Maybe it's the margaritas or maybe it's my calculus but:

P.S.: I just learned that Rev Shark has Covid-19. I wanted to wish him a very speedy recovery! Be well, Rev.

Enjoy the weekend.

Be safe.

I would add to my bank stocks on a 5% pullback from this week's highs.

My hospitality shorts - (HLT) and (H) - are starting to roll over technically.

Its been a long long week and I am exhausted. 

I will be with some friends for lunch at around noon and won't be back until about 2 pm. 

Gotta do some decompressing.

I am of the view that it may not have been the wisest of moves to reduce my (SPY) and (QQQ) short, even though my covers in pre-market trading yesterday were lower than the current share prices. 

Buying volatility (VXX) is a way of remedying the Index short covers. 

I remain bearish on equities.

I added to (VXX) on weakness.

I just purchased a medium-sized position in (VXX) at $18.53.

I am planning to buy volatility - just searching for the most efficient vehicle.

Stay tuned.

Hedgehoggers are very long:

Short sellers are spent up and not pent up (to cover):

Peter on the letter: 

Here are a few of my thoughts on what Steve Mnuchin wrote to Jay Powell:

1) As Mnuchin is about to leave DC he wants to say 'mission accomplished.'

2) With many of these facilities barely being used, he wants the money back to allocate to a possible fiscal deal.

3) Once a government program is created, it never really dies.

4) Good riddance to the Primary and Secondary Market Corporate Credit Facilities. It was a bridge too far to argue that buying the bonds of Apple and McDonald's was needed as if there weren't any private buyers for them. It was just the price the Fed didn't like, along with US Treasuries back in March but markets adjust. It is the Volcker Rule that should be eliminated here so banks can make real markets again. I haven't seen one comment from any Fed or Treasury member that this rule needs to be revisited.

5) The idea that the Fed needs to step into markets to improve market functioning misunderstands that Fed involvement in any market pollutes market functioning instead as it misprices risk which then misallocates capital, creates moral hazard and then a permanent market dependency with the end result being financial instability. How corporate bonds trade today will be most interesting.

6) The Main Street Lending Program sounds great on paper but what many small and medium sized businesses need right now is equity not more debt.

7) The Municipal Liquidity Facility was set up in early April to mostly help state and local governments who weren't going to get tax payments because the tax deadline was extended.

8) To my point that these things never really go away, the Term Asset Backed Securities Loan Facility was just brought back to life after the housing/financial crisis and now is no longer needed again.

9) The facilities that will remain are focused on short term funding needs along with the PPP which we know has been a big help to many businesses.

The Fed is whining about the changes, but the Fed doesn't seem to ever see any limits to what they can do and that is not what the original purpose of the 1913 Federal Reserve Act was. If it was up to them they would find a reason to buy baseball cards, art and vintage Ferrari's if they felt the need to support the art and collectibles market.

The ECB Vice President Luis de Guindos said today that 'Low profitability at European banks is a problem.' As the ECB is mostly responsible for that, his comment is like giving someone a bottle of vodka to drink and after they do wonder why they can't walk straight.

Shifting overseas, Japan's manufacturing and services PMI for November slipped one point to 47 with both components down a touch. While things have stabilized in Japan, this is still contractionary behavior. Markit said "The Japanese private sector economy continued its struggle to gain recovery momentum midway through the 4th quarter...Demand conditions continued to weaken, with inflows of new business falling for a 10th month in a row, weighed down by a further drop in export orders." As this is all pre vaccine, we assume 2021 will be much brighter.

Japan also reported its October inflation data and CPI ex food and energy fell .2% y/o/y vs the estimate of a .3% drop and vs flat in September. A key factor in the y/o/y decline was the comparison as last October included the VAT hike. Also, the core/core rate includes the travel discounts that have been implemented. To this, hotel prices fell 37% y/o/y and took away almost .5 percentage point from headline CPI. Either way, prices are little changed which is TRUE price stability. JGB yields were little changed with the 40 yr down 1 bp. The Nikkei after its impressive run was down by .4%.

The only thing of note in Europe was October retail sales in the UK where ex fuel oil rose 1.3% m/o/m, above the estimate of no change but this was pre restrictions where some people stocked up on things. Also, November consumer confidence in the UK fell 2 pts to -33, about as expected but is near the lows seen in April. On December 2nd the selective restrictions expire and hopefully they do.

UK Consumer Confidence

What was Treasury Secretary Steve Mnuchin's motivation with regard to ending elements of the bailout lending program discussed in the previous post? 

* The charitable explanation is that Secretary Mnuchin is looking at the capital markets and sees a normalization of prices and spreads.

* The less charitable explanation is that the intention is to hamstrung the new, incoming Secretary of Treasury (Lael Brainard, Janet Yellen?) in terms of distributing funds. 

While one can argue about the awkward manner in which the communique was transmitted, the Fed still has considerable lending powers and can restart the programs, and the futures market has come to its senses here on Friday morning after gapping lower in the evening.

For those who left early after the market's close Thursday, there was some important news that impacted the futures market. 

The news was that Treasury Secretary Mnuchin announced plans not extend some of the bailout's emergency loan program. In response, S&P futures fell by as much as 35 handles. (By 5:55 a.m. futures had recovered and were down only 2.50). 

Here was my 5:45 p.m. post Thursday in case you missed it: 

Nov 19, 2020 ' 05:45 PM EST DOUG KASS

Stocks Fall in After Hours on Treasury's Move to End Emergency Loan Programs

* S&P futures -15 handles

Break in!

The Treasury Secretary announced this afternoon that it will not extend beyond Dec. 31 some of the bailout's emergency loan programs (in corporate credit, Main Street and municipal lending) that were established in conjunction with the Federal Reserve. In a letter to Fed Chair Jerome Powell, Sec. Steve Mnuchin said that the programs (backstopped by the Treasury with funds under the Cares Act) have met their stated objectives.

Here is the complete statement from the Treasury:

"Today U.S. Treasury Secretary Steven T. Mnuchin sent a letter to Chairman of the Federal Reserve Board of Governors Jerome Powell requesting a 90-day extension of the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), the Money Market Liquidity Facility (MMLF) and the Paycheck Protection Program Liquidity Facility (PPPLF).

With respect to the facilities that used CARES Act funding (PMCCF, SMCCF, MLF, MSLP, and TALF), I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020. As such, I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds," said Secretary Steven T. Mnuchin.

In the unlikely event that it becomes necessary in the future to reestablish any of these facilities, the Federal Reserve can request approval from the Secretary of the Treasury and, upon approval, the facilities can be funded with Core ESF funds, to the extent permitted by law, or additional funds appropriated by Congress. I am deeply honored to have worked on executing these programs and hope that because of our collective actions, Congress will show similar trust in Federal Reserve Chairs and Treasury Secretaries in the future."

The Treasury wants the almost $500 billion to be returned and to be reappropriated by Congress.

In response, the Federal Reserve - which has been clear in recent weeks of the importance of these programs to be continued - responded swiftly and atypically:

"The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy."

This is what Zero Hedge said: "This, we are sure, will infuriate The Fed. In recent weeks they have been vocal about the need for these programs to remain in place."

Danielle DiMartino Booth on the need for more stimulus:

• The Top 10 states with the highest concentration of those expecting a loss of employment income encompass 32.4% of the population, per the Census Bureau; outside tourism-centric states, CA, TX, and IL all make the Top 10 and outrank the nation's average of 25.9%
• Initial jobless claims rose to 742,000 the week of November 14, the first increase in five weeks; more concerning are PEUC claims for extended benefits, which swelled to 4.38 million the week of October 31 and have grown by at least 150,000 for the last eight weeks
• One in six households making $100,000-$150,000 reported difficulty paying for their normal household expenses in the latest Household Pulse data, from October 28-November 9; with a majority of those making less than $35,000 reporting the same, massive stimulus cannot wait

Everything really is bigger in Texas. On July 10, 1824, Richard King was born in New York City to a poor Irish family. Loathing his indentured servitude to a jeweler at the tender age of nine, within two years, he'd stowed away on a ship to Mobile, Alabama. Fortunately, King's cover was quickly blown, and he was forced to earn his passage. By the time he was 16, King was a captain, a steamboat pilot. In 1846, Mifflin Kenedy, his future business partner, convinced him to help run armaments along the Rio Grande River to support the Texas Revolution. By 1874, King, Kenedy & Co. monopolized control of the southern border's river trade. All the while, King had been buying up land along Santa Gertrudis Creek, grasslands in between the Nueces and Rio Grande Rivers. What started as a 68,500-acre parcel to form King Ranch now covers 825,000 acres, a bigger expanse than the state of Rhode Island. Captain Richard King will forever be Texas royalty.

In case you're wondering, the size of Rhode Island is 775,900 acres. Comparisons tend to end there when speaking of the two states in one sentence. The Census Bureau would say otherwise. In data released Thursday in its Phase 3 Household Pulse Survey, taken from October 28-November 9, Texas and Rhode Island both made the Top 10 list of states with the highest concentrations of those expecting loss of employment income in the next four weeks (left-side table).

Broadening out, the list above encompasses 32.4% of the U.S. population and is more than a "Who's Who" of travel destinations. There's more than a hit to tourism when you throw into the mix California, Texas and Illinois, respectively the nation's first, second and fifth most populous states.

While the rankings don't shift in terms of Gross State Product (GSP) for the aforementioned trio, The Garden State does stand out as it's the nation's 11th most populous but ranks 8th in terms of GSP. New Jersey's economy outweighs its population count due to its concentration of white-collar workers - its biggest industries are Professional & Business Services (16.9%) and Real Estate (14.9%). It goes without saying many residents benefit from their proximity to Wall Street which may also be a source of anxiety with 29% of the state's workers expecting a loss of employment in the next four weeks.

The irony is the country's six largest banks, which collectively employ more than one million worldwide, have added 20,000 to 2020's aggregate payrolls, the biggest increase in a decade. This year's gains follow headcount reduction of more than 140,000 over the past eight years.

In an interview with Bloomberg yesterday, Michael Nelson, MD at executive research firm Quest Group, said, "We will have fewer people working on Wall Street at the end of next year. Despite all their profitability from investment banking this year, they are super concerned about next year."

No doubt, the economics teams at these banks are furiously revisiting their GDP estimates for 2021 to account for the current surge in the virus. The damage has begun to manifest in the hard data. Yesterday's headlines were filled with news that jobless claims had risen for the first time in five weeks. But that data for the week ended November 14 just scratches the surface.

The real news pertained to Pandemic Emergency Unemployment Claims (PEUC), a CARES Act program slated to expire December 31 (it should be extended in Congress' Continuing Resolution). As you see on the right-hand graph, in the week ended September 12, those collecting PEUC numbered 1.82 million. The most recent week's data available is for the week ended October 31 by which point the ranks had swelled to 4.38 million. For eight straight weeks, PEUC claims have risen by at least 150,000, a rate five times all prior weeks the program has existed.

The sum of states' gross state product that foresee job losses in the left-hand table above is 34.6%, a material figure that doesn't take into account the continued devastation to New York's economy, which we detailed yesterday. Adding NY's 8.3% economic input to the nation's paints an even starker picture of 42.9% of the nation's economic output.

Rounding out the top 5 largest states is Florida, about which we're having a hard time drawing conclusions after its latest week's PEUC claims filed were zero, clearly a back-office glitch (Georgia in same fluky boat). The state's economy is clearly stressed as the Census Pulse ranked it most vulnerable to an eviction wave. Some 52% of Floridian adults are living in households not current on rent or mortgage; they are either somewhat or very likely to face eviction of foreclosure in the next two months.

But it's not just those living no paycheck to no paycheck who are stressed. The Census also reported that one-in-six households making $100,000-$149,000 are having difficulty paying their usual expenses (tuck-in chart). The struggle to make ends meet increases at a frightening level down the income ladder with a majority of those making $35,000 or less scraping by.

The best news is that the percentage of Americans willing to take a vaccine has, according to Gallup, risen to 58% from September's 50% read. Until then, the pressure will build inside the Beltway to relieve the economic pressure engulfing a wider swath of Americans. Everything on the fiscal stimulus front had better be bigger, and fast.