The Never-Ending Inflationary Conundrum

By Viktor Shvets of Macquarie,

Key Points:

• Base effect will drive CPI higher, but this trend should moderate into 2022.

• LT inflation will be constrained by technology, financialization & efficiencies.

• Winners will be those at the cutting edge, driving returns while lowering CPI

Inflation debates are heating up. New age themes will stay relevant

Following the Georgia run-off, US 5Y/5Y break-even rates have firmed above the psychologically important 2% cut-off, as investors have started to accept a more robust shift towards fiscal stimuli and, hence, potentially higher inflation. As discussed (here and here), we do not view the US election as signalling an electoral shift to the left. On the contrary, it highlighted rising polarization, not consensus, transforming a ‘blue wave’ into something akin to a far more moderate ‘ripple’. Similarly, while no one globally practices austerity, there is equally no desire yet to embark on a permanent expansion of fiscal spending; instead, as we recover from COVID, it is likely that G5 fiscal deficits will be pulled back by ~US$3 trillion over ‘21-22, leaving CBs to balance vols and risks.

However, this does not mean that there will be no inflation. Inflation can be caused by underlying economic recoveries, fiscal and monetary policies, and capacity constraints. By now, most investors accept that aggressive use of monetary levers generates disinflation, not inflation (i.e. money printing is not equal to inflation), and most investors also accept that technology and financialization are highly disinflationary.

This leaves two sources of any meaningful inflationary pulse:

• (a) fiscal spending, and in particular the fusion of fiscal and monetary levers and

• (b) capacity constraints.

While we have been arguing that MMT-style policies are the future, we do not believe that, politically or socially, the time for MMT has arrived yet, requiring either further dislocations, five- to ten-year demographic transitions or a mix of the two. This leaves base effect and greater capacity constraints as key inflationary drivers.

There is no doubt that, mathematically, headline CPI (to a lesser extent, core), will record a significant move into 2H’21. Assuming our energy team is correct and oil prices remain at ~$55/barrel and CRB indices do not significantly exceed 180-200, then G5 (i.e. US, UK, Eurozone, Japan and China) headline CPI could mathematically rise towards 3% plus from 0.5% today, but then inflation is likely to recede to ~2% by early 2022.

Beyond that point, it will be fiscal policies and constraints that will determine inflationary trajectory. We maintain that fiscal policies will be haphazard and reliance on monetary levers will remain the key, while capacity/input limitations will ease through declining commodity intensity and low cost of capital and technology. As a result, we expect less disinflation rather than a systemic and persistent rise in inflation.

What does it mean for investors?

We continue to believe that the ‘boundaries’ between sectors and styles are becoming less relevant (i.e. staples are no longer staples, discretionaries are no longer what they used to be, and no one knows anymore what the communications index means). There is also confusion as to what is actually meant by growth, value or quality. Our approach has been to create portfolios that highlight stocks that either play into secular LT themes or corporates that use technology, data and intangibles better (QSG).

It is not about social media or tech per se, but rather how one uses them. While themes like alternative energy (EV, etc.) or robotics might be viewed as being in a bubble and might correct, new ways of manufacturing and distributing while reducing waste are the future, which will deliver excess returns and lower inflation.

Tyler Durden Mon, 01/25/2021 - 16:25

"Sell Mortimer": Short Squeeze Turmoil Triggers Market Rollercoaster

And to think that it started off so well.

Amid media reports of investor "optimism" on the back of more fiscal stimulus and covid vaccine rollouts (when in reality said media was merely goalseeking a narrative to the higher overnight futures), the Emini started off solidly in the green, and at one point were set to make a breakout attempt at the all time high of 3,859.75, getting to within 8 points.... when at exactly 1045am, a trapdoor opened below the market, and the Emini tumbled a whopping 60 points in under minutes...

... a move catalyzed by a rollercoaster move in the most shorted names, the biggest of which - with 140% of its float shorted - was Gamespot, and which exploded as high as $159, a level it hit just minute before said trapdoor opened above, and sent the stock plunging. In fact, after more than doubling shortly after the open, GME at one point dropped as much as $100, turning red on the session before recovering losses...

... when a news report indicated that despite the massive move higher, the Short Interest in GME had barely budged and was still at ~140% of float, where it had been two weeks earlier.

And while GME was the star attraction of the day as the insane short squeeze continued, virtually all most shorted stocks exploded higher, with a bsket of the 11 Russell 3000 companies whose Short Interest is 50%+ of the float (which we listed on Friday)...

... exploding to record highs today.

The tremors as Reddit/WSB/Robinhood took on the established hedge fund crowd led to the first official casualty, when we learned that Mevlin Capital's Gabe Plotkin, who was heavily betting against some of the most popular short names, get a $2.75 bailout (margin call) from previous investors Citadel and Point72, who were forced to triple down or see their initial investment of $1 billion vaporize.

And while stocks did their thing, the real story of the day is that the Fed has broken the market so much, that a bunch of teenagers armed with "stimmy checks" can take on iconic hedge fund managers and steamroll them with impunity.

A less remarkable, if still notable observation, came from Bespoke, which note that today the market ended a streak of 51 trading days in which over 70% of S&P 500 stocks traded above their 50-DMAs - "the longest such streak since September 2009.”

Elsewhere, the VIX soared as one would expect, surging as high as 26.63 to coincide with the market drop, before fading more than half of the move...

... while 10Y yields - and the curve in general - spooked by the sudden selloff in stocks, slumped in a flight to safety...

... which also pushed the dollar higher

While commodities were relatively boring, there was a notable uptick in soybean futures, which rebounded modestly...

... after last week's drop which saw a 31 cent plunge on Tuesday last week, the biggest one day drop for the contract. As The Bear Traps report notes, "rain in Brazil has been favorable and the country is on track for a record 4.89B crop. Normally, that would be bearish for U.S. soybeans prices, but supplies are so tight, prices has thus far remained in the uptrend, but are beginning to see signs of weakness."

And yes, with prices rising across the commodity sector, inflation expectations continue to surge, prompting the question when - not if - the Fed will step in to contain this unprecedented liquidity tsunami.

And speaking of the Bear Traps report, earlier we noted that while it is easy to blame the market turmoil on the massive rolling short squeezes, Larry McDonald had a different take on what may prompt the game of musical chairs to stop abruptly.

Our 21 Lehman Systemic Indicators are screaming higher. The inmates are running the asylum and the probability of the Federal Reserve breaking out their creative “macro prudential” tool box is the highest in years. U.S. central bankers are no longer Trump constrained, the banking system is strong but the equity market has far more in common with Steve Wynn (Vegas) than Warren Buffett (Omaha).

We think the Fed sends a shot over the bow very soon. Our social justice, inequality embarrassed Fed is not happy. The will not taper but they can make serious threats to risk takers. We have an explosion of SPAC / IPO issuance, $850B of margin debt or 75% above 2015 levels, the most shorted equities up 75% vs. 16% for the S&P 500 since October (bulls running over bears), record high call vs. put volume with the little guy leading the charge SELL Mortimer Sell. The risk reward is atrocious from a long perspective in U.S. equities.

Impeachment Threat to Reflation: Moves to the Senate floor next week. Impact; 1 . Pushes out the Fiscal timeline.  2 . Similar to the GOP immediately trying to take down Obamacare, the signature achievement of the previous administration , on day one of the Trump administration. The move was Unwise and Not helpful to the fiscal policy path.

Remember, the tax cuts were sold to us as a certainty in Q1 2017, they didn’t arrive until late Q4 that year. In our view, this speaks to a potential rally in bonds / USD for the next few weeks.

Best case scenario, we have a $1.9T fiscal plan coming in late February early March with the current the bid / offer at $800B to $1.9T. However, any additional variant / mutations Covid risk increase will game the spread in the direction of the offer side if the  mpeachment doesn’t blow up the deal altogether.

Tyler Durden Mon, 01/25/2021 - 16:05

Godiva Closing All US Stores On Plunging Sales

Godiva is riding its company horse out of North America and shutting down or selling all 128 of its brick-and-mortar locations in the U.S. and Canada by the end of March, the chocolatier announced on Sunday. And while the company’s stores in the Middle East, Europe, and China will remain open, Eater.com notes that that’s of little use to America’s last-minute gift-givers who previously could’ve counted on swinging by the mall post-work and treating their loved ones to a gilded box of truffles.

Godiva cited the drop in traffic during the pandemic and changing consumer buying behavior as reasons behind the decision. While people are no longer shopping in person at Godiva stores, the company has seen growth in online sales and purchases through its retail and grocery partners.

CEO Nurtac Afridi, who was appointed to the role last month by Govida’s Turkish parent company Yildiz Holding, said in a written statement that the company has “always been focused on what our consumers need and how they want to experience our brand, which is why we have made this decision.”

Local reports indicated that many of the Godiva stores will remain open through Valentine’s Day, a major sales period for the chocolatier. The Indianapolis Business Journal reported that an Indianapolis Godiva shop would close on Feb. 15, while The Dallas Morning News reported that seven Texas locations would shutter by the end of March.

In 2019, the chocolate maker opened its first-ever U.S. cafe in New York, selling its signature confectionery alongside drinks and food like sandwiches, salads, and something called the “croiffle,” a.k.a. a croissant press into a hot waffle. At the time, Godiva had plans to open 2,000 cafes over the next six years, according to Eater.

Beyond the devastating loss of the croiffle in North America, Godiva’s store shutdowns will also impact an undisclosed number of employees, although the company didn’t immediately say how many employees would be affected.

“Of course, this decision was difficult because of the care we have for our dedicated and hard-working chocolatiers who will be impacted,” Afridi said. “We are grateful for all they have done to make wonderful moments for our consumers and spread happiness through incredible customer service.”

The move comes less than two years after Godiva announced a push to open 2,000 cafes around the world over six years. The cafes offer a menu expanded beyond chocolate, including baked goods, sandwiches and coffee.

Tyler Durden Mon, 01/25/2021 - 15:50

Italian Premier To Resign As He Plots Latest Political Comeback

Soon, Italy will be leaded toward its its 132nd federal government in roughly 160 years as PM Mario Conte, who led Europe's third biggest economy through its most recent debt crisis, while also setting Italy on the path toward closer cooperation with China, appears to be finito - at least for now.

Despite barely surviving a handful of confidence votes, 56-year-old leader's time as premier and leader of Italy's council of ministers is coming to a close. According to a government statement, Conte will resign next week to avoid a damaging defeat in the Senate, as he maneuvers to try and return for another round of leadership, combating Italians who are maneuvering against him.

Giuseppe Conte

On Tuesday, Conte is expected to preside over a cabinet meeting at 0900 in Rome and then head to President Sergio Mattarella’s office where he will formally step down.

The idea is that by preemptively offering his resignation to Mattarella, who oversees the formation of ruling coalitions, Conte will then likely be asked to take another shot at assembling another government, according to officials who asked not to be named discussing confidential deliberations.

The Five Star Movement, the biggest force in the current parliament, along with other lawmakers, are trying to trigger vote in the Italian Senate later this week.

However, the parliamentary math does not add up. The latest gambit for Conte’s political maneuvering stands to benefit from the fact that Five Star will plunge in the polls, and the party stands to lose the most if the government collapses and Mattarella decides early elections are unavoidable.

Earlier this month, Conte stepped down after losing his governing majority in Italy’s Senate, following a fight with a small coalition ally over how to spend massive funds offered by the European Union to help Italy recover from the impact of the pandemic. His resignation has triggered a search for a new governing majority, but if none can be found, then the EU’s third-biggest economy is likely to hold elections in coming months.

The breakdown of Italy’s left-leaning government shows that Europe’s political challenges of recent years, including the fragmentation of the political landscape and the rise of anti-establishment parties haven’t gone away, despite the pressure that the pandemic is putting on European politicians to work together across party lines.

Analysts who spoke with Bloomberg insisted that Conte's push for a "unity government” is his best option, officials said. Yet, it has long been said that Renzi and Conte have a long-festering dislike of each other and have been ill at ease in a coalition of mutual convenience.

On the other hand, Conte could seek to forge a new coalition centrists - really, center-right politicians including unaffiliated lawmakers and former PM Silvio Berlusconi, who leads the center-right Forza Italia.

Here's the full list of Italian leaders dating back to the Italian revolution back in the 1860s.

If Conte pulls off this maneuver on Monday and Tuesday, he will kick off his third government as PM. And just like that, the non-career politician pressed into service by a group of ideologically opposed anti-establishment parties will cement his reputation as the only man who could lead Italy, because he's the only man who doesn't want the job.

Tyler Durden Mon, 01/25/2021 - 15:37

The First Casualty Of The Big Short Squeeze: Melvin Capital Gets $2.75BN Bailout From Citadel, Point72 After Its Shorts Explode

With dozens of heavily shorted (by hedge funds) stocks exploding higher in recent days, it was only a matter of time before the first casualty of said bull raid emerged, and thanks to the WSJ we now have the first name.

Melvin Capital, which we learned last week had suffered massive losses on its shorts, is set to receive a $2.75 billion capital injection from hedge fund giants Citadel and Point72 and investors (in what appears to be a bailout so Mevlin Capital founder Gabe Plotkin, a former star portfolio manager for Steven Cohen, could pay his margin call). The bailout loan investments are for non-controlling revenue shares in the hedge fund, although it wasn't immediately clear how much of Melvin's revenue the two funds would get.

Melvin Capital's Gabe Plotkin

According to the WSJ, the influx of cash is expected to help stabilize Melvin, which lost a staggering 30% in just the first three weeks of 2021. While Melvin started the year with $12.5 billion, and had been one of the best performing hedge funds on Wall Street in recent years, it saw huge losses (and margin calls) as a result of numerous short bets against companies and have stunned clients and other traders.

In other words, 16-year-old Robinhood traders 1 - "star" hedge fund portfolio manager 0. In yet other words, hedge funds are now bailing out other hedge funds (in which they have invested money), who have been steamrolled by the Robinhood Gen-Z "buy everything" juggernaut.

The $2.75 bailout is effectively a rights offering for Citadel and SAC, as they had more than $1 billion invested in Melvin as of 2019. Melvin founder Gabe Plotkin was a top portfolio manager at Point72’s predecessor firm, SAC Capital Management, before he left to start Melvin.

An interesting question here is how it is legal that Citadel, which buys the bulk of retail orderflow and is intimately aware of which institution will get crushed as a result of historic short squeeze bull raids, is also allowed to bailed out its investment in Melvin, which got hammered precisely because of said orderflow. The answer, sadly, is beyond our pay grade.

As the WSJ reported last week, "Melvin is known for running an expansive and aggressive short book that has sometimes made up the bulk of the fund’s gains, an uncommon dynamic in the industry. The firm has returned an average 30% a year since it started in 2014, despite charging performance fees that range up to 30% on investment gains."

The gains came to a jarring end once teenage traders realized that with the Fed at their back, they could steamroll any bearish hedge fund in their way.

Not surprisingly, one stock that crushed Melvin is GameStop. We all know what happened there. Some of the recent Reddit posts on Gamespot specifically call out Melvin, which disclosed in its most recent quarterly regulatory filing that it held put options on GameStop. Put options are contracts that give investors the right to sell stock at a specific price by a certain date and limit an investor’s potential losses (the WSJ cites a person familiar with Melvin who said its GameStop puts expired last week).

In recent days, Plotkin had been calling clients with chief operating officer David Kurd to inform them of and explain the losses thus far. One client said Melvin’s message was that the fund still liked its portfolio and that it had rebounded from past losses.

We wonder if he feels the same way just days later, and if he will boldly go back to shorting the same stocks that nearly put it out of business.

Finally, since this is merely the start, we remind readers of the post we published in November, when we laid out the Top 50 shorts by the hedge fund community...

... when we said that "our advice is to go long the most hated names and short the most popular ones - a strategy that has generated alpha without fail for the past 7 years, ever since we first recommended it back in 2013."

Tyler Durden Mon, 01/25/2021 - 15:13

Cuomo: NY Ready To Ease Pandemic Restrictions After Holiday Spike

In more news that would have been impossible before January 20, New York Governor Andrew Cuomo (D) is now planning to ease coronavirus restrictions in some parts of the state after the 'holiday spike' in COVID-19 cases, and will announce changes to the state's pandemic cluster zones soon, according to Syracuse.com

Cuomo's anticipated announcement follows the Democratic strongholds of California and Illinois, which announcing similar measures over the last several days.

"I think we’re at a new place now," said Cuomo. "And we can start to adjust that valve and start to open up more economic activity and reduce some of the restrictions."

For example, elective surgeries will be able to resume in Erie County. "But, don’t get cocky with Covid," Cuomo warned.

Hospitalizations, new cases and the statewide percentage of people testing positive for the coronavirus are all improving, Cuomo said during a press conference in Buffalo. The state did indeed see spike during the holiday season, but the surge appears to be slowing.

Cuomo didn’t give further details on what type of restrictions he might loosen or what cluster zones might be eliminated or changed. The state Health Department is reviewing data on the zones now and Cuomo said expects to have announcements in the coming days. -Syracuse.com

New York launched their 'cluster zone' strategy in the fall, which mandates lockdown restrictions based on a color-coded guide; yellow, orange and red - much like other ridiculed government  threat indicators.

Most New York suburbs have been living under yellow and orange zone restrictions, the latter of which banned gyms, hair salons and barbers from operating. Schools which fell in orange zones were initially required to employ remote learning, while restaurants were barred from indoor dining.

Those rules were predictably written in sand, however, as the state began to allow schools to resume in-person instruction with extra testing - followed by gyms, barbers and salons. Just weeks ago, orange zone restaurants across the state were allowed to resume indoor dining on a temporary basis, while yellow zone restaurants are limited to four people per table.

Tyler Durden Mon, 01/25/2021 - 14:54

"New McCarthyism Will Prove An Orwellian Mistake" Says US Historian

Authored by Pavlos Papadopoulos via eKathimerini.com,

Victor Davis Hanson is a rare breed of American intellectual: The professor of classics and military history at the California State University and senior fellow in classics and military history at Stanford University’s Hoover Institute has supported Donald Trump in a number of books and articles.

In an email interview with Kathimerini, Hanson offered his opinion on recent developments in Washington, shedding light from a conservative angle on a number of issues that define modern America.

Do you think that Trump went too far in inciting violence, ignoring the fact that in the previous two months all legislatures in disputed states and all judges had already decided that the claims of a “stolen election” were baseless, proving that there was no election fraud?

Trump had a right to lodge legitimate inquiries about election irregularities given 100 million voted by mail or through “early voting” before Election Day – 61 percent of the voting electorate. Traditional authentication was impossible under those Covid-19 rules. All agree that in many key states voting laws were wrongly changed by local magistrates and judges.

But whether these and other egregious laxities in voting would have given Trump the strategically located ca. 42,000 votes (out of 165 million cast) necessary to win the key states for an Electoral College victory was uncertain. After the second week in December, when the state electors were chosen, there was almost no chance of changing the election. And at the point it should have been in Trump’s interest to concede, galvanize conservatives to save the Republican senate by winning the two seats in the runoff election in Georgia, and then to play the loyal opposition as the country from 2021-22 might well tire of what will likely be the most radically left-wing agenda enacted since 1964 or 1932. Instead, he persisted, alienated swing voters, appeared a sore loser and gave the impression to his supporters that the election results would be overturned – again an impossibility. The storming of the Capitol by splinter groups from the massive protests [on January 6] – rightly condemned by conservatives in a way the summer Antifa and BLM nightly rioting and looting was not by the Left – essentially made him politically inert.

Trump’s recent but belated concession, and calls for unity and calm may be too little too late to save his legacy – but then in second-chance America maybe not.

Will political conflict persist in the US or have we witnessed the end of the Trump era of division and hatred?

Trump was a symptom not a catalyst of the hatred. Radical changes due to globalization, enormous concentrations of wealth on the coasts, 50 million non-native-born residents, and a hollowed out manufacturing and assembly industry all created a new volatility. His sin was replying back in kind to the attacks of the Left crudely and in a way Bush, McCain and Romney did not.

He also sought not to stop but to roll back the entire left-wing agenda, and by February 2020, in the pre-Covid months, might well have been re-elected given a booming economy, secure borders, a calmer world abroad and his victory over the special prosecutor, the impeachment conviction effort, and the media’s nonstop assaults. Almost all of the so-called administrative state, the rich, and the permanent bureaucracy, academia, the media, and entertainment despised him for both cultural and political reasons.

After March 2020, the pandemic, the recession, the lockdown, the George Floyd death, the months of looting, arson, and protest and radical changes in voting laws all empowered the Left and finally undid Trump – as did his own constant tweets and fiery feuding that estranged moderate and swing suburban voters. The Left will not try to unite the country; its aim is instead to transform the country into something like a European democratic socialist state, if not more leftward still.

This is not the Democratic Party of old, but a progressive movement that seeks an “equality-of-result” society and demands the power to enforce its ideological aims.

Could we say that the core of the political energy that sustains the Trump movement might have something to do with the politics of race and the fact that a core white constituency cannot accept that the blacks can have equal access to the democratic electoral process?

That was the complaint the Left made against Trump. But Trump’s critics were bewildered by his ability to increase black support to 15% and Latino support to 35%, largely by redefining the once-elite establishment Republican Party as a populist workers party, in which class commonalities replaced racial solidarity. You may have an antiquated sense of binaries. The US is not a 90-10 white/black society, but rather a 67% white / 33% Latino, Asian, black country in which increasingly the largest growing group is of those of so-called mixed race. Intermarriage between ethnic and racial groups is now normative and insidiously replacing these rigid racial categories of the past, and with decreased illegal immigration, assimilation and integration accelerate. It is actually the Democratic Party that in anachronistic fashion seeks to cling to identity politics and a salad-bowl separatism rather than the melting pot. There have been tremendous changes in American political parties in the last 20 years. The Democratic Party outspends Republicans 2-1 in political races, and is fueled by the staggering bicoastal wealth of Wall Street and Silicon Valley; it is a party of the very rich and subsidized poor and does not like the culture or values of the middle classes, which now overwhelmingly vote Republican. Trump’s fiercest critics were both rich, never-Trump corporate Republicans and woke bicoastal liberal elites.

Would you say that moves by Democrats for Trump’s second impeachment and the locking of his social media accounts serve to control or further embolden the so-called “Trump movement” that questions the very legitimacy of the elections and the credibility of the government and the judiciary?

The efforts of “Big Tech” to ban Trump and many of his supporters, while Apple, Google etc in concert made it almost impossible for a conservative site like Parler to exist, are reflections of a Salem Witch trial madness sparked by the trifecta of Trump’s loss, the Capitol violence, and the Republican loss of the Senate. Hysteria reigns as books by conservatives are now canceled, thousands kicked off social media, radio hosts fired etc. We are in a sort of left-wing version of the Corleone “Godfather” cinema family “taking care of business” all at once. Yet this new McCarthyism will prove an Orwellian mistake, and constitute one of the greatest political blunders in modern US history. Think of the Ayatollah Khamenei calling for the destruction of Israel on Twitter with impunity or Antifa announcing planning sessions for their next riot, on Facebook with impunity – juxtaposed to social media banning those who merely showed up in Washington at a peaceful rally and did not join the violent splinter group who stormed the halls of Congress.

In contrast, again, the current Vice President Harris earlier had called for the more protests this summer. Many were violent and occasionally lethal, resulting in mass looting, death and arson by Antifa and BLM. She worked to bail out those arrested for street violence. The public is tiring of such asymmetries. US publishers all the time publish books like “In Defense of Looting” – a manifesto supporting the mass theft from stores this summer. So there is no consistency in the current violations of free speech. And the effort to remove Trump before his tenure not only failed, but showed his opponents as small-minded and vindictive and further divided a 50/50 divided country. The attempt to coordinate Big Tech to destroy the conservative opposition’s means of communicating with the public came by design on the eve of the most revolutionary moments in modern history to come: Very soon the Left’s plans to end the 180-year Senate filibuster, the 234-year Electoral College, the 60-year 50-state union (by adding Puerto Rico and Washington DC), and the 150-year-old nine-person Supreme Court – and now will have its critics de-platformed from social media or afraid to express objections in fear of being banned.

The 5-trillion-dollar Silicon Valley monopolies – who gave directly over $200 million to the Biden campaign and $500 million to particular voting precincts and registrars deemed valuable in encouraging turnout vital to their agendas – use the public airways, and are supposedly forbidden by anti-trust laws from conspiring to destroy competition. So I think when the madness ceases, there will be calls to apply anti-trusts laws to these modern octopuses. They in so many ways use their cartels and fortunes in the manner the railroads, and the oil companies did in the 19th century – before they were broken up and regulated. That is a long answer, yes, the hysterical giddiness at the Trump loss and the unfortunate Capitol violence, coupled with overreach by Leftists who now control the government, will in time lead to a reaction itself.

This is America, where free speech and expression cannot be wiped out in a preplanned hit by Silicon Valley to aid a political agenda, whose radicalism will turn off the public.

Tyler Durden Mon, 01/25/2021 - 14:40

After All That, 139% Of Gamestop's Float Is STILL Short

Two weeks ago, we first pointed out something which we thought was remarkable: a whopping 144% of Gamestop's float was short...

is this right pic.twitter.com/mVfitVff5b

— zerohedge (@zerohedge) January 14, 2021

... as bears had piled on to never before seen levels in recent weeks, hoping to profit from the continued decline of the video-game retailer as new covid lockdowns hammered sales.

It was some variant of this observation - coupled with a very palapable desire to punish shorts such as Citron Research - that prompted retail daytraders to ramp up the stock and force a massive short squeeze, and judging by today's $159.18 record stock price, which briefly pushed the market cap of the video game retailer above $10 billion, they succeeded.

Since then, however, the price slumped, and at one point turned red sliding $100 from its intraday highs, as the furious ramp fizzled, perhaps on the expectation that most of the shorts had covered and there was little forced buying left.

But is that true?

According to financial analytics firm S3 Partners, despite the punishing two weeks and historic ramp that forced countless margin calls, GameStop haters are showing no signs of surrender which is perhaps to be expected since every surge higher invites a new round of shorts to bet on the move lower (and who are forced to cover when that does not happen).

According to Bloomberg, which quotes S3, the latest data shows that shorts equal to 139% of its float has been borrowed and sold short. Shockingly, that figure is little changed since last Thursday’s 141% short-interest reading, even though GameStop shares have surged roughly 130% in the past two days alone.

The still-high level of bearishness indicates that even though shorts are being squeezed out of their positions, new traders looking to bet against GameStop are rushing in, according to Ihor Dusaniwsky, S3’s managing director of predictive analytics. That’s occurring even as the cost-to-borrow shares for the purpose of selling them short spikes -- the stock borrow fee is currently 23.6%, S3 data show.

“We are seeing a short-squeeze on older shorts who have incurred massive mark-to-market losses on their positions, but are seeing new shorts coming in and using any stock borrows that become available to initiate new short positions in hopes of an eventual pullback from this stratospheric stock price move,” Dusaniwsky told Bloomberg.

It means that as countless legacy GME shorts covered, almost all of them were replaced by new shorts, who in addition to the risk of another bull raid, are forced to pay exorbitant borrow fees of 23.6%, which means that unless the stock plunges - and fast - all those millions on shorts will lose money even if the stock goes nowhere.

Meanwhile, the pile up into the most shorted name continues. A Goldman Sachs basket of the most heavily shorted stocks rose as much as 11% in New York Monday. That brought its month-to-date return above 38%, the most since at least 2008, as far back as data for the index goes. Of course, regular readers handsomely profited from the move. As we said last November when presenting the most heavily shorted hedge fund names "as usual, our advice is to go long the most hated names and short the most popular ones - a strategy that has generated alpha without fail for the past 7 years, ever since we first recommended it back in 2013." 

Meanwhile, our basket of the most shorted Russell 3000 stocks (those whose Short Interest is more than 50% of float) is up more than 100% today alone.

There was some good news for battered shorts: Bloomberg notes that according to Susquehanna International, the pace of bearish put-contract buying outpaced that of call purchases on Monday, with roughly 500,000 puts purchases versus 275,000 calls. That follows a similar dynamic on Friday, after six consecutive weeks of call volume clocking in higher than put buying.

“The GME rally is unlikely to last forever, and investors looking for a sign we are closer to the end could look at the 6 week streak of call volume outpacing put volume finally being broken,” wrote Susquehanna co-head of derivatives strategy Chris Murphy in a note Monday.

Perhaps, but once daytraders realize that after the tremendous move higher in the stock, it still has the same number of shorts as it did a few weeks ago, the next ramp is sure to follow and test just how stubborn the new "generation" of shorts will be.

Tyler Durden Mon, 01/25/2021 - 14:15

Twitter Unveils "Birdwatch," A New Platform Where Users Fact-Check Tweets

Twitter has finally found a way to appease the leftist mob that has long been dictating policy on the app, while absolving itself of all responsibility.

According to a story published by NBC News's Ben Collins and Brandy Zadrozny, Twitter is launching a crowd-sourced feature intended to combat slander and misinformation in a similar way that Wikipedia flags potentially misleading tweets.

The new system will allow users to "discuss" and "provide context" to tweets that "they believe to be misleading or false."

Per NBC, the new project, called "Birdwatch," is a standalone section of Twitter that will at first only be available to a small set of users, largely on a first-come, first-served basis. Instead of giving priority to real fact-checkers, users will be required to use an account tied to a real phone number and email address.

"Birdwatch allows people to identify information in Tweets they believe is misleading or false, and write notes that provide informative context," Twitter Vice President of Product Keith Coleman wrote in a press release. "We believe this approach has the potential to respond quickly when misleading information spreads, adding context that people trust and find valuable."

Although Birdwatch will initially be cordoned off to a separate section of Twitter, the company says it "eventually" aims to make notes more visible directly for Twitter's global audience.

Initially, participants will label tweets as accurate or inaccurate. Those ratings are then assembled into a Birdwatch profile, which will be separate from a Twitter profile, not unlike Reddit’s user-rating system. Twitter said it hopes to build a community of "Birdwatchers" that can eventually help moderate and label tweets, though initially labels created through Birdwatch will be private.

Growing pressure demanding that Twitter do something about the "rampant misinformation" on the platform recently led to Twitter (and, unrelatedly, Facebook) banning former President Trump and many of his allies from the platform.

Twitter told NBC News (which first reported on the program months ago) that it had been encouraged by early trials of the program.

"We know there are a number of challenges toward building a community-driven system like this - from making it resistant to manipulation attempts to ensuring it isn’t dominated by a simple majority or biased based on its distribution of contributors. We’ll be focused on these things throughout the pilot," Coleman said.

It added that the Birdwatch product is intended to stop malicious actors from spreading misinformation on Twitter, although the company also acknowledged there are "challenges" to building a system like this.

Conservatives who still use the platform were unsurprisingly less than pleased by the product description, with some warning that it would transform Twitter into "a SJW playground" where "no speech that opposes the left wing narrative is allowed."

This is the initiative that will turn Twitter into the new Myspace. @Jack needs to seriously reconsider this path. It’ll truly turn Twitter into a SJW playground where no speech that opposes the left wing narrative is allowed. Truly awful idea. pic.twitter.com/6c3zjMCvDn

— Robby Starbuck (@robbystarbuck) January 25, 2021

Others made more weighty comparisons.

So they’re introducing Brownshirts https://t.co/nOVrvHfQ9o

— GreekFire23 (@GreekFire23) January 25, 2021

pic.twitter.com/V8UYdcGblC

— Michael DeLauzon (@MichaelDeLauzon) January 25, 2021

Before now, aside from the bans, Twitter has relied on labeling tweets, or including criticial "context", below tweets that spread misinformation. In March, facing a deluge of misinformation about the pandemic, the company began removing "misleading and potentially harmful content" about COVID.

Before that, in February, Twitter rolled out a new "manipulated media" label, affixing it first to a tweet from then-President Trump. In the following months, the company would label many more tweets for misinformation about the pandemic and the election. And in just the final two weeks before the election, Twitter said it had labeled some 300K tweets for "disputed and potentially misleading" content.

Once Parler has been stricken from the Internet, along with every other social media network catering to conservatives, we can't help but wonder: Where will all the conservatives fleeing Twitter go?

Tyler Durden Mon, 01/25/2021 - 13:52

Tesla Is Looking For People To Work On Its Semi

By Market Crumbs

Last week Aurora and trucking giant PACCAR signed a global strategic partnership to bring a self-driving truck powered by the Aurora Driver to market in the coming years.

The partnership is notable because PACCAR, which is one of the largest manufacturers of medium- and heavy-duty trucks in the world, was drawn to startup Aurora. Aurora's co-founder and CEO Chris Urmson headed Google's self-driving division for nearly eight years and is one of the most widely regarded names in the self-driving vehicle space.

While it was inevitable the progress made towards electric and autonomous vehicles would make it from passenger automobiles to commercial trucks, Tesla still has yet to deliver the Semi truck it unveiled back in 2017. Saying it would be delivered in about two years to a customer list that already includes the likes of Anheuser-Busch, FedEx, UPS and Walmart, Tesla announced production delays during its earnings calls in 2019 and 2020, at one point saying low-volume production would begin by the end of 2020.

In June, Tesla co-founder and CEO Elon Musk emailed employees "It’s time to go all out and bring the Tesla Semi to volume production," but by late 2020, Tesla's quarterly report only mentioned the Semi Truck twice, saying it was "in development."

As others rush into the space, Tesla appears to be preparing to get the Semi into production. To close out 2020, Tesla posted a manufacturing process engineer job at its Gigafactory in Nevada for the Tesla Semi, according to Elektrek.

With Elektrek noting that Tesla may be preparing a pilot production line in Nevada before moving production to Texas, the posting seeks a candidate that "will help define how Semis are manufactured in Tesla."

Two other job postings related to the Semi also appeared on Tesla's jobs page—a Process Engineering Technician and a Quality Engineering Manager to provide leadership for engineers for the Semi production line.

Other recent rumors regarding the Semi include that Tesla is building four new test vehicles in Nevada to be used for road, durability, and cold-weather testing.

With Tesla slated to report earnings on Wednesday, Musk may finally offer more details about the state of the long-awaited Semi.

Tyler Durden Mon, 01/25/2021 - 13:37

DOJ Watchdog Probing Whether Officials Tried To Interfere With 2020 Election Results

The Justice Department's inspector general, Michael Horowitz - a Democrat donor whose wife helped run campaigns for Democrats before joining CNN's Washington bureau - is investigating whether DOJ officials "engaged in an improper attempt" to overturn President Biden's victory in the 2020 election, according to the Wall Street Journal.

DOJ Inspector General Michael Horowitz

"The investigation will encompass all relevant allegations that may arise that are within the scope of the OIG’s jurisdiction," said Horowitz, who was accused of pulling punches to give special treatment to establishment darlings during his investigation of the FBI's conduct surrounding the 2016 US election.

Horowitz said that his office would not comment any further on the investigation until it's completed.

His announcement comes days after the New York Times reported that a top DOJ official and President Trump had conspired in the final days of his presidency to removing the acting attorney general and install a loyalist who could somehow change the results of the election in key battleground states.

Trump was allegedly considering replacing acting Attorney General Jeffrey Rosen with Jeffrey Clark, acting head of the DOJ's civil division.

When it came to his investigation of the FBI, Horowitz notably never interviewed Carter Page - who the agency targeted by fabricating evidence to defraud the Foreign Intelligence Surveillance Act Court (FISC).

Although Horowitz says he conducted more than 100 interviews of witnesses, including Christopher Steele, who wrote the salacious and unverified anti-Trump dossier the FBI relied on to obtain the wiretap warrant, he failed to interview Page, the  target — and alleged victim — of the controversial warrant. Page confirmed to RealClearInvestigations that no investigator from Horowitz’s office asked him questions. 

That is not the first time Horowitz has failed to interview key subjects. With the help of seasoned federal investigators, RealClearInvestigations deconstructed previous probes by his office, combing through the footnotes and appendices of his reports. RCI found numerous instances in which Horowitz stopped short of pursuing evidence and was content to take high-level officials at their word, even in the face of conflicting evidence. -RealClear Investigations

Meanwhile, Horowitz gave former FBI Deputy Director Andrew McCabe special treatment - accepting his explanation for why he failed to recuse himself from the Clinton email case until November 2016, while also accepting McCabe's claim that he had nothing to do with his wife's Senate campaign, even though he: 

• personally met with her sponsor and fundraiser McAuliffe;
• drove her to campaign stops;
• attended one of her candidate debates;
• discussed the campaign with her on FBI equipment;
• appeared in a family photo used in a campaign mailer; and,
• posed with her wearing her official campaign T-shirt for a photo distributed on social media to promote her candidacy.

As Paul Sperry of RealClear Investigations noted in late 2019, "Were such actions violations of the Hatch Act, a federal law that prohibits federal employees from engaging “in political activity in an official capacity at any time”? If so, the topic didn’t interest Horowitz, who accepted on face value the FBI’s argument in a letter to the Senate that he played no formal role in his wife’s campaign and that his activities were permissible under the law."

Sperry wrote this at the time:

While acknowledging that Horowitz is widely respected, these critics say his work has long been hampered by biases, conflicts and a tendency to play favorites, as in past probes of former FBI Director James Comey, whom Horowitz worked under in New York.

Their main complaint is that he pulls his punches.

Horowitz’s investigation of the FBI's handling of the Hillary Clinton email case, for example, concluded that many of Comey’s explanations for his dubious actions were “unconvincing," while stopping short of saying that Comey lied to investigators. Comey asserted implausibly that he delayed acting on a mountain of new Clinton email evidence discovered on a laptop in New York because he was never briefed about it until nearly a month after his top aides found out about it in September 2016.

In probing whether Comey illegally leaked classified information to the New York Times, Horowitz in the end accepted his argument that the memo of a conversation with President Trump was sensitive but “not classified” – even though the memo contained information about the FBI's ongoing counterintelligence investigation of the president’s national security adviser. -RealClear Investigations

"I see a pattern of him pulling up short and trying to be a bit of a statesman instead of making the hard calls," 24-year FBI veteran Chris Swecker - who served as assistant director of its criminal investigative division, told Sperry.

Also notable, during his 17-month probe into the FBI's investigation of Hillary Clinton's emails, which he touted as "thorough" and "comprehensive," Horowitz repeatedly declined to use his subpoena power - allowing key players to provide their own evidence.

He also allowed two lead FBI officials, Peter Strzok and Lisa Page, to sort through which of their electronic communications were "personal" vs. "work related" according to the report. 

Horowitz subsequently learned through interviews that Strzok drafted classified investigative documents and communicated with Page about them on their private email in violation of department rules, which require officials to communicate through government channels -- the same basis for the Clinton email probe. Yet neither was compelled to turn over the emails.

"The inspector general and I arranged an agreement where I would go through my personal accounts and identify any material that was relevant to FBI business and turn it over,” Strzok said in testifying before Congress. "It was reviewed. There was none. My understanding is the inspector general was satisfied with that action.”

Horowitz never referred Strzok for criminal sanctions for maintaining court-sealed documents on an unsecure computer. Strzok was nonetheless fired last year by the bureau for misconduct. He is now suing the department for unlawful termination.

The IG also failed to demand access to Comey’s private Gmail account, even though he, too, used it for official FBI business. -RealClear Investigations

And while Horowitz is widely credited with having uncovered anti-Trump / pro-Clinton text messages between Strzok and Page while they were in the middle of investigating Trump and Clinton, he only 'found' them after pressure from congressional Republicans - and has apparently given up trying to find still-missing text messages blamed on a tech error.

In short, we expect Horowitz to find something...

Tyler Durden Mon, 01/25/2021 - 13:19

Record Large 2-Year Treasury Auction Prices At Record Low Yield

On a day when all the attention has been on the berserk moves in stocks, we were at least (mercifully) spared more fireworks out of the bond market today, when the Treasury sold a record $60 billion in 2Y notes ...

... at a record low yield of 0.125%.

The stop was 1.2bps below December 0.137% high yield, and was 0.2bps through the When Issued 0.127%.

The Bid to Cover was solid, rising from 2.453 last month to 2.668, and also well above the 6-month average of 2.52.

The internals were especially impressive, with Indirects taking down 56.5%, up from 49.2% last month, and solidly above the 50.6% recent average. And with Directs taking down 15.65% - in line with recent months - Dealers were left holding on to 27.9% of the auction, the lowest since April 2020.

Overall, a stellar auction to start a new week of coupon issuance, which sees 5Y and 7Y sales ahead of the Fed's Wednesday announcement on Wednesday.

Tyler Durden Mon, 01/25/2021 - 13:15

Is This The Reason Behind's Today's Surreal Market Action

Between the insane rollercoaster action in the most shorted names, which exploded out of the gate only to get hammered the moment the broader market suddenly plunged 60 points in just a few minutes (one wonders which dealer(s) was so short gamma in the most shorted names, they had no choice but to hammer the entire market to break the upward momentum wave and avoid getting crushed), one word describes today's market action so far: surreal.

And while it would probably be unwise to try to make any sense of this idiocy, there likely is some fact/fundamental based reason for today's market action besides merely a reaction to the berserk technicals and market action.

So courtesy of Bear Traps report Larry McDonald, here is one attempt at explaining why stocks are suddenly looking quite a bit gappy, and it has to do with the Fed finally pulling some of the punch bowl away::

Our 21 Lehman Systemic Indicators are screaming higher. The inmates are running the asylum and the probability of the Federal Reserve breaking out their creative “macro prudential” tool box is the highest in years. U.S. central bankers are no longer Trump constrained, the banking system is strong but the equity market has far more in common with Steve Wynn (Vegas) than Warren Buffett (Omaha).

We think the Fed sends a shot over the bow very soon. Our social justice, inequality embarrassed Fed is not happy. The will not taper but they can make serious threats to risk takers. We have an explosion of SPAC / IPO issuance, $850B of margin debt or 75% above 2015 levels, the most shorted equities up 75% vs. 16% for the S&P 500 since October (bulls running over bears), record high call vs. put volume with the little guy leading the charge SELL Mortimer Sell. The risk reward is atrocious from a long perspective in U.S. equities.

Impeachment Threat to Reflation: Moves to the Senate floor next week. Impact; 1 . Pushes out the Fiscal timeline.  2 . Similar to the GOP immediately trying to take down Obamacare, the signature achievement of the previous administration , on day one of the Trump administration. The move was Unwise and Not helpful to the fiscal policy path.

Remember, the tax cuts were sold to us as a certainty in Q1 2017, they didn’t arrive until late Q4 that year. In our view, this speaks to a potential rally in bonds / USD for the next few weeks.

Best case scenario, we have a $1.9T fiscal plan coming in late February early March with the current the bid / offer at $800B to $1.9T. However, any additional variant / mutations Covid risk increase will game the spread in the direction of the offer side if the  mpeachment doesn’t blow up the deal altogether.

 

Tyler Durden Mon, 01/25/2021 - 12:57

Biden Reverses Trump's Transgender Military Ban

President Biden on Monday repealed former President Trump's ban on transgender individuals serving in the US military - signing an executive order that "sets the policy that all Americans who are qualified to serve in the Armed Forces of the United States should be able to serve," according to a fact sheet circulated by new Defense Secretary Lloyd Austin following a meeting with Biden.

"President Biden believes that gender identity should not be a bar to military service, and that America’s strength is found in its diversity," said the fact sheet. "Allowing all qualified Americans to serve their country in uniform is better for the military and better for the country because an inclusive force is a more effective force."

Transgender troops and their taxpayer-funded medical and psychological treatment became a topic of controversy after President Trump tweeted in July 2017 that he wanted to ban them from the military. In January, 2019, the US Supreme Court ruled that a modified ban could take effect while lower court challenges to Trump's ban continued.

Also known as gender dysphoria, transgenderism is recognized by the medical and mental health community. In a February 2019 article, USA Today noted that "the cost of treating troops with the diagnosis of gender dysphoria has totaled $7,943,906.75. That included 22,992 psychotherapy visits, 9,321 prescriptions for hormones and 161 surgical procedures," adding "Surgeries performed included 103 breast reductions or mastectomies, 37 hysterectomies, 17 "male reproductive" procedures and four breast augmentations. Psychotherapy sessions cost nearly $5.8 million and surgery cost more than $2 million, according to the data."

Biden's executive order revokes Trump's 2017 and 2018 orders banning transgender military service, and orders the Pentagon and the Department of Homeland Security to ensure that all policies are in-line with his executive action.

"Simply put, transgender servicemembers will no longer be subject to the possibility of discharge or separation on the basis of gender identity; transgender servicemembers can serve in their gender when transition is complete and the gender marker in the Defense Enrollment Eligibility Reporting System (DEERS) is changed and transgender servicemembers should know that they are accepted throughout the U.S. military," reads the fact sheet.

Biden pledged during the presidential campaign he would lift Trump’s ban, referring to it as a “day one” priority. But it was not among the batch of executive orders Biden signed hours after his inauguration last Wednesday amid a delay in Austin’s confirmation. With Austin's confirmed Friday, Biden was expected to act as soon as Monday.

The Obama administration, in which Biden was vice president, lifted the previous ban on transgender military service in 2016.

A RAND Corporation study commissioned by the Pentagon during the Obama administration found allowing open service would have “a minimal impact on readiness.” Additionally in 2018, the chiefs of the Army, Navy, Marines Corps and Air Force said in congressional testimony they had seen no problems with discipline, morale or unit cohesion resulting from transgender troops serving openly in the military. -The Hill

In 2019, the Pentagon established and implemented a policy to fulfill Trump's order barring most transgender people from serving in the military unless they can perform their duties as their biological sex. There were loopholes, however, such as a waiver one could seek to serve openly. According to the report, just one such waiver was granted. The policy also allowed those who had come out under the Obama administration to continue serving openly.

An estimated 14,700 service members on active duty or in the reserves identify as transgender, according to The Hill, while Pentagon data shows that around 1,500 troops since 2016 have been diagnosed with gender dysphoria.

Tyler Durden Mon, 01/25/2021 - 12:25

Stocks Are Doing Something They Haven't Done Since The Dot Com Bubble

With 66 S&P 500 companies, representing 22% of S&P 500 earnings, having already reported Q4 earnings, there was some good, some not so good, and some downright bizarre news this earnings season.

First, the good news: as Bank of America's Savita Subramanian reports, S&P EPS rose 2% last week to $38.70 (-8% YoY) and 73% of companies have beaten on both sales and EPS, tracking similar to last quarter when we ultimately saw a record number of beats. This means that as of this moment, 4Q earnings are clearing BofA's - and the consensus - EPS estimate by over 2% (but ex-Financials, earnings are tracking just 1% above expectations at the start of January). Despite Financials' beat and overall positive 2021 guide, which was largely due to billions in reserve releases, the sector has lagged with Growth & Tech driving the S&P 500's 2% return last week according to BofA's Subramanian who however repeats that the bank "sees signs of a last gasp Growth trade, and advise sticking with Value."

In the not so good news category, BofA notes that while S&P 500 non-Financial net margins unexpectedly rose 10bps YoY to 11.3%,  - pointing to aggressive cost control implemented by companies - analysts expect a 70bps drop in net margins YoY to 10.2% in 4Q. Of the 10 sectors (ex-Fins), only Materials is expected to see higher margins YoY (+1.0ppt). Indeed, the bank's own Corporate Misery Indicator, which has been strongly correlated with, and sometimes led, the profits cycle, also took a pause in 4Q, indicating sluggish earnings recovery in 4Q.

That said, there was a silver lining to the expected margin contraction: BofA's predictive analytics team used earnings calls transcripts to calculate sentiment for S&P500 companies that have reported this earnings season. It found that corporate sentiment remains positive so far and is now largely unchanged vs. pre-COVID 4Q19 levels, despite a weaker reading vs. last quarter on a YoY basis. That said, sentiment is expected to continue to improve from here as the economy reopens.

Which brings us to the downright bizarre: with the S&P 500 trading at an all-time high and rich valuations, BofA observes that there has been no reward for beats so far this earnings season (similar to last quarter) in fact, a record 1.6% underperformance penalty - for beats. Are investors rewarding positive outlooks (where 2021 expectations have risen by 1.5% since Jan. 1)? Quite the opposite: so far we see a very unusual penalty for raising guidance – 20bps of negative 1-day alpha vs. the average positive 2ppt alpha since 2007. What this means is that companies which beat on both sales and EPS underperformed the S&P 500 by 1.6% the following day, representing the worst reactions in BofA data history going back to the dot com bubble days of 2000! 

It gets crazier: where there were also no rewards for above-consensus guidance (-20bps vs. +2.1ppt on average since 2007), companies which missed on both revenue and EPS actually outperformed the S&P the next day!

Why does this matter? Well, the last time we saw such a reaction to earnings was in Q2 2000... after which the S&P 500 fell by 13% over the next three months amid a marked change in leadership, with Value outperforming growth by over 25ppt.

Tyler Durden Mon, 01/25/2021 - 12:15

Will Venezuela Go To War Over Oil?

By Viktor Katona of Oilprice.com

January 2021 is still far from over yet the pages of Oilprice already boast 6 articles about Guyana being the hottest drilling spot in the world. This is hardly surprising, considering the hot streak that ExxonMobil had over the past 5 years, with new companies coming in and stepping up the drilling game. The interest globally attributed to Guyana has aggravated Venezuela’s long-standing grievances over the disputed Essequibo province – before 2015 the Venezuela vs Guyana oil standoff was akin to a David vs Goliath story but now, with Guyana building up its oil reserves tally and continuing to attract new investors, the balance has become a lot more nuanced. Amidst all of this, Venezuelan President Nicolás Maduro has pledged to reconquer Essequibo.  At first glance, the proposition that Venezuela should go to war over a disputed territory, let alone with Guyana, seems rather dubious. Venezuela boasts the world’s largest proven oil reserves, totalling roughly 304 Bbbls (see Graph 1), i.e. more than all of North America combined, more than Iraq and Iran combined. Guyana’s reserves are a fraction of that, barely reaching 3% with its 9-10 Bbbls. However, behind the dry facade of data and statistics, there lies an entire universe of human emotions, oftentimes led astray due to their subjective nature and in this particular realm, Caracas is the one frustrated and concerned. Guyana is adding one major discovery after another (the recent failure of Hassa-1 notwithstanding), whilst the Venezuelan national oil company PDVSA keeps on struggling to make ends meet.

Graph 1. Venezuela’s Proven Oil Reserves 1980-2019 (billion barrels).

Source: BP Statistical Survey 2020. 

The dispute over Guayana Esequiba (alternatively dubbed the Essequibo Region) is one of the most complex remaining, mixing colonial legacies with modern-day grievances. It all began in 1840 when the British Empire demarcated the heretofore undisputed and unsettled frontier between British Guiana and Venezuela, by means the “Schomburgk Line”. To no one’s surprise Venezuela rejected the British claim, however, unwilling as they were to get mired in a protracted conflict, both sides agreed to disagree in 1850 and vowed not to colonize the then-largely uninhabited region. Despite arbitrations and negotiations, the question of who should control the Essequibo Region remained unsolved by the time of Guyana declaring itself independent in 1966. Caracas recognized the independent Guyana, however only its territories located to the east of the Essequibo River, maintaining its claim that all the territories to the west are part of Venezuela.

One of the most protracted territorial disputes globally, the discovery of oil offshore Guyana might have been the factor missing to propel the issue forward. ExxonMobil, the operator of Guyana’s Stabroek offshore block, was subject to maritime harassment by the Venezuelan Navy and had one of its surveying vessels detained in 2013. However, when Exxon discovered the Liza field in 2015, closer to the Guyanese-Surinamese frontier and hence were beyond the Venezuelan maritime claim, the stakes turned really high. Guyana had official proof that its offshore was not sub-commercial as was previously thought (initially companies appraised the shallow waters of Guyana and found no commercial deposits) and with the help of a US major could now count on high-level backing for its border case.

With every new discovery on the Stabroek block, Venezuela’s opposition to Guyana taking the left bank of the Essequibo River was becoming increasingly untenable. Concurrently, the good neighbor relations of the Chavez era when Guyana was member to the continent-wide Petrocaribe movement and even participated in barter deals to satisfy its crude needs, went downhill fairly quickly.
Yet there is another factor that most certainly contributed to Caracas now striking such a belligerent tone – US sanctions against Venezuela. Not only did the tightening of screws on President Maduro’s political allies and relatives blunt the political prospects of Juan Guaido, it also led to the entry of Venezuela’s military (that remained loyal to Maduro amidst the worst humanitarian suffering) into the Latin American country’s oil industry. 

Any future US administration will most probably seek to safeguard ExxonMobil’s assets in Guyana. A first sign of this – in the first days of 2021 the commander of the US Southern Command arrived in Guyana for a 3-day visit, to celebrate the launch of joint US-Guyanese coast exercises. According to top-ranking officials in the Guyanese army, Georgetown is intent on fortifying its military ties with the United States, including but not limited to arms purchases. Concurrently, Venezuela formed a new parliament which will no longer be controlled by the Guiado-style opposition – the pro-Maduro National Assembly will inevitably become more aggressive in its narrative and overall behavior. Part of the aggression might result from the UN Court of Justice’s ongoing review of the Essequibo case, the decision of which was already declined by Caracas before its actual deliverance. 

So, will there be a war between Venezuela and Guyana? Such a scenario seems unlikely now.

First, Maduro might wait to see what the new Biden Administration has to offer, how will it tackle the Venezuelan conundrum.

Second, there is very little reason to heat up tensions now, when no final decision had been taken, the peak of confrontation should be around 2023/2024 when the ICJ is assumed to deliver its opinion on the legal status of the Essequibo Region.

Third, even if the ICJ rules in favor of Guyana which seems quite likely, Venezuela remains unlikely to trigger a military response, for fear of actual US retaliation. It is one thing to foil an amateurish coup attempt by a private military company (Operation Gideon in May 2020), an altogether different one to deal directly with the US military. 

Tyler Durden Mon, 01/25/2021 - 11:46

California Gov Lifts COVID Stay-At-Home Order; Dr. Fauci Worries Jabs Won't Stop Mutant Strains: Live Updates

Summary:

• California Gov is lifting stay at home orders
• Dr. Fauci criticizes US COVID approach, worries vaccines wont' stop mutations
• US cases, deaths, hospitalizations decline
• Biden signs COVID travel bans
• BoJo approves border crackdown
• South Africa approves AZ vaccine for vaccinations
• Moderna developing booster shot to fight South African strain
• Macron expected to announce 3rd French lockdown
• Oxford plans first trial of new COVID drug

* * *

It's already mid-morning on Monday and it's already turning out to be an interesting week for COVID-19 news. Following a WEF panel earlier this morning where Dr. Fauci heaped blame for any failures in fighting COVID on President Trump, California Gov Gavin Newsom on Monday said he plans to lift some regional stay at home orders.

Newsom is expected on Monday to lift regional coronavirus stay-at-home orders across California, a change that could allow restaurants and gyms in many counties to reopen outdoor dining and any other services.

All counties would return to the colored tier system that assigns local risk levels based on case numbers and rates of positive COVID cases. Most counties will go into the “widespread” risk tier, which permits hair salons to offer limited services indoors but restricts many other nonessential businesses . The change is expected to take effect immediately after Newsom’s announcement.

It's not yet clear whether the decision will lead to easing of stay-at-home rules in Los Angeles County, which has become a national hotbed of the coronavirus, with hospitals overwhelmed by patients. In less than one month, more than 5K people have died of COVID-19 in the county alone.

In the US, cases, hospitalizations and new deaths have been falling across the board.

Last week, Dr. Fauci led the US delegation back to the WHO like a conquering hero, announcing that under the Biden Administration, the US would cooperate with the organization's plan to distribute vaccine doses globally, while halting President Trump's attempt to leave the UN-funded NGO.

Well, on Monday, Dr. Fauci joined a panel led by Bloomberg News CEO John Micklethwaite and a handful of other experts at the (virtual) WEF to discuss the global response to the COVID pandemic one year after the virus came bursting out of Wuhan, infecting the rest of the world.

Oddly, the WEF decided to name its panel "the Great Reset", as if the same people weren't still running the global response to the COVID-19 pandemic. But the subtext was clear: With President Trump gone, the world can get back to the fundamentals of battling COVID-19.

really can't make this up pic.twitter.com/3sUCb10Qgx

— zerohedge (@zerohedge) January 25, 2021

In the latest attempt to slander President Trump, the good doctor said during Monday's forum that the US's response to COVID-19 didn't have a "science" focus, which "cost it dearly", Dr. Fauci said, in the latest attempt to insinuate that President Trump - and Trump alone - is responsible for the 400K+ confirmed COVID deaths.

Fauci complained that the Trump administration had "a considerable amount of mixed messaging on what needed to be done from top down." Like when Dr. Fauci first told people not to wear masks, before changing his mind? Or when he opposed travel bans, before changing his mind on that also?

Or, how about more recently, when he flip-flopped for banning travelers from South Africa?

When it comes to the South African strain, Dr. Fauci warned that the decline in vaccine efficacy could pose serious problems in the future.

He then blamed the fact that these public health issues had become "politically charged". When public health issues become politically charged, like wearing a mask or not becomes a political statement, "you can’t imagine how destructive it is to any unified health message," Dr. Fauci said.

The Pandemic “shed a very bright light” on America's weaknesses, he added, without going into too much details.

Moving on, Dr. Fauci said he was worried about what might happen if people start to delay the second dose of their COVID vaccines, with Dr. Fauci insisting that the vaccines won't achieve full efficacy without both doses.

Readers can watch the entire panel below:

Looking ahead, Dr. Fauci said the big question looking forward is figuring out whether the vaccines that have been developed in the West will be effective in stopping mutated versions of the vaccine. But the most important thing is that patients receive both doses of the vaccine, since full efficacy won't kick in until the booster dose has been delivered.

Here's some more COVID news for overnight and Monday morning:

US President Biden will sign an order on Monday to ban entry to most non-US citizens who have travelled to UK, Ireland, Brazil and South Africa. It was also reported that the CDC will sign an order requiring mask use on all flights, trains and ride-sharing vehicles, while it will not grant waivers for airlines seeking exemptions from COVID-19 testing requirements for all international flights. (Newswires)

Pfizer (PFE) will ship fewer COVID-19 vaccine vials to account for ‘extra’ doses in each vial and will account a 6th dose in each vial towards its prior commitment of supplying 200mln doses by end-July after it received FDA approval to change the vaccine’s formal authorization language to acknowledge an additional dose for a total 6 doses per vial. (New York Times)

UK PM Johnson is to approve a new border crackdown on Tuesday which could ban entry into the UK for nationals of COVID-19 hotpots, while there are also proposals for those arriving from hotspots including British citizens to be escorted to isolation hotels upon arrival where they will need to quarantine at their own expense.

Oxford University researchers are planning the first, large high-quality trial of ivermectin which is a low-cost drug that claimed to reduce deaths by 80% among patients in hospitals, although other scientists were sceptical of the data which was from a combination of 11 prior trials and said that more results would be required before it could be considered as a treatment. (The Times)

French President Macron may announce a 3rd national lockdown on Wednesday night which could take effect from the end of the week and last at least 3 weeks, amid concerns of a new wave of COVID-19 infections driven by the UK variant. (Journal du Dimanche)

* * *
In other news, while the world frets about the South African COVID variat, the country's health regulators have just approved AstraZeneca's vaccine for use in the country, marking the first vaccine approved in South Africa. Meanwhile, Moderna announced earlier that it's developing a booster shot to battle the South African strain after it found that its vaccine isn't as effective against the strain.

Tyler Durden Mon, 01/25/2021 - 11:32

Markets Are Breaking Left And Right As Stocks Tumble

Whether it is due to the absolute insanity taking place among the most shorted names, or the broader market suddenly tumbling (perhaps as the PPT forgot to keep an eye on the S&P transfixed by the action in GME), Downdetector and Bloomberg report that a slew of trading platforms are reporting problems on Monday, and while some have been resolved while others are ongoing.

• Robinhood is experiencing issues with crypto trading
• Vanguard tweeted it understands some clients are experiencing issues accessing their accounts
• TD Ameritrade says it is aware of an issue impacting a small number of clients on the thinkorswim platform, a company spokesperson said
• Charles Schwab announced it worked to resolve an issue
• There was a slowdown in Merrill logins earlier Monday, but the situation has been resolved, according to a Bank of America spokesperson
• E*Trade users reported problems Monday, according to Downdetector

Meanwhile, aside from the ridiculous action in penny stocks and supershorts, the broader market has just tumbled...

... the VIX is surging...

... and the 10Y has slumped to session lows.

Tyler Durden Mon, 01/25/2021 - 11:17

Supreme Court Dismisses Suits Over Trump Finances

The US Supreme Court on Monday ordered the dismissal of a pair of lawsuits accusing former President Trump of illegally profiting from his presidency, after several foreign and state government officials patronized his properties - including the Trump International Hotel in Washington, located a few blocks from the White House.

The plaintiffs included hotels, restaurants and the attorneys general of Maryland and the District of Columbia, and accused Trump of violating the Constitution's two emoluments clauses, according to Bloomberg Law, which notes that "One clause bars a president from accepting benefits from foreign governments without congressional consent, while the other bars receipt of any benefit other than a salary from the U.S. government or a state."

The cases were dismissed after both sides agreed that the disputes had become legally moot after Trump's term in office ended on January 20th.

One of the key questions in the cases was who, if anyone, had standing to sue to enforce the emoluments clauses. According to the report, lower courts in both cases said the plaintiffs had legal standing, while the Supreme Court set aside those rulings as part of its Monday order - a step urged by the Trump DOJ.

The cases are Trump v. Citizens for Responsibility and Ethics in Washington, 20-330, and Trump v. District of Columbia, 20-331 (via Bloomberg)

Meanwhile, Trump's post-presidency legal woes appear to be ramping up, as Manhattan District Attorney, Cyrus Vance, expanded his office's criminal investigation into the Trump organization's finances last week.

According to the Daily Mail, prosecutors have begun looking into a 212-acre property north of New York City called Seven Springs, which NY Attorney General Letitia James is looking at as part of a probe over whether Eric Trump and various corporate entities artificially inflated property values.  A 2012 document values the property at $291 million, while local realtors say it's worth more like $50 million or less. The Trump organization bought it in 1995 for $7.75 million.

The organization then put part of the property into a land trust via conservation easement, which would leave that portion - 158 acres - untouched and undeveloped, ostensibly resulting in a tax break based on the value of the property. The higher the valuation, the larger the tax deduction.

It [the 158 acres] was appraised at $21.1 million, according to the filings but now investigators are looking to see whether the value was artificially inflated. 

'Valuations of Seven Springs were used to claim an apparent $21.1 million tax deduction for donating a conservation easement on the property in tax year 2015, and in submissions to financial institutions as a component of Mr. Trump's net worth,' according to court filings in the New York attorney general's investigation. -Daily Mail

The probe into Trump's finance originated after Vane opened an investigation into hush-money payments made to two women prior to the 2016 election, who claimed they had sexual relations with Trump.

Vance notably came under fire in 2018 over a 2015 decision not to pursue charges against Harvey Weinstein - after an attorney for the movie mogul gave Vance $24,000, while another attorney sent $10,000 following the decision.

Tyler Durden Mon, 01/25/2021 - 10:58

Hedge Fund CIO: "It's An Orgy"

By Eric Peters, CIO of One River Asset Management

“The big boys are no longer bullish,” bellowed Biggie Too in baritone. “The big boys are now bubble bullish,” continued the chief investment strategist for one of Wall Street’s Too-Big-To-Fail affairs. “They ask Biggie, why can’t the S&P trade 5,500?” said Too, easing into third person. “And Biggie asks ’em back: We got 6% GDP and 1% rates, who’s gonna short this?” he said. “You do the math, you gonna tell Biggie to short this thang?” asked Too. And I shrugged, having long since learned to recognize when Biggie’s question is the answer.

“No one’s gonna short the S&P unless 6% GDP falls to 4%, or 1% rates jump to 2%,” barked Biggie. “Ain’t happening in Jan,” whispered Too. “Too much Covid, too little vaccine, too much money, too few places to put it,” he said, riffing. “You think Powell’s gonna do a 2013 taper tantrum right now?” laughed Biggie. “No chance, everyone knows it. And that’s the only thang that scares Biggie,” said Too, smiling, breaking into a slow groove. “So tell me why ain’t this thing already up 10%? Why’s LQD soft? EMFX too?” winked Biggie.

“You know we gonna get a 15-20% budget deficit in 2021 right?” asked Biggie, not waiting for an answer. “And you know we gonna have a Fed balance sheet that’s 40% of GDP?” asked Too, on a roll. “And they just wrote $600 checks and now they’re gonna write $1,400 checks right?” he asked. I nodded. “You know that when these kinds of numbers keep rising they get real hard to roll back, right?” asked Biggie. “You know this is the kind of thing that sparks the Mamma of all Bubbles?” he asked. “And you know inflation will mark its end?”

Gatsby: “The 1920s followed the pandemic,” explained the CIO. “People don’t tend to draw that connection, but the reality is that throughout history, such catastrophes lead to periods where people lose their minds,” he said. “This time around, the government is providing the bridge, funding the collapse in demand. Who knows for how long? It could be 3yrs in total.” Here we are, approaching another March with lockdowns looming. “You see signs of political insanity, all sorts of speculation too, Robinhood. And today, everything happens faster, time compresses.”

Treadmills:

“Anyone being intellectually honest about Covid should admit the stimulus will be with us for a long time,” explained the CIO. “Mass vaccinations will take longer than anyone thinks - it’ll take until late summer or early autumn to bring Covid’s prevalence down,” he said. “Then come the mutations.” Which make it appear likely we’ll need to tweak the vaccines. “So we may enter a cycle where it takes nearly a year to vaccinate the population and each year we need new vaccines, which means this will restrain the economy for a couple more years.”
 
Caligula:

"It’s an orgy,” said the CIO. “A money illusion, sucking everyone in,” he continued, acknowledging that a fiat system is itself a monetary mirage. “In a market like this, you use your marked-to-market profits to double down, then to double down again,” he explained, all SPAC’d up with nowhere to go. “And it feels like we’re entering the illusory-illusion phase, where prices keep running ahead of the money supply expansion – where things keep going up as long as the Ponzi unit of account continues expanding,” he said. “It only ends when liquidity tightens."

"This is the hyper-aggressive stage of the market cycle where the smartest value guys start warning,” continued the same CIO. “Klarman, Marks, Grantham.” They remind us that asset prices must ultimately be anchored to fundamentals. “They’re not wrong of course, but they’re usually early, and the foundation for this speculative boom remains intact,” he said. “They argue valuations are extreme, and they’re right. But they can always get more extreme, and what you learn from past cycles is that valuations and fundamentals can diverge for ages."

Tyler Durden Mon, 01/25/2021 - 10:37