Bank of America
Courtesy of the latest report by JPM's Prime Brokerage, we now know two reasons why there was such a large move in April. Hedge funds accelerated the pace of ETF covering, only this time single stock names have also joined the party. In other words, ETF covering is removing hedges, and single stock covering is getting HF's into a net long position.
While one can blame algos and "macros" for snapping up oil the commodity, as Morgan Stanley did recently, another question is who is buying energy stocks to a level that makes little sense from a forward P/E multiple. The answer may have been revealed earlier today in Bank of America's breakdown of what smart money investors were doing. While we already reported that for the 13th, record, consecutive week, hedge funds, institutions and private clients were unloading risk exposure, one other group of client were buying energy stocks in record amounts: Pensions.
With the Fed decision just one day away, followed the very next day by the increasingly more irrational BOJ, stocks had no desire to make significant moves and overnight's boring session was the result, as European stocks and U.S. index futures rose modestly but mostly hugged the flatline while Asian declined 0.2% for a third day as raw-material shares declined and Tokyo equities slumped before central bank meetings in the U.S. and Japan this week. China’s stocks rose the most in almost two weeks, up 0.6% but failed to rise above 3000 on the Shanghai Composite, in thin trading.
Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, forcing investors looking for income to flood into debt with maturities of as long as 100 years. Worse still, as Bloomberg reports, central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options. This has driven the 'duration' - or risk sensitivity - of the bond market to a record high, meaning, as one CIO exclaimed, even with a small increase in rates "the positions are so huge that the damage can be massive... People are complacent."
Somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story.
While expectations were for nothing new, it appears positioning was for moar as Draghi's lack of bazooka-ness has sent European stocks lower as EUR spikes against the USD and German Bund yields soar...
The stock market and the economy are moving in two completely different directions right now. Even as stock prices soar, big corporations are defaulting on their debts at a level that we have not seen since the last financial crisis. In fact, this wave of debt defaults have become so dramatic that even mainstream media is reporting on it...
If asking traders where stocks and oil would be trading one day after a weekend in which the Doha OPEC meeting resulted in a spectacular failure, few if any would have said the S&P would be over 2,100, WTI would be back over $40 and the VIX would be about to drop to 12 and yet that is precisely where the the S&P500 is set to open today, hitting Goldman's year end target 8 months early, and oblivious of the latest batch of poor earnings news, this time from Intel and Netflix, both of which are sharply lower. We expect that after taking out any 2,100 stops, the S&P will then make a solid effort to take out all time highs, now just over 1% away.
Following yesterday's OPEC "production freeze" meeting in Doha which ended in total failure, where in a seemingly last minute change of heart Saudi Arabia and specifically its deputy crown prince bin Salman revised the terms of the agreement demanding Iran participate in the freeze after all knowing well it won't, oil crashed and with it so did the strategy of jawboning for the past 2 months had been exposed for what it was: a desperate attempt to keep oil prices stable and "crush shorts" while global demand slowly picked up. And whether it is central banks, or chronic BTFDers, just 12 hours after oil opened for trading with a loud crash, the commodity has nearly wiped out all losses, and both brent and WTI were down barely 2%, leading to both European stocks and US equity futures virtually unchanged on the session.
Frequently one can tell by the title of an opinion piece whether it is going to consist of quality arguments or just meretricious mudslinging. Professor Charles Postel of San Francisco State University boldly announces the latter in choosing to title his recent tirade against sound money, "Why Conservatives Spin Fairytales About the Gold Standard". As this article is so typical of what we seek to rebut, we publish it here, and now.
While it may seem today that credit is impersonal and calculated, credit was once a privilege built around personal trust and long-lasting relationships. Today, 80% of U.S. households own multiple cards, and they account for just under $1 trillion of consumer debt...
Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”
A year ago today, European equities hit their highest levels ever. But, as Bloomberg reports, the euphoria about Mario Draghi’s stimulus program didn’t last, and trader skepticism is now rampant. The Stoxx Europe 600 Index has lost 17% since its record, and investors who piled in last year are now unwinding bets at the fastest rate since 2013 as analysts predict an earnings contraction. The trading pattern looks familiar: a fast run to just over 400 on the gauge, then disaster...
Sunday’s producer meeting is all about nothing no matter what agreement might be forged. At best, the agreement will be, as Russia’s energy minister has stated, a gentlemen’s affair, with no binding commitments, no concrete next steps beyond having a review meeting, and no procedure for moving to production cuts.
- Global stocks, dollar and oil cool ahead of Doha meeting (Reuters)
- Oil Falls Before Doha as Global Markets Brace for Weekend Risk (BBG)
- China Growth Slows; Revival Policies Appear to Gain Traction (WSJ)
- White House hopefuls Clinton, Sanders joust in Brooklyn brawl (Reuters)
- Trump talks up 'New York values' as protesters demonstrate against him (Reuters)
- Sanders Can’t Clarify Wall Street Plan in Testy Clinton Debate (BBG)