of the sector gains have been nothing short of spectacular. This week’s 7.7% surge pushed y-t-d gains for the Bank (BKX) index to 13.7%. The Broker/Dealers (XBD) were up 5.3% this week – and 11.0% so far this year. The Nasdaq Bank index has a 2019 gain of 11.3% (up 4.9% this week). The Philadelphia Oil Services index surged 22.3% in 13 sessions. Biotechs (BTK) have jumped 16.1%.

Taking a deeper dive into y-t-d S&P500 sector performance, Energy leads the pack up 11.2%. Financials have gained 9.0%, Industrials 8.9%, Consumer Discretionary 8.4%, and Communications Services 7.9%. Last year’s leaders are badly lagging. The Utilities have gained only 0.4%, followed by Consumer Staples up 3.2% and Health Care gaining 4.2%.

Canadian stocks have gained 6.9% (“Best Start to Year Since 1980”). Mexico’s IPC Index has risen 6.3%. Major equities indices are up 6.1% in Germany, 7.6% in Italy, 6.2% in Spain, 3.6% in the UK and 3.1% in France. European Bank stocks have gained 5.3% (Italy’s banks up 5.1%). Brazil’s Ibovespa index has gained 9.3% and Argentina’s Merval 15.9%. Russian stocks are up 4.9%, lagging the 7.9% gain in Turkey. The Shanghai Composite has recovered 4.1%. Hong Kong’s Hang Seng index has rallied 4.8%, with the Hang Seng Financial Index up 5.1% to start the year. With WTI crude surging 19% y-t-d, the Goldman Sachs Commodities Index is up a quick 10.4% to begin 2019.

After trading as high as 3.25% on November 6th, 10-year Treasury yields ended 2018 at 2.69%. Yields traded quickly sank to as low of 2.54% on January 3rd and have since rallied to 2.79% – up 10 bps y-t-d.

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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