Three Things To Spoil The ‘Goldilocks’ Market Scenario: “A Strong January Doesn’t Make It 2017”

As we noted yesterday, a funny thing happened again at the start of January… global central bank balance sheets suddenly (and mysteriously) began to surge higher (despite ‘talk’ of tightening and normalization and a year of declines)…

Just like in 2018, 2017, and 2016, the start of the year has prompted a resurgence in the size of global central bank balance sheets… and just like in 2018, 2017, and 2016, global stocks (with US being the most liquid attractor of that flow) are soaring…

And it has prompted another chorus among the asset-gatherers and commission-takers that this rebound is all fundamentally-driven, it’s a reflection of reality and December was a ‘one off’ overshoot… in fact – we are in the “goldilocks” market once again.

Well, firstly, fundamentals have continued to disappoint – notably…

And, secondly, as former fund manager and FX trader Richard Breslow notes, a strong January does not make it 2017 (in fact it’s more like 2018…)

Traders are trying their hardest to convince themselves that, with some newfound help from central banks, they can retrace the path followed by markets in 2017. History is very unlikely to repeat itself, especially when we are starting from very different price points. But for the moment, no one seems to care.

This stock rally is causing too many people to run back to the old charts and get those trades on that worked so well during the good old days.

Via Bloomberg,

I’m really interested to see how this works out for them. I just can’t help shake the feeling that this could be a typical January head fake. And sometime soon we’ll all be asking just what we were thinking?

There are three things, among others, that leap out to me as problematic for a seamless return to the Goldilocks scenario:

  1. We used to marvel at how markets were willing and able to ignore geopolitical events. I don’t think that’s any longer possible let alone likely. Populism and cross-border distrust has only gotten worse. And elections loom. Sanctions and tariffs are accepted as a normal part of international diplomacy. It’s hard to believe that the various electorates, especially in Europe, will be mollified by seeing their national equity indexes get through resistance. It’s telling, but unconvincing, that arguments are being made that rising stock prices will find their way into the real economy through greater high-end luxury purchases. Analysts are talking trickle-down while we watch the French police use water cannons on the weekends.

  2. Two years ago volatility was actively suppressed and you were able to, if you cottoned on to what was going on, set your portfolio on autopilot. I don’t think the central banks have the firepower anymore to pull this off and the impetus to supplement with fiscal stimulus just isn’t there. Furthermore, whether you are talking about currently popular themes, like buying emerging markets or the euro, asset prices aren’t starting from the same crisis levels. The ECB was happy not to have the currency flirting with parity to the dollar. It’s another thing entirely to believe they would be indifferent to seeing it reach the heights called for in so many forecasts.

  3. There is also more credible discussion of the probability of recessions. Forward-looking indicators in the U.S. have disappointed. In 2017, the Fed was able to slip in three rate hikes without the market batting an eye. Now the discussion has swung around to policy mistakes and inverting yield curves. The focus on China is just how little the economy is really growing. The debate is no longer between 6.5% or 7%. We have to wonder how they will balance liquidity injections with combating over-leverage. And who would ever have thought back then there would be genuine concern about Germany?

As a bonus worry, government dysfunction in general is appalling and getting worse. It’s much harder to be optimistic we are just going through a rough patch for the global order of things. Shutdowns and fraying coalitions seem to have become the norm. Remember when we mused about all sorts of neat infrastructure projects? And even though I swore not to mention the U.K. today, the mayhem at the House of Commons yesterday should have been considered a national disgrace. I wonder why so many of the participants looked like they were having fun.

None of this might be today’s actionable news. But it’s important to keep reminding yourself that there is nothing static about global realities nor what, in the long run, are reliable correlations and havens. While not learning from the past is folly, forgetting the context of the moment is equally dangerous.

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Author: Tyler Durden


May To Skip Davos, No-Deal Brexit Odds Greater Than Many Think

Authored by Mike Shedlock via MishTalk,

May survived a vote of no confidence and the EU might extend Article 50, but only with conditions. Nothing’s changed.

Yesterday added no clarification to the Brexit process.

With the backing of DUP MPs, Theresa May Survived a Vote of No Confidence 325-306.

Most expected that result, as did I. However, Labour leader Jeremy Corbyn is free to repeat the maneuver down the road, and he is nearly certain to do so. Thus, today’s vote changed nothing. If anything, the vote highlights the fragility of May’s predicament.

If May agrees to do anything that DUP doesn’t like, they will abandon her. At some point, a dozen or more Tories might decide the same thing for various reasons.

Corbyn Declines to Meet With May

Following the vote of no confidence, Theresa May declared a get together with all the parties to prepare a way forward. Corbyn rejected the invite unless May took hard Brexit off the table.

She couldn’t do that even if she wanted to because enough Tories would then abandon her in the next motion of no confidence.

See where this is headed? Same impasse.

Brexit Delay

The Financial Times reports EU Indicates it Could Accept a Delay to Brexit – With Conditions.

Some interpret this as an indication there will be a delay forever until May gets her way.

There are numerous problems with the notion.

It requires unanimous consent from all EU member countries. France in particular is leery of allowing that. DUP is unlikely to allow that. A sufficient number of Tories might also get tired of the tactics.

Moreover, France wants a commitment that the UK honor the Irish backstop for the duration. The backstop is precisely the problem for DUP and many Tories.

Finally, there are European Parliament elections in May. Is the UK in or out? No one has worked out a solution yet. They will likely work out a fudge, but this is the least of the problems with perpetual delay.

Opposing Views, Same Place

  1. Jeremy Warner says the Brexit dream is over, or so say the markets, and they are probably right

  2. Tim Stanley says Why are Remainers so happy? Right now, Britain is on course for a no-deal Brexit

Both articles are from the Telegraph, and both were posted today. They both cannot be correct.

I side with Stanley. And I posted numerous reasons yesterday.

No-Deal Odds Greater Than You May Think

Let’s tune in to today’s Eurointelligence report vs what I said yesterday in No-Deal Brexit is the Most Likely Outcome: 2nd Referendum the Least Likely

Eurointelligence: Looking at last night’s Brexit vote in the cold light of the morning, our first thought is that automatic departure from the EU on March 29 remains the law of the land. In that sense, yesterday’s vote has changed nothing. The financial markets concluded that the risks of a no-deal Brexit are reduced. We think the opposite is the case, but for reasons that may not be immediately obvious.

Mish: Forget about a 2nd referendum or an election saving the day. It’s far more likely proponents of “remain” actually cause a no-deal Brexit by clinging to ridiculous hopes.

Eurointelligence: After the 230-vote defeat in the House of Commons, we picked up two important pieces of information. The first is that Jeremy Corbyn’s strategy will consist of piling on one confidence vote after another – as opposed to supporting a second referendum. He will do so hoping that one of those votes will eventually succeed as the Brexit deadline approaches. The confidence vote scheduled for today will almost certainly fail. Barring some new developments, this also means that he will not support a second referendum. Corbyn, not Theresa May, will run down the clock.

Mish: Corbyn tabled a motion of no confidence. Unlike motions from within the party, there is no limit to the number of times he may try that tactic. The UK “Remainers” are cheering today’s vote as if they have a chance at a second referendum. It’s theoretically possible, but it’s the least likely outcome.

Reasons Against Second Referendum

  1. People don’t want it.
  2. MPs don’t want it.
  3. The EU is highly unlikely to wait for one
  4. Heck, no one even knows how to word it

Eurointelligence: The other piece of strategic information is that May will try to maintain her equidistance between no deal and no Brexit. If she were to rule out no Brexit and support no deal, her strategists fear a sufficient number of hardline Remain MPs might eventually support a no-confidence motion. At the same time, she cannot support a second referendum either. After yesterday’s crushing defeat, May’s deal as it now stands is off the table. What about Norway-plus? There is no great merit in a Norway-style deal compared to what May has negotiated, except to give MPs an opportunity to support the withdrawal agreement without loss of face. But we doubt that Norway-plus is going to be acceptable to Corbyn. For all his tactical prevarications, the Labour leader has a clearly-stated Brexit preference – membership of the customs union. But there is almost no support for this option in the Tory party, as it would preclude the UK negotiating third-party trade agreements.

Mish: If at some point a majority for a Norway deal surfaced, DUP [or Tories] could scuttle it by siding with Labour in a motion of no confidence. Corbyn would likely chomp at the bit.

EurointelligenceWe see no parliamentary majorities for outright revocation, or for a second referendum either – not by a long shot. What about a request to extend Art. 50 without a deal – as a sheer act of desperation? If there really is a firm majority to stop a no-deal Brexit, then surely this majority could at the very least come together to extend and pretend, and possibly do so indefinitely. We look at the EU side of such a Faustian bargain below, but we should ask ourselves first why Corbyn would support a blind extension when he has May on the ropes. He wants elections, and the surest way to get there is a looming cliff edge. One Berlin correspondent quoted a German politician calling for an unconditional, not time-limited extension of the Brexit deadline. But that person seems not to have read Art. 50: it would be have to be requested by the UK first. And, from the perspective of the EU, it would be political madness to go down this path as it would have severe implications for the balance of power within the EU itself.

Mish: Given what happened today, and based on the above analysis, a no deal Brexit is the most likely state of affairs, one way or another.

EurointelligenceWe could see a scenario in which May’s deal may survive, but not May herself. Another leader, capable of reaching out to the opposition, might be needed. May has lost too much trust during the last two years to be able to negotiate a cross-party compromise.

Mish: The above complications all point to May being outed and replaced by [Boris] Johnson, who wants a hard Brexit.

EurointelligencePro-Remain UK commentators have marveled at the unity of the EU during the negotiations, but this unity was critically premised on the assumption that the UK would never crash out of the EU without a deal. Once the realization sets in that this may not be so, expect divergent interests to come to the surface. From a simple perspective of political risk management, Germany has no interest in exposing its car industry to tariffs from the UK as well as to tariffs from the US, especially when the Germany economy may be on the verge of a recession.

Mish: No matter how one twists and turns, a no-deal Brexit is the default option. The only wildcard left is the EU. If the EU offered a hard guarantee there would be no permanent backstop, May’s deal could potentially garner enough support. A no deal Brexit is the most likely state of affairs, one way or another. Many paths lead to a no-deal outcome. There are too many possibilities to say no-deal is likely. Rather, it’s the most likely option of the bunch.

Standing With My Analysis

Counting of the financial markets to ascertain the outcome seems more than a bit silly. The Financial markets never thought people would vote for the referendum, but they did.

My comments in Mish vs. Eurointelligence were presented before the Eurointelligence report came out.

I am standing with my analysis and Eurointelligence reached a similar conclusion today. There may be an extension and an extension is needed, not to prevent Brexit but rather to better manage a WTO-Brexit.

Let’s stop the absurd fearmongering, without which there would likely be overwhelming support for a managed WTO-Brexit. The extension is necessary only because May wasted two years negotiating the worst trade deal in history.

*  *  *

Additionally, Prime Minister Theresa May cancels her trip to next week’s World Economic Forum meeting in Davos, Switzerland to handle Brexit talks in the U.K., her spokeswoman, Alison Donnelly, tells reporters in London.

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Author: Tyler Durden

SocGen Weighs Closure Of Prop Trading Unit After Stunning 20% Loss

Shortly after BNP Paribas closed its prop trading unit (reminding readers of the financial press that the practice of risking shareholder money for profit continued in Europe after the financial crisis, along with the sometimes enormous consequences of seemingly trivial human errors) and its US commodities derivatives trading unit, the Paris-based bank’s smaller cross-town rival SocGen is weighing whether to close its own $4.7 billion prop trading desk after four years of middling-to-abysmal returns, crowned by a 20% loss in 2018 that the bank blamed on the explosion of volatility during Q4, according to Bloomberg.


Q4 earnings season is still in its early days, but already every major bank has blamed trading-unit losses on Q4 volatility, and SocGen isn’t an exception. BBG reported that the bank shuttered its prop unit’s Hong Kong trading desk late last year as losses force it to abandon several trading strategies (BTFD?).


The bank has already revealed a 10% drop in revenue for its market unit that it attributed to activity in Q4.

French regulators allowed prop trading to continue after the crisis – while the Volcker rule effectively banned the practice in the US – but prop trading units must now follow more strict controls on capital requirements and costs, among other factors.

To be sure, this isn’t the first time the bank has placed its prop trading unit under review.

Descartes, named for the 17th-century French philosopher, had 4.1 billion euros ($4.7 billion) of assets at the end of 2017, according to filings. The unit had 377 million euros of capital, equal to about 4.5 percent of SocGen’s funds for global-markets and investor services activities, the filings show.

Executives at SocGen have reviewed the performance of Descartes several times since its creation. The unit, which has staff in Paris and London, has made less than 1 million euros in accumulated profits between 2015 and 2017, according to filings.

The losses at the Descartes unit will likely make life even more difficult for SocGen CEO Frederic Oudea after the bank paid some $2.6 billion in fines last year

The issues at Descartes compound the problems facing SocGen Chief Executive Officer Frederic Oudea, who is seeking to restore investor confidence after the bank paid about $2.6 billion in penalties last year over alleged violations of US sanctions.

As more French banks rethink whether prop trading is worth the risk, will Natixis be next?

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Author: Tyler Durden

Americans’ Economic Hope Has Collapsed

Which came first, the confidence or the stock market rally?

One thing is for sure, the crash in stocks in December has crushed the hope of Americans that their economic future is going to be better under President Trump.

Overall confidence dipped to 58.1 – a 4-month low, but, U.S. consumers this month were the most downbeat on the economy since November 2016, a third straight drop after expectations reached a 16-year high just three months earlier, as the partial government shutdown wears on toward a fourth week.

Measures for sentiment among high school graduates and those 65 and older both fell to the lowest since July. The measure also fell across most income levels as well as for Democrats and independents; but confidence increased among Republicans, renters, and for workers earning more than $50,000.

Bloomberg notes that the faltering sentiment reflects a dimmer economic outlook among Americans amid the longest U.S. government shutdown on record. The monthly gauge also fell sharply during the last lengthy shutdown in October 2013, when the index dropped the most since the last recession; it rebounded the following month with the government open again.

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Author: Tyler Durden

Gamma-Gravity: If The S&P Drops Back To 2575, Watch Out Below

One day after spooking markets by predicting that, in keeping with the infamous Lehman analog, equities may peak on Friday before taking another sharp leg lower, Nomura’s Charlie McElligott is double down by pressing on the “tactical bear” case, and in a note to clients writes that “for the first time in a long while, US Equities index downside looking attractive, with put-spreads offering handsome leverage again as 1m downside skew has gone from 25th %ile to 68th %ile over just the last two weeks.

One reason for McElliggott’s creeping skepticism has to do with the fact that just as many systematic factors covered many of their shorts and some turned outright wrong thanks to the recent bear market rally, this may be just the time when they are forced to reverse, as a fresh set of systematic traders seek to stop out existing positions, especially should 2,600 on the S&P, which has turned from resistance to support is taken out.

As we discussed over the past week, as the market ground higher, more trend-followers piled on, reversing their first short in three years, established in late December. And McElligott explains, this equities re-leveraging initiated by “first-mover” systematic strategies appears to have begun “dragging in” fundamental/discretionary funds, with Nets- and Grosses- “tickling” higher as per Street PB data, with Goldman data showing  that “gross-exposure” jumped the most last week in nearly 1.5 years.

Additionally, and in keeping with Marko Kolanovic’s latest note on how liquidity/volatility and flows are all interlinked, S&P consolidated Deltas are again positive for the first time in over a month, largely as a function of the rally with Calls over Puts, while the Nomura strategist says that he has seen the recent “Short Gamma” of Dealers “flip” again “Long Gamma” at current levels, helping foster this calm-er “grind higher” through earnings.

Which, to put it simply, means that with most marginal traders once again positioned bullishly, the pain trade is naturally lower. And, according to McElligott, a move down through 2575 in SPX, the new gamma-gravity inflection point, “would see the consolidated Gamma profile pivot “Short” which could then elicit “sloppier” moves.”

The chart below shows graphically the combined gamma exposure per 1% move vs the spot: it confirms that if the S&P dips back under 2,575 the selling pressure will return with a vengeance.

In light of this potential reversal, McElligott’s advice to “long-term investors” is to utilize the ongoing “positioning recalibration rally” as an opportunity to rotate into a “late-cycle” posture, by adding to “value” over “growth” names:

This “Val over Gro” dynamic is supported / corroborated by the developing multi-month yield curve steepening which began after the Fed’s powerful “dovish pivot” in Dec, as policy normalization ends and now markets begin pondering the commencement of the next EASING cycle

There is another trade for those who believe a re-test of the lows is imminent (or Nomura’s 2007-08 analog is accurate, which would require a “blow-up” in the market), namely buying vol as VIX outright upside is back on Nomura’s radar with VIX 1m upside is 17th percentile/2m upside is just 15th %ile dating back to 2006.

In regards to buying vol, Charlie spotlights yesterday’s “vol up, spot up” phenomenon as potentially an artifact of yesterday’s VIX print “buy-imbalance”—but without a doubt, he sees the VIX is acting “sticky” and looks “floored’ at ~ 17-18-19, with a large part of VIX “holding” here due to earnings impact/dispersion. To this “earnings as catalyst for VIX-move” observation, Nomura writes that the commencement of the still hyper-crowded Tech/Growth EPS will likely act as the key directional input (as a reminder, NFLX reports after the close, and is already up YTD).

However and in a potential “risk-bullish” catalyst from a forward-looking perspective, I continue to watch the VIX curve edging nearer to its “normal” upward slope the longer the Equities recovery persists, which as previously-noted would force systematic “roll-down / roll-up” strategies in VIX futures to reverse their “long vega” positions held since the VIX curve inverted ~4m ago, and instead dictate a potential pivot back towards “short vega”

This too of course dovetails into the entirety of negative convexity strategies which allocate leverage / sizing on “vol triggers”—where in-light of this violent Equities snapback off the Dec 24th lows, we’ve seen SPX 10d historical vol collapse from highs of 41.786 (made Jan 4th ) to yesterday’s 17.795 closing level

Finally, as McElliggott concludes conceding that all of this “hypothetical potential forward-catalyst for Equities via 1) trailing Realized Vol trajectory and / or 2) the VIX curve “flipping’ aside”, his near-term directional analog of the 2007-08 trade vs this Sep 2018-current “continues to drive a ton of client inquiry” and for a good reason: it suggests that the pain is only just starting.





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Author: Tyler Durden

Canada Pauses Reporting Trade Data, Blames US Shutdown

Statistics Canada said today the release of their monthly trade statistics will be delayed indefinitely due to the current shutdown of the U.S. government.

Statistics Canada:

“Trade statistics without Canada’s exports to the United States have limited use as a current economic indicator, as these exports represent approximately 75% of Canada’s total exports.”

The U.S. shutdown “has a direct impact on Statistics Canada’s ability to compile, produce and publish Canadian international merchandise trade data, as Statistics Canada will not receive data on Canada’s exports to the United States for the duration of the shutdown”

Publication of December 2018 trade data won’t occur as scheduled on Feb. 5, 2019.

The agency says it will delay the release of trade statistics “until the USCB resumes normal operations and a new joint release date is negotiated with the USCB as per the data exchange agreement”

The question is – why should a US shutdown affect Statistics Canada’s ability to track its own imports and exports? Is there some ‘negotiated’ agreement between the trade partners to ensure that the data is manipulated just right (so as to avoid the glaring errors that are so evident between China and Hong Kong for instance).

Historically they can’t quite agree…

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Author: Tyler Durden

Cohen Says Trump Directed Him To Rig CNBC, Drudge Polls

Before the 2016 US presidential campaign, former Trump attorney Michael Cohen agreed to pay small IT firm to rig online polls in his boss’s favor, according to the Wall Street Journal

And instead of the $50,000 he was promised, Cohen gave the man, John Gauger, a blue Walmart bag with between $12,000 and $13,000 in cash and a boxing glove that Cohen said had been worn by a Brazilian mixed-martial arts fighter. 

Cohen has disputed the account – but not the relationship with Gauger’s firm, RedFinch – saying “All monies paid to Mr. Gauger were by check.” 

In January 2014, Mr. Cohen asked Mr. Gauger to help Mr. Trump score well in a CNBC online poll to identify the country’s top business leaders by writing a computer script to repeatedly vote for him. Mr. Gauger was unable to get Mr. Trump into the top 100 candidates. In February 2015, as Mr. Trump prepared to enter the presidential race, Mr. Cohen asked him to do the same for a Drudge Report poll of potential Republican candidates, Mr. Gauger said. Mr. Trump ranked fifth, with about 24,000 votes, or 5% of the total.

After making the cash payment at Trump Tower, Mr. Cohen kept saying he would pay the balance of the $50,000 but never did, Mr. Gauger said. Mr. Cohen also promised to get RedFinch work for Mr. Trump’s campaign. He set up two phone calls for Mr. Gauger with campaign officials, who didn’t hire him, he said. –WSJ

In addition to owning RedFinch, Gauger is chief information officer at Liberty University in Virginia, where evangelical leader Jerry Falwell Jr. – an ardent Trump supporter, is president. Cohen met Gauger in 2012 when Falwell invited Trump to give a speech. Gauger helped Cohen set up an Instagram account and gave him his cellphone number. 

Cohen would then ask Gauger for help over the next several years which would boost positive internet search results for Cohen and friends, according to Gauger. While Cohen didn’t pay for much of that work, he often promised to connect RedFinch with Trump hotel and golf-course executives, though Gauger says that never happened. 

Hilariously, in May 2016 Cohen also asked Gauger to craeate a Twitter account – @WomenForCohen, which was run by a female friend of Gauger and described Cohen as a “sex symbol,” praising his looks and character, while promoting his appearances and statements boosting Trump’s candidacy. 

And while Gauger says he never received the rest of the $50,000 he was owed, Cohen still requested – and received – a $50,000 reimbursement from Donald Trump and his company for the work done by RedFinch, according to the Journal, citing a government document and a person familiar with the matter. The reimbursement – based on a handwritten note by Cohen, was paid largely out of Trump’s personal account. 

Trump attorney Rudy Giuliani said that Cohen’s full reimbursement for the $50,000 while paying RedFinch less shows the former Trump lawyer to be a thief. “If one thing has been established, it’s that Michael Cohen is completely untrustworthy,” said Cohen. 

Cohen shot back, saying that he did was “at the direction of and for the sold Benefit of” Donald Trump, and that he regrets his “blind loyalty to a man who doesn’t deserve it.” 

Federal prosecutors noted the reimbursement when they charged Cohen in August with eight felonies – including arranging hush-money payments to a porn star and a Playboy model who say Trump had affairs with them. 

Prosecutors wrote in a charging document that when Mr. Cohen asked Trump Organization executives for a $130,000 reimbursement for a hush payment he made to Stephanie Clifford, the porn actress known as Stormy Daniels, he also scrawled a handwritten note asking for $50,000 he said he spent on “tech services” to aid Mr. Trump’s campaign. Prosecutors didn’t name the company providing those services, but people familiar with the matter say it was RedFinch.

Mr. Cohen has pleaded guilty to campaign-finance violations, tax evasion, lying to Congress and other charges. He was sentenced last month to three years in prison. None of the charges were connected to his interactions with Mr. Gauger and RedFinch. –WSJ

Gauger’s attorney, Charles E. James Jr. of firm Williams Mullen, said that Gauger was interviewed by federal prosecutors about his relationship with Cohen over six years, fom their first meeting in 2012 until last April, when Cohen’s home, office and hotel room were raided by the FBI. 

Gauger said that while Cohen promised him profitable work for the Trump campaign, his activities for Trump were relegated to the unsuccessful rigging of polls. 

Reimbursements to Cohen, totaling $420,000, was paid mostly from Trump’s personal account – which included $180,000 to pay Stormy Daniels and RedFinch, as well as a $60,000 bonus and another $180,000 to cover taxes he would owe since the money would be considered income, according to prosecutors. 

Cohen did give Gauger some other paying work – hiring RedFinch to create positive web content about the CEO of CareOne Management, a New Jersey assisted-living company that gave Cohen a consulting contract. 

Mr. Cohen sent RedFinch checks totaling $50,000 for that work, Mr. Gauger said. Mr. Cohen collected $200,000 from CareOne but didn’t pay taxes on it, according to the charging document filed by federal prosecutors, who didn’t identify the assisted-living company by name. Mr. Cohen pleaded guilty to evading taxes on that income. CareOne didn’t respond to a request for comment.  

Mr. Cohen asked Mr. Gauger to create the @WomenForCohen account, still active in 2019, to elevate his profile. The account’s profile says it is run by “Women who love and support Michael Cohen. Strong, pit bull, sex symbol, no nonsense, business oriented and ready to make a difference!” –WSJ

Gauger says he and Cohen last spoke in April 2018 following the raid by federal agents. 

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Author: Tyler Durden

Bloomberg System Goes Down Ahead Of US Open

For the second time in a few months, the Bloomberg Terminal system appears to be down and is causing panic across Wall Street ahead of the US market open…


Traders are not happy…

But for some there is an upside…

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Author: Tyler Durden

More TSA Workers Citing ‘Financial Hardship’ As Reason For Calling Out Of Work

As President Trump orders 46,000 federal employees back to work without pay (while signing a bill to compensate all federal employees going without pay after the shutdown ends), the word around the water cooler at the TSA is that, six days after federal employees missed their first paycheck since the shutdown began, more of the airport security agency’s screeners and other employees are citing financial hardship as a reason for calling out of work as the shutdown enters its 27th day.


Though it hasn’t released data about absenteeism witnessed since the shutdown, in a news release Wednesday about checkpoint operations (released as airports around the country cut down on security lines or, like Houston Airport, close whole terminals, the agency said “many employees are reporting that they are not able to report to work due to financial limitations.”


TSA Administrator David Pekoske said that most employees who call out have been honest about their reasons, and the most common excuse he hears is financial hardship – like, for example, employees being unable to afford child care or transportation (i.e. no gas in the car).

TSA spokesman Michael Bilello confirmed this in a statement.

“We are hearing from our workforce that many of them are calling out not because they are sick but because they are unable to make it to work for financial reasons,” Bilello said.

There are no plans to punish workers who call out, the agency said. The TSA employs some 51,000 federal security workers who earn roughly $41,000 a year.

As of Tuesday, callout rates had roughly doubled from the same day a year earlier, with 6.1% of security officers absent, compared with 3.7% the year prior.

And now that Trump is ordering more airport security workers to return to work, expect this number to rise as the shutdown has no end in sight.

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Author: Tyler Durden

Morgan Stanley Tumbles Following Huge Revenue, FICC Miss

After 5 out of 5 big investment banks reported disappointing FICC revenue results, hopes that Morgan Stanley would break the trend when it reported Q4 earnings this morning were subdued at best, and for good reason: moments ago the bank reported Q4 FICC revenue of just $564MM, a huge miss to the $823MM consensus expectation and a whopping 30% drop Y/Y which was also the biggest fixed income revenue drop on Wall Street.

The result was so bad, one has to go back to 2015 to find a lower fixed income print.

Had that been all, the bank may have scraped through unscathed like so many of its peers, but whereas other banks managed to cover up for FICC disappointment with the outperformance of other groups, Morgan Stanley did not, and as a result Q4 revenue printed at just $8.55BN, far below the $9.35BN expected and in fact below the lowest estimate in the range of forecasts of $8.97BN to $10.17BN.

This also resulted in a painful EPS miss, with the company reported 73 cents in Q4 EPS (thanks to a 16.2% effective tax rate), far below the 89 cents expected, a number which excluded a 7 cent per share tax benefit. And while net income more than doubled to $1.53 billion from $643 million a year earlier, that is because the firm took a $1 billion charge related to the U.S. tax overhaul last year.

So alas whereas other banks could at least pretend the core business is doing well, MS had no such luxury, especially since equity sales and trading revenue of $1.93BN also missed expectations of $2.01BN; the number was “essentially unchanged from a year ago reflecting higher revenues in the financing business, partially offset by lower results in execution services.” As for the FICC plunge, the bank said that this is due to “unfavorable market making conditions that resulted from significant credit spread widening and volatile rate movements.”

The company’s key Wealth Management group also disappointed, reporting pre-tax income from continuing operations of $1.0 billion compared with $1.2 billion a year ago. Net revenues for the current quarter were $4.1 billion compared with $4.4 billion a year ago principally driven by losses related to investments associated with certain employee deferred compensation plans. Even so, total client assets were $2.3 trillion and client assets in fee-based accounts were $1.0 trillion at the end of the quarter.

There was a silver lining in the bank’s investment banking revenue of $1.49BN which while unchanged from a year ago, was better than the $1.35BN expected.

  • Advisory revenues of $734 million increased from $522 million a year ago on higher levels of completed M&A activity across all regions.
  • Equity underwriting revenues of $323 million decreased from $416 million a year ago reflecting lower revenues primarily on IPOs.
  • Fixed income underwriting revenues of $360 million decreased from $499 million a year ago driven by lower bond and loan issuances.

Alas, this was not enough to offset the broader gloom. To be sure, the bank tried to make up for the drop in revenue by slashing expenses, as compensation costs of $3.8 billion decreased from $4.3 billion a year ago on lower net revenues, partially offset by
a reduction in the portion of discretionary incentive compensation subject to deferral (non-compensation expenses of $2.9 billion increased from $2.8 billion a year ago).

Of course, CEO James Gorman was optimistic, saying that “In 2018 we achieved record revenues and earnings, and growth across each of our business segments – despite a challenging fourth quarter. We delivered higher annual returns, producing an ROE of 11.8% and ROTCE of 13.5%, as we continued to invest in our businesses. While the global environment remains uncertain, our franchise is strong and we are well positioned to pursue growth opportunities and serve our clients.”

Yet after the first truly dreadful bank results of the earnings season the market disagreed, and MS stock, which is a 0.2% contributors to the S&P, tumbled 5% and sent US equity futures near session lows and in danger of breaching 2,600 – the new key support – in the S&P500.

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Author: Tyler Durden