“Shorting Bond Vol Is Now A Dangerous Game”: Here’s How One Trader Is Going Long

Authored by Kevin Muir via The Macro Tourist

Today I have decided to try something a little different, but before we start with my experiment, let me sketch out what’s driving this line of thinking.

I have long believed the next financial crisis will not emanate from risk assets, but instead will result from governments losing control of their bond markets. I am a big fan of Bill Fleckenstein’s line:

Sure, we will have risk hiccups as Central Banks attempt to normalize rates and monetary policy, but the big one – you know, the one no one is prepared for – will occur when easing causes the long end of the yield curve to sell off hard. At that point, there will be no easy answers for politicians and policy makers. That’s the end game.

Therefore, although I am sympathetic to the idea that risk assets will be volatile, I think the better volatility-buy is supposedly riskless assets. Yup – I think owning sovereign debt volatility is a better way to capitalize on the coming financial instability.

Bond vol is dirt cheap

Great. The ‘tourist has a view about the next financial crisis. So what? Opinions are like elbows – almost everyone has one, and most of us have two.

How does this translate into an actionable idea?

Let’s first have a look at U.S. treasury bond volatility and see if everyone else has already discounted this view.

Well, cover me in jam and tie me to an anthill – far from the market agreeing with me, it looks like treasury bond volatility hasn’t been cheaper in decades.

Why is that?

There are a variety of reasons. They include various global Central Banks pegging different parts of the curve or engaging in monstrous quantitative easing programs. It’s also a function of the Federal Reserve’s shift of the past couple of decades towards more transparency and clear forward guidance. And finally, the Fed took out a fair amount of volatility from the market place when they bought their huge slug of mortgage-backed-securities and didn’t delta hedge them.

Yet I contend the longer an asset is pegged, or manipulated, the larger the imbalance and ultimately, the larger the break. And nothing has been suppressed more than the price of money.

Fixed income managers are notorious vol sellers

However, there is another dangerous aspect to this setup. Years of bond stability has created an environment where bond managers have embraced selling volatility to earn extra return. There is one famous bond manager who when he isn’t filling his ex-wife’s house with dead fish smells (allegedly), loves to sell bond volatility. It seems like every time I see him interviewed, he is giving his view, but then adding how he is juicing returns by selling options on outcomes that he doesn’t think will occur (see “Bought from you Bill” and “Bund bears in their natural habitat”). And it’s not just Bill. Don’t forget the whale leaning heavily on 3-month Eurodollar volatily (”The Monster Eurodollar Option Trade”). Selling volatility is ingrained into the psyche of bond managers.

Don’t misunderstand my argument. I get it.

I completely understand why they are selling volatility. I cut my eye teeth on an institutional equity derivative desk. Equity index implied volatility typically trades fat relative to underlying volatility, so when you work for a bank with a huge balance sheet, you are often short vol. It makes sense. You have the best ability to delta hedge. You have the most efficient execution. You have a balance sheet that (theoretically) should be able to withstand adverse movements.

So I “grew up” short vol. And I can tell you honestly, I am way more comfortable earning the theta rather than paying it out. You don’t know pain until you have a huge monster slug of long theta that is eating your P&L every slow summer day (I guess you might argue that being short gamma in a nutbar market dislocation is more painful, but at least shit is happening and you aren’t losing money for no reason).

Anyways, I don’t discount why fixed income managers have been such large sellers of vol during the past decade. After all, it has worked.

But I will recount one of my favourite Warren Buffett quotes (which I probably overuse):

We have hit the point where shorting bond vol is a dangerous game.

But how do you buy bond vol?

Which brings me to today’s experiment. There is no easy single instrument (that I know of) which allow you to buy fixed-income volatility like the VXX ETF does for equity index volatility.

As a quick aside, buying VIX products – whether they be ETFs or the VIX futures is not truly betting on increased volatility. It is a bet on the market’s pricing of future implied volatility. I know that seems like a minor distinction, but it is important to understand that VIX products are based on market’s expectations of forward volatility as opposed to actual underlying volatility. Now obviously future volatility is often best forecasted by recent past vol, so there is a relationship, but it doesn’t necessarily go together one for one.

Back to our bond vol problem. With no easily tradeable instrument, we are stuck with a problem about how to get long.

It’s not nearly as complicated as many investors envision, but I understand there is some option pricing theory involved, so I have decided to walk you through the process, and most importantly, update it every day for the life of the position. So this post will be refreshed every day as the market conditions change and will hopefully give you a better understanding on how option trading works.

December 118 straddle

Where do we start?

Well, late last week, my favourite futures broker pal, Alex Manzara noted the following:

TYZ 118 straddle traded 1’25 or higher on last week’s turmoil, but settled below 1’00 at 0’63 with 37 days to go. This period covers the employment data, US midterm election, and Nov 8 FOMC.

Alex – I couldn’t agree more. We have a ton of catalysts coming due in the next month, yet bond vol is staring at us like a sassy teenager smacking her gum while asking us, “So big shot, whatdaya wanna do?”

I want to buy vol. Big time.

So, let’s do it. And if this is going to be paper-trading anyway, let’s trade like Soros or Druckenmiller and buy a yard of 118 straddles.

I am going to initiate the trade at last night’s closing prices.

The TYZ8 118 Call went out ‘31 bid at ‘32 ask (option trades are quoted in 64ths). The 118 Put was ‘33 at ‘34. The straddle was therefore ‘64 at ‘66.

Now we could try to bid in the middle, but buying 10,000 probably takes paying the offer (even in my dreams I need to be somewhat realistic), so let’s take a fill at ‘66.

Therefore we own 10,000 TY Dec 118 Calls at ‘32 and 10,000 TY Dec 118 Puts at ‘34.

What’s the next step? We could just pull a Richard-Dreyfus and let it ride. If the futures closed more than 1 and 1/32nd away from 118, then it would be profit. Anything closer to 118 would be a loss.

But that’s not what we are trying to accomplish. We want to be long vol and delta hedge it so that regardless of the ending value of the underlying future, if the historical volatility during that period is more than the implied volatility that we paid, we win.

Think about it. What if during the next month the 10-year future plunged to 115, then rallied like a banshee up to 123, only to close right at 118? The long vol trader who didn’t delta hedge would be out their entire premium, yet the delta hedger would be rubbing their hands in glee.

Our choice is pretty clear – we need to hedge, but how do we go about that?

There are a bunch of different ways to accomplish hedging and this is where the art of option trading comes into play. Some like to hedge when their position reaches a certain delta. Others like to hedge at a certain time of day. Personally I would never hedge at the same time each day, and let me tell you why. Way back when I was on the trading desk, there was another dealer with a big short option position. In Canada, brokers all have numbers that they disclose down on the exchange to signify which firm executed the trade. This particular broker had a number that corresponded to a famous hockey player – Tim Horton (yup, for all you non-Canadians, our national coffee chain is named after a hockey player – what isn’t named after a hockey player in Canada after all?) Anyways, this broker would execute every day at 330pm. The whole desk would whoop it up as we waited for Tim Horton to come blasting out his hedges at 330pm everyday. We would cheer as Tim never disappointed. Eventually I figured out his position (I calculated his gamma based on his trades) and then I would pre-buy or sell (based on the change in the index on the day) his position at 325pm and stuff him at 330pm.

So I would never execute our delta hedge at the same time each time, but this is all pretend, so let’s make our life easy and hedge it based on the futures close at 3pm EDT each day.

Now comes the next little option trading nuance.

We are getting long volatility because we think the market is underpricing the future volatility of the underlying. Therefore, why would we use the current implied volatility estimate to calculate our hedges? I don’t get this rookie mistake too many option traders make. Don’t let your greeks be implied from the market prices. If you do that, you will be allowing market vagaries to affect your hedging.

Our option straddle is trading at approximately 3.7% implied volatility, but I think it is worth at least 4%, so that’s what I am sticking in my model.

How did I come up with that?

It’s a fair amount of guessing, but this chart might help.

You can see that volatility has rarely been this low, and 4% is a chip-shot. Especially with all these catalysts on the horizon.

Plugging the 4% vol into the option calculator comes up with a delta of 49.225 for the calls and -50.5654 for the puts. Therefore on our 10,000 lots, we end up having a delta of

10,000 x 49.225 = 4,923 long
10,000 x -50.5653 = 5,056 short

To delta hedge, we need to buy an extra 142 contracts. We will do that at 117’31.

There we go. That’s the position. I am going to monitor it and put in the delta hedges at every close. I will also calculate the P&L to walk you through how it works.

Please come back and join me on my experiment of maintaining a large long bond vol position in real time. Updates will occur between 4 and 5pm EDT.

Thanks for reading,
Kevin Muir
the MacroTourist

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Fox News Reporter Literally Hides in Bushes To Stop Women and Children Entering U.S. Illegally

The 7,000-person strong caravan of Central American immigrants snaking through Mexico on its way into the United States is causing right-wing media to lose its damn mind. Witness this shocking display from Fox News reporter Griff Jenkins, who spent the latter half of a segment on the caravan literally hiding in the bushes along the U.S.-Mexico border in hopes of stopping illegal immigrants from entering the United States.

“Were you trying to cross into America illegally?” shouts Jenkins when he spots one family that had been trying to paddle across the Rio Grande.

Next we see the same family on the American side of the river, being escorted by a Border Patrol agent. The tactful Jenkins uses this opportunity to shout a few more questions at the family before they disappear into a detention facility.

“Can you tell me why you came illegally?” he asks one woman.

“The situation of Honduras,” she eventually responds. When asked by Jenkins what the conditions are like in Honduras, she says “you can not have work there because the criminals will always get your money.”

Fortunately, Jenkins was able to stop this woman from entering the United States, where she might have been able to find employment and refuge from criminal gangs.

And lest one take the wrong message from the segment, Jenkins closes by reminding those watching at home that “they’re not all women and children,” mentioning that a murder suspect was also caught at the border two days before.

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Paul Volcker Trashes Fed, Washington Plutocrats: World’s In “A Hell Of A Mess In Every Direction”

While we have grown used to Alan Greenspan’s flexible world views appearing regularly among US media channels, when former Fed Chair Paul Volcker speaks, it’s low frequency nature tends to make on pay attention, and he is not optimistic about the state of the world… at all.

As ‘Tall Paul’ prepares to publish his memoir (ironically titled – given the current state of the world – “The Quest For Sound Money & Good Government”), he sat down with NYTimes’ Dealbook’s Andrew Ross Sorkin and was not shy about how he sees the world and where it’s going:

When he looks around now, he sees “a hell of a mess in every direction,” including a lack of basic respect for government institutions..

“Respect for government, respect for the Supreme Court, respect for the president, it’s all gone,” he said.

“Even respect for the Federal Reserve.”

“And it’s really bad. At least the military still has all the respect. But I don’t know, how can you run a democracy when nobody believes in the leadership of the country?

…a current Fed that seems to be following a completely arbitrary benchmark…

“I puzzle at the rationale,” he wrote. 

“A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.”

…and a “swamp” in Washington run by plutocrats.

“There is no force on earth that can stand up effectively, year after year, against the thousands of individuals and hundreds of millions of dollars in the Washington swamp aimed at influencing the legislative and electoral process,”

Finally, Volcker dispels with the myth that presidents historically haven’t tried to influence interest rates. Recounting a 1984 meeting he had with former President Ronald Reagan, then-chief of staff James Baker flatly told Volcker:

“The president is ordering you not to raise interest rates before the election.”

“I was stunned,” Volcker said.

“I later surmised that the library location had been chosen because, unlike the Oval Office, it probably lacked a taping system.”

Finally, Volcker returned to a bigger picture concern about America:

“The central issue is we’re developing into a plutocracy,” he told me.

We’ve got an enormous number of enormously rich people that have convinced themselves that they’re rich because they’re smart and constructive. And they don’t like government, and they don’t like to pay taxes.”

Mr. Volcker is no great fan of the president, but he acknowledged that Mr. Trump had cannily recognized the economic worries of blue-collar workers. Mr. Trump “seized upon some issues that the elite had ignored,” he said. “I don’t think there’s any question about that, in kind of an erratic way, but there it is.”

Read the full interview here…

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The New Social Media: Alternatives To Facebook, YouTube, Twitter, And Other Big Tech Platforms

Authored by Daisy Luther via The Organic Prepper blog,

Lately, I’ve written a lot about the alternative media purge and how Big Tech social media platforms are attempting to control the narrative, the elections, and public perception through censorship and financial blacklisting. Lots of people are ready to leave websites like Facebook, Twitter, and YouTube for less-censored pastures. But what are the social media alternatives that are currently available?

Here are some social media alternatives to check out.

Before we get into the alternatives, please understand that all of them will start small. None of them will be able to take on Big Tech without a lot of help and support. We’ve gotten used to free social media because the companies with whom we’ve dealt have virtually raped us, reading our so-called “private” messages, and pillaging our date to sell to the highest bidders. So really, it isn’t that free after all.

You probably won’t find your parents, your best friend from kindergarten, and your Aunt Suzie on these platforms – not yet, anyway. But what you WILL be able to do is speak without fear of censorship. You’ll be able to find your favorite alternative media sources there and find answers that simply aren’t supported by the mainstream.

The only way to change this dystopian atmosphere is to actually make changes ourselves. Go where the freedom is!


MeWe calls themselves The Next-Gen Social Network. They raised $4.8 million and launched back in 2016 to take on Facebook and Twitter. They’re about 6 million members strong so far and Mark Weinstein, the founder, plans for it to be 500 million by 2022.

“In the future, MeWe will also revolutionize social media with decentralization, which will render Facebook’s spying and tracking data model completely obsolete,” Weinstein added, a comment that suggests he is indeed trying to replace Facebook. “Awareness around the world has never been higher regarding news feed manipulation and privacy infractions. Government regulations will never truly interfere with Facebook’s data collection model, evidenced in both California’s new 2020 privacy rules and Europe’s GDPR. But the free market can — and MeWe is here giving people great communication technology in a true multi-feature platform, with none of Facebook’s BS.” (source)

Go here to get a MeWe account.


Gab.ai is a platform that is similar to Twitter. You have 300 characters with which to make your point. It has been called the Alt-Right’s social media alternative and although Gab itself doesn’t censor its users, Microsoft has threatened to take them down due to “hate speech.” A lot of folks who got banned, shadowbanned, or censored by Twitter are there.

Gab founder Andrew Torba feels that they aren’t being portrayed honestly in the media.

We survived a relentless and coordinated smear campaign by the dishonest mainstream media without any outside funding from advertisers or venture capitalists. Our community will continue to thrive and grow thanks to individuals from around the world who believe in putting people and free speech above politically correct corporate agendas.

Gab has always and will always be powered by you, The People. Gab is not just a social network, it’s a social movement. (source)

With any social network, what you see in your feed will depend on who your friends are and who you follow.

You can join Gab here.

Real.Video (Brighteon)

Real.Video was started by Mike Adams of Natural News in response to mass deplatforming on YouTube.

This is the YouTube alternative to give voices and free speech to those who are being systematically targeted and censored by YouTube, Facebook, Google, and Twitter for essentially being a pro-Liberty person, standing up for America, standing up for the Bill of Rights or just basic human rights for that matter. (source)

Adams would know about censorship firsthand, since last year, Google delisted his site, Natural News, from its search engine results.

Real.Video is in the process of changing its name to Brighteon.com and hosts numerous videos that were banned by Twitter. It’s still in the developmental stages, so there’s an occasional glitch but thus far it has been a relatively smooth user experience.

Check out Real.Video/Brighteon here.


Another budding network is Mastodon, which has the tagline “Giving social media back to you.” It’s a free, open-source network, which means that developers can contribute to it because its design is publicly accessible.

Ultimately Mastodon is a decentralized alternative to all the commercial social network platforms, which means that no single company owns it or can monopolize your communication. (source)

I found it confusing to use (maybe you need to be more techy?) and was put off by the fact that I needed to log in via Twitter. Perhaps this is just so you can connect with the same people. It’s always worthwhile to look at your options. Mastodon was started by Eugen Rochko, who was fed up with the changes that Twitter was making that closely resembled the Facebook algorithms.

Last year, after Twitter began moving away from a purely chronological feed, Rochko began building the back end for what would become Mastodon. Instead of building a unified service, Rochko envisioned something more like email, or RSS: a distributed system that lets you send public messages to anyone who follows you on the service. Anyone can create a server and host their own instance of Mastodon, and Mastodon works in the background to connect them. (source)

Here’s a beginner’s guide to using Mastodon, and here’s where you can join.

If you can figure this out, maybe you can explain it to me?


Diaspora is a social network built on three cornerstones: decentralization, freedom, and privacy. To join Diaspora, you have to choose a “pod” which is a group of potentially like-minded people. Each pod is independently hosted which should lessen the likelihood of corporate censorship.

You can follow hashtags that interest you, and you can categorize people by how you know them (family, friends, work, etc.) Then you can control who sees the different things that you post.

Diaspora is decentralized which means no one person owns it. This means that it doesn’t have any form of advertisement and corporate interference. It also does not collect any of your data. When you create your account, you are responsible for your own data and retain the ownership of your personal data.

Unlike Facebook, Diaspora allows you to use whatever identity you want, so pseudonyms and nicknames are fine to display as your profile. (source)

Go here to find yourself a pod on Diaspora.

Or you can join an old-fashioned forum.

I know that personally, I’m not too jazzed about the learning curve of some of these new options and prefer the more familiar layouts of Real.Video (Brighteon), MeWe, and Gab. But honestly, people on social media can just be so horrible that Selco Begovic and I started an old-fashioned forum that is a throw-back to the 90s/early 2000s. I like forums because they’re familiar, comfortable, and they draw likeminded people together.

While there are tens of thousands of forums out there, if you are interested in freedom, self-reliance, and survival, I hope you’ll join ours. For privacy reasons, we ask you NOT to use your real name anywhere on the registration form. All we need is a real email address to send you password updates, etc.

Go here to join The Survival & Self-Reliance Forum with Selco and Daisy.

There are social media options.

Humans are social creatures. No matter how introverted we might be, we all seek connections with others. These days a lot of those connections are online. Thanks to the internet, it’s never been easier to find like-minded people. I personally have friends from around the world who I met online that I never would have crossed paths with otherwise.

Big Tech companies like Facebook and Twitter have taken advantage of our desire to do this. They “hooked” people then they manipulated what the users would see with algorithms. They collected every word you ever typed on social media and made assessments about you so they could sell that information to advertisers. They made a fortune off of every person who ever used their services, and deep down in the fine print, people gave them permission to do so.

Now they’re trying to control the narrative by removing people who dissent against things like war, police brutality, and corrupt politicians.

If you’re looking for an alternative social media outlet, check out some of the options above. They won’t be able to take on Big Tech without us.

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October Auto Sales Tumble: “Our Car Sales Are Down 12 Percent”

The downward spiral in the US auto industry is accelerating, and there may be no improvement anytime soon.

According to a new report by CNBC, October is shaping up to be another terrible month for the industry, after an already abysmal September, as auto dealers around the country have been plagued by marked drops in retail sales and customer traffic in their showrooms.

Scott Adams, the owner of a Toyota dealership in Lee’s Summit, Missouri, told CNBC: “We are definitely seeing business pull back. September was off some, but this month our car sales are down 12 percent and our truck sales are down 23 percent.” The report notes that the drop in sales was most pronounced last weekend.

Another dealer in Tampa Bay, Florida said that sales this month were down 13%. Mark Scarpelli, president of Raymond Chevrolet and Kia in Antioch, Illinois stated that “Customer traffic has moderated. There is a little bit more of a pause because of the higher interest rates.” He said that although sales are keeping pace with the prior year, people are taking longer to buy.

Recall that in September, the average new car loan jumped $724 year-over-year to $30,958 in Q2 2018, while used vehicle loan amounts increased $520 to reach $19,708, both records.

Gary Barbera, a dealer from Philadelphia, PA, said his team needed to “dig a little deeper” to close sales this month. But he’s the exception: sales are up 6% this month.  

Meanwhile, Edmunds is still holding on to its rosy outlook, predicting that 17 million vehicles (annualized) will be sold in October. These numbers may not be noticeably worse than last year because of improving fleet sales, the report states. As a reminder, we recently wrote that the uptick in interest rates was one factor having a profoundly negative impact on the automobile sales industry. The sudden end of dealer incentives is also crippling sales.

And it looks as though the negative trends are going to continue. For instance, Renault just posted a larger drop in third-quarter sales than analysts expected. Echoing what we discussed two weeks ago when we observed the record drop in Chinese auto sales, Renault blamed the poor numbers on a global slowdown in sales in places like China and Europe, as well as on new emissions standards.

Arndt Ellinghorst, a London-based analyst with Evercore ISI, told Bloomberg that Renault’s earnings “…are unlikely to result in any positive sentiment shift” and that they were “an inconclusive start to earnings season”.

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Jim Rickards: A “Blue Wave” In Midterm Elections? Not So Fast

Authored by Jim Rickards via The Daily Reckoning,

My specialty is global macroeconomic analysis. I don’t usually get too involved in politics, and frankly I’d prefer to avoid the subject altogether.

But at certain times politics intrudes on markets and you have to account for it. With the midterm elections coming up in two weeks, it’s certainly a very important time right now.

Tuesday, Nov. 6, is the date of the U.S. midterm elections that will determine control of the U.S. House of Representatives and U.S. Senate. The outcome of those contests will determine whether Trump is allowed to finish his term or not (see below for more on that, and which outcome is most likely).

Let’s dive in…

Whatever you think of Trump personally, we all know how the mainstream media treat Donald Trump. The coverage from The Washington PostThe New York Times, NBC and other outlets is relentlessly and exclusively negative.

The media campaign against Trump is not normal bias; it’s more like a political jihad.

Trump gets no credit for reducing unemployment, cutting taxes, boosting growth, achieving a breakthrough with North Korea, defeating ISIS and standing up to the dictators in Syria and Venezuela.

Meanwhile, Trump is hammered continually on the bogus Russia collusion story while Robert Mueller is cheered on in his fishing expedition into Trump’s personal finances and unrelated problems of Trump associates.

The mainstream pundits are predicting a “blue wave” that will put the Democrats in control of the House of Representatives and lead directly to impeachment proceedings early in 2019.

That’s been the mainstream narrative for months. Basically, the idea is that Democratic voters are more motivated than Republican voters because their hatred of Trump is more powerful than support for Trump among Republican voters. The Kavanaugh confirmation process only inflamed Democratic passions even further and should help the turnout.

Perhaps. But ordinary Americans may have a surprise in store for the pundits, as they did when Donald Trump was elected in 2016. The blue wave is by no means a foregone conclusion.

The ability of everyday Americans to see through the media spin will have a huge impact on the midterm elections coming up in two weeks.

Even a coordinated anti-Trump assault from the media and the Washington establishment can’t hide the good news forever. Whether it’s sustainable or not is another question, but everyday Americans have seen that their paychecks are getting bigger, their companies are doing better and their investments are on the rise.

Please understand I’m not taking sides here. And you’re free to vote for whichever candidates you think are better for the country. I’m simply trying to predict the outcome with a scientific approach using statistical science, predictive analytics, applied mathematics and behavioral psychology.

These disciplines are what led me to call Trump’s election in 2016 when virtually the entire media establishment was predicting a Hillary landslide. They’re also what led me to predict Brexit, also in 2016. The bottom line is they are highly effective tools.

But here’s what you need to understand as an investor:

The turmoil surrounding potential efforts to unseat Trump could roil markets to a greater extent than any event since Brexit and the election of Donald Trump as president.

That means you should be prepared for market volatility in the coming days and weeks. What can you do to protect your money?

I like certain assets over others, but with a lot of volatility in the air, being overly committed to any one asset is never a good strategy. If you’re overweight stocks or you’re overweight bonds or what have you, it can be difficult to pivot away into some other asset class without taking losses.

In the face of rising volatility, cash is the ideal way to protect your portfolio. An increased allocation to cash gives you options. You can use that cash to pivot to other assets when things settle down. You may not gain much with cash, but more importantly, you won’t lose anything.

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“Worst Coverup Ever”: Trump Blasts Saudis Over Khashoggi Murder; US To Revoke Visas

President Trump on Tuesday called Saudi Arabia’s public relations efforts following the alleged murder and dismemberment of journalist Jamal Khashoggi the “worst cover-up ever.” 

Speaking with reporters at the White House, Trump said “The coverup was the worst in the history of cover-ups.” 

Trump also expressed concern over a controversial speech by Turkish President Recep Tayyip Erdogan, who rejects the Saudi account that the killing was accidental – saying that the dissident journalist was instead murdered in an operation orchestrated at the highest levels. 

Secretary of State Mike Pompeo, meanwhile, says that the US will revoke visas for the Saudi agents accused of killing Khashoggi. 

Of course, we have a feeling this is all lip service: 

Via Martin Armstrong, Statista

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Peter Schiff: If You Don’t Know You’re In A Bubble, You Don’t See The Pins

Authored by Mac Slavo via SHTFplan.com,

A potential catastrophe could occur when the current economic bubble bursts and Peter Schiff has been warning of this for a while now. The signs of economic distress are finally showing up as global markets tumbled Tuesday with European stocks touching a two-year low while United States equity futures are deep in the red.

Stocks took a nosedive on investors fears of political antics such as the trade war and rising interest rates.

Before the U.S. market opens several major companies will report results, including Caterpillar (CAT), McDonald’s (MCD), Lockheed Martin (LMT), United Technologies (UTX), 3M (MMM), Verizon (VZ), and Harley-Davidson (HOG). Results out of Caterpillar will be most closely watched with investors looking for any signs of inflation pressures, trade tensions, or a slowdown in economic growth out of the industrial giant, which is often seen as a bellwether for the global economy. –Yahoo Finance

In the past eight days, $4 trillion has bee wiped off from what had been record high values. According to NBC News,  Europe’s main markets started down as much as 3 percent and shares tumbled in Asia after a wild day for U.S. markets. Two days of steep losses have erased the U.S. market’s gains from the start of this year, ending a spate of record-setting calm for stocks.  The Dow Jones industrial average closed down 1,175 points on Monday, as the market bet on more interest rate hikes, the same day that a new Federal Reserve chairman was sworn in.

On Tuesday, Taiwan’s main index lost 5.0 percent, its biggest since in 2011 and Hong Kong’s Hang Seng Index dropped 4.2 percent. Japan’s Nikkei dived 4.7 percent, its worst fall since November 2016, to four-month lows. Australia’s benchmark S&P ASX 200 slid 3.4 percent, South Korea’s Kospi declined 2.4 percent and the Shanghai Composite index was off 2.2 percent. –NBC News

Last week, many in the mainstream media talked about the trade war, the situation in Italy, and the tensions with Saudi Arabia over the murdered journalist, linking those situations to a sliding market. But Peter Schiff had a different explanation, according to Seeking Alpha, and that is: we’re in a bear market.

“The market probably would have fallen even if none of those things happened. You know, when you’re in a bear market, and I think there’s a very good chance we are in a bear market, you don’t need an excuse for the market to go down. The market just goes down. It’s just that when people don’t know they’re in a bear market, they’re always looking for excuses. They can’t accept reality.” -Peter Schiff, Seeking Alpha

Schiff has been warning of a market collapse for quite some time, and he said it could very well be upon us.

“Now all of a sudden, finally, after all of these years, things are happening, which are screaming, ‘Ah-ha! Right, I’ve been right.’ Here this stuff is now happening, that I’ve been forecasting – these are the sure signs that the collapse is near.

Yet, the mainstream is completely oblivious because they have no idea there’s a problem. If you don’t know you’re in a bubble, you don’t see the pins. I’ve been calling this bubble for a long time and finally, it’s pin, pin, pin, right? And nobody sees it.” – Peter Schiff, Seeking Alpha

Schiff – for once – is not alone:

“It is a source of some concern that asset valuations are so high,” outgoing Federal Reserve chair Janet Yellen told CBS News, highlighting price-earnings ratios in equities.  Yellen appeared to be sounding the alarm on stock prices urging caution. But most economists have foreseen this kind of a market drop.

“Everybody knew this was coming – stocks are close to record valuations and it was a matter of when it was going to happen, not if,” said Dan North, chief economist at Euler Hermes North America. “I would expect that at this point, it’s probably sentiment-driven and we’ll get a rebound.

David Kelly, the chief global strategist for JPMorgan Asset Management agrees with North’s assessment.  “It’s like a kid at a child’s party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge,” Kelly said.

But, Peter also took on this notion that the Fed is raising interest rates “for the right reasons.” They are doing it because the economy is improving. They always think that though. That’s what they do – they raise rates when they think the economy is strong. But Peter said they are about to find themselves in a position where they have to raise rates when things are tanking.

They’re going to have to raise interest rates into a weak economy. In fact, they’re going to have to raise interest rates into a financial crisis, into a depression. And if they don’t do it, we’re going to have something even worse. We’re going to have hyperinflation. That is the box, unfortunately, the Fed has placed itself in based on years and years of this monetary policy.”


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WTI Slumps Back To A $65 Handle After Huge Crude Build

Having rebounded modestly back off a $65 handle intraday after OPEC/Saudi production comments, all eyes are now on API tonight which printed a huge 9.88mm barrel inventory build (biggest since Feb 2017) sending WTI back to a $65 handle.

Saudi Energy Minister Khalid Al-Falih said OPEC and its allies are in “produce as much as you can mode.”



  • Crude +9.88mm (+3.7mm exp) – biggest since Feb 2017

  • Cushing +971k (+1.5mm exp)

  • Gasoline -2.8mm

  • Distillates -2.44mm

After last week’s surprise crude build (for the 4th week in a row), API has some catch up to do to DOE data and catch up it did reporting a massive 9.88mm barrel build…


WTI was hovering around $66.30 ahead of the API data and dropped back to a $65 handle on the print…

“There are several reasons for the slide in crude oil, chief among them is it’s a risk-off day across all financial markets,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “You’re seeing people flee the commodities and equities space to most likely put their money in safe haven.”

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Earnings Wreck Continues: Texas Instruments Crashes After Slashing Guidance

After disastrous guidance from 3M, which was promptly downgraded to 2M by the market, and ugly commentary from CAT which while beating expectations warned that “manufacturing costs were higher due to increased material and freight costs,” adding that “material costs were higher primarily due to increases in steel prices and tariffs”, moments ago semiconductor icon Texas Instruments became the latest company to sound a loud alarm on peak earnings.

In its just released earnings report, Texas Instruments not only reported Q3 earnings which missed on revenue of $4.26BN (below consensus $4.30), as analog revenue grew 8% and Embedded Processing declined 4% from the same quarter a year ago, while EPS of $1.58 beat the $1.53 consensus estimates (thanks to a 18% tax rate), but more importantly slashed Q4 revenue guidance, which is now expected in the range of $3.60 billion to $3.90 billion, below the $4 billion estimate, and Q4 EPS in the range of $1.14 to $1.34, also well below the $1.38 estimate.

The company did not provide details on why it is cutting its guidance but the market did not care and clobbered TXN stock after hours, sending it to 12 month lows.

The silver lining: like most of its peers, TXN has returned more cash than it generated to shareholders:

Free cash flow for the trailing 12 months was $5.9 billion, or 37.5 percent of revenue… We have returned $6.2 billion to owners in the past 12 months through stock repurchases and dividends.

Meanwhile, in what is surely just a coincidence, the Semiconductor index is back to where it was during the peak of the dot com bubble…


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