Month: April 2016

Weekend Reading: Yep… Still Looks Like A Trap

Submitted by Lance Roberts via RealInvestmentAdvice.com,

Last week, I noted technical breakout of the market above the downtrend line from last May, such a move required an increase in exposure to equity risk. To wit:

“With the breakout of the market yesterday, and given that ‘short-term buy signals’ are in place I began adding exposure back into portfolios. This is probably the most difficult ‘buy’ I can ever remember making.”

I also stated that it was probably a trap and that I will be stopped out in fairly short order. But that is the risk of managing money.

Well, since then the markets have gone, as of this writing, roughly nowhere as the market traded between roughly 2075 and 2100 all week. However, the following chart is what has me worried. 

SP500-VIX-042816

The chart of the volatility index measures the “fear of a correction” that currently exists in the market. As a contrarian indicator, the “time to sell” is when there is relatively little “fear” in the market.  As the yellow highlighted bars suggest, that time is likely now.

Is the recent turn higher in the VIX signaling a market correction as it has done in the past? Possibly. If so, the question will be the depth of that correction. Will it be a mild pullback as saw in early 2015, or a more major decline as seen in August of last year? My bet is that it will likely be the latter given the weakening fundamental backdrop.

However, given the ongoing Central Bank interventions, verbal easing by the Federal Reserve and an excessiveness of “bullish hope,” there is still no telling what the markets will do next. This is why in this upcoming weekend’s newsletter (subscribe for free e-delivery) I will be discussing the possibility of “shorting against the box.”

Keith Fitz-Gerald once wisely stated:

“Always sit in an exit row.” 

This weekend’s reading is focused primarily on the events from last week – The Fed and the markets. I suspect things are about to get much more interesting.

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THE MARKET & ECONOMY

MUST READS

“The market does what it should do, just not always when.” – Jesse Livermore

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Caitlyn Jenner Visits the Ladies’ Room, Tilda Swinton Offends You, Coachella Also Offends You: P.M. Links

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US Treasury Gives Explicit Warning To China, Germany And Japan Not To Devalue Their Currencies

While the US Treasury’s semi-annual report on the foreign-exchange policies of major U.S. trading partners has traditionally been, pardon the pun, a paper tiger, as the US has not named a single country as a currency manipulator since it did so to China in 1994, and it didn’t go so far as to blame any country as an outright manipulator in the just released April edition, there was a new addition to the latest report.

In an inaugural “monitoring list”, the US put five economies including China, Japan and Germany (as well as South Korea and Taiwan) on a new currency watch list, saying that their foreign-exchange practices bear close monitoring to gauge if they provide an unfair trade advantage over America.

This is what it said:

In determining the appropriate factors to assess these criteria, Treasury took a thorough approach, analyzing data spanning 15 years across dozens of economies, including all economies that have had a trade surplus with the United States during that period, and which in the aggregate represent about 80 percent of global GDP. The thresholds are relatively robust in that reasonable changes to the thresholds do not materially change the Report’s conclusions. Treasury will also continue to review the factors it uses to assess these criteria to ensure that the new reporting and monitoring tools provided under the Act meet the objective of indicating where unfair currency practices may be emerging. 

 

Pursuant to the Act, Treasury finds that no economy currently satisfies all three criteria, however, five major trading partners of the United States met two of the three criteria for enhanced analysis. Treasury is creating a new “Monitoring List” that includes these economies: China, Japan, Korea, Taiwan, and Germany. China, Japan, Germany, and Korea are identified as a result of a material current account surplus combined with a significant bilateral trade surplus with the United States. Taiwan is identified as a result of its material current account surplus and its persistent, one-sided intervention in foreign exchange markets. Treasury will closely monitor and assess the economic trends and foreign exchange policies of these economies.

 

As noted above, Treasury is creating a new “Monitoring List” that cites major trading partners that have met two of the three criteria specified in the Act. In this first Report, the Monitoring List includes China, Japan, Korea, Taiwan, and Germany.

This is about as direct a threat to the 3+2 nations not to engage in major currency devaluation whether through QE, NIRP or major interest rate changes as Jack Lew could come up with, and in some ways was to be expected in the aftermath of the G-20 meeting which as we found out this week, precluded any additional QE by the BOJ.

Recall that as part of the most recent G-20 accords, which many believe is what unleashed the steep slide in the dollar, the member nations agreed to refrain from FX intervention absent “disordely markets.” It also made clear what could push a country from merely the watch list to full blown manipulator status:

While no economy met all three of the criteria, this result is a reflection, in part, of the dynamics of the global economy during the past year, in which capital outflows from emerging markets have led a number of economies to engage in foreign exchange intervention to resist further depreciation of their currency (rather than appreciation). The extent of these flows was unusually high by historical standards, which underscores the possibility that more economies may trigger these thresholds going forward.

It added that “the Administration shares strongly the objective of taking aggressive and effective actions to ensure a level playing field for our workers and companies. The President has been clear that no economy should grow its exports based on a persistently undervalued exchange rate, and Treasury has been working aggressively to address exchange rate issues bilaterally, including through the U.S.-China Strategic and Economic Dialogue, and multilaterally through the G-7, G-20, and the International Monetary Fund.”

And specifically referring to the G-20 meeting, the Treasury notes the following:

The United States has secured commitments from the G-20 member countries to move more rapidly to more marketdetermined exchange rates, avoid persistent exchange rate misalignments, refrain from competitive exchange rate devaluations, and not target exchange rates for competitive purposes. Through Treasury’s leadership, the G-7 member countries, including Japan, have publicly affirmed that their fiscal and monetary policies will be oriented toward domestic objectives using domestic instruments. Treasury has also pushed for stronger IMF surveillance of the exchange rate policy obligations of its members. The IMF now publishes an exchange rate assessment for 29 economies, and is improving its exchange rate analysis in its Article IV reports on member countries. And through U.S. leadership, the Trans-Pacific Partnership countries have adopted—for the first time in the context of a trade agreement—provisions that address unfair currency practices by explicitly adopting G-20 exchange rate commitments and by promoting transparency and accountability.

In other words, the next country that dares to engage in wholesale currency devaluation with the US’ express prior permission gets it, although it is not quite clear what “it” is (we will have more thoughts on that tomorrow).

Finally, there was no comment by the US Treasury on the biggest FX manipulator of all, the US Treasury itself which courtesy of the Fed can move the value of the Dollar higher or lower by orders of magnitude in seconds. Why? Because for now the US “reserve currency” privilege allows it to do whatever it wants, plus as a reminder, the world remains synthetically short trillions of dollars. If the US wants to punish everyone else, all it needs to do is to increase the value of the dollar by 10-15% in a short period of time, and we will again witness the same events that led to the market swoon in late 2015 and early 2016.

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Stock-Drop-alypse Wow – Gold Soars As Kamikaze Kuroda Strikes Again

Remember Wednesday night… after Facebook crushed it…

 

Overheard behind the scenes at CNBC today…

 

US Macro suffered its 4th weekly drop in a row and earnings expectations continue to weaken…

 

Stocks globally were a mess after The BoJ "shock"… NKY down 1700 points

 

Europe's worst week in 3 months

 

And US equity market's worst week in almost 3 months…

 

Futures from the Wednesday cash close show the chaos best… from The Fed to Facebook to Kuroda and from dismal macro to Icahn…

 

The panic-buying at the end managed to get S&P green for April…

 

Year-to-Date, Small Caps joined Nasdaq back in the red and The S&P gave up most of its gains… (and then a very late-day buying panic managed to get Russell 2000 to unchanged)

 

Financials were weak but Tech was a big loser on the week…

 

XLF – the US Financials ETF – broke back below its 200-day moving-average…

 

And after rushing into the safety of Biotechs in the last few weeks, they were monkey-hammered this week (down 7.5% – worst week since the first week of the year) testing its 50-day moving-average..

 

AAPL's worst week since Jan 2013 (and before that since Lehman in 2008) as the "no brainer" has fallen for 10 of the last 11 days…

 

VIX surged this week above 17… before The PPT stepped in stomped on its throat at the 330RAMP…

 

And while we prefer not to use percentage change, this week was VIX's biggest jump since the first week of the year, closing back above its 50-day-average for the first time since early Feb…

 

For the month of April Crude and Silver were the best performers, Dow flat…

 

The long-bond yield ended modestly lower on the week but underperformed relative to the belly which dropped 7-8bps…notably the gains for Treasuries accelerated into the close (the trend of selling bonds into and through the US open continues)

 

USD Index has fallen for 5 days in a row… big movers were yuuge Yen strength (after The BoJ) and AUD weakness (record lowflation)

 

This was the worst week for Bloomberg's USD Index since March 2015…

 

As Yen just had its biggest 2-day rally since Lehman…

 

As USDJPY accelerated lower into the close…

 

The USD weakness spurred comnmodities higher generically with even Copper managing toi get green after major selling pressure from China's unwind…interesting how uniform the gains in crude and PMs were on the week…

 

Despite today's rollercoaster, oil closed at its highest weekly close since Thanksgiving, up 4 weeks in a row (over 20% off the Doha Dip lows)…

 

Gold's 2nd best week since Oct 2011 (to $1299), Silver up 4 weeks in a row (topping $18)…

 

Charts: Bloomberg

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Abortion Clinic Wins Battle Against Shady Florida Bureaucrats

Contra the claims from Florida’s state health agency, there’s no evidence that a Gainesville women’s clinic performed illegal second-trimester abortions, an administrative law judge has ruled. The Bread and Roses Women’s Health Center, which is licensed to provide pregnancy testing, birth control, and first-trimester abortions, was accused by the Florida Agency for Health Care Administration (AHCA) of performing five abortions on women who were more than 14 weeks pregnant, which the clinic is not licensed to do. But according to Judge Lawrence P. Stevenson, the state “presented no testimony or documentary evidence refuting the credible evidence presented by Bread & Roses” that AHCA was wrong.

Sonograms provided by the clinic “show on their face that the pregnancies for each of the five procedures at issue were first trimester pregnancies and within the scope of Bread & Roses’ license,” wrote Stevenson in a 25-page ruling.

The monetary stakes here for Bread and Roses weren’t huge—if found guilty, the clinic would have faced a $2,500 fine. But even if the issue didn’t come back to bite them later, you can bet the case would be used to fodder Florida Republicans’ narrative that abortion clinics often skirt regulatory rules. There’s also little room for doubt here that Florida’s health agency—which lobbed similar administrative complaints against three Planned Parenthood clinics recently—has an agenda as well.

“Planned Parenthood representatives have maintained that abortions were performed during the first trimester,” according to AP, “and that regulators tried to change the definition [of first trimester] to justify an investigation ordered by Gov. Rick Scott.”

In this instance, AHCA  brought the complaint against Bread and Roses based on the flimsiest of pretenses: five abortion-patient files that did not include the start dates of the women’s last periods. However, these files did contain ultrasound info indicating how far along the women were, a method of documentation that had suited AHCA just fine for the previous 10 years, according to clinic director Kristin Davy.

“AHCA presented no evidence to counter Ms. Davy’s credible testimony that Bread & Roses had been submitting its [monthly summary] reports in the same manner for the previous 10 years without incident,” wrote Stevenson in his decision. Nor could the agency explain “why it suddenly believed that Bread & Roses’ [monthly summary] reports showed that the clinic was performing second-trimester abortions.”

The judge recommended that the agency dismiss its complaint against Bread and Roses.

AHCA already dismissed its complaints against the Planned Parenthood clinics, in March, saying they were unnecessary now that a new state law a) prohibited state money from going to Planned Parenthood, and b) changed the definitions of pregnancy trimesters. “It was not entirely clear why regulators considered the previous action to fine the clinics moot—the new law does not take effect until July 1 and would not have applied to last year’s complaints,” reports AP.

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USC Cancelled an Awesome Video Game Panel for Including Too Many Men

GamesThe University of Southern California cancelled its planned “Legends of the Games” event after the lone female participant signaled that she wouldn’t be able to attend. Administrators made the determination that an all-male panel was unacceptable, and killed the event—a mere four hours before it was supposed to start. 

“In the interest of promoting diversity and inclusion within the USC Games family, tonight’s “Legends of the Game Industry” Event in SCI 106 has been canceled,” wrote a university spokesperson on Facebook. “A new event will be arranged over the coming weeks, and we dearly hope you will join us then.” 

That’s probably little consolation to the graduating seniors who will miss out on meeting some major players in the gaming industry, even if the university is actually able to reschedule the event, Campus Reform notes. 

The panel would have included Jeffrey Kaplan of Blizzard, Brandon Beck of Riot Games, and David Stohl of Infinity Ward, according to Heat Street. 

Nevertheless, Tracy Fullerton—Director of USC Games—believes her decision to cancel the event puts USC “on the right side of history,” according to The Daily Trojan. No doubt she has struck a powerful blow against the patriarchy. 

But I wonder if students enjoy being forced to sit on the right side of history—whatever that means in this context—more than they enjoy attending cool video game events.

Matt Welch interviewed Fullerton for Reason’s special video game issue. Watch that video below.

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Did Jay-Z Cheat on Beyoncé or Do the Two Know How to Sell a Record?

The release of Beyoncé’s visual album Lemonade this weekend has stirred up a lot of online chatter about references to her husband, Jay-Z, cheating on her.

It’s also apparently helped families talk about cheating and, of course, given race baiters an excuse to race bait. Lemonade has made the lemon emoji very popular and will likely boost sales of actual lemonade (a reference to the Red Lobster chain in an album single released earlier this year contributed to a 33 percent rise in sales over one weekend.

Lemonade was released first on Tidal, a streaming service owned in part by Jay-Z and Beyoncé and competing against iTunes and Google Music. Tidal is being sued for a promise Kanye West made on Twitter that his latest album, Life of Pablo, would only ever be available on Tidal. It is now available on iTunes and Google Music.

The boon Lemonade will be to Tidal—the album is now available for sale at other services but available to stream only on Tidal—has led some to question whether the infidelity mentioned in the album actually happened. It’s reportedly making $3 million a day and could be single-handedly saving Jay-Z’s business. Artists create fiction all the time, but the Tidal connection helps illustrate Beyoncé’s power in the popular zeitgeist. Depending who you ask she’s a feminist, feminist lite, or even anti-feminist. She’s a voice for black people or for liberated women or for an entire generation. She’s a cultural icon. Above all she’s a global brand; she sells—a lot.

She is a product and master of free market capitalism. Rhetoric about not needing 18 kinds of sneakers doesn’t leave space for a lot of artistic expression. Who needs Lemonade when there are starving children? All art is ideological and ought to serve the cause of “the people.” It’s not a caricature—it’s the natural conclusion of what Sanders and his ideological fellow-travelers peddle as “democratic socialism.”

The triumph of free markets is ultimately in their ability to improve conditions for everyone and creating the space for people to pursue whatever it is they want. The power of socialist ideas, democratic or otherwise, comes from tricking people into ignoring the increase in prosperity around them and where it came from. Albums, and phenomena, like Lemonade help illustrate the wonders of free markets, which operate for and benefit even those who say they don’t believe in it.

Memes are the currency of millennials, that hard-to pin down group that says it hates capitalism but loves free enterprise, and I thought of all the memes surrounding Lemonade this one said it all:


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“We Want Them Dead” – ISIS Releases “Hit List” Of 3,600 New Yorkers

In its latest attempt to instill fear far away from the battlefield in Syria, or the recently terrorism-plagued countries of France and Belgium, last week Islamic State supporters published the names and addresses of 3,600 New Yorkers in an apparent “hit list” designed to escalate the group’s campaign of sowing fear far from the battlefield in Syria.

According to the CSM the names on the list were released last week by a group calling itself United Cyber Caliphate on the encrypted chat application Telegram, which IS supporters have used to recruit supporters and spread propaganda.  As Reuters adds, the group has urged followers of the militant group to target these 3,600 individuals and to facilitate that the hacker group has posted their personal information with the demand that “we want them #Dead.”

The list includes names, home addresses and email addresses. Some of the information appears to be outdated, according to the source, who was not authorized to discuss the investigation publicly. It was not immediately clear how IS supporters obtained the names and addresses on the list.

The list targets government employees with the State Department and Homeland Security, according to ABC, but there are also many average residents on the list who are now being informed by Federal officials that they have ended up on the ISIS hit list. NBC New York has gained access to the data, and mapped the locations of New Yorkers on the list. Many of the targeted were from Brooklyn, some from Manhattan, Staten Island, Queens and other surrounding areas.

Locations of ordinary New Yorkers targeted in ISIS-linked cyberattack

Federal agents and New York City police officers have been contacting the individuals on the list to inform them of the posting.

In a statement, the Federal Bureau of Investigation said, “While our standard practice is to decline comment on specific operational and investigative matters, the FBI routinely notifies individuals and organizations of information collected during the course of an investigation that may be perceived as potentially threatening in nature.”

One of the victims, an 88-year-old man named Art — whose last name is being withheld for privacy concerns — spoke with NBC on Thursday, telling of how the FBI visited and told him that his name was on the list posted Sunday on the private channel of a pro-ISIS group called the United Cyber Caliphate.

The FBI told him to be cautious when he goes out in public and to call 911 immediately if he felt threatened. Still, Art said he is not overly concerned for his safety.

“It sounds like psychological warfare,” he said. “Make 3,000 people in this city very upset.” FBI and NYPD officials plan to visit the homes of everyone targeted, but say there is no specific threat of violence against them.

An FBI spokeswoman said in a statement, “While our standard practice is to decline comment on specific operational and investigative matters, the FBI routinely notifies individuals and organizations of information collected during the course of an investigation that may be perceived as potentially threatening in nature. “Potential threats may relate to individuals, institutions, or organizations, and are shared in order to sensitize potential victims to the observed threat, and to assist them in taking proper steps to ensure their safety,” said the spokeswoman, Carol Cratty.

NBC News terror analyst Laith Alkhouri recently released a report on increasing efforts by pro-ISIS groups to undertake cyberattacks. Last month, a pro-ISIS group hacked into the New Jersey Transit Police website and posted the personal information of officers there. Earlier this week, the same group released what they said was the personal information of some State Department personnel. According to Alkhouri the information was posted to a channel accessible only to certain ISIS supporters. It was posted only for a short time, then taken down. He said it is likely the pro-ISIS group posts this way because releasing it more publicly would make them easier for law enforcement to track. And the group knows the information will get out to the public anyway, he said.

“What those guys are really trying to do is gain a lot of notoriety by saying we hacked American servers,” he told NBC’s I-Team. That may be true but things will change dramatically if one of the named people is actually assaulted or killed.

Alkhouri added that “these guys are trying to advance their capability, they’re trying to advance their skill set, and they’re trying to zoom in on more critical targets,” he said. Ken Maxwell, who once headed the FBI Joint Terrorism Task Force, says law enforcement has to take these kinds of threats seriously, but residents should go about their lives.

That’s something Art says he plans to do. “I’m not going to change my life, I’m not going to let this get me down,” he said. “I’m not going to even do what they’re saying be cautious in the street, because it’s nonsense, it’s nonsense.”

For the sake of some 3,600 New Yorkers, we hope Art is right.

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Reckless, Deadly Strike on Doctors Without Borders Hospital Not a War Crime, Pentagon Says

Gen. VotelWhen an American gunship launched a strike on a hospital run by Doctors Without Borders in Afghanistan last year, 42 people (some of whom were medical personnel) died. Today, military officials are confirming information that leaked in March: Even though U.S. forces “failed to comply” with the proper rules of engagement and the attack on the hospital should never have happened, nobody is going to face any sort of war crime charges.

Instead, 16 American military personnel face, according to Reuters, “administrative actions” that included “suspension and removal from command, letters of reprimand, formal counseling and extensive retraining.”

The official explanation from Gen. Joseph Votel is that the bombing was a tragedy of errors, “process and equipment failures,” and poor communication that resulted in those responsible for the attack believing they were hitting a Taliban-controlled facility, not a hospital.

Needless to say, human rights groups and Doctors Without Borders are not especially thrilled with the idea that poor communication could be used to avoid criminal accountability for the killings. From The New York Times:

“The most notable point in today’s briefing was that the report found that U.S. personnel violated the laws of armed conflict,” said John Sifton, the Asia policy director of Human Rights Watch. “And yet we are also told that the U.S. military has failed to charge even one person criminally. This is, simply put, inexplicable.”

“General Joseph Votel’s assertion that a war crime must be deliberate, or intentional, is flatly wrong,” Mr. Sifton added, saying that there were legal precedents for war crimes prosecutions based on acts that were committed with recklessness, and that many criminal acts under the United States military code could be committed with recklessness or negligence.

But, then, America has been killing innocent civilians in foreign countries with drones for some time now, and there’s no sign of accountability there, either. 

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