Markets Ebb and Flow Between Gains and Losses as Powell Speaks

We were down more than a hundred and then up more than a hundred. Now we’re up ~30 — but that will likely change a great deal by the end of this post. I find it nearly impossible to trade volatility like this. It’s best to pick a damn bias and stick with it.

Due to Trump’s retarded White House, the steel tariffs have been delayed. As such, gains in the steel sector have been tempered.

Meanwhile, Greenspan is once again warning of a bond bubble.

So a 2% rise in rates equals ~$400b extra in interest payments for US govt. Here's Greenspan saying we're in a bond market bubble, insisting rates will go higher. If CPI is benign, can someone tell me why would be self inflict a wound like this? Fuck the Fed. pic.twitter.com/hYfMQeTsVh

— The_Real_Fly (@The_Real_Fly) March 1, 2018

“We are in a bond market bubble” that’s beginning to unwind, he said on “Squawk on the Street,” as new Fed Chairman Jerome Powell appeared on Capitol Hill for the second time this week. “Prices are too high” on bonds, Greenspan added. Bond prices move inversely to bond yields, which spiked higher in the new year, recently hitting four-year highs of just under 3 percent.

“As real long-term interest rates rise, stock prices fall,” Greenspan said, but added that’s probably not the cause of the recent wild market swings.

“The last few weeks are responding to the good part of the tax cut,” he said, meaning that any tax-cut inspired economic growth could increase inflation, which Wall Street worries could result in the Fed raising rates more aggressively than the projected three hikes for this year to tamp down rising prices and wages.

And new Fed Chair Powell made some comments on wages and interest rates.

“We don’t see any strong evidence yet of a decisive move up in wages. We see wages by a couple of measures trending up a little bit, but most of them continuing to grow at two and a half percent,” he said. “Nothing is suggesting to me that wage inflation is at a point of accelerating. I would expect that some continued strengthening in the labor market can take place without causing inflation.”

“By continuing to gradually raise interest rates over time, we’re trying to balance those two things and achieve inflation moving to target but also make sure the economy doesn’t overheat,” he said. “There’s no evidence that the economy is currently overheating. But that’s really the path that we’ve been on. My expectation is that that will continue to be the appropriate path as long as the economy continues to perform this way.”

UPDATE: Trump announces tariffs.

Tired of winning yet?

There’s a musky aroma in the steel sector today. At the vanguard of this movement are the actions of President Trump — his fierce open handed smack across the face of President Xi of China. We’re going to impose tariffs and there’s not a single damned thing to be done about it. It’s as simple as that.

Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!

— Donald J. Trump (@realDonaldTrump) March 1, 2018

According to the Commerce Department, steel tariffs will be in the ballpark of 24%.

Here are today’s beneficiaries.

X +5.2%
AKS +8%
CLF +4.7%
STLD +2.5%
NUE +2%

The day is young old sport. Let’s give the news some time to marinate in the thick brains of asset allocators. I’m sure that once they do the math and set aside their political reservations, they will support this five fingered assault across the collective faces of the Chinese steel industry, as I do, and get long CLF in bulk size.

Today is reshuffling day for Exodus Quant monthly strategy. I’ll be done by noon.

Keep those hedges on. We’re not done barreling lower.

Ciao.

Futures are down 100 and the DAX is off by 1.5%. Every financial advisor I know is a genius and none of them are scared of a prolonged pullback — because of stock market muscle memory. There is a strict routine which is to be adhered to very closely.

We dip, we buy, we hit new highs.

None of the people that I talk to are truly prepared for a pullback that lasts longer than a week or two, let alone one that could last for months. We just broke the longest monthly winning streak since 1959. Think about that from a statistical point of view and now think about mean reversion and how Trump brags about his great big beautiful stock market and how Chair Powell isn’t an economist and the collapse in Bitcoin and what that might mean for semis. I realize it’s early and that’s a lot to ask from you so early in the morning — but you’ll do so nevertheless or you’ll stop reading me fookin’ blog.

Gold, oil down, equities down — you have fake muscles. Welcome to March.

Best Buy beats by $0.39, beats on revs; guides Q1 EPS below consensus, revs in-line; guides FY19 EPS and rev above consensus; raises dividend 32%
Kohl’s beats by $0.22, reports revs in-line; guides FY19 EPS in-line, revs in-line; Comparable sales increase 6.3%
Macy’s upgraded to Buy from Hold at Gordon Haskett; tgt $36
Sotheby’s beats by $0.15, beats on revs
Toyota Motor upgraded to Neutral from Underperform at BofA/Merrill

I have a stifling headache, probably caused by stress. My new dog darted out and ran into the woods earlier, forcing me out of a slumber and into the thickets to fetch a dog. Along my journey, I spotted a dead dear entangled upright, hanging upside down, in a ceremonious setting. There are many masons in this area and it seems they’re doing some carcosa type shit in the woods.

After an hour, I found the dog — covered in mud and thorns — and then I gave her a hot bath and a cold shoulder for a solid 30 minutes.

Dinner consisted of Japanese takeout and perhaps the sodium crushed my metaphysical being — because I now feel like shit.

At any rate, Exodus Quant shed 4% for the month of March, outpacing the SPY by 100bps. There is no honor in losing money. However, I lost it at a slower pace than the market, proving the strategy to be effective.

We were mega cap in February, long stocks like ACN, MSFT, XOM and MA. For February, several defensive positions will be triggered and we might get an Exodus Oversold signal, which will automatically deploy my permanent 20% cash into the SPY for a 5 day trade. Also, the allocation will be of a much smaller capped varietal.

There are a slew of oversold stocks and ETFs in the system tonight, including IWM. This has been a stress point that has resulted in gains for longs, so look for the market to pivot to the upside soon and with vigor. Should that not occur, we might be in for a different tape, a character shift, which means everything needs to be reviewed.

My tactical account has cash, a shitbrick of oil stocks getting mauled, and two hedges: SQQQ, DRV.

Off to take a few aspirins and consume some teevee.

It’s all over folks. Markets are off by 500 since Powell opened his fat trap yesterday. It appears we have a stand off here and someone needs to blink. Either Powell slashes interest rates, his wrist, and re-introduces another round of QE, or this market is going to belly flop off the pavement and into an inferno. There’s nothing more to be said about it and that’s that.

My oil patch plays are treating me like a pig on a spit, only faster. I am being cooked fast and with a rude amount of seasoning. The apple in my mouth is bitter and disgusting. I don’t like this. I don’t like this, not one bit.

Also, my inverse ETFs are also down — because why the heck not. It’s all there mate. It’s in the fucking prospectus. Didn’t you have a look?

The Nasdaq is holding up for now, which is why the SQQQ is lower. But not for long.

Enjoy the balance of your days and be sure to tuck in your kids tonight, for a storm is coming and it’s armed with cock-chopping guillotines, designed by malicious men who are testing the new Chair Powell.

We need a bull market Trump tweet now. That is literally the only thing that can save us from damnation.

I always like Langone, but respected him more than ever after my Mother had heart surgery a few years ago at NYU Langone — which is a beacon for healthcare in NYC and the world. Their facilities are made possible by Ken, thanks to a donation of ~$250 million.

Feel free to read about Ken on his Wiki page to learn more about him. Had Ken not been a successful broker and co founder of Home Depot, I imagine he’d work at a gristmill or something even more rustic than that. He’s the salt of the earth, a relic from a day when men were men and didn’t apologize for it.

He is an interview with CNBC today and discussed Trump’s tax cuts, buyback, and education.

It’s worth your time.

Don’t say I didn’t warn you this time. Had you read the prospectus you would’ve know to dear god that it was not only within Proshares right, but also their duty to take away your money and flush it down the toilet.

Last night they announced a leverage change for their SVXY and UVXY products. This is especially deleterious for out of the money call buyers who wanted black swan bets on volatility. A lot of investors utilize these trades to hedge downside. Now those people have been eliminated from the field of play.

ProShares Advisors announced changes to its investment objectives to reduce leverage on its Short VIX Short-Term Futures exchange-traded fund (ticker SVXY) and Ultra VIX Short-Term Futures ETF (ticker UVXY). The former, which allowed investors to bet against a rise in volatility, is now aiming to deliver returns equal to one-half the inverse move of the S&P 500 VIX Short-Term Futures Index. Previously, the product had sought to be a perfect mirror image each session.

On Feb. 6, Credit Suisse announced the redemption of a fund similar to SVXY — the VelocityShares Daily Inverse VIX Short-Term exchange-traded note (ticker XIV) — after a record one-day spike in the VIX wiped out 90 percent of the value in the inverse product. The popularity of exchange-traded products that allowed investors to wager on enduring market calm exacerbated the downside for U.S. stocks that week, according to some analysts, helping to catalyze a technical correction.

ProShares’s shifts will be effective as of the close of trading on Feb. 27, according to a press release. However, a permanent change of these investment objectives will require regulatory approval, the exchange-traded product provider said.

“Buyers of either calls or puts have paid premia that were based on much higher implied volatility values than will be prevailing post the proposed changes,” said Athanassios Diplas, principal at Diplas Advisors. “Similarly, anyone directly trading these two ETPs, either long or short, whether for hedging or direct investment, will have to adjust their exposures, and incur the associated costs of rebalancing.”

In other words, you’re now paying exorbitant management fees for less leverage, and of course in the process wiping out premium across the entire option matrix.

With the market up double digits, SVXY is higher for the day — but options holders, especially out of the money holders, got REKT.

The silver lining.

“The reduction in leverage reduces the amount these products need to trade daily, and makes SVXY less likely to blow up again,” said Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors. “It’s harder for VIX futures to go up 200 percent in a single day compared to going up 100 percent in a single day.”

Traders on Twitter aren’t so enthusiastic.

options got smoked, especially SVXY. spoke to Proshares, they pretty much absolve themselves of the mess, saying they are not responsible for the derivatives of their products.

— Al Orn (@AlexOrn) February 27, 2018

Implied volatility on options has dropped by approximately 25% reflecting the drop in realized volatility that $UVXY will have with the lower 1.75X multiplier.

— Vance Harwood (@6_Figure_Invest) February 28, 2018

@GunjanJS Can you look into @ProSharesETF $UVXY $SVXY, they just screwed option holders overnight. @WSJ The OCC #42683 memo said "no adjustment" but why can't options already agreed by buyer/seller trade on the agreed prior terms.

— RobotandFrank (@RobotandF) February 28, 2018

NO fun if you were long anything accept deep ITM Options on $SVXY or $UVXY. Highlights unexpected danger of trading options on leveraged products. #TVIX #TVIZ

— Scott Somer (@ScottnearSMF) February 28, 2018

You're now paying ProShares 139bps/yr to force you to keep some cash around your $SVXY allocation, like you could have done before for free

— Matt Thompson, CFA (@dynamicvol) February 28, 2018

$UVXY $SVXY thanks for playing have a nice day

— It's a trap! (@_FIREnow_) February 28, 2018

$SVXY and $UVXY options holders today, after RULES change. NOTE: IT WAS IN THE PROSPECTUS pic.twitter.com/VwhKvVzRRm

— The_Real_Fly (@The_Real_Fly) February 28, 2018

Be Dick’s Sporting Goods and see your face getting eaten off on a daily basis by Amazon. Take a small subset of your inventory that Amazon doesn’t compete with you on (assault styled guns) and ban it from your stores because it’s good press and because your stock is down 35% over the past year — thinking it might increase foot traffic into your overpriced denizen for flimsy sportswear and equipment.

Then have it revealed it was all a ploy, since you’ve already banned the sale of assault styled weapons from your store in 2012, following Sandy Hook.

Everyone give
Dick’s Sporting Goods
A big Fist Bump !

And know Better Days
are ahead of us ! pic.twitter.com/s0rcIlGYPw

— Mayday Mindy (@maydaymindy9) February 28, 2018

Dick's Sporting Goods 2012 "We are going to stop selling these rifles"

Dick's Sporting Goods 2018 "We are REALLY going to stop selling these rifles"

OK what's next Dick's Sporting Goods?

— Founders Ghost (@politiwars) February 28, 2018

Whatever.

This month shall forever be etched in the annals of time — a morbid occurrence of grotesque proportions when the XIV traded from $100 to zero in a little more than a few hours — thanks to details shrouded in the prospectus. Anyone who lost money in it clearly had it coming, as it was all there, in black and white, the details that is for knowing what was about to happen.

Although I lost money in the darn thing and feel bad about the whole situation, I’m a better man for it. Nowadays, instead of tinkering with the gym or reading fine literature, I sit fireside reading from a stack of prospectuses. While at first moribund and plainly boring, I now find them to be delightful — like a fine cut of unsalted broccoli. It just gets better and better, especially after a good thrashing or maybe even a famine.

Dow futures are +70, which means I am going to get whipped in the face because of my SQQQ and DRV positions. Never worry, I have plenty of oil stocks to make up the difference and I intend to make some gains in my quant account — this being the final day of the month and all. Starting tomorrow, Exodus Quant will sport a new portfolio — one of more aggressive qualities.

Here are this morning’s movers, courtesy of Briefing.com.

• SYNH +24.6%, AAXN +22.5%, ETSY +16.2%, OCN +14.2%, TIVO +12.9%, (also announces plan to explore all alternatives to maximize shareholder value), ENPH +11.1%, WTW +10.3%, TAST +9.3%, BKNG +8.4%, RRD +8.2%, FRAN +7.1%, MGIC +7%, CSU +6.6%, CGBD +6.5%, SBLK +6.1%, OAS +5.8%, ATSG +5.8%, VEEV +5.5%, CHS +5%, DAR +4.8%, RP +3.7%, MASI +3.4%, PNM +3.4%, HEI +3.1%, AKAO +3.1%, MTZ +3%, SUPN +3%, UNVR +3%, ATUS +2.8%, FSS +2.5%, UPL +2.4%, FRO +2%, IMAX +1.9%, ESRX +1.8%, RDC +1.8%, XOG +1.7%, DEPO +1.6%, STWD +1.6%, GBT +1.3%, WP +1.3%, MITT +1%, PEN +1%, ODP +1%, .

M&A news:

• STB +24% (Student Transportation to be acquired by a group of investors led by CDPQ for US$7.50 per common share in cash)
• PHH +23.7% (PHH Corp to be acquired by Ocwen (OCN) in an all cash transaction valued at $360 million, or $11.00 per fully-diluted share)
• OCN +14.2% (PHH Corp to be acquired by Ocwen (OCN) in an all cash transaction valued at $360 million, or $11.00 per fully-diluted share)
• SGYP +8.5% (acquires exclusive Canadian rights to FDA-Approved Trulance from Synergy Pharmaceuticals)
• MON +0.9% (Monsanto merger with Bayer (BAYRY) said to be set to be approved by the EU, subject to conditions, according to Reuters)

Other news:

• CODX +14.7% (positive results from Co-Primers Technology in multiplex test for SNP detection)
• MTP +11.1% (European Medicines Agency has granted Orphan Drug Designation for its advanced liver cancer drug candidate MTD119)
• HTBX +6.7% (announces ‘positive’ interim data from its Phase 2 clinical trial of HS-110 and Nivolumab in Non-Small Cell Lung Cancer)
• MBVX +5.6% (reports positive safety results from initial cohort of MVT-1075 Radioimmunotherapy Phase 1 Trail for the treatment of Pancreatic, Colon and Lung Cancers)
• ECYT +3.6% (proposed public offering of common stock)
• EXPE +2.6% (following BKNG results)
• NMIH +1.5% (prices 3.7 mln shares of common stock at $19.75 per share)
• DPW +1.2% (reschedules investor webcast to March 15 at 5pm ET – originally set for February 21 – focus of the webcast will be on MTIX)
• STMP +1% (hired former Mattel Chief Technology Officer Jonathan Bourgoine as its new Chief Technology Officer)
• BEDU +1% (prices 10 mln ADS’s at $19.00 per ADS)
• SHPG +1% (receives FDA acceptance of BLA for Cal-PEG)
• BIDU +0.8% (Baidu.com’s iQiyi unit filed for $1.5 bln IPO late yesterday)

Analyst comments:

• MELI +3.8% (upgraded to Overweight from Neutral at JP Morgan)
• CVX +1.1% (upgraded to Buy from Neutral at BofA/Merrill)
• ADM +0.9% (upgraded to Buy from Neutral at Buckingham Research)
• PM +0.7% (upgraded to Buy from Neutral at Citigroup)

Gapping down
In reaction to disappointing earnings/guidance:

• FTR -24.8%, (also suspends the quarterly cash dividend on the common stock), ELF -10.8%, TSRO -9.2%, VRX -8.3%, ACAD -7.6%, BGFV -7.6%, BGS -7.1%, MNKD -7%, LOW -6.7%, GTE -6.1%, ALRM -5.8%, EOG -5.6%, PZZA -5.1%, GGB -4.7%, ROG -4.5%, SSYS -4%, HTZ -3.9%, TA -3.8%, JONE -3.1%, SSW -3.1%, CYH -2.9%, MHLD -2.8%, TDOC -2.7%, TNET -2.6%, JAZZ -2.6%, WDAY-2.3%, VTVT -2.3%, (also files for $250 mln share Class A common stock shelf offering ), CROX -2.3%, DXCM -2.2%, SQ -1.7%, DRYS -1.1%, FGEN -0.8%

Other news:

• ATRA -6.6% (proposed offering of $150 mln in shares of common stock)
• CELG -6.1% (receives Refusal to File letter from the FDA regarding its New Drug Application for ozanimod in development for the treatment of patients with relapsing forms of multiple sclerosis)
• GM -1.5% (General Motors announced 40 mln share secondary offering of common stock by the UAW Retiree Medical Benefits Trust; GM intends to repurchase a portion of the shares being offered)
• DISCA -1.3% (still checking – DISCA / SNI set election deadline – expect to consummate the transactions contemplated by the Merger Agreement on March 6, 2018)
• DM -0.8% (files for $500 mln common units representing limited partner interests shelf offering)

Analyst comments:

• ALV -1.5% (downgraded to Sell from Hold at Societe Generale)

The call should go something like this.

You (thick Irish accent): Hello friendly broker, this is Cornelius and I have an account with you blokes over there.
Broker: How might I help you Sir?

You: Very well. I was reading in the morning papers today that the Chinese Netflix is coming public. The name is IQiyi and The Fly over at iBankCoin told me to tell you to give me an allocation.
Broker: Sorry, who is The Fly?

You: I said, he’s a blogger from the internets. Don’t you have ears on that daft head of yours?
Broker: No, I understand what a blogger is. I just didn’t understand why he’d tell you to ask for an allocation.

You: He said it was gonna be a humdinger — a real scorcher — ya hear? He told me to ask for an allocation, so here I am. I want to buy it for me kids — pass it down to them on their wedding days — maybe pay off their college loans with the profits. What do you think about that?
Broker: Well, I’ll have to see if we have any available. That IPO is gonna be a hot one and all of our institutional accounts are getting the vast majority of it.

You: So what are you trying to tell me then? Do you mean I can only get the shit IPOs that trade lower on the first day of trading, like that Facebook shit you shoveled down me throat several years ago?
Broker: Well, look at how well that did. You’re up 5 times on your money.

You: Don’t change the fookin’ question. You know as well as I — that IPO was a curse from hell. I nearly got divorced over that thing. Me wife Mary said that if it lost another point, just another point, she was gonna leave me — take the kids and go live with her Mother. It was only by the grace of God that the darned thing turned around and made me a little money.
Broker: I understand Cornelius. That’s why you retain us, to hold you into these good deals when they look bad. Look, I probably can’t get you any IQ — because the deal is so oversubscribed and your account isn’t in the top percentile at the firm.

You: Is that the ticker on the damned thing, IQ?
Broker: Yes.

You: So you’re saying I’m not smart enough to get any of it. Aren’t ya?
Broker: No, not at all. IQ is just the ticker.

You: But I can’t get any of this IQ — because me account size is too small for ya, isn’t it?
Broker: Well…

You: Answer the fookin’ question ya fiddler benz. I want some of that IQ you have over there. I am perfectly willing to pay top dollar for it and hold it until the day that I die. I want to know why ya won’t sell me any?
Broker: Because it’s all gone. All of the institutions and large accounts bought it.

You: So all of the people with big accounts and all of the money bought all of the IQ?
Broker: Yes, they have it all.

You: And I can’t get any IQ?
Broker: No, absolutely not.

You: So how the fuck am I supposed to make any money on this thing?
Broker: Buy the after-market.

You: You mean buy it after it’s +200% from one of those rich clients of yours who’s getting all of the IQ now?
Broker: Well, not exactly. You’d be buying it from the market. Whoever is selling it.

You: What do ya mean the market? I might not’ve went to Oxford, but I’m smart enough to know that anyone getting an IPO that goes up 200% on the first day is very likely to sell for a quick profit. You’d have to be stupid not to do that — especially considering how some of these IPOs perform afterwards. And you want me to buy in the after-market, so that one of your rich clients can take his money out and buy something nice with it? How fookin’ stupid do you think me and me wife Mary are?
Broker: Sorry if I offended. Maybe we should sit this one out then — you know, wait for a dip to get in.

You: Yeah, I think I’ll do that, wait for a dip and all. You have yourself a great day, ok?
Broker: Sorry, goodbye Cornelius.