RBC Warns “It’s The Melt-Up That Hurts”

After an outstanding start to the year for Equity hedge funds, this most recent gap move higher in stocks (while rates and FX remain firmly ‘in range’) is pretty-much exactly what RBC’s Charlie McElligott warned is a “bad scenario” for equities funds.
Risk-assets to fresh highs alongside a ‘reflation impulse’ re-rack (S&P eminis through their 1 year trendline resistance as we speak, while the early scan (revisions / updates coming later of course) of new positioning data shows a remarkable jump in TY (UST 10Y fut) open interest 70k (!) as shorts re-engage SIZE, h/t RBC Futures).
Inputs:
First-and-foremost, the Trump drive-by statement on a ‘phenomenal’ tax plan to purportedly be released in the next ‘two or three weeks’ satiates the market’s primary desire for clarity and positive-messaging on the tax cuts and how they are going to be funded to keep them ‘rev neutral’ (BAT? VAT? Cash flow taxation? No interest deduction? A replacement of ‘amortization of cap goods’ by instead a deduction of ‘capital purchases’? Have House and Senate somehow shockingly ‘aligned’ after being so ‘apart’ on this topic?) As a reminder, the tax cuts are by far-and-wide the largest driver of the S&P target upgrades that daisy-chained Street-wide in December.

This post was published at Zero Hedge on Feb 10, 2017.