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After being ordered without bond during his first court appearance after murdering 17 of his former classmates and wounding nearly two dozen others, school shooter Nikolas Cruz has been linked by the Anti-Defamation League to a White Supremacist group called the Republic of Florida.

Meanwhile, Cruz made his first court appearance, shackled and “cowering in fear” as the Daily Mail described it. He was wearing an orange jumpsuit and both his hands and ankles were bound.

The ADL said ROF leader Jordan Jereb told them Cruz was associated with his group. Jereb, who is based in Tallahassee, said Cruz was brought into the group by another member and had participated in one or more ROF training exercises in the Tallahassee area, the ADL said.

Law enforcement officials haven’t confirmed the connection, Jereb did publicly disavowed Cruz and his actions, but confirmed that Cruz did train with his militia, according to the New York Post.

The eader of the group told ABC News he has not spoken to Cruz in “some time” but said “he knew he would getting this call.” He would not comment further but emphasized that his group was not a terrorist organization.

Cruz, a 19-year-old orphan with a troubled past, a fascination with weapons and resistance groups, and an AR-15 rifle, was charged with 17 counts of premeditated murder Thursday morning after being questioned for hours by state and federal authorities following the deadliest school shooting in the US in five years.

Cruz’s unsuspecting former classmates thought they were having another drill Wednesday afternoon when a fire alarm sounded, requiring them to file out of their classrooms. That’s when Cruz, equipped with a gas mask, smoke grenades and multiple magazines of ammunition, opened fire with a semi-automatic weapon, killing 17 people and sending hundreds of students fleeing into the streets. Cruz was able to leave the scene and blend in, but was apprehended about an hour after he stopped firing.

The ROF has mostly young members in north and south Florida and calls itself a “white civil rights organization fighting for white identitarian politics” while seeking to build a “white ethnostate” in Florida.

Three former schoolmates of Cruz told ABC News that Cruz was part of the group. They claimed he marched with the group frequently and was often seen with Jereb, who also confirmed to ABC News that Cruz was, at least at one point, part of that group.

In an interview with ABC News’ George Stephanopoulos, an attorney for the family that had taken Cruz in for the past few months said Cruz was “depressed” following his mother’s death but he had been going to therapy.

The family is still “shocked,” he said, that Cruz would allegedly engage in mass violence.

“They indicated they saw nothing like this coming,” Lewis said. “They never saw any anger, no bad feelings about the school.”

A family that had taken Cruz in after the November death of his mother was aware he owned a legally purchased AR-15 within the past year from a federally licensed dealer, but they said it was locked in a safe.

“He brought it into the home and it was in a locked gun safe,” the lawyer said. “That was the condition when he came into their home that the gun was locked away.”

Cruz had a history of mental illness and violent threats that had led to him getting in trouble repeatedly at school. One student who participated in Junior ROTC with Cruz described him as a “psycho.” Cruz was a well-known weapons enthusiast, the student said, who once tried to sell knives to a classmate.

Cruz even reportedly threatened to shoot up the school…

“About a year ago I saw him upset in the morning,” student Brent Black told ABC News.

“And I was like, ‘yo what’s wrong with you?’

And he was like ‘umm, don’t know.’

And I was like ‘what’s up with you?’

He’s like ‘I swear to God I’ll shoot up this school.’

And then I was like ‘watch what you’re saying around me,’ and then I just left him after that.

He came up to me later on the day and apologized for what he said.”

But despite these threats, no action was taken other than to bar him from campus and to instruct teachers not to let him near campus with a backpack. Broward County Sheriff also said “disturbing” content was found on Cruz’s social media accounts. The photos released so far depict Cruz with an arsenal of weapons – a common sign among school shooters. the Columbine shooters also took photos of them posing with weapons. 

In a shocking admission, an FBI official also said Thursday that they were warned – not once, but twice – about the shooter. One of the warnings came in September, from a bail bondsman in Mississippi who alerted the feds about an alarming online message Cruz wrote saying he was ‘going to be a professional school shooter’.

Ben Bennight, a Youtube commentator, said he alerted the FBI to a comment shared by Cruz on one of his YouTube videos back in September. He says the FBI was quick to respond to the concerning statement, arriving at his office the very next day to find out if he knew anything about Cruz, but the bureau was ultimately unable to ascertain his identity.

Even the president lamented the lack of action despite so many “disturbing signs”…

 

So many signs that the Florida shooter was mentally disturbed, even expelled from school for bad and erratic behavior. Neighbors and classmates knew he was a big problem. Must always report such instances to authorities, again and again!

— Donald J. Trump (@realDonaldTrump) February 15, 2018

 

Police say they’re “already dissecting” his social media posts.

“We have already begun to dissect his websites and things on social media that he was on, and some of the things that have come to mind are very, very disturbing,” Israel said.

A cowering Cruz was decided to be held without bail during his first court appearance on Thursday, where he was officially charged with 17 counts of premeditated murder.

The 19-year-old who killed 17 and injured more than a dozen in a shooting at Marjory Stoneman Douglas High School in Parkland, Florida on Wednesday did not speak in court today, other than to confirm his name with a polite ‘yes ma’am’ to the judge. Mostly, he he kept his gaze to the ground.

He wore an orange jumpsuit, and had both his hands and ankles shackled. As he took the podium to speak to the judge over livestream video from the Broward County jail, a handful of sheriff’s deputies and prison officials gathered around, as the Daily Mail reported.

A female attorney representing Cruz rested a reassuring hand on his shoulder while the charges were read.

A Broward County official said Cruz has been on suicide watch since being taken into custody because he has threatened to kill himself.

He was initially taken to the hospital for “labored breathing”…police then spent most of the night questioning Cruz about his motives and the possible role of anybody else.

The shooting was the 30th mass shooting in the US this year, and both Connecticut senators Chris Murphy and Richard Blumenthal released videos of them making strident calls for gun control.

Florida Gov. Rick Scott speaks to reporters at a Thursday morning press conference about the shooter, accompanied by Broward County Sheriff Scott Israel and Parkland School Superintendent Robert Runcie.

In another admission that calls into question how, exactly, Cruz managed to legally buy an assault rifle,  Broward County Mayor Beam Furr also revealed that Cruz had been getting treatment at a mental health clinic for a while, but hadn’t been back to the clinic in more than a year.

“It wasn’t like there wasn’t concern for him,” Furr told CNN. “We try to keep our eyes out on those kids who aren’t connected. … In this case we didn’t find a way to connect with this kid.”

President Trump addressed the nation this morning after the shooting, which was the eighth largest mass shooting in US history.

Cruz had been suspended from the school from fighting his ex girlfriend’s new boyfriend and was depressed and having girl problems at the time of the shooting.

Trump ordered all flags to fly at half-mast Thursday…

* * *

Meanwhile, the Mail has published a detailed list of all the alleged “warning signs” about Cruz and his intentions that were simply missed or ignored…

1. ‘I’m going to be a professional school shooter’

Nikolas Cruz left a comment on a YouTube video back in September using his own name that simply read: ‘I’m going to be a professional school shooter’

2. FBI was warned about the comment but couldn’t identify him

Vlogger Ben Bennight alerted the FBI to the comment shared by Cruz. The FBI was quick to respond, arriving at his office the next day but only after Bennight called a local field agent, revealing his initial attempts to send in a screengrab of the comment failed when the email address he found listed on the agency’s website came back with a domain error saying it did not exist. The FBI was unable to identify the person who posted the comment.

3. Bought an AR-15 age 18

After Cruz’s mother died, he eventually moved in the the family of a former classmate, where he brought his AR-15 which was kept in a locked cabinet that he had the key to. He was able to purchase the rifle in the past year and passed a required background check. Federal law allowed people 18 and over to legally purchase long guns. At 21, people can legally buy handguns from a license dealer

4. Troubling Instagram page

Cruz’s Instagram page is filled with disturbing posts of what appears to be himself showing off with weapons with his face covered, asking for advice on buying firearms, and making racist comments about Muslims.

5. Was a member of a white nationalist group and came to training exercises

Jordan Jereb claims that Cruz was a member of the Republic of Florida, which aims to make Florida its own white-entho state. Jereb claimed Cruz, who was adopted, was brought up in the organization by another member and he reportedly carpooled to at least two training exercises held by the group.

6. Boasted about hurting animals

Students who say they knew Cruz claimed he liked to kill animals.

‘He was crazy because he liked to kill small things, like little animals – frogs and other animals like that and he just had a crazy mind,’ one told 10ABC news.

Another classmate claims he would tell him he shot rats with a BB gun.

7. Took knives and bullets to school

Former classmate Joshua Charo, 16, said all he ‘would talk about is guns, knives and hunting’.

Another student said he started selling knives out of a lunchbox when he started high school.

8. Was banned from carrying a backpack

Jim Gard, a math teacher, who had Cruz in his class last year, said he believes the school sent out an email warning teachers he shouldn’t be allowed on campus with a backpack.

‘There were problems with him last year threatening students and I guess he was asked to leave campus’.

9. Expelled for fighting

The deeply troubled ‘loner’ was expelled last year for ‘fighting over his ex-girlfriend’ with her new boyfriend.

10. Abusive to his ex-girlfriend

Students claim the gunman was abusive to his girlfriend

11. Stalked another girl

Mr Gard also claimed that he was taken with another student ‘to the point of stalking her’, while another student who claims to have been friends with Cruz said he had to cut him off because he started ‘going after’ and ‘threatening’ a female friend of his.

12. Peeping Tom

Neighbor Christine Rosburgh said she, and all the other neighbors, were terrified of the teen who would bang his head against a cement wall if his legal guardians tried to send him to school.

She also claims she caught him peeking in her window and when she confronted him, he said he was looking for golf balls.

‘I said, “This isn’t the golf course”.

13. Stopped his mental health treatment

Cruz had been getting treatment at a mental health clinic, but stopped about a year ago and dropped off the radar. He was showing signs of depression.

Broward County Mayor Beam Furr said: ‘It wasn’t like there wasn’t concern for him. We try to keep out eyes out on those kids who aren’t connected… In this case, we didn’t find a way to connect with this kid.’

14. Possible fetal alcohol syndrome

Natalie Brassard, a program director at the non-profit FASCETS, which works with FASD children, said some of Cruz’s characteristics ‘suggest that he might have been living with an invisible brain-based condition – it could have been FASD or many others.’

Conditions of FASD can range from mild to severe but can include learning disabilities, intellectual disability or low IQ, poor reasoning and judgment and a host of other issues.

15. Orphaned

Cruz’s adoptive mother, Lynda Cruz, 68, died of pneumonia in November last year. She was one of the only people that was remotely close to Cruz. His adoptive father Roger Cruz died of a heart attack several years ago.

After his mother died, he and his brother were left in the care of family friend Barbara Kumbatovich, of Long Island, New York, but unhappy there, he moved in with a former classmate in a mobile home park in northwest Broward.

via Zero Hedge http://ift.tt/2HleuWg Tyler Durden

Recent concerns about a liquidation by China of its US Treasury holdings appear to have been greatly exaggerated because according to the latest TIC data released at 4pm on Thursday, in December, China not only added $8.3 Billion to its holdings, bringing the total to $1184.9BN, or about $26 billion more than a year ago, but for the full year 2017, China added the most Treasury holdings going back seven years.

But while China appears content with its US paper inventory, it was the second largest foreign US creditor, Japan, that has been liquidating in recent months, and in December, Japan sold $22.6 billion in TSYs, bringing its total to $1,061.5BN, the lowest total since the start of 2012.

Other notable holders were mixed:

• Russia sold $3.5BN to $102.2BN
• The United Kingdom added $12.5BN to $250BN
• Belgium, i.e. the proxy for China and other anonymous buyers, rose by $3.9BN to $119.2BN
• Cayman Islands, i.e. hedge funds, also added some $2.5BN to $269.9BN

The good news for all these buyers of US debt is that thanks to Trump’s budget, there’s plenty more where that came from.

Looking at the broader universe of all US International capital transactions, in December, foreign public and private entities sold a total of $16BN in Treasurys while buying $16.4BN in Agencies; they also sold a modest $1.25 BN in corporate bonds.

But the biggest surprise was the surge in US stock purchases by public and private foreign entities, which in December amounted to a whopping $35.1 billion (of which official entities sold $5.3BN while private entities bought $40.3BN), the second highest monthly total on record, and smaller only compared to the record foreign buying in May 2007, when offshore entities bought a record $42 billion.

So in addition to buybacks, algos, CTAs, risk parities and a relentless retail bid, here is another reason for the tremendous equity meltup at the end of 2017: furious buying of US stocks by foreigners, a trend which will likely continue well into 2018.

via Zero Hedge http://ift.tt/2HijZER Tyler Durden

Seriously…

 

Stocks are up five days in a row… Nasdaq up 5.6% this week alone…

 

For context, this is the Nasdaq’s best 5-day rally since 2011!!!!

Small Caps got back to even for 2018 (trannies still red)…Nasdaq is up 5% YTD

 

Nasdaq Futures are up 10% off the lows…

 

As “Most Shorted” Stocks soared off the lows… This is the biggest short-squeeze since the election

 

The Dow tested back below its 50% retracement level but rebounded quickly to a new bounce high…(oh, and Gartman nailed it again)

 

The S&P closed above its 50DMA…

 

The Inverse VIX ETF fell today as stocks gained – the first time that has happened since the collapse…

 

VIX was chaotic around the open today…

 

Despite stock strength, VIX ended the day modestly higher and we do note a significant divergence

 

While prices for HY and IG debt have ‘stabilized’ they are not rallying as exuberantly as stocks… perhaps because they just got hit with the biggest ETF fund outflows ever…

And just in case you needed any more confirmation of how nuts the world has become, Emerging Market High-Yield Debt is now trading at a lower yield than US High-Yield Debt…

 

Treasuries were notably mixed today with the long-end rallying and short-end higher in yield… On the week 30Y yields remain lower…

 

Which pushed the yield curve even flatter…

 

The Dollar Index bounced very briefly on BoJ headlines then tumbled back to its lowest close since Dec 2014 – down 5 days in a row…

 

Once Europe closed today, the dollar (lower) and gold and stocks (higher) were locked at the hip…

 

Once the dollar started sliding again this afternoon, commodities were all off to the races…

 

Cryptocurrencies continued their strong run this week…Bitcoin is up 20% on the week…

 

With Bitcoin seemingly tied at the hip to Nasdaq and VIX…

 

As a final reminder, markets are about to somewhat quieter (or at least less liquid) as most of Asia heads into the year of the dog and their celebrations.

 

via Zero Hedge http://ift.tt/2C20FfV Tyler Durden

Authored by Nicholas Colas via DataTrekResearch.com,

Not to be a party-pooper, but we wouldn’t take too much comfort in today’s US stock rally. Wednesday was the expiration day for monthly CBOE VIX Index options. Traders in those instruments have been on a wild ride over the last week. Squaring up positions on expiration day tends to create incremental volatility in normal environments. Add the much higher levels of open interest now, and you have the makings of a “Black Cygnet”, if not “Swan”. We linked to a Bloomberg story yesterday that highlighted this, and include it here.

We’ve seen the volatility market “tail” wag the stock market “dog” a lot recently, so we’re going to chalk up today’s move to the downdraft in the VIX related to expiration. One possible compounding effect: short covering as the S&P went unexpectedly positive just after 10am. While explaining daily moves is hard, we like this narrative better than “Stocks have discounted higher rates already”. That feels premature.

The combination of sluggish retail sales and higher CPI inflation, both out this morning, actually had a whiff of “Stagflation” about them – low economic growth and inflation. That term, by the way, was not invented in 1970s America even though it fit the economic mood of the times. Rather, it was the creation of a colorful British politician named Iain Macleod who used it in a magazine article in 1965.

Now, we aren’t especially worried about the retail sales number (0.3% lower than December, seasonally adjusted) for three reasons:

• We will shortly see the effect of lower tax and withholding payments in worker paychecks from last year’s tax reform. Very little of the reduction in personal tax rates and higher standard deductions appeared in January paychecks. Payroll processors needed more time to adjust withholding tables, but the new rates should be in place by the end of this month. US consumers have a long history of spending “found money” – this time shouldn’t be any different.

• Negative retail sales prints are hardly uncommon, even in economic expansions. There were 3 last year, for example, and 2 the year before that.

• Year on year growth is still 3.6% higher. Yes, that is slower than the +5% prints of Q4 2017, but similar to those from June, July and August of last year.

Now, the CPI inflation story is one that equity investors do need to keep top of mind. A few points here:

• While not part of “Core” inflation, both Food and Energy (21% of the headline CPI number by weighting) are getting more expensive. Food inflation was +1.7% year-on-year in today’s report; it was negative 0.1% a year ago. Gasoline prices (half of the Energy basket) are +8.5% higher than a year ago.

• Owners Equivalent Rent (how the BLS factors inflation for shelter) is an important category – 32% of headline CPI and 42% of core. Inflation here has ticked down from 3.6% at the end of 2016 to 3.2%. Full employment and the stimulus from tax reform should filter through to the housing market quickly enough to see a difference in 2018. Given its importance to the CPI calculation, this is the number to watch.

• Telephone services (mostly wireless plans) are no longer a headwind to higher inflation. This is a small part of CPI – just 2.3% of headline – but it was one explanation the Federal Reserve used last year to explain low inflation. That excuse is slowly receding – the CPI reading here was -6.6% year over year, but off the worst comps of -9.0% from last year.

The upshot here is that the US growth story is fine, but inflation is slowly ticking higher. If that were the end of the story, equity investors and markets would be fine. The great unknown: what will larger worker paychecks, a weaker dollar, further Federal stimulus, and tighter central bank policy do to consumption, inflation and interest rates?

One last point to cap the discussion: today, Fed Funds Futures showed a large increase in the odds that the Federal Reserve hikes rates 4 times or more this year rather than the guidance of 3 bumps. The odds of “4-or-more” increases now stands at 26%. The last time they were in the same neighborhood was last week, right at the start of the equity market decline.

Fed Funds Futures Odds: http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/

via Zero Hedge http://ift.tt/2EK7ELu Tyler Durden

For a few days last week, Crispin Odey, arguably the world’s most bearish hedge fund manager, felt vindicated when the very structure of the market appeared to be disintegrating before our very eyes, when a relentless liquidation panic by vol-selling machines seemed unstoppable and humans could only watch in horror and pray that someone would step in and BTFD. Then abruptly as it started, the selling stopped and the relentless low-volume, central-bank mandated grinding levitation that has become the hallmark of this “bull market” returned and last week’s correction is fast on its way to being relegated to the “crash” compost heap of the traders’ collective subconscious.

Or maybe not.

In his latest letter to clients – who were pleasantly surprised to see a modest pick up in Odey’s January performance – Crispin Odey wrote that there is one potential catalyst that will decide over the next few weeks that will determine whether the market slide is indeed over, or if what follows is continued risk asset pain, another market correction, and ultimately a recession: namely, whether investors, comforted by record high credit card balances and the promise of surging stocks, will retrench and start saving again after last week’s stock market scare:

Whether the fall was the herald of more bad news to come out of financial assets, the next few weeks will tell. High asset prices have driven down precautionary savings. Will a fall in those assets be sufficient to cause savings to rise sharply – a classic reason for a recession – that is the question?

The logic is simple: as we showed recently, America’s personal savings rate recently dropped to near all time lows. While this has had a stimulatory effect on the economy – and boosted stocks – there is only so much “deferred spending” that US households can extract from record credit cards balances, while hoping that the S&P will keep rising indefinitely. If and when this process shifts into reverse, is also when the recent economic gains start receding, eventually pushing the economy into contraction, while hurting corporate profits in the process. And since all this is taking place as the Fed continues to hike rates, the concurrent drop in both Earnings and P/E multiples would be sufficient to send stocks substantially lower from here.

Savings aside, Odey also writes that the key question going forward is whether inflation is truly back. To answer that, one needs to consider three things: central banks and math PhD’s…

QE introduced mathematicians to our market place. With risk doubled down, they had a ball with financial instruments. Their ability to marshal data was game changing but their demand for data was also their weakness. The further back in time they went, the poorer the data they could recover and the sheer amount made it impossible to mine far back.

… and of course, QE:

Monetising has taken many forms in the past, but it rarely lasts more than 2 years before it passes from financial assets into the real economy. For my money the closest fit is with 1971-1974. Like then nobody had witnessed inflation greater than 2%.

Governments reacted to the end of the Bretton Woods exchange rate system (a gold standard) by both monetising and spending on a giant scale. The massive monetary injection was felt firstly in 1972 by the rise of the nifty fifty stocks – those companies whose prospects could never dim – to begin with but by the end of ’73 and into ’74 by a global boom which in the end lifted all commodities and by ’75 had led to wage inflation in the western world of over 8%.

However, unlike the 1970s, assets today are priced far, far higher. In fact, “financial assets – both bonds and equities – react only badly to ever rising inflation and moreover equities, thanks to QE, are as expensively priced as they were in 1928/9 and 1999/2000.“

As for the threat of inflation, recall that as we showed one week ago, after two decades of declines the velocity of money appears to have finally bottomed.

There is also one more parallel to the 1970s: back then, besides the global economic crisis, the world faced a “crisis for capitalism.” Well, according to a growing chorus of skeptics, thanks to the countless passive investing vehicles used today, among them countless levered and inverse ETFs many of which destabilize the market and threaten an illiquid collapse which combines the worst aspects of the August 2015 and February 2018 crashes, the market once again no longer rewards the proper allocation of capital – i.e., the core purpose of “capitalism” – and as such we face a new, and even more serious “crisis of capitalism” today.

This is not a place from which you would like to begin this journey. For the optimists, globalisation and productivity needs to come to their aid. Remember that the 70’s were not just a time of economic crisis. It witnessed a crisis for capitalism as well. Wealth cannot be defended, but capitalism is about competition overcoming rent-seeking and should be defended.

Unfortunately, as last week’s events showed, nobody will care until it is too late, and the accusations, fingerpointing, name-calling and scapegoating will be all the rage… after the crash. Until then, well, stocks are going up so best to keep pretending everything is fine, and all the problems which led to a global, coordinated freak out last week, have magically been fixed.

* * *

Odey’s full January 2018 Fund Manager Report below.

Frankly what happened when the Dow Jones fell by 1400 points in a little under an hour, had nothing to do with humans. A reputation for being safe and secure was enough for mathematicians to build castles in the sky for ‘investors’ to live in. On Monday those castles fell from the sky.

What caused the move? Undoubtedly the rise in bond yields over the last three weeks was responsible, and behind that a conviction that after two years of rampant monetising by the authorities in general, economic activity was picking up quickly and with little give left in global capacity, would result in rising prices and even wages.

Whether the fall was the herald of more bad news to come out of financial assets, the next few weeks will tell. High asset prices have driven down precautionary savings. Will a fall in those assets be sufficient to cause savings to rise sharply – a classic reason for a recession – that is the question? Another, and I think, important angle is whether the printing of so much money over ten years would allow global inflation to become a problem.

24 years after China first burst onto the global trading scene thanks to a devaluation of the Renminbi and the signing of GATT which brought 6 billion people into a trading system of 1.6bn people, there are signs now that the deflation caused by their participation, has well and truly fed through the system.

Recently my investing has taken me into the arcane world of antimony refining. Antinomy is a very small market but like all commodities it is dominated by China who manufacture 50% of it. In 1995 they arrived in this market and quickly drove out western refineries with the low margins they were willing to work for. Twenty three years later the world is running scarce of easily obtained antimony and this is a market in which domination by a country more interested in trading than commercialisation has had a price. From here supply can only be brought on by higher prices and a commercial thinking which develops markets outside of where they currently are. It feels like a microcosm of many commodities’ positioning today. If the world is again full of scarcity, printing money will first lead to inflation and more importantly stagflation.

QE introduced mathematicians to our market place. With risk doubled down, they had a ball with financial instruments. Their ability to marshal data was game changing but their demand for data was also their weakness. The further back in time they went, the poorer the data they could recover and the sheer amount made it impossible to mine far back.

And thankfully so because it allowed historians to study similar times to this and draw out trends that rhyme with today. Monetising has taken many forms in the past, but it rarely lasts more than 2 years before it passes from financial assets into the real economy. For my money the closest fit is with 1971-1974. Like then nobody had witnessed inflation greater than 2%.

Governments reacted to the end of the Bretton Woods exchange rate system (a gold standard) by both monetising and spending on a giant scale. The massive monetary injection was felt firstly in 1972 by the rise of the nifty fifty stocks – those companies whose prospects could never dim – to begin with but by the end of ’73 and into ’74 by a global boom which in the end lifted all commodities and by ’75 had led to wage inflation in the western world of over 8%.

The secret as to why this happened was that the authorities were very slow to tighten monetary policy and were more intent on maintaining full employment than a sound currency. If this all sounds familiar, please remember that the stagflation of the 1970’s came only after 2 years of monetising, not ten years.

Financial assets – both bonds and equities – react only badly to ever rising inflation and moreover equities, thanks to QE, are as expensively priced as they were in 1928/9 and 1999/2000. This is not a place from which you would like to begin this journey. For the optimists, globalisation and productivity needs to come to their aid. Remember that the 70’s were not just a time of economic crisis. It witnessed a crisis for capitalism as well. Wealth cannot be defended, but capitalism is about competition overcoming rent-seeking and should be defended.

Finally, for those curious, here is Odey’s latest summary P&L:

via Zero Hedge http://ift.tt/2C2njET Tyler Durden

Authored by John Coumarianous via RealInvestmentAdvice.com,

Frustration with a decade of low bond yields can cause investors to sabotage their portfolios.

The Wall Street Journal reported today that low bond yields has pushed institutional investors like the Harvard University Endowment, the Employees’ Retirement System of the State of Hawaii, and the Illinois State Universities Retirement System to make bets on market volatility. Specifically, the institutions used options contracts to bet on continued and ever increasing market calm.

Some also invested in ETFs designed to short (bet against) the Cboe Volatility Index or VIX, a measure of expected turbulence in the S&P 500.

The article quotes Alberto Gallo, a portfolio manager at Algebris Investments in London saying “Our fear is when these strategies unwind.” He estimates there are more than $500 billion in strategies depending on stock market volatility remaining low, though it’s difficult to track exactly how much money is in this bet.

Institutional investors have flocked to these strategies because they are under pressure to generate returns of 7%-8%, year in and year out, according to the article.

Unfortunately, the ProShares Short VIX fund (SVXY), which many institutional investors own to make their short bet on volatility, reported a jaw-dropping 97% drop in its net asset value last week, when the stock market dropped and volatility jumped, according to the article. Morningstar reports that the fund is down 90% for the year through February 13^th.

Lessons to Learn from Harvard’s Blunders

One lesson individual investors can learn from these institutional blunders is to stick to your financial plan, and don’t worry about posting a particular return number every single year. Market returns are typically lumpy, and that’s fine. Retirees need to be cognizant of protecting the downside, as I argued in this post. Severe losses can destroy a portfolio that is in distribution phase, even if they are matched by robust gains in other years. But a small loss or a modest gain that doesn’t match your withdrawal rate on occasion is fine. The attempt to engineer a particular return every year can result in disaster.

The other lesson for smaller investors is that markets are rarely as calm as they’ve been in recent months and years, last week notwithstanding. As I wrote recently in another post, we’ve had return and volatility characteristics that matched Bernie Madoff’s fraudulent ones. Don’t get spoiled into thinking returns come so easily. When these bets unwind, the volatility will likely be intense – just as it was last week.

Nobody knows when that will be. But you should be prepared for it.

We live in a strange financial world with record low interest rates, and investors should understand how unique it is – and how its unwinding will also likely be unique.

As Vitaly Katsenelson wrote in a recent post, “Warren Buffett – the Oracle of Omaha himself – admitted that he doesn’t know how the QE [Quantitative Easing] experiment will end. And if you think well-meaning economists running central banks know, you may have another thing coming.”

Last, investors should think about this strange short-volatility bet in the context of the insurance business. Insurance companies accept premium payments to insure future risks. If they making accurate calculations, they are taking in enough premium to cover the inevitable claims they will have to pay. If they are not, the claims will bankrupt them.

Similarly, in the Big Short, some investors accepted premium payments to insure mortgages that ultimately went bad. The protagonists in the book and movie, by contrast, were on the other side of the trade; they were paying premiums to insure the bonds and get paid when the bonds went bad. Obviously paying for insurance in that instance reflected better judgment.

In a sense, investors who are “short volatility” or betting on volatility to remain low are accepting a premium payment to insure against an event that they think will not occur – a big market downturn or the return of volatility. Do you really want to bet that you won’t have to pay out someday if you’re short volatility? Do you really want to bet that volatility won’t return, or that you’ll be adept enough to get out of the insurance business just before the claims have to be paid? Consider the argument that when things are clam, and insurance gets cheap, the thing to do is buy it, not sell it.

via Zero Hedge http://ift.tt/2ErqYcN Tyler Durden