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In An Unexpected Outcome, Trump Tax Reform Blew Up The Treasury Market
Over the past week we have shown on several occasions that there once again appears to be a sharp, sudden dollar-funding liquidity strain in global markets, manifesting itself in a dramatic widening in FX basis swaps, which – in this particular case – has flowed through in the forward discount for USDJPY spiking from around 0.04 yen to around 0.23 yen overnight. As Bloomberg speculated, this discount for buying yen at future dates widened sharply as non-U. S. banks, which typically buy dollars now with sell-back contracts at a future date, scrambled to procure greenbacks for the year-end.
However, as Deutsche Bank’s Masao Muraki explains, this particular dollar funding shortage is more than just the traditional year-end window dressing or some secret bank funding panic.
Instead, the DB strategist observes that the USD funding costs for Japanese insurers and banks to invest in US Treasuries – which have surged reaching a post-financial-crisis high of 2.35% on 15 Dec – are determined by three things, namely (1) the difference in US and Japanese risk-free rates (OIS), (2) the difference in US and Japanese interbank risk premiums (Libor-OIS), and (3) basis swaps, which illustrate the imbalance in currency-hedged US and Japanese investments.This post was published at Zero Hedge on Dec 27, 2017.
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To Avoid Liquidation Panic, HNA Assures Deutsche Shareholders It’s A “Long-Term Investor”
The notoriously acquisitive Chinese conglomerate HNA – which recently had a sharp falling out with Beijing resulting in a margin call “shocksave” – is facing a serious cash crunch in 2018 as nearly a quarter of its $100 billion in debt – a large chunk of which was accumulated during a multi-year buying spree that saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and a large portfolio of international holdings – comes due.
But even as the company resorted to loaning out shares and entering into arcane derivative financing agreements to finance its debt-service payments, it is quickly finding that traditional avenues of financing are disappearing or becoming too costly.
Despite being one of China’s largest conglomerates, HNA has been shut out of stock and bond markets as lenders worry about its outsized debt load, forcing the company to pledge some of its core holdings as collateral for short-term loans, as the Wall Street Journal reported earlier this month.
This has forced the conglomerate to explore other options. To wit, the bank recently pledged some of its Deutsche Bank shares to UBS as collateral for a loan worth roughly $117. It also executed an options strategy known as a collar. This strategy involves purchasing out-of-the-money puts to protect against a large drop in the stock while simultaneously selling out-of-the money calls to offset the cost of the puts.
On Dec. 20, HNA’s unit entered into a new series of collar transactions with Swiss bank UBS Group AG, and pledged its Deutsche Bank shares to UBS in exchange for a total of 2.36 billion euros (US$2.8 billion) in net financing. It also has a margin loan from UBS and ICBC Standard Chartered PLC. In all, the new total amount of financing was about 99 million euros (US$117.6 million) higher than what was disclosed in a similar filing in May.This post was published at Zero Hedge on Dec 27, 2017.
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One Bank Is Unsure If Any Humans Still Trade Stocks In Japan, Or Have All Moved To Bitcoin
While the wholesale disappearance of retail traders from stock markets is hardly a novel observation, it has taken on a whole new meaning in Japan, where the lack of carbon-based investors has prompted Deutsche Bank to ask if “Japan’s stocks are still traded at all by humans.”
As Deutsche strategist Masao Muraki writes, since the US presidential election, Japanese stocks (in this case the TOPIX index) have been almost entirely defined by just three things: US stocks (S&P 500), the implied volatility (VIX), and USDJPY. This is shown in the model correlation chart below.This post was published at Zero Hedge on Dec 26, 2017.
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Kushner’s Records At Deutsche Bank Subpoenaed As Mueller Avoids Trump
As it turns out, President Trump’s legal team was telling the truth when it said that Special Counsel Robert Mueller hadn’t subpoenaed financial records related to the president’s business activities from German lender Deutsche Bank, contrary to Bloomberg reporting.
On Friday, the New York Times reported that Deutsche Bank had received a subpoena for records on accounts linked to the Kushner Companies, the family real-estate empire of Trump son-in-law and senior adviser Jared Kushner. This contradicts reports by both German and US media organizations dating back to July which insinuated that Mueller had been digging into Trump’s multi-decade career in real estate. Even after his infamous bankruptcies in the 1990s, Trump managed to maintain a functioning lending relationship with Deutsche, which has lent him and his businesses hundreds of millions of dollars over the years.This post was published at Zero Hedge on Dec 22, 2017.
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China Systemic Risk: Liquidity Problem Surfaces At HNA Group Less Than Two Weeks After Company’s Denial
Here we go again…
On December 8, we lamented how every few days we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda. We also noted how our chief source of concern had become HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%. And S&P downgraded HNA’s credit rating from b+ to b, five levels below investment grade. The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a $40 billion binge of acquisition-driven growth which saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and others.
In our update less than two weeks ago, we noted how HNA business units had suffered further credit downgrades and been forced into cancelling bond issues. For example, Hainan Airlines cancelled a 1 billion yuan ($151.2 billion) issue of perpetual bonds to repay maturing debt, HNA Investment Group (hotels and real estate) cancelled a 5.22 billion yuan ($790 million) issue and S&P cut the long-term credit rating of HNA’s Swissport Group Sarl to b-, six levels below investment grade, citing concerns about its parent.This post was published at Zero Hedge on Dec 18, 2017.
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Key Events In The Last Week Before Christmas
It might be the last full week before Christmas – with both newsflow and trading volumes set to slide substantially – but there’s still a few interesting events and data releases to look forward to next week. Among the relatively sparse data releases schedule, we get US GDP, core PCE, housing and durable goods orders in the US, as well as CPI and GDP across Euro area and UK PMI. After last week’s central bank deluge, there are a handful of leftover DM central bank meetings include the BOJ and Riksbank, with rates expected to remain on hold for both. In Emerging markets, there will be monetary policy meetings in Czech Republic, Hungary, Thailand, Taiwan and Hong Kong.
Perhaps the most significant will be in China when on Monday the three-day Central Economic Work Conference kicks off. This event will see Party leaders discuss economic policies for the next year and the market will probably be most interested in the GDP growth target. Deutsche Bank economists have noted that it will be interesting to see if the government will change the tone on its growth target by lowering it explicitly from 6.5% to 6% or fine-tuning the wording to reflect more tolerance for slower growth.
Away from this, tax reform in the US will once again be a topic for markets to keep an eye on with final votes on the Republican legislation in the Senate (possibly Monday or Tuesday) and House (possibly Tuesday or Wednesday) tentatively scheduled. Also worth flagging in the US is Friday’s release of the November personal income and spending reports and the Fed’s preferred inflation measure – the core PCE print. Current market expectations are for a modest +0.1% mom rise in the core PCE which translates into a one-tenth uptick in the YoY rate to +1.5%.This post was published at Zero Hedge on Dec 18, 2017.
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Deutsche: “We Are Almost At The Point Beyond Which There Will Be No More Bubbles”
Whereas many Wall Street strategists enjoy simplifying their stream of consciousness when conveying their thoughts to their increasingly ADHD-afflicted audience, the same can not be said for Deutsche Bank’s Aleksandar Kocic, who has a troubling habit of requiring a background and competency in grad level post-modernist literature as a prerequisite for his articles among the handful of readers who don’t already speak exclusively in binary. Here is an example of Kocic’s “unique” narrative style:
Volatility is a consequence of speed and speed is the result of fear. Acceleration of movement is a defensive maneuver, a tool of retreat — high speed and high volatility represent sophistication of flight (flight to quality is an example of the speed event). However, absence of volatility is not necessarily synonymous with absence of fear. Volatility is low not only when things become predictable, but also if the distribution of risks causes paralysis, when the state of no change, regardless how uncomfortable it might be, becomes the least undesirable of all alternatives.
While a passage like that is far more likely to have been taken from a book by Lacan, Derrida, Deleuze and Guattari, Foucault or any other prominent POMO-ists, in this case it comes from Kocic’ year end outlook which encapsulates many of the themes we have covered recently, most notably his recent take on the interplay between volatility and leverage, a topic which anyone who has read Minsky is quite familiar with, yet which Kocic decided to give it his unique post-modernist spin with the following “spiraling leverage” chart from one month ago…This post was published at Zero Hedge on Dec 11, 2017.
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These Are The 30 Biggest Risks Facing Markets In 2018
Once upon a time, Wall Street analysts had just two things to worry about: interest rate risk and corporate profits – virtually everything else was derived from these. Unfortuantely, we now live in the new normal, where central banks step in every time there is even a whiff of an imminent market correction (as BofA explained last week), and the result is that nobody know what is and what isn’t priced into the market any more, simply because the market in the conventional sense of a future discounting mechanism no longer exists (as Citi explained earlier this summer).
Which is why, paradoxically, even as the VIX slides to record lows, the number of things to worry about on Wall Street grows longer and longer. In fact, according to Deutsche Bank’s Torsten Slok, there are no less than 30 material risks investors should beware in the coming year, ranging from a U. S. equity correction to a reversal of Brexit to Irish presidential elections, to a “Bitcoin crash,” rising inflation, danger from North Korea and results from special counsel Robert Mueller’s probe.This post was published at Zero Hedge on Dec 10, 2017.
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Wisconsin Governor Pushes Forward With Plan To Drug Test Food Stamp Recipients
After yesterday’s latest botched hit job by CNN on president Trump, which came exactly one week after the fiasco where erroneous ABC reporting on the Flynn affair sent the market tumbling, it was only a matter of time before Trump lashed out at the news network whose credibility and influence is evaporating with every fabricated story.
A little after 8am on Saturday, he did just that slamming CNN of making a “vicious and intentional mistake” over the network’s effective retraction, when it was forced to correct an erroneous news report related to the Trump/Russia probe. Having been on the receiving end of three “fake news” stories in the past week, betwee the ABC Flynn debacle, the Bloomberg Deutsche Bank subpoena, and now CNN, Trump demanded that CNN fire “those responsible,” and commented that an ABC reporter who was suspended for a separate erroneous report should be fired as well.
“Fake News CNN made a vicious and purposeful mistake yesterday. They were caught red handed, just like lonely Brian Ross at ABC News (who should be immediately fired for his ‘mistake’),” Trump wrote. “Watch to see if @CNN fires those responsible, or was it just gross incompetence?” It is worth noting that Ross was not fired but rather suspended for 4 weeks.
In a second tweet, the president suggested CNN change their slogan after the report to “the least trusted name in news.”
“CNN’S slogan is CNN, THE MOST TRUSTED NAME IN NEWS. Everyone knows this is not true, that this could, in fact, be a fraud on the American Public. There are many outlets that are far more trusted than Fake News CNN. Their slogan should be CNN, THE LEAST TRUSTED NAME IN NEWS!” the president tweeted.
Fake News CNN made a vicious and purposeful mistake yesterday. They were caught red handed, just like lonely Brian Ross at ABC News (who should be immediately fired for his ‘mistake’). Watch to see if @CNN fires those responsible, or was it just gross incompetence?
— Donald J. Trump (@realDonaldTrump) December 9, 2017This post was published at Zero Hedge on Dec 9, 2017.
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Trump Lashes Out At “Fake News” CNN For “Vicious And Purposeful” Mistake, Demands Terminations
After yesterday’s latest botched hit job by CNN on president Trump, which came exactly one week after the fiasco where erroneous ABC reporting on the Flynn affair sent the market tumbling, it was only a matter of time before Trump lashed out at the news network whose credibility and influence is evaporating with every fabricated story.
A little after 8am on Saturday, he did just that slamming CNN of making a “vicious and intentional mistake” over the network’s effective retraction, when it was forced to correct an erroneous news report related to the Trump/Russia probe. Having been on the receiving end of three “fake news” stories in the past week, betwee the ABC Flynn debacle, the Bloomberg Deutsche Bank subpoena, and now CNN, Trump demanded that CNN fire “those responsible,” and commented that an ABC reporter who was suspended for a separate erroneous report should be fired as well.
“Fake News CNN made a vicious and purposeful mistake yesterday. They were caught red handed, just like lonely Brian Ross at ABC News (who should be immediately fired for his ‘mistake’),” Trump wrote. “Watch to see if @CNN fires those responsible, or was it just gross incompetence?” It is worth noting that Ross was not fired but rather suspended for 4 weeks.
In a second tweet, the president suggested CNN change their slogan after the report to “the least trusted name in news.”
“CNN’S slogan is CNN, THE MOST TRUSTED NAME IN NEWS. Everyone knows this is not true, that this could, in fact, be a fraud on the American Public. There are many outlets that are far more trusted than Fake News CNN. Their slogan should be CNN, THE LEAST TRUSTED NAME IN NEWS!” the president tweeted.This post was published at Zero Hedge on Dec 9, 2017.
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China Systemic Risk: HNA Group Denies Liquidity Problem, It’s Only “End-Of-The-Year Tightness”
Every few days at the moment, it seems, we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda.
Our main source of concern recently has been HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%. This prompted us to ask whether China was experiencing the beginning of its Minsky moment? The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a binge of acquisition-driven growth which saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and others.
Last week, as we discussed, S&P downgraded HNA’s credit rating by one notch from b+ to b, five levels below investment grade. in another sign that HNA is under pressure from the Chinese government and its creditors, CEO Adam Tan announced that it was ditching its acquisitive strategy, while considering the IPO of Gategroup, a company it only acquired last year for $1.5 billion.This post was published at Zero Hedge on Dec 8, 2017.
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Here’s Why Trump’s Lawyer Is Denying that Deutsche Bank Got a Subpoena
A lawyer who is part of President Donald Trump’s legal defense team, Jay Sekulow, has denied the news reports that Deutsche Bank has received a subpoena from Special Counsel Robert Mueller’s office for banking records related to Trump and his family members.
In a statement to Reuters, Sekulow stated:
‘We have confirmed that the news reports that the Special Counsel had subpoenaed financial records relating to the president are false. No subpoena has been issued or received. We have confirmed this with the bank and other sources.’
But in the same article that relayed that statement from Sekulow, Reuters’ reporters Arno Schuetze and Karen Freifeld undercut the credibility of Sekulow’s statement by writing the following:
‘A U. S. federal investigator probing alleged Russian interference in the 2016 U. S. presidential election asked Deutsche Bank for data on accounts held by President Donald Trump and his family, a person close to the matter said on Tuesday, but Trump’s lawyer denied any such subpoena had been issued.’This post was published at Wall Street On Parade on December 7, 2017.
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China: Systemic Risk Surges As HNA’s High Coupon Borrowing Binge Accelerates
In early November 2017, we returned to one of our favourite subjects, systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda. In particular, we asked whether the extortionately high coupon of 9% on an HNA dollar bond issue, with less than one year to maturity, marked the beginning of China’s Minsky moment? As we noted at the time, HNA has $28 billion of short-term debt maturing before the end of June 2018, much of it accumulated during an acquisition binge over the last two years, which has seen it become a major shareholder in companies such as Deutsche Bank AG and Hilton Worldwide Holdings.
Speaking to Bloomberg at the time, Warut Promboon, managing partner at credit research firm, Bondcritic, noted…
‘Nine percent is really high for one year. Basically, it tells you that the worry is real.”
In a sign that HNA is under pressure, both from the Chinese government and its creditors, CEO Adam Tan announced last week that the company was reversing its previous strategy. From Reuters.
HNA Group CEO Adam Tan said the acquisitive company is making adjustments to conform with national policies, and has sold some investments and real estate projects to improve its liquidity, domestic media reported on Tuesday.This post was published at Zero Hedge on Dec 4, 2017.
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Serially Charged Deutsche Bank Gets a Subpoena from Mueller
If Deutsche Bank is trying to remove itself from scandalous headlines, it’s not doing a very good job at it.
The German language newspaper, Handelsblatt, reported yesterday that Special Counsel Robert Mueller has subpoenaed bank records from Deutsche Bank relating to President Trump and his family members. Handelsblatt writes that ‘The former real-estate baron has done billions of dollars’ worth of business with Deutsche Bank over the past two decades, and First Lady Melania, daughter Ivanka and son-in-law Jared Kushner are also clients.’ The central focus of the Mueller probe is the Trump campaign’s involvement with Russia.
On May 23 of this year, Congresswoman Maxine Walters and other House Democrats sent John Cryan, CEO of Deutsche Bank, a letter regarding its ties to the Trump family and Russia. The letter began:
‘We write seeking information relating to two internal reviews reportedly conducted by Deutsche Bank (‘Bank’): one regarding its 2011 Russian mirror trading scandal and the other regarding its review of the personal accounts of President Donald Trump and his family members held at the Bank. What is troubling is that the Bank to our knowledge has thus far refused to disclose or publicly comment on the results of either of its internal reviews. As a result, there is no transparency regarding who participated in, or benefited from, the Russian mirror trading scheme that allowed $10 billion to flow out of Russia. Likewise, Congress remains in the dark on whether loans Deutsche Bank made to President Trump were guaranteed by the Russian Government, or were in any way connected to Russia. It is critical that you provide this Committee with the information necessary to assess the scope, findings and conclusions of your internal reviews.
‘Deutsche Bank’s failure to put adequate anti-money laundering controls in place to prevent a group of traders from improperly and secretly transferring more than $10 billion out of Russia is concerning. According to press reports, this scheme was carried out by traders in Russia who converted rubles into dollars through security trades that lacked any legitimate economic rationale. The settlement agreements reached between the Bank and the New York Department of Financial Services as well as the U. K. Financial Conduct Authority raise questions about the particular Russian individuals involved in the scheme, where their money went, and who may have benefited from the vast sums transferred out of Russia. Moreover, around the same time, Deutsche Bank was involved in an elaborate scheme known as ‘The Russian Laundromat,’ ‘The Global Laundromat,’ or ‘The Moldovan Scheme,’ in which $20 billion in funds of criminal origin from Russia were processed through dozens of financial institutions.’This post was published at Wall Street On Parade on December 5, 2017.
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Mueller Goes After Trump’s Bank Accounts, Subpoenas Deutsche Bank
Special Counsel Robert Mueller has subpoenaed Deutsche Bank, demanding that it disclose details of transactions and documents on accounts help by President Trump and members of his family as the “Russian collusion” probe now turns its attention to Trump’s bank accounts. According to Handelsblatt, which first reported the news, the bank received the subpoena several weeks ago. Trump has had a banking relationship with Deutsche Bank dating back nearly two decades and the German lender’s $300 million loan accounts for nearly half of his outstanding debt (based on a July 2016 analysis by Bloomberg). Trump’s debt to Deutsche includes $170m relating to a Washington hotel.
The media is taking the Deutsche Bank news as a sign that Mueller’s investigation into alleged Russian interference in the 2016 alleged campaign is ‘deepening’. However, it was clear that a subpoena was coming more than four months ago (see below) and, besides Michael Flynn, Mueller’s investigation has included interviews with three other former Trump aides recently, former Chief of Staff Reince Priebus, former spokesman Sean Spicer and National Security Council chief of staff Keith Kellogg, according to people familiar with the investigation.
As Bloomberg adds, “the news comes as Mueller’s investigation appears to be entering a new phase, with Trump’s former national security adviser, Michael Flynn, pleading guilty Friday to lying to FBI agents, becoming the fourth associate of the president ensnared by Mueller’s probe. More significantly, he also is providing details to Mueller about the Trump campaign’s approach to Flynn’s controversial meeting with a Russian envoy during the presidential transition.”This post was published at Zero Hedge on Dec 5, 2017.
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Blow.Off.Top.
No period is worse for bears than when it’s the best time to sell stocks. It’s the polar opposite of when conditions are worst for bulls, right when it’s the best time to buy as it was in January-March 2009. The exhaustion factor is enormous. It’s called capitulation as moves get stretched to the extreme even though the set-up is valid.
November’s close marked the 13th consecutive month straight up for global markets. Nothing but up with fewer and ever smaller dips in between. Deutsche Bank’s Reid illustrated the point: ‘We’ve never had such a run with data going back over 90yrs’. I’d say that qualifies as the worst of time for bears.
Yet we could be sitting on a generational opportunity to sell equities as it could be argued that conditions will never be better for bulls as the game of offering carrots of free money is coming to an end. Indeed it could be argued that the prospect of tax cuts is the final carrot the free money scheme has to offer. The carrot top. No more carrots.This post was published at Zero Hedge on Dec 3, 2017.
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JPMorgan’s Outlook For 2018: “Eat, Drink And Be Merry, For In 2019…”
While the prevailing outlook by the big banks for 2018 and onward has been predominantly optimsitic and in a few euphoric cases, “rationally exuberant“, with most banks forecasting year-end S&P price targets around 2800 or higher, and a P/E of roughly 20x as follows…
Bank of Montreal, Brian Belski, 2,950, EPS $145.00, P/E 20.3x UBS, Keith Parker, 2,900, EPS $141.00, P/E 20.6x Canaccord, Tony Dwyer, 2,800, EPS $140.00, P/E 20.0x Credit Suisse, Jonathan Golub, 2,875, EPS $139.00, P/E 20.7x Deutsche Bank, Binky Chadha, 2,850, EPS $140.00, P/E 20.4x Goldman Sachs, David Kostin, 2,850, EPS $150.00, P/E 19x Citigroup, Tobias Levkovich, 2,675, EPS $141.00, P/E 19.0x HSBC, Ben Laidler, 2,650, EPS $142.00, P/E 18.7x … there have been a small handful of analysts, SocGen and BofA’s Michael Hartnett most notably, who have dared to suggest that contrary to conventional wisdom, next year will be a recessionary, bear market rollercoaster.
And then, there are those inbetween who expect a good 2018, but then all bets are off in 2019. Among them is JPM’s chief economist Michael Feroli who has published a special report, aptly titled “US outlook 2018: Eat, drink, and be merry, for in 2019…”
Here are the seven main reasons why JPM believes that the party will continue until December 31, 2018 or thereabouts:
Growth momentum at the end of 2017 is solid and global headwinds are unusually mildThis post was published at Zero Hedge on Nov 28, 2017.
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“This Just Feels Like Death”: Analysts Flee Research Positions Amid MiFID II Changes
For the past couple of months, we’ve frequently shared our views that Europe’s MiFID II regulations, which force investment banks to charge for equity research instead of “giving it away” in return for trading commissions, could be a wake up call for 1,000’s of highly paid research analysts who were about to have their true ‘value add’ subjected to a market bidding test. Here are just a couple of examples:
Deutsche Bank Forced To Slash Fixed-Income Research Price By Half On Lackluster Demand New European Regulations Set To Crush Equity Research Budgets By $300 Million Macquarie Identifies The Winners And Losers Of MiFID II Sticker Shock: Small Hedge Funds Seen Ditching I-Banking Research Under MiFID Now, per a note from Reuters, it seems that a growing number of equity research analysts are finally waking up to the fact that hedge funds don’t really have a burning desire to drop $400,000 per year on reports drafted by a 23-year-old recent college grad that do little more than summarize free SEC filings. Who could have known?This post was published at Zero Hedge on Nov 17, 2017.
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Deutsche: The Swings In The Market Are About To Get Bigger And Bigger
Risk Parity not having a good day pic.twitter.com/GRdpB4NUOj
— zerohedge (@zerohedge) November 10, 2017One week ago, on November 9 something snapped in the Nikkei, which in the span of just over an one hour (from 13:20 to 14:30) crashed more than 800 points (before closing almost unchanged) at the same time as it was revealed that foreigners had just bought a record amount of Japanese stocks the previous month.
As expected, numerous theories emerged shortly after the wild plunge, with explanation from the mundane, i.e., foreigners dumping as the upward momentum abruptly ended, to the “Greek”, as gamma and vega stops were hit by various vol-targeting (CTAs, systemic, variable annutities and risk parity) funds. One such explanation came from Deutsche Bank, which attributed the move to a volatility shock, as “heightened volatility appears to have triggered program trades to reduce risk”, and catalyzed by a rare swoon in both stocks and bonds, which led to a surge in Nikkei volatility…
… and forced highly leveraged risk parity funds and their peers to quickly delever. As DB’s Masao Muraki explained at the time:This post was published at Zero Hedge on Nov 16, 2017.
