One Day After Zero Hedge, FT "Unmasks" SoftBank As Call-Buying "Nasdaq Whale"

 From Zero Hedge

Yesterday, as the gamma meltup insanity of the past month finally rolled over and tech names tumbled, we said  "the real questions emerge and first and foremost is who was it that led this furious gamma charge higher, taking on virtually every dealer?"

As a reminder, this came following several weeks of bizarre market moves duly discussed here, which we said could be described as an unprecedented "epic battle" in gamma "between one or more funds who were aggressively loading up on gamma and bidding up calls to the point that VIX was surging even as stocks hit 9 consecutive all time highs, while dealers were stuck "short gamma" and in their attempts to delta-hedge the ever higher highs, would buy stocks thereby creating a feedback loop where the higher the market rose, the more buying ensued."

Yesterday, we first identified the solitary party that was responsible for the unprecedented call-buying insanity as Japan's bizarro VC/media conglomerate SoftBank, and elaborated:

It is hardly unreasonable to imagine SoftBank, the "brains" behind such catastrophic investments as WeWork, WireFraud WireCard, and countless other failed "unicorns" would desperately try to Volkswagen not just a handful of tech names, but the entire market in the process. After all, Masa Son is desperate to deflect attention from the fact that as we put it last October, "SoftBank is the Bubble Era's "Short Of The Century." And if there is one thing that can salvage the Japanese VC titan's reputation it is a second tech bubble which blows out the valuation of his countless (otherwise worthless) investments which form the backbone of SoftBank's "AI Revolution" whatever that means.

Today, one day after our original report, the Financial Times catches up and confirms that SoftBank has been "unmasked as the 'Nasdaq Whale' that stoked the tech rally", writing that Masa Son's investing vehicle "has bought billions of dollars’ worth of US equity derivatives in a move that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday, according to people familiar with the matter" (oddly enough, the FT forgot to note that "this was first reported by Zero Hedge" but whatever.)

While traditionally SoftBank for investing in either unicorns or megafrauds such as WireCard, the FT repeats what we first said, namely that SoftBank has "also made a splash in trading derivatives linked to some of those new investments, which has shocked market veterans." It goes on to quote a derivatives-focused US hedge fund manager "These are some of the biggest trades I’ve seen in 20 years of doing this. The flow is huge."

How huge? Huge enough to send the implied vol of calls of the world's biggest company, Apple, soaring at the same time as its stock price hit record highs.

It's also why the S&P kept rising alongside the VIX, which hit a record high at a time when the S&P was also at an all time high, as we first pointed out on Wednesday, warning that the last time this happened was when the dot com bubble burst.

How much did SoftBank buy? According to the WSJ, which also moments ago confirmed our original reporting, SoftBank...

... spent roughly $4 billion buying call options tied to the underlying shares it bought, as well as on other names

... which due to the embedded leverage in options, is the equivalent of buying tens if not hundreds of billions of underlying stocks, thus sparking the massive upward move in the handful of tech stocks which then spilled over everywhere.

And speaking of underlying stocks, in Q2 SoftBank just so happened bought brand new stakes in all the super high beta names including Amazon, Google, NVidia, Tesla, Netflix, Zoom and so on.

SoftBank's trade was simple: buy billions in underlying ultra-high beta stocks, then also buy billions in call options to take advantage of illiquid markets and gamma, and sure enough all the "SoftBank stocks" exploded to all time highs, and in the process dragged the entire market higher.

Going back to the FT's confirmation of our original report, it quotes another anonumous "person familiar with SoftBank’s trades" who said it was “gobbling up” options on a scale that was even making some people within the organisation nervous.

"People are caught with their pants down, massively short. This can continue. The whale is still hungry."

Or not, because if SoftBank "forgot" to take profits and has been piling on gamma, it is now entirely at the dealers' mercy as we first explained yesterday, which incidentally explains today's continued plunge in tech names as traders brace for the unwind of all that gamma.

Of course, that's the last thing SoftBank - which already is hurting from the dismal performance of so many of its recent investments - wants, and is why a banker "familiar with the latest options trading activity" told the FT that Thursday’s market pullback would have been painful for SoftBank (well, duh), and "he expected the buying to resume" unless of course the dealers double down and sell all those same calls that exploded in recent days. The FT then added, perhaps for the benefit of its Robinhood readers that "a larger and longer-lasting stock-market decline would be more damaging for this strategy, and would probably involve rapid declines."

While there was nothing actually new in the FT report beside merely confirming what our readers already knew, all we can say is that we sincerely hope that Masa Son publishes all his material derivative holdings so the public can take the other side and finally crush this grotesque company which last October we said was the "Bubble Era's "Short Of The Century"."

Meanwhile, for those wondering just how far from the Minsky Moment we are, it appears that Japanese pensioners - who are the 4th largest holder of SoftBank - are now indirectly buying deep OTM Apple and Tesla calls:

One final point: while there is an amusing feud brewing between the FT and the WSJ about who broke the SoftBank story (spoiler alert: neither)...

... the real question is which media publication will refuse to touch on the next part of this story, and where the rabbit hole really goes: namely the frontrunning of call options by certain HFTs who clearly magnified the gamma effect sparked artificially by SoftBank.

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Angry Robinhood Traders Unleash Tsunami Of Complaints

From Zero Hedge:

Robinhood's quick rise to the top of the brokerage world hasn't come without speedbumps. To wit, US consumer protection agencies are being flooded with complaints about the app. In fact, four times as many complaints are being filed about Robinhood than other traditional brokerages like Schwab and Fidelity, according to Bloomberg; in 2020 alone more than 400 complaints have been lodged against the "free" daytrading app.

The complaints have featured "novice investors in over their heads, struggling to understand why they’ve lost money on stock options or had shares liquidated to pay off margin loans."

Complaints were also filed when Robinhood's app went down for a full day back in March during the beginning of the coronavirus pandemic. Users complained about losing money and not being able to sell holdings (in retrospect, they should be praising the company for preventing them from dumping just before the Fed nationalized the market and sent the S&P 61% higher from the March lows). They complained about not being able to make money because the app was down. A legitimate grievance: no phone number, or direct contact at Robinhood have been listed, probably because the company still can't afford a client-facing support team.

One complaint unearthed by Bloomberg in a FOIA request stated: “It just says to submit an email. This company’s negligence cost me $6,000.”

Another complaint, from a user who estimated they lost $20,000, said: “I can’t make trades, can’t take my own money and can’t leave their service.”

The complaints are par for the course for a company that has focused solely on growth over the last few years. Robinhood has signed up more than 3 million clients in the first four months of 2020 alone and has become the go-to app for those in quarantine, receiving unemployment and looking for something to do all day.

Regulators have received so many complaints, they have joked that they feel like they have become Robinhood's customer service department (it's funny cause it's true). Both the SEC and FINRA are currently investigating how the company handled its app's outage in March. Their findings and any enforcement action is being watched closely, as it may interfere with plans for an IPO that is widely expected from Robinhood, which is now valued at $11.2 billion after its latest round of funding. 

Robinhood has responded by saying it has doubled its customer service representatives this year and is "hiring hundreds more". They have also said that after the March outage, they have strengthened their platform and improved reliability. The company is able to offer free commissions because it sells its order flow, something we have harped on and pointed out numerous times on this site (we exposed that the app was selling its order flow to HFT algorithms as early as 2018). 

Meanwhile, Robinhood still appears to be having outage issues, with the app going down as recently as Monday and again this morning.

In response, the company hired former Republican SEC commissioner Dan Gallagher as its top lawyer. Gallagher has years of experience with federal regulation. 

“Robinhood is empowering a whole new class of investors, and I think it is critical for us to have a voice in Washington to advocate for our customers and fairer markets,” Gallagher concluded.

Enjoy those IPO shares, Dan. After the Citadel-led IPO of course.

As an alternative to Robinhood, try LevelX @ www.levelx.com 

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Jeffrey Epstein’s Private Banker At Deutsche & Citi Found Swinging From A Rope

From Humans Are Free:

 Jeffrey Epstein’s private wealth banker, who brokered and signed off on untold multiple millions of dollars in controversial Deutsche Bank and Citibank loans spanning two decades for the convicted pedophile, has died from a reported suicide.

The news of yet another mysterious Epstein-linked death comes shortly after the FBI was seeking to interview the bank executive about loans he approved for Epstein and the indicted child trafficker’s labyrinth of US-based and offshore companies.

The Los Angeles County Medical Examiner confirmed Thomas Bowers died by an apparent suicide by hanging at his home.

Bowers headed the private wealth banking division for Deutsche Bank and signed off on millions in loans to Epstein.

Bowers, prior to taking over the private banking arm at Deutsche Bank, served in the same top position at Citibank, as the head of the bank’s private wealth arm. Citigroup also made massive loans to Epstein, according to records and banking sources who spoke to True Pundit.

True Pundit founder Mike “Thomas Paine” Moore previously headed anti-money laundering for a major Citigroup division during the time frame Citi commenced large loans to Epstein.

“The loans to Epstein were personal and commercial,” Paine confirmed. “The Citi loans I can confirm were for more than $25 million. Some were secured, some were not.”

Did Citi bend its lending rules for Epstein? Paine said that appears “quite likely,” with Bowers and other Citi executives he later recruited to work for him at Deutsche all working to secure the approvals regardless of compliance-related red flags.

And sources said Citi loaned Epstein much more money, eclipsing $100 million and also allowed Epstein to use the bank to send thousands of wire transfers from his accounts. Bowers, who turned up dead just days ago, brokered the loans for Epstein, sources said.

Bowers was the chief of Deutsche Bank’s Private Wealth Management division and worked from the bank’s Park Avenue offices in New York City. At Citi, Bowers served as the chief of the The Citi Private Bank and previously ran Citigroup’s Global Markets and Wealth Management businesses.

And when Bowers left Citi for Deutsche Bank, Epstein followed.

Meanwhile, Epstein stopped making payments on his millions in outstanding Citi loans. But that mattered little because Bowers approved new high-risk loans and credit lines from Deutsche Bank, sources said.

And that relationship with Epstein continued until Bowers left Deutsche Bank in 2015. By that time, Epstein had chalked up untold millions in loans with the help of Bowers who recruited many of his top private wealth top bankers from Citi to Deutsche Bank.

The FBI who was interested in interviewing Bowers, sources confirm. The FBI subpoenaed Deutsche Bank in May for all loans and accounts linked to Epstein and there were many unanswered questions. Deutsche Bank closed out Epstein’s accounts weeks after the bank was served federal subpoenas.

Federal law enforcement officials said the FBI planned to interview all Wall Street wealth fund managers who worked for Epstein. Bowers included.

How much money did Deutsche broker for Epstein? That number to this point has proven elusive. The FBI is not talking, but one executive divulged Epstein had secured more than $60 million from Deutsche Bank’s U.S. and German arms. Likely that number is larger, but at this point the bank is keeping its exposure quiet.

Just like Bowers had brokered for Epstein at Citi, Deutsche also set the convicted pedophile up with over a dozen bank accounts that Epstein employed to receive and send wires and funds.

One banking executive said Bowers had visited Epstein on his private island at least once. Bowers had also visited Epstein in New York and attended social events at his mansion. Federal law enforcement sources did not comment about these new revelations.

However, Citi executives who worked with Bowers said the bank executive maintained an active night life and enjoyed the party circuit.

Epstein also helped bring in a plethora of new business from wealthy associates to Bowers at both Deutsche Bank and Citi, sources said.

“Epstein made Bowers and his financial institutions hundreds of millions of dollars,” one executive said. “It really didn’t even matter that Epstein stiffed Citi for $30 million in defaults because he brought so much new money, new blood in. Citi made far more than it lost.”

Seems like a pattern. The American Banker reports:

Epstein brought lucrative clients into JPMorgan’s private-banking unit and was close to former head Jes Staley, who visited Epstein’s private island as recently as 2015. Leon Black, Apollo Global Management’s billionaire chairman, met with the financier from time to time at the company’s New York offices, and used Epstein for tax and philanthropic advice.

Police reportedly found Bowers hanging from a rope in his California home.

He was 55.

Previous press releases detailing Bowers’ role with the private wealth arm of Deutsche, detailed the division and its target clientele:

Deutsche Bank Private Wealth Management has been serving the interests of wealthy individuals, families and select institutions for more than a century. With offices across the U.S., Deutsche Bank’s Private Wealth Management business division provides a variety of customized solutions to private clients worldwide including traditional and alternative investments, risk management strategies, lending, trust and estate services, wealth transfer planning, family office services, custody and family and philanthropy advisory.

Private Wealth Management includes the U.S. Private Bank and Deutsche Bank Alex. Brown, the private client services division of Deutsche Bank Securities Inc., the investment banking and securities arm of Deutsche Bank AG in the United States and a member of NYSE, FINRA and SIPC.

This story is developing.

THE GREAT RESET: Davos & the Plot to Cancel Trump

A New World Order & "The End Of Capital Markets As We Have Known Them"

 Via AdvisorPerspectives.com,

The following letter was sent by Bob Rodriguez to his friends and colleagues yesterday, as well as to Bob Huebscher. Bob Rodriguez has graciously allowed us to publish it.

Robert L. Rodriguez was the former portfolio manager of the small/mid-cap absolute-value strategy (including FPA Capital Fund, Inc.) and the absolute-fixed-income strategy (including FPA New Income, Inc.) and a former managing partner at FPA, a Los Angeles-based asset manager. He retired at the end of 2016, following more than 33 years of service.

He won many awards during his tenure. He was the only fund manager in the United States to win the Morningstar Manager of the Year award for both an equity and a fixed income fund and is tied with one other portfolio manager as having won the most awards. In 1994 Bob won for both FPA Capital and FPA New Income, and in 2001 and 2008 for FPA New Income.

The opinions expressed reflect Mr. Rodriguez’ personal views only and not those of FPA.

Dear friends and colleagues,

Though the virus pandemic has been tumultuous, challenging and with little precedence, from a capital market perspective, this market collapse was quite predictable.

Capital market excesses became pervasive in ways that were also unprecedented. Zombie companies, corporate operating strategies that elevated financial risk to extreme levels and consumers who also became highly leveraged were the accepted actions of the day. Prudence was an extremely rare virtue. Many times I expressed the opinion that I thought the various equity markets were at least 40-60% over valued. Recent events would tend to confirm my assessment.

Back in 2009, in my Morningstar speech, and then after I returned from my 2010 sabbatical, I argued that, if we did not get our economic house in order, we would experience a crisis of equal or greater magnitude than the 2008-2009 period and that this would take place after 2017.

With the passage of the 2017 omnibus bill and the 2017 tax cut, along with a continuation of unsound and insane monetary policies, this speculative excess period was able to be extended. We knew there would be a pin that would prick this unbelievably speculative bubble but we just didn’t know what it would be. Now we do.

Our economic and financial market systems were not prepared with appropriate “rainy day reserves” to withstand an exogenous shock. Balance sheets were stretched in all economic sectors. The shock to the US economy by the bombing of Pearl Harbor and the beginning of WW2 was more traumatic and of greater magnitude than what we are experiencing now and it would also last longer. However, after 12 years of Depression, the financial system was cleansed of speculative excesses that allowed for a financial re-leveraging of the economy to fight the war. After the carnage was over, the economy was able to grow out of an extreme leverage position. In contrast to then, this is not the case today, given that the economy is already extremely leveraged prior to the onset of the crisis. My worst fears have materialized.

Since 2013, I have been preparing for an economy of monumental excess, where debt and deficits do not appear to matter, along with Fed and other central bank monetary policies that totally distort the fundamental elements of the Capital Asset Pricing Model. With the events of the past three weeks, the perversion and conversion to a dystopian capital market and economic system is virtually complete.

As for me, with the Fed's announcement of unlimited QE and its “will buy or support almost anything,” along with the pending passage of a $2-2.5 trillion stimulus package, this is the end of the capital markets as we have known them.

We have now entered unlimited QE and MMT where there is no escape.

It is the Roach Motel all over again.

In Chairman Bernanke‘s 2010 Washington Post op-ed, he argued that QE would lead to a virtuous economic cycle; therefore, the Fed would eventually be able to exit from its QE operations. I argued that once initiated, a reversal would be impossible. It would be like the Roach Motel, “You can check in, but you cannot check out.”

With the initiation of the Fed’s complete takeover and control of the US financial economy, there is now absolutely no accurate pricing discovery in the capital markets and we have entered a period of total manipulation. In light of this, the only markets I have an interest in are those where the heavy hand of government is not involved or only minimally involved. This leads me to rare commodities and collectibles. The public equity and debt markets are now nothing more than greater fool markets that are led by the greatest fools of all, the Fed and the Congress. US capital markets, RIP!

Despite my having avoided 100% of the market carnage and also being profitable, I have to shed a tear for the passing of a capital market that has benefitted the real and financial economy so well for decades. In 2008, when I wrote, “Crossing the Rubicon,” I argued we had crossed over into a new economic order and system. Little did I know that within twelve short years this transformation would be virtually complete. We have entered into a far more dangerous environment where normal rules of analytics will likely not apply.

When everything is essentially socialized as to risk, a return vs risk evaluation is essentially meaningless since the risk side of the equation has been truncated.

Over a period of time which I cannot estimate yet, I will continue my preparation for a far different economic and financial environment.

Capital deployment strategies will likely have to change from what has been the norm in the post WW2 environment. We are in a New World Order.

I hope I am wrong in my assessment, but I doubt it.

Good luck,

Bob