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Authored by Bill Blain via MINT Partners,

“There is no dark side of the moon. As a matter of fact, its all dark… ”

Regular readers will know I have an abiding interest in the stars – half-a-dozen apps on my phones, binoculars and telescopes in the London Bunker and Blain Manor down south. It’s a rational and fascinating topic. However, I am approaching tonight’s Super-Blue-Blood-Moon with some trepidation. I’ve an aunt who is a wiccan priestess, and I often wonder if there is something in mythology linking the affairs of men to the moon. Science has found many cases where lunar cycles influence life. Lunacy abounds around full moons.. Should we be going long pitchforks and torches?

Tonight’s conjunction of Lunar events is rare but predictable – but what if there is something in it? Astrology was a whole science based upon the moon and starts. Lunar eclipses are common, but seldom in conjunction with the Moon’s closest approach to earth and two full Moons in a month. Life on Earth would not exist without the Moon’s gravity driving tectonics and tides. Just saying….

What if the minor wobbles across stock markets this week are driven by some deep-rooted genetic ancestral fear of the skies? Absolute nonsense of course.. but stranger things abound…

Perhaps its better to remember that old stock market truth: there are 27 doors leading on to the floor of the New York Stock Exchange, but only one exit.

Last night I was fortunate enough to attend a Livery Dinner in the city as guest of a marvelous young lady who, in a few years, will become Master of the Worshipful Company of Actuaries. While the Actuaries might not be the oldest of the City Guilds – they embrace all the traditions with gusto! They also tend to be smarter than the average accountant. Despite what you might have heard, there are few good jokes about Actuaries – and they’ve heard them too many times.

Neither are they just statisticians working out mortality rates. Julie is Chief Risk Officer of a major UK institutional Investor – managing and quantifying risk across the book. Talking to other members and guests, it became clear the actuaries realize just how risk vs returns are massively out of synch… time to wonder about valuations in general! However, I was a tad concerned when one risk manager told me his solution was to switch into liquid instruments – Whoa! When/if the solids hit the fan, then the liquidity myth is very quickly exposed!

What about the stock markets? My Stock Watcher Steve Previs thinks Bull Confidence has been bruised, but not broken. The last few sessions are an indication of what might happen – and stock’s parabolic upside was getting a tad weird!

Last two days we’ve seen selling in ETFs triggering blue chip sales – an important issue to consider in terms of indexed plays investing in stocks on a passive basis. And Vix now in the mid-teens has got folk thinking. The oil slide added an element of sector flavour to the micro-crash. Sentiment indicators swung for greed to neutral and now cautious. Meanwhile, the “sell-off” was hardly the End of the World. We’re not even down 2%!

Its more likely this flip down isn’t the end of the Bull Cycle. But caution is advised..

What else to think about this morning? Trump’s State of the Union? It was what is was… Get over it. Yellen? Likely to bless us all with no surprises.

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The number of parallels between the Steinhoff’s “accounting-irregularities” scandal and the collapse of Enron just keep growing.

As the Financial Times reported today, the global retail conglomerate, which is embroiled in one of South Africa’s largest-ever accounting scandals, and even ensnared the ECB which bought Steinhoff bonds only to liquidate them a few months later when the company was downgraded to deep junk, has referred its former chief executive to the police.

 

Former Steinhoff CEO Markus Jooste

Steinhoff acting chairwoman Heather Sonn told South Africa’s MPs on Wednesday that Markus Jooste – who resigned late last year after the company’s auditor refused to sign off on its 2017 earnings, bringing the accounting “irregularities” to light – has been referred to the Hawks, the country’s elite anti-corruption unit.

“The matter is now in the hands of the Hawks for further investigation and prosecution,” Sonn said, adding that the company acted after finding evidence of transgressions” by Mr Jooste.

Per Bloomberg, Steinhoff still doesn’t know – or at least, has not publicly disclosed – the origin of its faulty accounting practices, and is conducting its probe as quickly as possible, Sonn said.

Sonn is appearing at a hearing called by three parliamentary sub-committees to learn more about the crisis and the company’s investigation. Ex-chairman and biggest shareholder Christo Wiese also gave evidence, the billionaire’s first public outing since the start of the crisis. He described news of the wrongdoing as a “bolt from the blue.”

After the company revealed late last year that years of financial results could potentially be invalidated – and that, at least, it could not guarantee the accuracy of its 2016 and 2017 reports – most of its creditors pulled their funding, creating a liquidity crisis. This has been a major problem for the company’s shareholders and lenders – a group which formerly included the ECB.

The stock of scandal-plagued Steinhoff plunged to near worthlessness in December after news of the scandal broke. The selloff hammered Wiese, the company’s largest shareholder and (formerly) South Africa’s fourth-richest man. During the selloff, Wiese was forced to sell Steinhoff shares and some of his other holdings during a painful margin call. 

As we pointed out, Weise was caught in a “margin call death spiral”, where he was forced to liquidate increasingly more assets to meet liabilities following the plunge in value of his Steinhoff holdings: and the more he sold, the more he had to sell.

Meanwhile, the suspicion that some investors may have had foreknowledge of the scandal was raised by a Bloomberg report last year that a unit of Barclays Africa separately applied for liquidation of a company called Mayfair Speculators Pty Ltd., which owns racehorses, property and Steinhoff shares and is linked to former CEO Jooste.

Mayfair is being probed by the bank for moving 1.5 billion rand of assets to its holding company in August ahead of information about Steinhoff’s accounting irregularities being released.

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Risk-Parity funds have had the worst two days since the election (giving up YTD gains) as bond prices dropped, stock prices dropped, and volatility spiked…

And it’s not just equity market risk, volatility expectations across all asset classes is on the rise…

But, as Dana Lyons details below, relative to the moderate drawdown in the stock market this week, short-term volatility expectations are screaming higher.

Yesterday’s down day (gasp!) in the stock market certainly was nothing extraordinary based on the magnitude of losses. However, given the market’s recent interminable ascent, it did send some interesting shockwaves throughout the markets and various metrics that we track. We mentioned one noteworthy development earlier today in the abundant number of new highs and new lows on the NYSE yesterday. Another interesting reaction was seen in the volatility market.

Volatility indices based on the stock market, e.g., the VIX, generally move opposite stock prices. That is, when stocks rise, volatility expectations typically drop as complacency reigns and when stocks drop, volatility expectations generally rise as fear rises. Typically, a significant jump in volatility requires a relatively deep or sharp decline in stocks. However, the recent stock market climate has been so benign that yesterday’s relatively mild losses seemed to have really spooked volatility traders.

One example can be seen in the short-term, i.e., 9-day, S&P 500 Volatility Index, aka, the VXST, which jumped 42.5% yesterday. That is the 23rd biggest jump in the index since its inception in 2011. The odd thing is that the S&P 500 (SPX) was down “just” 2/3 of a percent.

 

For context, that is the smallest drop (and only 4th less than 1%) in the SPX of all 26 days that have seen the VXST jump more than 40%. Furthermore, the average drop in the SPX on those days was -2.4%  (For those of you who object to using % based measures on volatility instruments, yesterday’s 4.45 point jump was still the 49th largest in VXST history. And historically, the SPX has averaged a loss of more than 2% on days the VXST jumps over 4 points).

Another angle of the relatively large jump in the VXST is seen in its proximity to its 3-month low. Specifically, as of yesterday, it is over 100% above its 3-month low. The odd thing about that is that, historically, on the 160-plus days when the VXST has been more than 100% above its 3-month low, the S&P 500 has been an average of 8.4% below its 52-week high. Yesterday, the SPX closed just 0.67% off of its 52-week high of the day before. That is the only day besides the day before the Brexit scare (6/23/2016) that found the VXST 100% off is 3-month low when the SPX was within 1% of its 52-week high.

From another angle, in today’s Chart Of The Day, we display the proximity of the VXST versus its 3-month low on every day since 2011 when the S&P 500 closed within 1% of its 52-week high. Yesterday’s data point certainly stands out.

 

So are volatility traders going overboard here bidding up vol expectations given the relatively shallow decline so far? Or are they on to something? After all, the day after the pre-Brexit episode, the SPX did drop over 3.5%. And we are obviously getting some follow-through selling today after yesterday’s developments. The SPX did bounce back quickly after the Brexit affair, though. So who does the current odd spike in volatility expectations favor, the bulls or the bears?

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If you are interested in the Premium version of our charts and research, check out “all-access” service, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Rep. Trey Gowdy (R-S.C.), chair of the House Oversight Committee, announced Wednesday that he will not run for reelection.

“There is a time to come and a time to go. This is the right time, for me, to leave politics and return to the justice system,” he said in a statement on Twitter.

Full Statement:

“Words cannot adequately express my gratitude to the people of South Carolina for the privilege of representing them in the House of Representatives. The Upstate of South Carolina has an incredible depth and breadth of assets including numerous women and men capable of representing us. I will always be grateful for the opportunity to serve in the People’s House and—prior to Congress—to advocate on behalf of justice in our court systems.

I will not be filing for re-election to Congress nor seeking any other political or elected office; instead I will be returning to the justice system. Whatever skills I may have are better utilized in a courtroom than in Congress, and I enjoy our justice system more than our political system. As I look back on my career, it is the jobs that both seek and reward fairness that are most rewarding.

There is no perfect time to make this announcement, but with filing opening in six weeks, it is important to give the women and men in South Carolina who might be interested in serving ample time to reflect on the decision.

To my wife, Terri, and our two children, Watson and Abigail: thank you for all you sacrificed, missed, or did alone so I could serve as both a prosecutor and a member of the House.

To my parents and my three sisters: thank you for having confidence in me and high expectations for me, even when I did not.

To the women and men I worked with at the South Carolina Court of Appeals, the United States District Court, the U.S. Attorney’s Office, the 7th Circuit Solicitor’s Office, and in Congress: thank you for the texture, depth and joy you added to life.

To the law enforcement officers and victims of crime: thank you for personifying courage.

To those across South Carolina and our country who, over the past 7 years, have expressed words of encouragement, accountability and even criticism: thank you. All are needed for those in public service.

The book of Ecclesiastes teaches us there is a time and a season for all things. There is a time to start and a time to end. There is a time to come and a time to go. This is the right time, for me, to leave politics and return to the justice system.“

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Gowdy’s resignation is bound to court numerous rumors as the man at or near the center of all the various investigations and memos being slung around in Washington… but frankly, who can blame him for wanting out of that swamp!

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Authored by Michael Lebowitz via RealInvestmentAdvice.com,

The following article emphasizes that the perceived economic prosperity of recent decades is largely the result of political expediency. Those in charge of monetary policy have repetitively failed to act in the best interests of the public in an effort to either avoid criticism or preserve their individual status. While often ignored, this dynamic is crucial to understand to form longer term expectations for asset prices.

“I’m making records, my fans they can’t wait

They write me letters, tell me I’m great” – Joe Walsh

The modern day printing of digital dollars from thin air, literally from nothing, brings to mind a Latin phrase “ex nihilo, nihil fit” which means out of nothing, nothing comes. If that statement is true, and a moment of reflection surely produces the logical conclusion that it is true, then what do central bankers hope to accomplish by means of conjuring currency from, well, nothing? What does it further say about setting interest rates at less than nothing? If nothing can come from nothing then there is no solution in the idea that by printing dollars and inflating asset prices you can create something (a durable organic recovery).

Although the net result for the economy will be nothing, the net result of those actions for individuals appears to be a redistribution of wealth in the economy. In the end, it becomes clear that the purpose of and reason for the exercise is not the good of the general public but rather advocacy of large financial institutions, political expediency and hubris. If that were not the case, then why would the Federal Reserve need to hire a veteran lobbyist (former Enron and Clinton administration employee) in navigating the use of their powers in the months following the financial crisis?

Hilltop Houses and Fifteen Cars

There is something god-like in the idea of creating something out of nothing – especially money – which fits with the progression of status among Federal Reserve (Fed) members. The idea that their stature and judgement is beyond reproach has been in play for some time.

Alan Greenspan: The absurd notion of central bankers as rock stars was popularized by Alan Greenspan. He achieved celebrity status by advancing in ways never before seen, the interventionism of the Federal Reserve. Some of his handiwork includes engineering a rapid recovery of the stock market following the Black Monday crash in 1987, the notoriety of uttering the term “irrational exuberance” in 1996, the front man on the cover of Time magazine as a member of “The Committee to Save the World”, having his name on a key market term – The Greenspan Put, and of course having a book published about him by the iconic Washington Post reporter and author Bob Woodward well before his tenure as Fed chief ended.  These are things now to which every Fed Chairman aspires – indeed, to which every central banker aspires.

Ben Bernanke: So desperate to follow suit after he stepped down as Fed Chairman in 2014, he could not wait for someone to write his story so he penned his own in the self-aggrandizing “Courage to Act”. In addition to well-paid fees for public appearances, his desperation for notoriety also extends to consulting for some of the most powerful hedge funds as well as blogging his perspectives from time-to-time. The legacy he is desperately trying to shape seems similar to the gilded stature Greenspan crafted for himself.

Janet Yellen: In her time as the Chairman, Yellen was the beneficiary of much good fortune and did nothing to make waves (or right the ship). As the New York Times reports, given her tenure presiding over a “plummeting unemployment rate and consistently low inflation, Ms. Yellen became a pop culture phenomenon.” Such hyperbole used to lobby for Janet Yellen’s rock star status is derisory. The health of the organic economy is contrived by the over-use of debt. The disparity between the rich and poor has never been wider as Yellen assisted in hollowing out the middle class by adhering to a “saver-punishing” low-rate policy. Trickle down policy of boosting asset prices is surely benefitting the wealthy but to the detriment of society.  By myopically targeting traditional measures of inflation, she took latitude to continue crisis policies to print money and is complicit in the on-going accumulation of debt. The likelihood is that the failure to normalize monetary policy years ago has sown the seeds of the next crisis. Like Bernanke, how her role is cemented in history as one of those who are “great” among central bankers too will be determined by time and economic outcome.

Jerome Powell: Will the latest chairman of the Fed, Jerome Powell, have the courage to act? Vilified in the late 1970’s and early 1980’s for raising interest rates and temporarily choking off economic activity, Fed Chairman Paul Volcker had the character to sacrifice his own popularity and accept the short-term consequences in exchange for dramatic long-term economic benefits. He did it because arresting inflation was in the best interest of the country. Mr. Powell has a choice to make. He can do what’s best for the country or he too can aim to become a “pop culture phenomenon” and keep the charade going but he cannot do both.  Time will tell.

…Before the Fall

The modern day desire for individual notoriety and legacy among central bankers belies the purpose of the role they play in shaping the business cycle. Their influence on the trajectory of the economy should be so subtle as to scarcely be perceived. As was the case with McCabe, Martin and Burns, few should recognize their names. The incongruence of this passion among the power-elite who manage the printing presses of the world’s largest economies is akin to the contrast between pride and humility. Anyone who thinks themselves qualified to manage the monetary policy of the complex system of a major economy lacks requisite humility and is too deceived by pride to be thus qualified. A proud man is always looking down on things and people and, of course, as long as you are looking down, you cannot see that which is larger – the best interests of people or democracy

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While Facebook has decided to close the page on bitcoin and cryptocurrencies, banning ads about bitcoin, ICOs and other “alternative” financial products, Square is delighted to pick up the market share that Facebook does not care about, and as Jack Dorsey, who is the CEO of both Twitter and Square, tweeted moments ago (in his capacity as boss of the latter), he “supports Bitcoin because we see it as a long-term path towards greater financial access for all.”

“Instant buying (and selling, if you don’t want to hodl) of Bitcoin is now available to most Cash App customers. We support Bitcoin because we see it as a long-term path towards greater financial access for all. This is a small step.” Dorsey tweeted.

Instant buying (and selling, if you don’t want to hodl) of Bitcoin is now available to most Cash App customers. We support Bitcoin because we see it as a long-term path towards greater financial access for all. This is a small step.

We also made this! https://t.co/z3u0liDNk4

— jack (@jack) January 31, 2018

And with that one tweet, which put Dorsey on the other side of the room from Zuckerberg who has explicitly opined against crypto – and the millions of Millennials who are addicted to the digital currency – Twitter may have just bought itself several more days of interrogation in Congress where it will have to explain again, and again, and again why a few thousands “Russian” retweets cost Hillary Clinton the election.

Meanwhile, the acceptance of cryptos in society continues, with Line – the chat and payment app with over 40 million users (compared to 13 million for Coinbase) – announcing overnight that it is also starting a cryptocurrency exchange.

The proverbial breaking news: LINE, the chat app with over 200 million users, is starting a cryptocurrency exchange pic.twitter.com/pKZdx825PT

— Wong Joon Ian (@joonian) January 31, 2018

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A train carrying Republican lawmakers collided with dump truck near Charlottesville, Virginia on Wednesday; no immediate reports of serious injuries…

Politico reported that the lawmakers were traveling to a retreat in West Virginia, and that the crash will delay their arrival at The Greenbrier. Riders are currently being checked for injuries.

NEWS — The train carrying GOP lawmakers to the retreat in West Virginia has collided with a dump truck. Initial reports indicate everything is OK.

— Jake Sherman (@JakeSherman) January 31, 2018

 

i am told that this train crash will certainly delay GOP lawmakers arrival into The Greenbrier. Train riders being checked for injuries at the moment

— Jake Sherman (@JakeSherman) January 31, 2018

 

 

Good Grief! Look at the dump truck hit by the train carrying GOP lawmakers to their retreat. I hope the driver is okay. pic.twitter.com/Co4vnTikuc

— Regina Bratton (@ReginaNewsPro) January 31, 2018

 

This is a developing story. Check back for more…

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