Month: November 2019

Authored by Michael Msika, Bloomberg markets reporter and former portfolio manager and trader

Heading into December, European equities are shining with a 21% advance this year and every sector in green, even the banks. Four industry groups have risen more than 30%. What’s not to like? For those investors fully exposed, it might be tempting to book profits now. But the market may still have a few surprises in store.

European equities are on track for their best year since 2009, in the aftermath of the global financial crisis, and even national markets that had struggled in the past such as Italy and Greece have had stellar performances. With a 3.2% gain on the Stoxx 600, November is another good month to add to the very positive global picture in 2019. So far this year, the index had only two negative months — something of a rarity as it happened only twice in the past 20 years: in 2006 and 2013.

Yet despite the rally, 2019 has clearly been a “risk-off” year. Globally, year-to-date flows amount to $553 billion into cash positions, $353 billion into credit, $51 billion into government bonds, and $188 billion went out of equity funds according to Bank of America strategists, citing EPFR Global data. The recent upturn in equity flows is light compared to the outflows sustained since December last year.

Investors still seem plagued by the “fear of joining in,” according to Exane, even if some “fear of missing out” has emerged lately. Looking at volumes in the Stoxx 600, after a spike in October, they’re running about 20% lower than last month, suggesting that not everyone is willing to jump on board.

A lot of positive news seems to be priced in. Take the DAX this month. When Germany’s GDP surprised positively, saving the country from a recession, the index reaction was muted.

But December might provide some catalysts. The most visible one is in Britain, according to Oddo BHF strategist Sylvain Goyon. Current polls predict a landslide victory for the Conservative party and should that materialize, it might provide the trigger to overcome the risk aversion affecting U.K. indexes, Goyon says.

Still, let’s not forget the persistent unknowns. A U.K. hung parliament or new U.S.-China tariffs on Dec. 15 could bring some volatility. Barclays strategists say the recent rally was likely due to rising expectations of improving macro and reduced policy uncertainty. However, many sources of geopolitical tail- risks are still around.

“I wonder if one really likes to play the game of timing in these markets, because timing is posing a real risk,” says Thomas Lehr, a strategist at Flossbach von Storch Capital Markets. “Yes our cash position is a little bit bigger, given the strong rally, but only due to the fact that we have to look closer to find cheap stocks,” he adds.

Sitting December out could prove to be a mistake in light of the brightening economic situation, says Daniel Kerbach, chief investment officer at Munich-based private bank Merck Fink. “We like to keep a constructive position into the first quarter as the signs regarding central banks and trade discussions are rather positive,” he says. His comments chime with those of asset managers DWS and Fidelity in recent weeks. Both said equity markets have the potential of a mid- to high-single-digit gain, if the improving framework of geopolitics and macro economics doesn’t collapse.

“Investment strategies that put a focus on seasons or calendar months don’t offer much of an advantage,” says Andre Koppers, a fund manager at Oberbanscheidt & Cie. “History shows that a timed entry and exit before or after strong market movements has much more to do with luck than skill.”

Mass panic has set in around London Bridge after gunshots were fired early Friday afternoon.

Disturbing footage of the panic is circulating on Twitter as the rumors of a shooting spread. The BBC is reporting that witnesses saw several men attacking another man, it’s believed that one man has been shot.

Police shouting for everyone to move away. Real panic setting in at London Bridge. Rumours of a shooting? pic.twitter.com/vBZoKu73za

— Timothy Johnson (@timtj) November 29, 2019

London’s Metropolitan Police confirmed that they’re dealing with “an incident” and have blocked off the area.

We are in the early stages of dealing with an incident at London Bridge. Please follow @metpoliceuk for updates. If you are near the scene, please follow the directions of any officer on the ground.

— MPS Events (@MetPoliceEvents) November 29, 2019

We are currently dealing with an incident at London Bridge. Please stand by for updates.

— MPS Events (@MetPoliceEvents) November 29, 2019

Both marches are now in Whitehall / Parliament Street.

— MPS Events (@MetPoliceEvents) November 29, 2019

While shootings like this happen all the time in the US, they’re much more rare in the UK, where guns are effectively banned. London has been struggling lately with a surge in violent crime, though much of the attacks have been carried out by knife-wielding aggressors.

After two months of anti-corruption and anti-government protests have rocked Iraq, resulting in a death toll into the hundreds as the unrest turns increasingly sectarian and which has included the burning of two Iranian consulates, Iraqi Prime Minister Adel Abdul Mahdi says he will resign.

He announced in an official statement put out by his office that he will submit his resignation to parliament after the country’s top Shia cleric, Grand Ayatollah Ali al-Sistani, suddenly pulled support, telling the nation in a Friday sermon that parliament should “reconsider its options” after putting Mahdi in power in the first place.

The subsequent statement signed by Abdul Mahdi indicated the following: “In response to this call, and in order to facilitate it as quickly as possible, I will present to parliament a demand (to accept) my resignation from the leadership of the current government.”

Local authorities estimate the death toll since protests erupted on Oct. 1 has soared to over 400 people, with thousands wounded, amid reports of ‘live fire’ used by police. This includes security forces reportedly shooting some 40 people dead in Baghdad and in southern provinces in what was possibly the deadliest single day on Thursday. 

At least on top provincial police chief was removed over shooting deaths this week, after Iraqi clerics had previously urged government forces to refrain from using deadly force. 

Iraq remains a sectarian powder keg waiting to erupt further, given anti-corruption protests have quickly turned to target neighboring Iran’s influence; however Mahdi’s stepping down may relieve some of that pressure, given he had the close backing of Iran.

Meanwhile, Iran-backed Iraqi Shia militias have reportedly been increasingly involved in assisting security forces in putting down the popular unrest which has swept the country – by some accounts even deploying snipers.

Washington too has pointed the finger at Tehran and its paramilitaries inside of Iraq of stoking the unrest and destabilizing its neighbor in order to tighten its grip of influence over the country, which still has thousands of American troops present in an advisory capacity.

Authored by Isabel van Brugen via The Epoch Times,

Four United Parcel Service (UPS) employees are accused of being involved in a decade-long operation to import and traffic large amounts of drugs and counterfeit vaping oils, police said, as 11 arrests were made over the past two weeks.

The scheme often saw thousands of pounds of narcotics and marijuana shipped weekly from narco-traffickers into the United States and then to various destinations across the nation. Authorities said the substances were transported meticulously in cardboard boxes through UPS’s trucking and delivery systems, the Washington Post reported.

Money made from the lucrative operation was then spent on purchasing luxury homes and properties, vehicles, and vacations, according to detectives.

Investigations first began in 2017 when the Tucson Police Department and an arm of ICE found evidence which pointed to the elaborate scheme.

John Leavitt, commander of the Tucson Police Department’s Counter Narcotics Alliance, said in a statement: “This investigation has identified and mitigated vulnerabilities in the shipping infrastructure that has allowed for the undetected trafficking of narcotics for more than a decade.

Over the past couple of weeks, agents arrested 11 individuals aged between 24 and 49, including four UPS employees. Authorities seized substantial sums of money, around 50,000 counterfeit THC vape pens, equipment to manufacture drugs, and vehicles, according to a police statement.

All eleven face charges related to narcotics smuggling, drug possession, money laundering and misconduct involving weapons, the New York Times reported.

A 49-year-old UPS employee of the Tucson distribution facility, Mario Barcelo, is accused of leading the operation, and allegedly used his position as supervisor to bypass security measures as drug shipments were loaded onto trucks and delivered, investigators from the Counter Narcotics Alliance said.

Barcelo was arrested on Nov. 13.

“He’s been able to provide this service to drug traffickers without being detected both internally and externally by law enforcement for years,” Tucson Police Sgt. William Kaderly told the Post.

“They’ve been doing it for so long that they were truly comfortable that they were never going to get caught.”

UPS told the Post in a statement that the company is “not at liberty to discuss the details of the arrests as this is an ongoing investigation,” but added that it is cooperating with law enforcement officials.

Trump to Designate Mexican Drug Cartels as Terror Organizations

President Donald Trump said this week he intends to designate Mexican drug cartels as terrorist groups for their role in trafficking narcotics and people. The day before, Mexican President Andres Manuel Lopez Obrador said he disagreed with the move.

During an interview on Nov. 26 with Fox News host Bill O’Reilly on the topic, Trump confirmed it is something he has been working on for several months.

“Absolutely,” Trump told O’Reilly when asked whether Mexican drug cartels would be designated as terror groups.

“I’ve been working on that for the last 90 days. You know designation is not that easy, you have to go through a process, and we’re well into that process.”

Mexico’s foreign ministry promptly reacted to Trump’s comments, saying it would quickly seek a high-level meeting with U.S. State Department officials to address the legal designation as well as the flow of arms and money to organized crime.

“The foreign minister will establish contact with his counterpart, Michael R. Pompeo, in order to discuss this very important issue for the bilateral agenda,” the ministry said.

Under U.S. law, members of a particular group designated as a terrorist organization cannot enter the country. They may be deported, and it is also illegal for people in the United States to knowingly offer support. Financial institutions must also block funds connected to the group and alert the U.S. Treasury Department.

Terror groups currently on the U.S. Foreign Terror Organization list include Islamic State, al-Qaeda and Boko Haram in Nigeria.

Earlier, Mexican President Andres Manuel Lopez Obrador said Mexico doesn’t agree with the United States potentially designating cartels as terrorists.

“We will never accept that, we are not ‘vendepatrias’ (nation sellers),” Lopez Obrador said at his morning press conference on Nov. 25, Breitbart reported.

Lopez Obrador’s foreign relations minister Marcelo Ebrard said that the designation would be unnecessary. He noted that if America designates cartels as terrorists, it could open up a legal avenue for the United States to take action against cartels inside of Mexico.

Reuters is reporting that consumers spent billions of dollars online on Thanksgiving day, while the era of people lining up around the block at stores on the eve of Black Friday could be a dying trend. Spotters surveyed stores across the country in the overnight, noted that traffic volumes at brick-and-mortar stores were soft.

Lauren Bitar, head of retail consulting at analytics firm RetailNext, told Reuters that department stores extended shopping incentives from Halloween through Black Friday.  

The abnormally long periods of incentives leading into Black Friday could have an impact on holiday sales, Bitar said. 

“We’ve seen many merchants start their promotions pretty much right after the trick-or-treaters have gone to bed,” she said.

Bitar said stores offering promotions for an entire month leading to Black Friday could erode “the spike that we have seen in sales dollars historically.” 

The National Retail Federation (NRF) said at least half of the consumers polled earlier this month have already taken advantage of the deals ahead of Black Friday. 

Spotters told Reuters that crowds at stores on the eve of Black Friday were low. 

Many consumers, who are on the prowl — scanning for deals on Black Friday, are expected to use credit cards. Though credit card interest rates are at 25-year highs, this could limit holiday spending. 

Nearly 165 million Americans are expected to take part in the holiday shopping season through the weekend. 

The latest trend of consumers abandoning retail stores for online shopping could further stress retailers this year as the already retail apocalypse has forced record store closings. 

Adobe Analytics is reporting that online transactions of top retailers could be around $7.5 billion in sales on Friday, a 20.5% YoY increase. 

Adobe showed online spending on Thursday was $4.4 billion, representing a 20.2% YoY rise.

NRF’s retail sales forecast for November through December could increase by 3.8% to 4.2% YoY, for a total of around $730 billion. 

The most significant retail trend this year could be consumers ditching retail stores for online shopping. There’s also a major risk that this holiday shopping season underwhelms: 

Department store retail sales continue a downward sloped move.

Department store retail sales verse Amazon’s stock price.

Authored by Mike Shedlock via MishTalk,

An unknown person or hedge fund bought 5,000 options on gold hitting $4,000 an ounce by June 2021.

On Wednesday, an unknown buyer made a $1.75 Million Options Bet That Gold Would Triple to $4,000.

The gold options market saw $1.75 million in block trades betting the precious metal could almost triple in more than a year, surpassing the record.

Around noon in New York Wednesday, 5,000 lots of a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands. The bets were sold at $3.50 an ounce.

“It’s like 18-month term life insurance; what will the world look like if gold is at $4,000,” Tai Wong, the head of metals derivatives trading at BMO Capital Markets, said in an email. “They are hoping for a quick violent move,” he said, referring to the people who bought the call options.

Gold Headed to $4000?

For the call buyer, it’s not a matter of gold hitting $4,000 but rather gold hitting $4,000 by June 2021.

Of course one would not have to hold the options all the way through.

If gold suddenly spiked by $1,000 right away perhaps the entity cold sell the options for $15 or more at least tripling the bet. Otherwise these options will quickly decay.

Let’s assume the options are held to the bitter end.

Returns On Options Held Full Term

Return Synopsis

• At a June 2021 price of $4,000 or less, the call buyer will lose $1.75 million.

• Between $4,000.01 and $4003.49 the call buyer will lose some but not all of the bet.

• At precisely $4003.50 the call buyer breaks even

• At $4,000 the call buyer nets $48.25 million ($50 million minus the initial $1.75 million bet).

• At $5,000 the call buyer nets $498.25 million ($500 million minus the initial $1.75 million bet).

The most likely thing, by far, in any time frame is the buyer losses $1.75 million.