"I Love You; Focus On The Future": Paul Tudor Jones Humiliated After Weinstein Support Email Revealed

Late last night the New York Times published a comprehensive article delving into the powerful support network of Harvey Weinstein, a network on which he apparently relied to help cover up decades of sexual assaults.  Among the allies discussed in the article was none other than legendary hedge fund investor, and former Weinstein & Co. board member, Paul Tudor Jones. 

But, unlike other Weinstein enablers who jumped ship when the tales of his monstrous behavior went public, Jones instead decided to pen an email expressing his support of the disgraced Hollywood executive saying "the good news is, this will go away sooner than you think and it will be forgotten!" just before signing "I love you."

Privately, at least one expressed loyalty. On Oct. 7, the day before he was ousted from his own company, Mr. Weinstein received an email from the investor Paul Tudor Jones.

 

“I love you,” he wrote, while detailing the steps Mr. Weinstein should take to rehabilitate his image. Mr. Jones told The Times that he condemned Mr. Weinstein’s alleged misconduct and wanted to encourage him to get help. “Focus on the future as America loves a great comeback story,” he wrote to the movie producer.

 

He finished: “The good news is, this will go away sooner than you think and it will be forgotten!”

Alas, in hindsight, Jones has seemingly now come to the conclusion that offering up his unwavering support for a man who has been exposed as an horrific sexual assaulter might have been a bad idea...though only after some backlash from the folks who work for him.  Here"s more from the Wall Street Journal:

Hedge-fund billionaire Paul Tudor Jones took the unusual step of explaining his relationship with Harvey Weinstein, after a report indicated that Mr. Jones supported the disgraced Hollywood mogul as sexual harassment allegations unfolded earlier this year.

 

In a letter to employees Wednesday, Mr. Jones wrote: “Please also understand that I first learned about the revelations about Harvey only as they began to be reported in the media. They were 100% a surprise to me.”

 

Mr. Jones, 63 years old, referred to Mr. Weinstein’s actions as “horribly wrong” and described the entertainment executive as “a friend I believed too long and defended too long,” according to the letter, which was reviewed by The Wall Street Journal.

 

“Perhaps in your own life you have faced a similar dilemma—how to react to a friend who is revealed to be someone other than the person you believed him or her to be,” Mr. Jones wrote.

As you may recall, back in October Jones was the only Weinstein & Co. board member, aside from Harvey himself, who refused to sign a statement that ordered an independent investigation into allegations made against the firm"s co-founder.  Per Deadline:

A statement released by the TWC board earlier today said that the company has ordered an independent investigation into the allegations against its co-founder and co-chairman. While the members endorsed Weinstein’s “already-announced decision to take an indefinite leave of absence,” they stopped short of terminating the controversial co-chairman.

 

The statement was signed by four of the nine board members, “constituting a majority of the Board,” per the company — Bob Weinstein, Tarak Ben Ammar, Lance Maerov and Richard Koenigsberg. Of the other five, three have resigned. One of the remaining two, Paul Tudor Jones, opted not to sign the statement; the other is Harvey Weinstein.

Of course, Jones" argument that he was "100% surprised" by the allegations against Harvey would seem unlikely given that it has since been revealed that his transgressions were well known across Hollywood.  Moreover, as a board member it would only seem logical that Jones would have had some knowledge of all the legal settlements his firm was constantly paying out to protect it"s co-chairman. All of which begs the logical question of what dirt, if any, Harvey had on Jones that demanded such steadfast loyalty?

Could Trump"s Tax Bill Trigger A Mass Exodus From Manhattan? Goldman Seems To Think So...

New York"s billionaire hedge fund managers have blazed the trail south in recent years with the likes of David Tepper, Paul Tudor Jones and Eddie Lampert all ditching the Empire State for Florida...a state which brings not only pristine beaches and year-round golf weather but also the added benefit of a 0% personal income tax rate. 

Meanwhile, as Bloomberg once again points out this morning, the decision to ditch the over-taxed states of New York, New Jersey and Connecticut will be even easier if Trump"s tax plan succeeds in eliminating the state and local income tax deduction...a deduction which could cost a New Yorker making $1,000,000 a year a cool $21,000 in extra taxes.

The problem for the Connecticut hedge-fund set -- and, more broadly, for a lot of the Wall Street crowd -- is that Republican proposals in both the House and Senate would drive up taxes for many high-earners in the New York City area. By eliminating the deduction for most state and local taxes, an individual making a yearly salary of $1,000,000 -- a figure not uncommon in the financial industry -- would owe the Internal Revenue Service an additional $21,000, according to a preliminary analysis by accounting firm Marcum LLP.

 

“It would almost be irresponsible if you weren’t thinking about moving,” he said.

 

Not surprisingly, Miami is exploiting the potential tax change to woo Manhattan"s most successful "millionaire, billionaire, private jet owners" (to cite Obama) as Miami"s luxury real estate agents say they"re having a hard time keeping up with the sudden surge in demand.

The Miami Downtown Development Authority is throwing a party next month during the annual Art Basel show, and Nitin Motwani, a real estate developer, has invited wealthy Northeasterners who’ve expressed interest in moving to the area. Because the proposed tax changes are practically begging them to relocate, Motwani expects a crowd.

 

State and local taxes, also called SALT, “can and should be a major catalyst,” said Motwani, a development authority board member. Tax reform will “certainly be something we’re highlighting” at the party, in the Perez Art Museum. “Inertia is a tough thing, but you add on another tax bill and maybe that pushes you over the edge.”

 

Jeff Miller, director of luxury sales for Brown Harris Stevens in the Miami area, said he’s fielded a half-dozen calls from clients motivated by higher taxes to step up their search for South Florida property.

 

Two clients who work at New York City financial firms have scheduled tours of a newly completed 7,000-square-foot (650-square-meter) home on the Venetian Islands, Miller said. The $22.5 million asking price buys views of Biscayne Bay and a spot to moor a yacht.

 

“Usually it’s a snowstorm that would push them to pick up the phone,” Miller said. “The tax plan has the same effect.”

So what does this mean for the overall impact on domestic migration patterns?  Well, Goldman figures that the changes currently contemplated on the Senate bill could ultimately result in 2-4% of Manhattan"s top earners relocating to lower taxing jurisdictions...

The increased effective tax differential between high- and low-tax areas may increase movement from the former to the latter. Exhibit 4 shows the increase in effective tax rate differentials for a few relevant pairs of states. For instance, we estimate that the TCJA would increase the gap between the combined S&L income tax rates in New York City vs. Connecticut by about 2pp to 5-6%. States with zero income tax such as Texas and Washington would experience the largest gains in relative tax competitiveness. The simple median increase in the tax gap across the six illustrative pairs is a bit above 1.5pp.

 

For our initial analysis of the potential migration effects, we review the academic literature on taxes and mobility. The reviewed studies shown in Exhibit 5 focus on high-income earners, because the literature tends to ?nd only small tax effects among lower- and middle-income earners. The studies are mixed, but the median study suggests a 2% decline in the number of top-income earners after 3-10 years per percentage point increase in the tax rate gap. Combining this median 2% mobility estimate with the 1-2 percentage point increase in the tax gap between New York City and New Jersey/Connecticut suggests that the TCJA would eventually lower the number of top-income earners in New York City by 2-4%, for example.

...and if that"s not at least somewhat concerning to legislators in Albany, Trenton and Sacramento...it should be.

Tepper, who heads Appaloosa Management, relocated to Miami Beach in 2015 from Short Hills, New Jersey. Jones kept Tudor Investment Corp. in Greenwich, Connecticut, when he moved to Palm Beach, Florida, last year. In 2012, Lampert, best known as Sears Holdings Corp.’s chief executive officer, took his hedge fund to Miami from the same tony Connecticut town.

 

State budgets feel the impact. When Tepper moved his firm to Florida, forecasters warned it could jeopardize New Jersey’s budget because the firm generated more than $100 million in state income tax. In 2013, state income tax generated by residents of seven of the wealthiest towns in Fairfield County amounted to $1.8 billion, according to the Hartford Courant, or about 9 percent of the Connecticut state budget.

 

“There is a certain amount of burying one’s head in the sand and naivete in Hartford,” Connecticut’s capital, McGuire said. “I don’t think they believe it can happen.”

Oh well, it"s not as if New Jersey is teetering on the edge of solvency courtesy of a massively underfunded public pension ponzi...

Investors Redeem Half Of Paul Tudor Jones' Main Fund In Past Year

The woes for hedge funds continued in the second quarter, and nowhere more so than among the macro fund community, which posted its worst first half since 2013, losing 0.7% , and according to Hedge Fund Research have returned just 1% annually in the past five years, in an investing world which no longer makes much sense courtesy of central bank intervention. Most impacted by this revulsion against the active investing community has been none other than Paul Tudor Jones, whose investors are increasingly deserting him according to Bloomberg, which reports today that clients yanked 15% of their assets from his main BVI fund in the second quarter, leaving AUM at just $3.6 billion, roughly half from a year ago.

Jones, whose BVI Global Fund is down 1.9% through July 21, has been taking aggressive steps to revive his firm, including reducing fees and headcount. As revenue at Tudor declined, Jones last month sold the firm’s 43-acre Greenwich, Connecticut, headquarters’ property. Tudor then said it plans to move to a location in lower Fairfield County that’s more convenient to New York City, where the firm has offices. It is probably also cheaper. One year ago, Jones also dismissed 15% of his employees. He has told clients he will manage a larger chunk of their money and has encouraged his portfolio managers to take more risk. Jones has also leaned on quantitative tools to help with trading, including introducing technology that replicates the bets of his best managers.

Finally, Tudor has this year reduced its management fee to between 1.75% and 2.25% while taking a 20% cut in profits, after decades of being one of the most expensive hedge funds. The firm had once charged management fees as high as 4% for some clients, and a performance fee of as much as 27% for others, Bloomberg reports.

Alas, so far these "aggressive steps" have failed to yield results. Jones, 62, and his peers including Brevan Howard"s Alan Howard and, of course, John Paulson, are experiencing a "punishing shift":

The old guard who shot to fame in the 1980s and 1990s are foundering, while a younger set of managers are making money, hiring and attracting new investments. The veterans are finding it’s no easy feat to replicate stand-out profits of yesteryear, when markets were more opaque and less efficient.

One can debate whether markets were less efficient then compared to now, but one thing is certain: icons such as PTJ have failed to find their groove in a world where central banks have injected $15 trillion in liquidity. Aside from BVI Global, Tudor also manages a fund tied to the performance of multiple teams of managers, an event-driven portfolio, and individual accounts. In total, the firm now has just under $8 billion in assets, compared with $14 billion in June 2015 according to Bloomberg.

Meanwhile, Tudor employees have also defected along with clients.

Global rates money manager Adam Grunfeld quit in May after nine years and is set to join Element Capital, the macro fund run by 42-year-old Jeff Talpins. Zorin Finkelsen and Dudley Hoskin left to join Balyasny Asset Management. Other departures have included risk-management chief Joanna Welsh, who departed for Ken Griffin’s hedge fund Citadel last year. Separately, money manager Dan Pelletier took a sabbatical to design quantitative tools for trading, people with knowledge of the firm said. Pelletier, who had worked at Tudor for nine years, couldn’t be reached for comment.

Jones" recent troubles are a humiliating fall from grace for the once-storied investor, whose main BVI Global Fund produced average annual gains of about 26% from 1987 through 2007. However, since 2008 his annual average return has slid to about 4.7% with results turning increasingly more negative in recent years.

In his biggest losing bet - so far - Jones banked on macro making a comeback. Last year he said central bank policies, which have suppressed volatility and encouraged more government debt, will backfire and macro strategies will profit when the debt bubble bursts. So far that hasn’t materialized.

The Lost Goldman Sachs 1985 Fixed Income Recruiting Video

Authord by Sarah Butcher via eFinancialCareers.com,

In 1985, Goldman Sachs was still a partnership. The current partners owned around 80% of the firm, retired partners held the remainder. Lloyd Blankfein was a 31 year-old trader at J. Aron, the commodities house Goldman had purchased four years earlier. Run by John Weinberg, a former M&A banker, Goldman in 1985 was mostly a U.S. operation. There were a handful of overseas offices, including one in London, but in the words of Lisa Endlich, Goldman’s London few hundred staff were sitting in an, “unair-conditioned setting on one floor of an office building.”

Nonetheless, Goldman wanted expansion. In 1986, it decided to go for growth. Over the next 12 years, the firm doubled in size and its capital increased five times.

This is the world depicted by a fixed income recruiting video made by GS in 1985 which has just surfaced on Youtube. Despite being posted to the video sharing network in March 2015, it’s only just been unearthed.

We’ve posted the 10 minute video below (3 mins on YouTube are blank). Goldman used it to make a pitch for, “exceptionally talented and motivated individuals,” to work in the fixed securities markets which it said were experiencing, “rapid growth.”

Highlights of 1985 Goldman Sachs included smoking at the desk, endless coffee in paper cups, pagers in belts, big hair, big computers, a lot of telephones, a lot of paper and a lot of human beings. The video supplements this with an encouraging ’80s musical accompaniment.

“The pace is fast, and the atmosphere is intense,” Goldman’s former self warns: “Emotions change from minute to minute.” Prerequisites for getting a job there included, “intelligence, independence, a strong desire to succeed, creativity and the ability the quickly translate ideas into action…”

If anyone knows who the people in the video are, please enlighten us (future GS CEO Jon Corzine can be seen shouting into the phone at 7 minutes 30 seconds).

If you like the genre you can always go on to sample the 1987 documentary about Paul Tudor Jones. 

Investing Wisdoms... Spot What's Missing

Authored by Lance Roberts via realInvestmentAdvice.com,

Over the last 30-years, I have endeavored to learn from my own mistakes and, trust me, I have paid plenty of “stupid-tax” along the way. However, it is only from making mistakes, that we learn how to become a better investor, advisor or portfolio manager.

The following is a listing of investing tips, axioms and market wisdoms from some of the great investors of our time. Importantly, as you review these wisdoms, compare how these investing legends approach investing as compared to your methodologies, those of your advisor or what you are told daily by the media.

Can you spot what’s missing?

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12 Market Wisdoms From Gerald Loeb

1. The most important single factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages.

6. There is a saying, “A picture is worth a thousand words.” One might paraphrase this by saying a profit is worth more than endless alibis or explanations. . . prices and trends are really the best and simplest “indicators” you can find.

7. Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed.

8. Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival.-

9. In addition to many other contributing factors of inflation or deflation, a very great factor is the psychological. The fact that people think prices are going to advance or decline very much contributes to their movement, and the very momentum of the trend itself tends to perpetuate itself.

10. Most people, especially investors, try to get a certain percentage return, and actually secure a minus yield when properly calculated over the years. Speculators risk less and have a better chance of getting something, in my opinion.

11. I feel all relevant factors, important and otherwise, are registered in the market’s behavior, and, in addition, the action of the market itself can be expected under most circumstances to stimulate buying or selling in a manner consistent enough to allow reasonably accurate forecasting of news in advance of its actual occurrence.

12. You don’t need analysts in a bull market, and you don’t want them in a bear market

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Jesse Livermore’s Trading Rules Written in 1940

1. Nothing new ever occurs in the business of speculating or investing in securities and commodities.

2. Money cannot consistently be made trading every day or every week during the year.

3. Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion.

4. Markets are never wrong – opinions often are.

5. The real money made in speculating has been in commitments showing in profit right from the start.

6. As long as a stock is acting right, and the market is right, do not be in a hurry to take profits.

7. One should never permit speculative ventures to run into investments.

8. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.

9. Never buy a stock because it has had a big decline from its previous high.

10. Never sell a stock because it seems high-priced.

11. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction.

12. Never average losses.

13. The human side of every person is the greatest enemy of the average investor or speculator.

14. Wishful thinking must be banished.

15. Big movements take time to develop.

16. It is not good to be too curious about all the reasons behind price movements.

17. It is much easier to watch a few than many.

18. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole.

19. The leaders of today may not be the leaders of two years from now.

20. Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend.

21. Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.

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21 Rules Of Paul Tudor Jones

1. When you are trading size, you have to get out when the market lets you out, not when you want to get out.

2. Never play macho with the market and don’t over trade.

3. If I have positions going against me, I get out; if they are going for me, I keep them.

4. I will keep cutting my position size down as I have losing trades.

5. Don’t ever average losers.

6. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well.

7. Never trade in situations you don’t have control.

8. If you have a losing position that is making you uncomfortable, get out. Because you can always get back in.

9. Don’t be too concerned about where you got into a position.

10. The most important rule of trading is to play great defense, not offense.

11. Don’t be a hero. Don’t have an ego.

12. I consider myself a premier market opportunist.

13. I believe the very best money is to be made at market turns.

14. Everything gets destroyed a hundred times faster than it is built up.

15. Markets move sharply when they move.

16. When I trade, I don’t just use a price stop, I also use a time stop.

17. Don’t focus on making money; focus on protecting what you have.

18. You always want to be with whatever the predominant trend is.

19. My metric for everything I look at is the 200-day moving average of closing prices.

20. At the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?

21. I look for opportunities with tremendously skewed reward-risk opportunities.

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 Bernard Baruch’s 10 Investing Rules

1. Don’t speculate unless you can make it a full-time job.

2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”

3. Before you buy a security, find out everything you can about the company, its management, and competitors, its earnings and possibilities for growth.

4. Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.

5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

6. Don’t buy too many different securities. Better have only a few investments which can be watched.

7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

8. Study your tax position to know when you can sell to greatest advantage.

9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.

10. Don’t try to be a jack of all investments. Stick to the field you know best.

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 James P. Arthur Huprich’s Market Truisms And Axioms

1. Commandment #1: “Thou Shall Not Trade Against the Trend.”

2. Portfolios heavy with underperforming stocks rarely outperform the stock market!

3. There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

4. Sell when you can, not when you have to.

5. Bulls make money, bears make money, and “pigs” get slaughtered.

6. We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

7. Understanding mass psychology is just as important as understanding fundamentals and economics.

8. Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

9. Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

10. When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

11. Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

12. Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

13. When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

14. As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

15. Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.

16. Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.

17. Don’t average trading losses, meaning don’t put “good” money after “bad.” Adding to a losing position will lead to ruin. Ask the Nobel Laureates of Long-Term Capital Management.

18. Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don’t need to trade.

19. Wishful thinking can be detrimental to your financial wealth.

20. Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.

21. Where there is smoke, there is fire, or there is never just one cockroach: In other words, bad news is usually not a one-time event, more usually follows.

22. Realize that a loss in the stock market is part of the investment process. The key is not letting it turn into a big one as this could devastate a portfolio.

23. Said another way, “It’s not the ones that you sell that keep going up that matter. It’s the one that you don’t sell that keeps going down that does.”

24. Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.

25. As many participants have come to realize from 1999 to 2010, during which the S&P 500 has made no upside progress, you can lose money even in the “best companies” if your timing is wrong. Yet, if the technical pattern dictates, you can make money on a short-term basis even in stocks that have a “mixed” fundamental opinion.

26. To the best of your ability, try to keep your priorities in line. Don’t let the “greed factor” that Wall Street can generate outweigh other just as important areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.

27. Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!

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James Montier’s 7 Immutable Laws Of Investing

1. Always insist on a margin of safety

2. This time is never different

3. Be patient and wait for the fat pitch

4. Be contrarian

5. Risk is the permanent loss of capital, never a number

6. Be leery of leverage

7. Never invest in something you don’t understand

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But, did you spot what was missing?

Every day the media continues to push the narrative of passive investing, indexing and “buy and hold.” Yet while these methods are good for Wall Street, as it keeps your money invested at all times for a fee, it is not necessarily good for your future investment outcomes. 

You will notice that not one of the investing greats in history ever had “buy and hold” as a rule.

So, the next time that someone tells you the “only way to invest” is to buy and index and just hold on for the long-term, you just might want to ask yourself what would a “great investor” actually do. More importantly, you should ask yourself, or the person telling you, “WHY?”

The ones listed here are not alone. There numerous investors and portfolio managers that are revered for the knowledge and success. While we idolize these individuals for their respective “genius,” we can also save ourselves time and money by learning from their wisdom and their experiences. Their wisdom was NOT inherited, but was birthed out of years of mistakes, miscalculations, and trial-and-error. Most importantly, what separates these individuals from all others was their ability to learn from those mistakes, adapt, and capitalize on that knowledge in the future.

Experience is an expensive commodity to acquire, which is why it is always cheaper to learn from the mistakes of others.

Importantly, you will notice that many of the same lessons are repeated throughout. This is because there are only a few basic “truths” of investing that all of the great investors have learned over time. I hope you will find the lessons as beneficial as I have over the years and incorporate them into your own practices.

Paul Brodsky: "Only The Court Jester Gets To Speak Truth To Power And Laugh About It"

By Paul Brodsky of Macro Allocation Inc.

“A stock is like a living organism. A sparrow, say. And we are able to create an emergent-based abstraction of that sparrow, which closely approximates the sparrow itself, accounting for migration patterns, wind, weather, and other variables. We can create a similar abstraction of a stock combining the information from the specific ETFs, which represent its underlying dependencies. And if we apply this to the stock we can predict its delta, following the path of its extracted self, because nature follows abstraction.”

      - Taylor from Billions

Surely, You Jest

The writers of Showtime’s Billions are nothing if not funny. The gibberish above captures perfectly the philosophical yearning of hedge fund men and women in their tortured quest for higher meaning. (As it turns out, the show does not limit its characters to men and women. Taylor is played by an actor that self-identifies sexually in real life as “non-binary” and in the show demands the pronouns “its” and “their” instead of he, she, his or her.)

To be sure, “its” description of stocks as create-able and manipulate-able abstractions rings true, especially today when factors exogenous to earnings and commercial prospects seem to influence market prices more than rational demand for equities. Don’t tell anyone but market manipulation is legal when parallel abstractions are created and executed by self-serving political and economic policy makers; not so when they are perpetrated by self-serving financiers. We suspect the show’s US Attorney for the Southern District of New York will eventually inform Taylor that hedge funds don’t get to create and manipulate their own abstractions (and if it wants to do so, then it should work at the Fed).

Another fun second-hand account of the markets was on offer this weekend in an established financial column that criticized how “financial philosopher kings” like to opine on “the meaning of life” and “the nature of happiness” instead of…providing graphs! We were to urged to believe, we suppose, that graphs are more scientific and allow anyone to more accurately extrapolate the future from the past.

The column’s current steward (it has been around for decades) then endorsed an analyst who noticed “booming” trends in US interior cities and millennial labor participation (for which he presumably had many graphs). Awkwardly, the analyst concluded there will be only modest moves in stocks and bonds, and so the column successfully expended a thousand words to inform readers that financial markets still exist. Some of those words were ironically spent informing readers that a picture is worth a thousand words, and so it may have been more efficient (and less ironic) to instead paste a pinup of Warren Buffett, the biggest supporter of buy-and-hold-no matter-what investing, on a graph of the S&P 500:

Buffet is still a forward-looking philosopher king but stays mute when valuations are high. We are more drawn when values are high to those like Paul Tudor Jones, who allegedly told a private meeting at Goldman Sachs that the Fed should be terrified to look at a chart, ironically cited often by Warren Buffet, that shows the stock market woefully out of balance with the broader economy.

Graphs themselves are funny things. Trying to gain insight by identifying trends without ratios, which provided context, is like trying to clap with one hand. Booming cities based on health care revenues is a signal to us how tenuous economic growth is, not how strong or sustainable it may be.

Alas, our personal fate is not to have billions, or to play an asexual financial automaton on the show of the same name, or to be a financial philosopher king. We will have to be satisfied with being invited to Court every now and then, even if it is as a jester. Who else can speak truth to power and laugh about it?

Fed's Fischer Responds To Paul Tudor Jones

"We"re not terrified," proclaimed a cognitively dissonant Stanley Fischer, responding to concerns raised by legendary trader Paul Tudor Jones over the stock market"s extreme valuation - the value of the S&P relative to the size of the economy - should be “terrifying” to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.

*FISCHER SAYS STOCK MARKET VOLATILITY DOESN"T TERRIFY HIM

"I"m not terrific at forecasting stock market directions" - which begs the question, what are you terrific at forecasting?

On The Dollar, Fischer dismissed Trump"s comments but seemed to let slip some awkward reality...

Fed Vice Chairman Stanley Fischer, when asked about President Trump’s comment on the USD, says “we do not take a particular statement, by even a president, into account in making our decisions on the interest rate.”

“The markets know how to price the dollar fairly well, and the dollar has actually been depreciating lately, and that’s of some help, but it wasn’t part of our plan,” Fischer said Friday in interview on CNBC

He then added that "should the dollar get too strong, we"ll respond," seemingly indicating a 3rd leg to the mandate stool that Congress is unaware of.

Fischer also noted that the US economy is not performing as well as The Fed had expected (understatement of the week).

But he had an excuse for that:

"Something going on that Fed doesn’t quite understand in consistently weak 1Q data"

So it"s transitory... which is also what he said about inflationary forces really.

Another Reason Not To Sell Bonds...Yet

Submitted by Lance Roberts via RealInvestmentAdvice.com,

Since the November election of Donald Trump, the investing landscape has gone through a dramatic change of expectations with respect to economic growth, market valuations and particularly inflation. As I noted two weeks ago, there is currently “extreme positioning” in many areas which have historically suggested unhappy endings in the markets. To wit:

“Much like a ‘rubber band,’ prices can only be stretched so far before having to be relaxed to provide the ability to be stretched again.

The chart below shows the long-term trend in prices has compared to its underlying growth trend. The vertical dashed lines show the points where extreme overbought, extended conditions combined with extreme deviations in prices led to a mean-reverting event.”

We can also witness the rather extreme extension of prices above the 200-dma. Such extensions, which are always combined with extreme overbought conditions, have typically not lasted long and have been a good indication to take profits in the short-term. This provides some opportunity to invest capital following a correction to some level of support.

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Buy The Dip? Probably.

HedgEye had a good note on why the market keeps going up against what we would deem to be rational behavior:

“How does the rate of change of volatility (VIX) affect what’s getting “expensive” and “cheap”?

I think about that in terms of the volatility of volatility. It’s something you can readily measure and map with futures and options data.

Looking at the S&P 500’s (SPY) realized volatility,  for example:

1. 30-day realized volatility has been smashed to 6.6%


2. But, at 8.7%, implied volatility is trading at +29.2% premium


3. On a TTM z-score that implied volatility premium is +0.44x”

“So that keeps telling me that the highest probability outcome remains for lower-highs and lower-lows in VIX.

And that keeps happening in a US Equity market that is often called “expensive” (it is), but doesn’t get cheaper. Maybe someone from the orthodoxy of macro “valuation” experts can chime in on why this is happening.

I think it’s because consensus continues to position for a correction that would be deemed “rational”, as opposed to buying all dips in an irrationally profitable position that’s been complimented by prevailing growth and inflation conditions.

Can the U.S. stock market get more expensive? Absolutely.”

A “buyable correction” would suggest a correction back to recent support levels that keep the overall “bullish trend” intact. 

The chart below shows the recent advance of the market has gotten to extremely overbought conditions on a short-term basis and the ‘sell signal’ noted at the top of the chart, combined with the extreme overbought condition at the bottom, suggest a potential correction could take the market back to 2200. Also, note the negative divergence of the PMO oscillator despite the advance in the market. 

While such a correction would be relatively minor in the short-term, it would also violate the bullish uptrend that has held since the 2016 lows. 

However, putting this into an actual loss perspective, the following chart details specific support levels back to the psychological level of 2000. A violation of the 2000 level and we are going to start discussing the potential for a more severe market correction.

A violation of initial support level sets up corrections of 4.9%, 6.6%, 8.6% and 13.2% from the recent highs. With bullishness running at highs, and cash allocations at lows, the risk of a short-term reversal is high.

However, I am certainly not discounting the short-term ability for the markets to move higher as discussed in “2400 or Bust!.” This is particularly the case if fiscal policy is actually implemented, earnings improve more than expected or additional monetary policy is introduced. But it is the risk of loss that currently outweighs the reward.

However, there is another more extreme view that was put out by Matrix Trade yesterday:

“For the last seven years, we have tracked both the DJIA and SPX with very similar bull markets in both 1929 and its copy 1987 made famous by Paul Tudor Jones using very similar technology for arguably one of the greatest trades of all time. The US markets have now entered the last but most aggressive phase of the uptrend where sentiment takes over and where perma-bears give up all hope. They are now finally right in principle but not timing nor extent”

“We had wondered what would trigger such aggressive strength and volatility… until November 9th, 2016 when Donald Trump was elected. The subsequent change in the market dynamic not only provides the reasons for this move but also provides a very clear date from which to countdown very similar blowouts. As we have target areas for both percentage and a timeline to count up or down and indeed different indices to compare we will continue to monitor the price action exactly in line with these famous historic blowouts and crashes. Good Luck !”

Like a dealer at a poker table enticing players into a game:

“Step right up, place your bets and take your chances.” 

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Another Reason Not To Sell Bonds…Yet

As I penned last weekend:

“If the market corrects, OR the economy hits a speed bump, OR something happens in the Eurozone, OR…OR…OR…the covering of short positions in bonds will cause an extremely fast drop in yields.

Sure, anything can happen. If yields on the 10-year Treasury break above 3% it will be coincident with a sharp rise in consumer spending, wages, inflationary pressures that are broad based and surging economic growth. In such a case it will make sense to reduce bond holdings in favor of equities.

However, given the fact we are already in the 3rd longest economic expansion in history, combined with the second highest levels of valuation on stocks, the odds of such an outcome are extremely low.” 

But here is another reason to stay long bonds.

Currently, as noted by ZeroHedge on Friday:

“With political and economic policy uncertainty at record highs and equity market valuations near record highs, we have one question: which market – interest rates or stocks – is right about ‘risk’ ahead?”

Currently, there are record shorts on volatility which suggest there is little expectation of a market correction currently. In other words, everyone is now on the long-side of the proverbial “boat.” 

So, why own bonds? 

As shown in the chart below, interest rates are negatively correlated to the volatility index. With the extreme net short positioning in bonds, a market correction would spark a rotation from “risk” to “safety” pushing rates towards 2%. However, such a reversal would also trigger a panic-driven short-covering trade which would likely push rates even lower towards 1.5%. 

That thought was also discussed recently at the Macro Man blog:

“We still think that Mr. Bond will have a soft landing this time. In fact, now that the Inaugural is behind us, with all of its ‘Sound and Fury signifying nothing’, Mr. Market will likely undertake a more cerebral evaluation of the likelihood of 4, 5 and 6% US GDP in 2017.

A renewed safe haven bid for Mr. Bond and other fixed income assets seems certain before long, as Real Money and commercials have increased their net longs. The speculative community remains extremely short bonds, providing a mechanism to accelerate any recovery in fixed income once it gathers speed, eventually forcing a surprising number of concealed shorts to return to a more neutral positioning in Treasuries.”

Currently, we remain long bonds as a hedge until the abnormalities are reversed.