Tag: finance

Authored by Lance Roberts via RealInvestmentAdvice.com,

In her last testimony before Congress as head of the Federal Reserve, Janet Yellen made a curious statement:

“I would simply say that I am very worried about the sustainability of the U.S. debt trajectory. Our current debt-to-GDP ratio of about 75 percent is not frightening but it’s also not low. It’s the type of thing that should keep people awake at night.”

 I find this statement interesting given that both Michael Lebowitz and I have been arguing the point that tax cuts and reforms “pay for themselves” through stronger rates of economic growth, employment or wages.

As Mike stated this past week:

“The historical evidence above tells a different story than the bill of goods being sold to citizens and investors.  Corporate tax rates are positively correlated with economic growth which means that lower corporate tax rates equate to slower economic growth. Further, there is strong evidence that corporate profits are largely unaffected by tax rates.

Investors buying based on the benefits of the tax proposal appear shortsighted. They value the benefits of corporate tax cuts, but they are grossly negligent in recognizing how the tax cuts will be funded.”

But while Janet Yellen was focused on Federal Debt, the real issue is total debt as a percentage of the economy. Every piece of leverage whether it is government debt, personal debt and even leverage requires servicing which detracts “savings” from being applied to more productive uses. Yes, in the short-term debt can be used to supplant consumption required to artificially stimulate growth, but the long-term effect is entirely negative. As shown in the chart below, total system debt how exceeds 370% of GDP and is rising.

It now requires ever increasing levels of debt to create each $1 of economic growth. From 1959 to 1983, it required roughly $1.25 of debt to create $1 of economic activity. However, as I have discussed previously, the deregulation of the financial sector, combined with falling interest rates, led to a debt explosion. That debt explosion, which allowed for an excessive standard of living, has led to the long-term deterioration in economic growth rates. It now requires nearly $4.00 of debt for each $1.00 of economic growth.

Yellen is right. The level of debt, not just at the government level, but on the whole, should keep investors “up at night.” The Fed’s monetary interventions over the last 9-years to aggressively push interest rates lower led to a high-degree of “complacency” as the assumed “riskiness” of piling on leverage was removed. However, while the cost of sustaining higher debt levels is lower, the consequences of excess leverage in the system remains the same.

The illusion of liquidity has a dangerous side effect. The process of the previous two debt-deleveraging cycles led to rather sharp market reversions as margin calls, and the subsequent unwinding of margin debt fueled a liquidation cycle in financial assets. The resultant loss of the “wealth effect” weighed on consumption pushing the economy into recession which then impacted corporate and household debt leading to defaults, write-offs, and bankruptcies.

You will notice in the chart above, that even relatively small deleveraging processes had significant negative impacts on the economy and the financial markets. With total system leverage spiking to levels never before witnessed in history, it is quite likely the next event that leads to a reversion in debt will be just as damaging to the financial and economic systems.

Of course, when you combine leverage into investor crowding into “passive indexing,” the risk of a “disorderly unwinding of portfolios” due to the lack of market liquidity becomes an issue.

While Ms. Yellen dismisses her own warnings…maybe you shouldn’t. 

Markets

• DB Explains 5-Biggest Market Conundrums by Tyler Durden via ZeroHedge
• Throw Out The Stock Market Playbook by Mark Decambre via MarketWatch
• Some Options For Protecting Your Gains by Brett Arends via MarketWatch
• From $60 To $450 Million by SA Gil Weinreich via Seeking Alpha
• Today’s Rational Exuberance by Anatole Kaletsky via Project Syndicate
• The Source Of The Next Crisis by Kevin Muir via The Macro Tourist
• How To Interpret Today’s Yield Curve by David Andolfatto via MacroMania
• The Most Ridiculous Statement In Finance by Shawn Langlois via MarketWatch
• Can You Afford To Bet On BitCoin by Michael Kahn via Barron’s
• Complacent Investors Run Risk by William Watts via MarketWatch
• Risks To The Bull Market by Charlie Himmelberg via Goldman Sachs
• Bubble Dynamics & Market Crashes by James Rickards via Daily Reckoning
• What To Worry About In This Bull Market by Bloomberg Staff Writers
• Corporate Tax Cuts Seen & Unseen by Michael Lebowitz via RIA
• An Earnings Driven Meme by Doug Kass via RIA

Research / Interesting Reads

• National Debt Jumps By $723 Billion In 12 Weeks by Wolf Richter via Wolf Street
• The Fiscal Burden Of Illegal Immigration by Tyler Durden via ZeroHedge
• Blowing Up The Debt Is A Threat To America by Leon Panetta via USA Today
• We Are In The Most Dangerous Part by Edward Harrison via Credit Writedowns
• Annoying CAPEX vs Buyback Narrative by Lawrence Hamtil via Fortune Financial
• Lessons From A Short Seller by CFA Institute
• What Does A Flat Yield Curve Mean For Stocks by Stockcharts
• Chance Of A BitCoin Crash Greater Than 80% by Market Hulbert via MarketWatch
• Hindenburgs & Titanics by John Hussman via Hussman Funds
• Great Expectations by Dana Lyons via The Lyons Share
• BitCoin Is Bigger Than Beyonce, Swift & Kardashian by Jesse Felder via The Felder Report

“You never go broke taking a profit.” – Old Wall Street Axiom

via http://ift.tt/2jDhvWX Tyler Durden

This whole charade with former National Security Advisor Mike Flynn reeks of desperation and makes clear that Mueller’s team has an empty hand…

To summarize the plea agreement from the FBI Special Counsel’s “Statement of the Offense”

• On December 29, 2016, Flynn called a senior official of the Presidential Transition Team to discuss whether or not to talk to the Russians about recent U.S. sanctions imposed by Obama.
• Flynn got the go-ahead from someone (does not name Trump) and called the Russian Ambassador, requesting that Russia not escalate the situation – asking that they only respond to the U.S. sanctions in a reciprocal manner.
• On or about December 30 – the next day, Russian President Vladimir Putin released a statement indicating that Russia would not take retaliatory measures in response to U.S. sanctions.
• Flynn lied about this on January 24 in a voluntary interview with the FBI
• Flynn also lied to the FBI about calls he made to the Russian Ambassador and other countries to try and influence a UN resolution submitted by Egypt regarding Israeli settlements, stating he only asked the countries’ positions on the vote

ABC news takes it a step further, reporting from an anonymous source that “Donald Trump directed him to make contact with the Russians, initially as a way to work together to fight ISIS in Syria.” – though NBC News reports it was Trump’s son-in-law and advisor Jared Kushner.

Observation and takeaways

• The fact that Flynn spoke with the Russians in December, well after the election, has been known since February.
• Mueller’s “Statement of Offense” establishes is that there wasn’t an existing backchannel between the Trump campaign and Russia – at least through Flynn, as it pertains to pre-election collusion. 
• It’s perfectly reasonable to expect an incoming President to instruct his incoming National Security Advisor to establish a dialogue with a country like Russia over recent and contentious sanctions, as well as fighting ISIS in Syria.
• If Flynn’s contact with Russia was related to “collusion” in regards to election meddling, he would be pleading guilty to an espionage conspiracy, not the “process crime” of lying to the FBI..
• If Flynn were to now drop some new bombshell about greater Russian collusion, he would have lied to the FBI twice.

Grand irony: the underlying action that Flynn now admits he lied to the FBI about was urging de-escalation with a nuclear power, which is now no longer permissible http://pic.twitter.com/Vh4Nxz0nWK

— Michael Tracey (@mtracey) December 1, 2017

As Andrew McCarthy of the National Review points out;

“when a prosecutor has a cooperator who was an accomplice in a major criminal scheme, the cooperator is made to plead guilty to the scheme. This is critical because it proves the existence of the scheme. In his guilty-plea allocution (the part of a plea proceeding in which the defendant admits what he did that makes him guilty), the accomplice explains the scheme and the actions taken by himself and his co-conspirators to carry it out. This goes a long way toward proving the case against all of the subjects of the investigation. That is not happening in Flynn’s situation. Instead, like Papadopoulos, he is being permitted to plead guilty to a mere process crime.

So why lie?

Why would Flynn lie about his contact with the Russians in late January, five days after the Inauguration? Was it because the nation had been whipped into an anti-Russia frenzy? Or, as some have suggested, does the rabbit hole go much deeper and there are aspects of the Trump-Russia story that haven’t been made public yet? Again, if that were known, Flynn would be pleading guilty to a much more serious crime.

That said, Flynn is facing a whopping six months in prison and a fine of up to $9,500 for lying to the Special Counsel.

Who’s next?

President Trump’s son-in-law and senior advisor, Jared Kushner, told the Senate Intelligence Committee that he asked Russia’s Ambassador whether the Trump transition team could use Russia’s embassy to communicate with Moscow about Syria.

The meeting with the ambassador, Sergey Kislyak, “occurred in Trump Tower, where we had our transition office, and lasted twenty [to] thirty minutes,” Kushner wrote in an 11-page statement detailing his contacts with Russian nationals during the election and transition period.

“Lt. General Michael Flynn (Ret.), who became the President’s National Security Advisor, also attended … I stated our desire for a fresh start in relations.”

Kushner said Kislyak, whose tenure in the US ended this past weekend, asked whether there was “a secure line in the transition office to conduct a conversation” about the US’s Syria policy.

“General Flynn or I explained that there were no such lines,” Kushner wrote. But he said he went on to ask whether the Russian Embassy “had an existing communications channel … we could use where they would be comfortable transmitting the information they wanted to relay to General Flynn.” –Business Insider

And now it emerges that Kushner allegedly asked Flynn to contact the Russian Ambassador…

BREAKING: Jared Kushner is the “very senior member of the Presidential Transition Team” mentioned in the statement of offense against Michael Flynn, two people familiar with the matter tell @NBCNews https://t.co/4ZLASVAX9b

— NBC News (@NBCNews) December 1, 2017

So – unless there’s more than meets the eye, it appears that the coverup is far greater than the crime in regards to Flynn’s decision to lie to the FBI. And whatever the outcome, the hard bounce in the S&P 500 would seem to suggest this is perhaps another nothingburger and not quite the end of Drumpf.

The end of Drumpf? ???????? http://pic.twitter.com/rxoqWyfFTv

— ZeroPointNow (@ZeroPointNow) December 1, 2017

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So to summarize – the former national security chief agrees to testify against the sitting president and The Dow drops 40pts…

China stocks were mixed with CHINEXT surging overnight but CSI300 ending at the lows (worst week in 2017)

Europe saw stocks and bond yields notably lower…

But for US equities, overnight weakness (as Asian tech wrecked) was quickly dismissed into the US open thanks to Daines and Johnson saying "yes" to the tax bill. Everything was awesome for a while and then the Flynn headlines hit, plunging stocks lower. But then luckily, Europe closed and McConnell sais GOP had the votes for the tax bill and stocks took off again…

On the week, Nasdaq ended lower – worst week in 3 months, Trannies soared most since the election…

But futures show the real swings during a chaotic week

Today's big event was Flynn's headlines which sparked a bid for safe haven bonds and bullion, but that faded as tax vote came and went…

VIX spiked to 3-month highs but was monkey-hammered lower into the close in a desperate attempt to get The Dow green

And remains hugely decoupled from stocks…

After 10 straight days of short squeeze, 'Most Shorted' stocks actually dropped today.. barely…

Equity market momentum factor suffered it biggest weekly loss since the election (and best week for Value stocks since the election)

Obviously this week was all about taxes (this was the biggest jump for 'high tax' corps relative to 'low tax' corps in history…

Tech stocks were worst on the week as Retailers and Financials ripped oddly together higher…

Banks outperformed on the week despite a collapsing yield curve…

FANG Stocks worst week since June…Semis plunge the most in 2017 (after 11 weeks higher in a row)…

And the tech wreck hit Asia too…

Notably, while stocks (aside from Nasdaq) rallied on the week, high yield bonds did not…failing to get back above their 200DMA and fading notably today…

HYG INTRA DMA

And remain notably decoupled from stocks… (notably today's weakness was in Consumer Staples and Financials and more broad-based)

Nasdaq and bonds have recoupled…

Nasdaq and FX carry recoupled…

Bonds were well bid today with the long-end massively outperforming…(leaving 30Y yield lower on the week)

Crashing the yield curve to new cycle-lows (back at Oct 2007) – 3rd weekly flattening in a row…

As one witty gentlemen noted – if Mueller files charges against 3 or 4 more people, the curve will invert.

The Dollar Index managed to scramble back into the green for the week (despite a big plunge on Flynn today) – after 3 straight weeks lower…

All major commodities were lower on the week – note that gold (and crude) briefly tagged unchange on the Flynn headlines before being sold…

Gold ripped on the Flynn headlines, tagged the 100DMA and then tumbled…

Finally, Bitcoin ended the week up 31% – The best week since Dec 2013…Despite a huge drawdown…

via http://ift.tt/2iCN7zf Tyler Durden

Authored by James Howard Kunstler via Kunstler.com,

Whipping Post Politics

Charlie Rose skulked offstage like a punch-drunk palooka with barely a whimper, and Matt Lauer offered up the now laughably pro forma press release of bathetic apology and contrition  – no doubt micro-managed by his attorneys. But the hit on Garrison Keilor by his old friend Minnesota Public Radio seemed like a new low in the whipping-post politics of the moment.

Unlike the cases of Rose, Lauer, Louis CK, Harvey Weinstein, and Kevin Spacey, there seemed next to nothing in the case against Keilor. He says he placed his hand on a lady’s bare back, someone on the crew or cast or a guest on The Prairie Home Companion radio show he hosted for close to forty years. Maybe MinnPR has a file full of complaints against the old trooper, but if so they’ve released nothing, no details whatsoever, and unlike the previously “outed” line-up, in Keilor’s case no other “victims” have come forward on their own to establish anything like a pattern of truly bad behavior.

I happen to admire Keilor’s substantial body of work in print and radio, and the public persona he presented, which portrayed a lot of what was honorable, intelligent, charming, and funny in our national character, something we need to be reminded of in this new era of pervasive racketeering, affronts to the first amendment, ubiquitous porno-culture, and Deep State mischief. This may amaze some of you, but to me Keilor deserves to be ranked with Mark Twain as a literary icon. What he gave to his large radio audience over a very long run was of uniformly high quality — something manifestly absent in so many other areas of contemporary life and art.

Keilor was reputed to be a cold-fish backstage and offstage, a prickly Aspergery personality who avoided personal contact. He said as much in his very brief published response to getting fired.

“Anyone who ever was around my show can tell you that I was the least physically affectionate person in the building,” Keillor said.

 

“Actors hug, musicians hug, people were embracing every Saturday night left and right, and I stood off in the corner like a stone statue.”

To me, the job on Keilor was a hit too far.

I hope others out there with their frontal cortexes intact felt themselves crossing a threshold into a strange new un-American society where the merest allegation can instantly send anyone to perdition. It’s gotten to the point where any man who ever made pass at someone is now defined as a sexual predator, feeding the delusional trope that all women are everywhere and always “victims,” and that human nature itself has to be transformed to correct this flaw in human design.

Well, guess what – that’s not going to happen.

Men will continue to initiate sexual liaisons and relations. They will make the first move. They will take a chance. They will be advised to act like gentlemen in doing this, but I don’t think that’s quite what the witch-hunters really want right now.

The PC movement, with its branches in the media, on campus, and professional politics, is out for coercion and punishment by any means necessary. That’s why there are kangaroo courts in the universities, in case you haven’t noticed. Due process is not just unwelcome, it’s officially scorned as passe. The method du jour in the case of Garrison Keilor, so far, is career and reputational castration.

The so-called thinking class in this country seems unaware that the mixed-gender office workplace – where most jobs can be done by anyone – is a relative novelty in human history.

Not only that, but if indeed we’re heading into a long emergency of collapsing techno-industrial arrangements – as I have asserted in my books and blogs – then we may once again find ourselves in world with different divisions of labor, and a manifest change of values to attend it. It’s laughable to me that so many well-educated people assume that our current mode of living is permanent, but I suppose that’s part and parcel of the religion of progress. In the meantime, adults of the two sexes – and there are two sexes, not thirty-two – consort in the workplace with all kinds of stimulation and frisson quickening the scene, and we are foolish enough to be surprised when sexual mischief happens.

via http://ift.tt/2jEcBsB Tyler Durden

Representing a major segment of EM stocks, TATS are the Asian 'FANGs', and they just suffered their worst week on record.

Taiwan Semi, Alibaba, Tencent, and Samsung are TATS and account for over 16% of the MSCI EM Stock index (considerably more than FANG stocks represent in the S&P).

TATS have traded lower for 4 of the last 5 days – tumbling almost 8% to one month lows…

Tencent is the biggest loser…

The biggest weekly drop in the history of the 4 stocks…

Overnight no BTFD in these names.

via http://ift.tt/2zVMmce Tyler Durden

Authored by MN Gordon via EconomicPrism.com,

There are many things that could be said about the GOP tax bill.  But one thing is certain.  It has been a great show.

Obviously, the time for real solutions to the debt problem that’s ailing the United States came and went many decades ago.  Instead of addressing the Country’s mounting insolvency, lawmakers chose the expedient without exception.  They kicked the can from yesterday to today.

Presently, there are no good options left to fix the mathematics bearing down on us all.  Hence, in the degenerate stage of an overburdened nation-state, style over substance is what counts.  Without question, Congress and President Trump played their parts to push the bill with much bravura.

On Tuesday, for example, President Trump, Senate Majority Leader Mitch McConnell, and House Speaker Paul Ryan held a White House meeting with two empty chairs.  Apparently, Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi didn’t want to participate in a “show meeting.”  Thus, they made a spectacle of themselves and ditched the meeting.

Indeed, their absence was all part of the show.  Moreover, the entire episode was show; nothing more.  At the time of this writing (Thursday night), the show continues on.  The last we heard, the Senate vote had been delayed until Friday.  By the time you read this it may be a done deal – or maybe not.

Regardless, the tax bill is all quite meaningless when you have a fiat currency that’s been stretched out like silly putty.  No doubt, this has propagated immense financial speculation while outrunning actual economic growth.  The effect has manifested in strange and unexpected ways.

Decentralized Cryptocurrencies

Incidentally, following Fed Chair nominee Jay Powell’s confirmation hearing before the Senate Banking Committee on Tuesday, Senator Elizabeth “Pocahontas” Warren remarked that the Fed had the same regulatory attitude going into the crash of 2008 because they haven’t intervened in bitcoin.

Naturally, it never occurred to Warren that bitcoin could be a barometer of the Fed’s extreme intervention into credit markets.  Without artificially suppressed interest rates and Fed asset purchases, bitcoin would’ve never become the recipient of such speculative fervor.  Attempting to regulate it now is like assigning price controls by edict to address a Fed induced bout of consumer price inflation.

Besides, what’s Warren’s beef anyway?

Of the many bull markets that have risen from the depths of the Great Recession, none is starker than the bull market in cryptocurrencies.  Having a justified axe to grind with the Fed’s policies of mass money debasement, computer geeks, contrarians, geniuses, the enlightened, speculators, hucksters, dreamers, schemers, and all those in between, saw the light of the cryptocurrency revolution.

Perhaps they’re on to something.  From what we can tell, the underlying blockchain distributed ledger technology is an innovative means for providing an efficient and permanent transaction record between consenting parties – assuming big brother’s not monitoring the transaction record.  We don’t doubt that it isn’t here to stay and will continue to gain further market share within society.

In fact, bitcoin and other decentralized cryptocurrencies may ultimately unseat our present fiat money system.  As far as we can tell, this would be an improvement.

Idiots Get Rich

Yet bitcoin isn’t the only Fed provoked speculative mania.  Nearly all financial assets have been pumped up into giant bubbles.  Bitcoin just merits the most headlines.

Our skepticism, however, is not with the promise of cryptocurrencies.  Rather, it’s firmly rooted in the present.  Specifically, cryptocurrencies are in the grips of an epic speculative mania.

Are we in the first inning or ninth inning of the great big speculative cryptocurrency bubble?  If you listen to cybersecurity guru John McAfee we’re in the first inning.  He believes bitcoin is going to $1 million by 2020.

Is he right?  Is he wrong?  Who knows?

For now, however, several things are abundantly clear.  Everyone – including you – is getting rich from bitcoin.  So, too, everyone’s getting rich from FANG – Facebook, Amazon, Netflix, and Google – stocks.  Likewise, everyone’s getting rich shorting the CBOE Volatility Index (VIX).

What to make of it?

Without question, there’s a bull market in idiocy.  And when there’s a bull market in idiocy, idiots get rich.

The Complete Idiot’s Guide to Being an Idiot

Thus, for idiots’ sake, we’ve boiled The Complete Idiot’s Guide to Being an Idiot down to its crystalline essence:

One: Buy bitcoin north of $11,000.

 

Two: Buy FANG stocks at present valuations.

 

Three: Short the VIX at sub-10.

We consider these to be actions for idiots.  But what do we know?  Remember, idiots often make the wrong decision at precisely the right time.

So, with a little luck, those who follow this guide won’t just be idiots.  They’ll be rich idiots to boot.  Such is the poetry of life.

via http://ift.tt/2AMZZu2 Tyler Durden

Submitted by iBankCoin.com

Former Clinton campaign manager John Podesta jumped down the throat of feminist and Political Science major Nicole Kiprilov in front of 300 people at Duke University Wednesday, after the undergrad asked Podesta questions about how he responds to various controversies including ‘Pizzagate,’ Uranium One, The Podesta Group, and Joule Unlimited – a now-defunct Boston green energy company Podesta sat on the board of along with to two Russian officials, which received $35 million from the Kremlin while Hillary Clinton was Secretary of State.

Via the Duke Chronicle:

“When junior Nicole Kiprilov asked him how he was dealing with accusations of being involved with the now-debunked “Pizzagate” scandal, that he owned 75,000 “undisclosed” shares of stock from a company with Russian Kremlin ties and Uranium One being a client of the Podesta Group—among other allegations—he didn’t hold back.

 

“This is how the alt-right does fake news,” Podesta said. “It’s personally painful because a lot of this is really total bullsh*t. My family and I have been put through this Pizzagate bullsh*t now for a year—which has totally been debunked, by the way.“

Kiprilov didn’t have a chance to ask a followup question such as what playing dominoes on cheese vs. pasta means, before the 68 year-old Podesta launched into a defense of his involvement with failed green energy company Joule Unlimited – which he owned 75,000 shares that were reportedly transferred to his daughter via a shell corporation before joining Hillary Clinton’s campaign.

“My relationship with the company that you talked about, that was based in Boston, an American innovative company—I totally disclosed, and Fox has had to correct that twice” –John Podesta

Yes – it’s an American company, which received $35 million from the Kremlin and had two high ranking Russians on its board of directors aside from Podesta; senior Russian official Anatoly Chubais and oligarch Reuben Vardanyan – a Putin appointee to the Russian economic modernization council.

The Podesta Group

In response to the next question from an audience member about how John feels about his brother Tony Podesta of the Podesta Group being under FBI investigation, John Podesta made sure to distance himself from Tony as he stammered through his response:

“Look I think my brother, uh, uh, A) I’m not my brother. Does it worry me? You know, I, I, It’s, it’s painful. I mean his firm, uh, uh, after many years in business, uh, uh, un-unraveled as a result of, I think of the fact that it was under investigation,” adding that he thinks Tony’s involvement with Manafort’s partner Rick Gates and Congressman Vin Weber (R-MN) was ill advised.

Alas, nobody asked him about explosive claims from a “long time former Podesta Group executive” who was “extensively” interviewed by Robert Mueller’s FBI Special Counsel and claims that in 2013, John Podesta recommended brother Tony hire David Adams – Hillary Clinton’s chief adviser at the State Department, giving the Podesta Group a “direct liaison” between the group’s Russian clients and Hillary Clinton’s State Department.

Nicole Kiprilov responds

Kiprilov – a Political Science junior and UN intern who has studied at Stanford, Oxford, and is the president of Duke University’s ‘premier feminist magazine,’ Phoenix – was disappointed in Podesta’s responses, telling the Duke Chronicle

“Pizzagate was a conspiracy theory, but the other allegations, I don’t know,” Kiprilov said. “If he had been a bit calmer and more mature in answering the questions, I would have been satisfied. I was disappointed that he got so angered and triggered by my question.”

 

A self-identified Republican who says she is not part of the alt-right, Kiprilov said she felt that Podesta misunderstood the nature of her question.

 

“I did not imply that I believed any of this,” she said. “I think he immediately assumed I did, so he lumped me with the alt-right crowd, which was very unfortunate that he jumped to that conclusion.”

Kiprilov caught up with Podesta after the event to let him know she’s not a member of the alt-right.

Before the night was over, Podesta also answered questions about Russia’s effect of the election, stating that while he didn’t think Russia’s efforts to interfere with voting on election day succeeded, bots and Facebook ads spreading fake news did.

“I do think that had an effect,” Podesta said, adding “It eats away at you underneath. You don’t fully sense it because it’s not bubbling up to the mainstream.”

Or, maybe Russian internet bots, Pokémon Go and Facebook ads promoting liberal activism are perhaps the lamest possible excuses for why Hillary Clinton lost the election.

Follow on Twitter @ZeroPointNow

via http://ift.tt/2Aj2JhP Tyler Durden

The “VIX Elephant” has awakened. And “50 Cent” is back.

That's the mysterious-sounding ointroduction to a notable market insight from Bloomberg this mornig as they note the turmoil surrounding Mike Flynn headlines – spiking VIX and slamming stocks – provided two big options market 'whales' with some relief and room to move…

First, the trader who’s known as the Elephant for making big moves in the VIX — but who’s been surprisingly quiet in recent weeks — returned with a vengeance to start December, buying and selling more than 2 million contracts Friday to continue betting on a modest rise in the Cboe Volatility Index. That’s three times the average daily volume for all VIX options.

 

The Elephant caught a major break thanks to the sharp retreat in the S&P 500 Index following reports that former national security adviser Michael Flynn would implicate members of President Donald Trump’s transition team in the probe into Russian meddling in the 2016 election. The VIX spiked to as high as 14.58 as equities tumbled.

Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, said the investor had been poised to lose $20 million to $30 million on the December leg of this trade before Friday, but was able to escape with a loss of less than $2 million in closing up those positions.

“They got really lucky with the selloff today,” Chintawongvanich said.

 

“They were down a lot on the December position, and this allows them to get out of it without too much of a loss.”

The mystery trader also initiated positions in January VIX options to roll over this trade, selling 262,500 puts with a strike price of 12 and 525,000 calls with a strike price of 25, while purchasing 262,500 calls with a strike price of 15.

Huge volumes rolled through the VIX 25 Calls (From Dec to Jan)

And the VIX 15 Calls (again Dec to Jan)

And finally, funded by the VIX 12 Puts (rolled from Dec to Jan)

For VIX futures, the Elephant’s stampede amounts to 13,700 December futures to sell and 10,700 January futures to buy, according to Chintawongvanich.

Additonally, as Bloomberg details, it’s also a good day for '50 Cent' – the options buyer who’s been saddled with the same nickname as rapper Curtis Jackson III for buying options at or close to 50 cents.

Early on Friday morning, 50,000 January VIX call options with a strike price of 21 were purchased at 49 cents apiece before the Flynn tumult began.

Today's turmoil reminded a few of just how fragile and illiquid these markets can become at times.

Should the VIX suddenly spike, the repercussions of such a move would be further complicated by the billions of dollars sitting in various VIX-linked ETFs. Because individuals sellers would probably disappear from the market in such a situation, the ETF market makers would find it nearly impossible to hedge their positions, potentially triggering the dissolution of the funds, or even the collapse of some of these firms. The Macro Tourist's Kevin Muir explains:

There’s $1.2 billion of the XIV, which is the short ETF. There’s $1.3 billion of the SVXY, which is another short one. These are staggering numbers.

 

In my days, when I was on the institutional desk, we had this big – I did index arbitrage, and we used to go out and buy the baskets and sell the futures. One day the risk manager came to me and said, if you had to take this position off (because we had accumulated this big position) how long would it take you? And who would do it?

 

And I said, the reality is that there’s nobody. You know, we were the biggest player in the market and there was nobody that was going to take this off of us. The only way was to go all the way to expiry.

 

Well, the reality is that these numbers are way bigger than any market player can absorb. And, if we get a situation where – as Francesco says, all it’s going to take is a return of the VIX from its current level of 10 to its average level of 18 or 19 to wipe out these products.

 

I guess that’s the point that I want to make: If you’re actually owning these things, you should be aware that all it will take is a move of 80% and then they’re going to wind down these products. So the XIV, when it moves up, if all of a sudden VIX goes from 10 to 18 in a day, they’re going to wind down that product.

 

And what’s going to be really scary is the amount of VIX futures that is going to have to be bought, because they’re short all those VIX futures and they’re going to have to buy them back.

 

And I just don’t know who’s going to sell it to them. For the first time – for a long time, I didn’t view this VIX as that big a deal, and there were some smart guys like Jesse Felder that were going on about it – I just think that it has been taken to a level that is becoming increasingly worrisome. And it actually could create a market dislocation in itself.

 

And what is it Warren Buffett says? What the wise man does in the beginning the fool does in the end. Well, VIX, at this point, we’re hitting a point where if you’re actually continuing to bet on it you’re going to be in the fool category.

 

Because it’s not going to take much to have a big spike that wipes a lot of people out. And it’s actually very, very worrisome.

Of course, it would take a large intraday move to trigger a truly catastrophic spike in the VIX. But at least one analyst, Bank of America’s Michael Hartnett – whose work we have cited here – believes there could be a 1987-style crash in the early months of 2018. Hartnett’s reasoning? The bearish positioning seen at the beginning of 2017 has completely flipped. Investors’ long positions are larger than they’ve been in years.

And as we’ve repeatedly pointed out, with volatility and volume so subdued, hedge funds have remained overwhelmingly short vol, fearful of missing out on even one tick of the torrid rally for fear of pissing off their clients.

One things for certain: Given the market’s already dramatically overextended rally, the day of reckoning is coming. The only question is will it be a steady decline, or will it happen suddenly?

Given the incredibly stretched nature of positioning, the latter scenario, Muir and Co. believe, seems far more likely.

via http://ift.tt/2AyBkZL Tyler Durden

Wonder who was buying the euphoria blow-off top stock market breakout yesterday? One clear answer, according to Nicholas Colas of DataTrek Research, is answer is “Mom and Pop”. Nick looked at the publicly available trade data on Fidelity’s retail website and found net buy orders across both single stocks (mostly tech) and ETFs. And, no surprise, some bitcoin names as well.

Here’s what else Nick discovered.

Retail investors have lost some of their reputation for being the “Dumb money” over the last few years. After all, anyone “Dumb” enough to own the largest US listed ETF (SPY) or the biggest tech names (AAPL, GOOG, etc) has done very well for over half a decade.

Still, whenever we see a big up day for US stocks, we can’t help but wonder what the retail investor is buying when stocks hit (yet another) all time high. Are they getting cautious and lightening up? And what names do they still like?

Fidelity Investments lets you see their customers’ Top 10 names traded, in real time if you have an account and one day-delayed if you don’t.
Here’s some color on today’s market action, courtesy of that information source:

• Fidelity’s retail accounts were net buyers in 9 out of the top 10 names traded by their customers. The only exception: Kroger.
• Tech names held the top 4 positions in terms of total order volumes. Ranked by total activity, they were: Nvidia, Micron Technology, Apple and Amazon.
• In a not-so-surprising fifth spot: GBTC. Not familiar with that symbol? It is the Grayscale Bitcoin Investment Trust, and it trades over at OTC Markets. It was better to buy today at Fidelity by a ratio of 1.5:1. Just as notable: it trades at a 70% premium to bitcoin. See here: http://ift.tt/2mJbn2e
• The balance of the top 10 names traded are predominantly tech as well: Alibaba, Square, and Facebook. Non-tech names were Kroger and Bank of America. All were better to buy except, as just mentioned, Kroger.

A few other comments from the Top 25 list, available to customers (and I
assume every quant hedge fund that has a Fidelity account expressly to
hoover up this information):

• There are surprisingly few ETFs. The only ones listed: UGAZ (3x Long Natural Gas), SPY and UVXY (2x the VIX). That challenges the notion that retail investors only buy ETFs – clearly there is still significant interest in single names.
• Fidelity customers don’t seem to be fans of brick and mortar retailers, with a greater number of sell than buy orders today for Costco and Macy’s.

The upshot: Fidelity’s customer base is representative of the retail investor, and this group is certainly still a net buyer of US equities. Even on a day of all-time-highs. Call them “Dumb money” if you want… But they’ve been right for a long time and they seem perfectly content to “Buy the breakout” as much as “buy the dip.”

via http://ift.tt/2iauW08 Tyler Durden