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Authored by Peter Tchir via Brean Capital,

VIX ETFs and ETNs

We take a deeper dive into the strange world of VIX ETFs and ETNs.  We take a quick look at the incredible short interest in both the long VIX products and the short VIX products.  This massive short interest in both long and short products seems unique to the VIX world (it reflects a re-balancing trading strategy that works in the VIX space because of the high volatility of the VIX products) (VIX ETFs seem to run 5 to 10 times the realized volatility of the S&P 500).

Then we dig into the prospectus for each of the 4 funds I focus on (VXX, UVXY, XIV and SVXY).

What is important is the Acceleration Event in XIV.  The language from the prospectus seems clear that if the VIX Short Term Futures Total Return index moves 80% in a day, then XIV has to unwind.  While an 80% move in a single day is very unlikely, I believe that the lower VIX goes, the easier it is for it to occur (VIX at 8 only needs to jump to 14.4 in a day for this to occur), because these VIX products make a ‘mistake’ in my view of converting changes in VIX to percentage changes to provide returns (the VIX futures do not do that for example).

The problem with an XIV acceleration event is two-fold – all of the hedges (short futures positions it has) will need be covered, just as the market is struggling.  The second order problem is that many investors who have been waiting for a spike in VIX to sell volatility won’t have an outlet.  If you planned to buy XIV on a VIX spike and it isn’t there, what do you buy?  It is far less clear what sort of trigger mechanism SVXY has (that is something we are looking into).

While I talk about 80%, several funds have mentioned that they see a 60% move as the start of the unwind process in the market as a whole.

On some regression analysis (which I will try and add over the weekend), something like a 3% drop in a single day would be enough to trigger that sort of VIX avalanche – again, not a high probability, but worth noting.

There may also be a bias for events to occur shortly after VIX futures contract expirations as the bulk of the index is in the more volatile, and lower priced, VIX futures contract – but that is just thinking out loud.

One trade, as a result, seems to be an  uptick in volumes and activity in higher strike VIX calls.   The premise being that if VIX goes > 60% it is going to have a shock much higher.  So rather than spending a lot of premium on puts, spend as little as possible to buy some lottery tickets in the unlikely event that it occurs (I think the contingent probability of if VIX goes to 16 it is going to 25 is the right way to look at VIX – the probability of it gapping to 16 in a day is very low – but if it does, it should move a lot higher, quickly).

That ignores the usual stop loss suspects in a crowded, ‘sell vol’ space and assumes no algo will aggressively attack out of the money puts to drive bid/offer wider – which is an integral part of the VIX calculation.

The steady state grind to higher stock prices seems to be the base case, but there are clear paths to some uglier scenarios.

The corollary of my view is that ‘less liquid’ assets will likely outperform in a VIX spike type event because it will happen so quickly and recover almost as quickly, such that extremely illiquid assets won’t have time to trade down (this happened a bit in August 2015 where ETFs like HYG and JNK performed more ‘normally’ than other ETFs because there were no ‘bad prints’ to drive the algos trading).  I will highlight some of those abnormalities in this weekend’s report.

Finding ways to buy the cheapest possible lottery tickets to a VIX or volatility spike is the right trade – the event is too unlikely to be the over-riding concern in your portfolio management – but I think it is a valid enough concern and there are cheap enough ways to do it, that it is a worthwhile exercise.

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Full Report below…

Incredible Short Interest In VIX ETFs and ETNs

I cannot think of another product that has such large short interest in BOTH the long and the short versions. I might not be looking hard enough, but on a quick scan, most other asset classes seem to make due with the option of being either long or short.

Given the year to date returns it is easy to see why investors would want to own XIV and SVXY (both up more than 90%) or to be short VXX (down 54%), but why be short both? (for percentage of float short I used short interest and shares outstanding as of June 30th as that was last date I head short interest information).

Shorting both looks even more strange when over the past year it looks like owning both was the right trade (year to date you could have owned XIV and VXX and generated a 40% return?) The strategy of shorting XIV and XVV, with weekly rebalancing has produced positive returns. That is the reason that both are shorted. There is strategy that involves shorting both, rebalancing weekly and harvesting the differences that occur in these two volatile indices. (I had only run daily rebalancing which was flattish on the year, but weekly rebalancing works better).

The Benchmarks Seem The Same

From the UVXY and SVXY prospectus.

exposure to, forward implied equity market volatility as measured by the S&P 500® VIX Short-Term Futures Index (the “Index”)

From the XIV prospectus.

Each series of ETNs tracks the daily performance of either the S&P 500 VIX Short-Term Futures™ Index ER

From the VXX prospectus.

ETNs is linked to the performance of the S&P 500 VIX Short-Term Futures™ Index TR

I will admit that on Bloomberg I couldn’t find a difference between the total return version and the excess return index or the futures index (that could be Bloomberg’s fault, it could be that I missed a subtle part of the naming convention, or it could be that they all reference the same thing – which is probably the starting assumption most people make).

I can’t even find the index calculations (though I only spent half an hour googling various likely sources), but my understanding is that it is weighted return between the first futures contract and the second one. The weighting is Days into Period/Total Days and (Total Days – Days into Period)/Total Days so that at the start of a roll period, the entire weighting is on the front contract and that gradually shifts into the index using the second contract almost in its entirety, so that by the next roll it is all based on the second contract about to become the first contract.

Now For The Good Stuff – Forced Unwinds

If you aren’t confused by this point either I did a better job wrapping my head around the issues than I think I did (which is not likely) or you have just skimmed the pre-amble to get to the good part (seems likely).

But here we are, and we will start with XIV:

Acceleration at Our Option or Upon Acceleration Event

We will have the right to accelerate the ETNs of any series in whole but not in part on any Business Day occurring on or after the Inception Date (an “Optional Acceleration”). In addition, if an Acceleration Event (as defined herein) occurs at any time with respect to any series of the ETNs, we will have the right, and under certain circumstances as described herein the obligation, to accelerate all of the outstanding ETNs of such series (an “Event Acceleration”). In either case, upon acceleration you will receive a cash payment in an amount (the “Accelerated Redemption Amount”) equal to the Closing Indicative Value on the Accelerated Valuation Date. In the case of an Optional Acceleration, the “Accelerated Valuation Date” shall be an Index Business Day specified in our notice of Optional Acceleration, which Index Business Day shall be at least 5 Business Days after the date on which we give you notice of such Optional Acceleration. In the case of an Event Acceleration, the Accelerated Valuation Date shall be the day on which we give notice of such Event Acceleration (or, if such day is not an Index Business Day, the next following Index Business Day). The Accelerated Redemption Amount will be payable on the third Business Day following the Accelerated Valuation Date (such third Business Day the “Acceleration Date”). The Acceleration Date will be postponed if a Market Disruption Event occurs and is continuing on the Accelerated Valuation Date. No interest or additional payment will accrue or be payable as a result of any postponement of the Acceleration Date. See “Specific Terms of the ETNs—Market Disruption Events.” We will give you notice of any acceleration of the ETNs through customary channels used to deliver notices to holders of exchange traded notes.

 

Acceleration Event

As discussed in more detail under “Specific Terms of the ETNs—Acceleration at Our Option or Upon an Acceleration Event” in this pricing supplement, an Acceleration Event includes any event that adversely affects our ability to hedge or our rights in connection with the ETNs, including, but not limited to, if the Intraday Indicative Value is equal to or less than 20% of the prior day’s Closing Indicative Value

My interpretation of this, is that the Notes (XIV is a note issued by Credit Suisse AG (Nassau Branch)) ‘mature’ or ‘redeem’ (my words) in its entirety if the value declines by 80% in a single day.

I am not a lawyer, so you can have your lawyers read it, but every time I read it, it seems likely that at -80% on day – the fund goes ‘poof’. If the fund winds up down 90% investors would be entitled to the 10% of value left – but that is not the point.

Let’s say we are on a day where all of the calculation is based on the first VIX futures contract and the contract is trading at 8 (why not, we are in a vol seller’s world in the middle of summer).

If that contract goes to 14.4 then I think a rather nasty series of events occurs.

The valuation of the note would be -80% because although VIX going from 8 to 14.4 doesn’t seem that insane, it would be an 80% move in the index.

Now XIV (which as a note doesn’t show its daily holdings, would have to BUY a lot of VIX protection – either in VIX futures forms or in swaps – but end result is the same – a bunch of shorts will be FORCED to cover). Credit Suisse AG (Nassau Branch) as the issue would direct this, because they have no recourse to investors if the fund went down -110%. In that case CS AG (Nassau Branch) would lose 10% – and I suspect they aren’t in the business of giving away free options which is why they have the Acceleration Event defined as such – 20% should give them plenty of time to unwind though in my scenario they get stopped at 14.4 and start losing money at 16 – again seems insane to treat VIX as a percentage change).

All else being equal – UVXY will be a buyer of futures into the close as it would need to buy to maintain its 2:1 leveraged exposure.

For SVXY I could only find this:

Termination Events The Trust, or, as the case may be, a Fund, may be dissolved at any time and for any reason by the Sponsor with written notice to the shareholders.

There is also this little blurb in the prospectus

Inverse positions can also result in the total loss of an investor’s investment. For the Inverse Fund, a single-day or intraday increase in the level of the Fund’s benchmark approaching 100% could result in the total loss or almost total loss of an investor’s investment, even if such Fund’s benchmark subsequently moves lower.

They seem to contemplate some sort of a closeout (‘even if such Fund’s benchmark subsequently moves lower’) but it isn’t very clear.

Here is the current holdings of SVXY (according to their own website which actually doesn’t match Bloomberg’s MHD function)

So SVXY would be short a lot of contracts. It has cash against those. Presumably throughout the course of the day they would be receiving margin calls. While XIV made it very clear what was to occur – SVXY doesn’t make it clear at all. Could they get new money to make more margin calls (are margin calls really only at the end of the day as written in some informational section or can they be during the day? How good are their clearing agreements in terms of avoiding termination?

I am not a lawyer and admittedly gave up searching for Termination, Acceleration, Unwind, Closed, Closed-out, margin, margin call, etc….

This is a different situation than a structured note. In structured note, like XIV, the note issuer would be responsible for any losses beyond money received (not a legal opinion).

In an ETF, like SVXY, it would be counterparties to the company, that are left with the losses. If one counterparty allowed the ETF to lose more money than they held, the counterparty could not go after shareholders for the money (as I understand it). So, in my opinion, the prudent counterparty would have rules in place to prevent that, but it isn’t clear at all in the document as I read it.

Can VIX Futures Move 80% In A Day (And Should We Care)

On a simplistic glance, it seems easier to move from 8 to 14.4, then from 12 to 21.6.

Is there a real potential that that a move like that could trigger buying into a fragile market?

Yes, though maybe it would be offset by redemptions in the long products, or shorts of shorts getting stopped out, because who knows what you do with a short interest in a product that goes away (which would be the case of XIV).

Let’s not forget that VIX itself is a complex calculation – please see the wiki link to read more, if your head isn’t already spinning enough.

Maybe the VIX products are too small and hokey to impact larger markets?

Doesn't Backtesting Protect Us?

Home prices, on a national basis, have never been negative.

The probability of credit loss for a super senior corporate CDS tranche is 0.0001% (or some extremely low number). As far as I know, none of the corporate super senior CDS tranches sold by AIG FP would have experienced a loss due to Credit Events and I think even on the CDX IG index tranches, none have reached into the ‘mezzanine’ tranche, let alone super senior – yet that trade left more blood in the water than an episode of Game of Thrones.

These products, the links between them, the short interest, the unwind rules, have not been thoroughly tested.

On the other hand, SVXY has seen some outflows, so maybe we won’t run into some bizarre scenario.

So Many Unknown Unknowns

With stocks at record highs, and the FANG led NASDAQ once again showing resilience, maybe we don’t have to worry about all these strange products? Maybe all of that is too remote or just simply untradeable – especially when the ‘no one could have seen it coming’ argument would be an obvious one to employ if we ever get a VIX led problem.

Quite frankly, despite writing this, I find it hard to be alarmist right now. I can’t get up the energy to run through town crying ‘the vix are coming, the vix are coming’, but a nominally low level of VIX makes it easier to set something into motion.

While I have been writing this, several people have pointed out the rebound in the S&P 500 Implied correlation index from an unprecedented low yesterday.

via http://ift.tt/2gVcD0V Tyler Durden

Dr. Pippa Malmgren, a US policy analyst and former member of the Working Group on Financial Markets, a government entity better known by its nickname, the “Plunge Protection Team,” appeared on Erik Townsend’s MacroVoices podcast to discuss bitcoin and the European refugee crisis, while also offering some clues about how the PPT, famous for its secrecy, operates.

On The Financial Implications of Europe's Refugee Crisis

Townsend started the interview by asking Malmgren, who also served as a special assistant to the president during the Obama administration, her thoughts about the thousands of refugees who continue to pour into Europe. Surprisingly, despite her liberal views regarding the free movement of people, Malmgren said she’s “quite worried” about the crisis, and believes it will only worsen as governments in Northern Africa become increasingly unstable, potentially leading to a financial crisis in Europe.

Erik: What do you see the outcome of this refugee crisis being? We had Italy the other day threatening to issue EU visas to refugees to force other countries to do their part to absorb more people. We have seen German politics affected by what seems like a growing divide in the German populace in their attitude towards accepting refugees. mIs this going to lead to a bigger problem or is it coming under control?

Pippa: I think there is a much bigger problem in immigration coming. To be clear, I am actually in favor of the freest possible movement of people, which means human capital and goods, and capital across borders. But there are always limits. And the socially acceptable limits seem to be in flux right now across Western Europe. Here’s the problem. We are not just talking about the magnitude of refugees we have already seen. We are talking about what’s coming. And so this is where the Italian threat is very important. They basically said, look, nobody is helping us and we get all of them because of our geographical location. So unless you guys give us a hand here, then we are just going to issue them papers and then let them loose. They can go anywhere they want in Western Europe. That is of course a bit scary for the rest of Western Europe, which would prefer to have the problem contained, but they are not prepared to help Italy in the containment process, just as they weren’t particularly prepared to give Greece any extra money to deal with their refugee problem, which happens for the same reason. But this is the beginning.

The bigger issue is that you still have a buildup of immigration happening in Turkey, and the Turks have also been very threatening, saying if you don’t give us what we want, and we have got a long list of things, then we might have parts of the border that there’s just nobody to police it that afternoon. And suddenly, you get a big wave. But even more important than that, I now see Northern Africa becoming more destabilized. So Algeria, Libya, and Egypt all becoming a little more wobbly and unstable, and that wave of immigration, I think, could begin to dwarf what we have already seen. In addition to that, there’s also the fact that everybody in Africa has registered that it is possible to get to the north. Of course, all of them would like to because they are not stupid. They completely understand that there’s a potentially better quality of life and much greater opportunity. It is not just a temporary phenomenon. It is now that people in that part of the world have begun to register I can get to Europe. Look, turn on CNN and you will see, which they can all do these days because they have got the telephone in their pocket. The television is on their phone.

This is the key thing. The realization that movement may be worth it. They are saying now in parts of even Sub-Saharan Africa that the greatest luxury good, the thing a person will buy when they have any extra money is passage to Europe. And so this is why there’s a really big question about what is the European Union’s immigration policy. Do they really have one? Or do they really believe in this concept of having basically no border whatsoever? I think it is a big debate. A lot of Europeans are like we never signed up for a world where we had no borders at all. Others say once you are inside the border, you are in. And I recently had a German say to me. For example, the Polish citizens that were in the United Kingdom weren’t immigrants. They were just European Union citizens. This is the type of debate that’s occurring. But at the end of the day there is still no money to deal with them for whatever reason they are arriving, and so it will continue to be a pressure on finances. I explained the example of Britain in 1834, when they abandoned the traditional system they had used for 1,000 years at that time, which was called the Tally Stick system. So when we say we tally things up or the word stock market refers to the use of little wooden stocks. They were little pieces of wood on which you record every transaction during your life, every borrowing, every lending deal, every asset acquisition, every tax payment.”

On The Rise Of Blockchain and Cryptocurrencies and The Fall Of Dollar Hegemony

Moving on, Townsend took the conversation in a direction that he said might be outside of Malmgren’s comfort zone: The rise of cryptocurrency’s like bitcoin. Contrary to his expectations, Malmgren said she’s been closely following the increasing use of cryptocurrencies, adding that they will likely play a role in determining who dominates the global economy, and therefore determines the monetary framework, after precipitating the next big paradigm shift, which will lead the world away from the dollar-based framework that exists today. Governments like China and Russia, which are seeking to create their own digital currencies, pose a greater threat to the long-term dominance of the dollar than they, or the US, realize.
 
Erik: I want to shift gears now to a topic I didn’t used to think of as being geopolitically oriented, which of course is your area of expertise, and that is crypto currencies. In the beginning, Pippa, if you look at what BitCoin was at the very beginning, it was something only interested extreme Libertarians who were very interested in financial privacy. Nobody else was paying attention to it. It was designed really to usurp the ability of government to interfere with and control people’s finances. It seems that it is almost going through a complete transformation where now we have the Ethereum guy, I forget his name (Vitalik Buterin), meeting with Putin talking about some kind of partnership to create a digital crypto currency that will become a national currency for Russia. Meanwhile, PBOC is advertising to hire block chain engineers to help to design the digital yuan or digital RMB. So all of a sudden, it seems like what’s going on, and I don’t remember the gentleman’s name. But there was someone from PBOC, a very senior official, saying it was time for central banks to stop ignoring crypto currencies and recognize that we have got to take the lead and we have got to be in charge of these things and design what we
want them to be. Where is this going? It seems like to me this is a game changer if national governments are going to get behind crypto currencies. Where does this take us?

Pippa: Totally. I think it is a massive market and geopolitical issue. I have written a little article about this, which I put up on LinkedIn, where I said you have got to understand if the size of your debt problem is so big that it can’t be paid off and in fact even inflation, which is the usual way you would seek to default on your debt slowly over time, you can’t get enough inflation generated, then there is one further option. And that is you literally abandon the entire system of money, and accounting. I know that sounds unbelievably radical, but we have seen it happen before. I explained the example of Britain in 1834, when they abandoned the traditional system they had used for 1,000 years at that time, which was called the Tally Stick system. So when we say we tally things up or the word stock market refers to the use of little wooden stocks. They were little pieces of wood on which you record every transaction during your life, every borrowing, every lending deal, every asset acquisition, every tax payment. The way it worked was it was literally a wooden board. You cracked it half really roughly so the two sides definitely did match and couldn’t be faked. Then the borrower and the lender each marked all their transactions. The stock end was always the smaller end, so that’s where we get stock market. There was a market in the stocks, these little wooden sticks. Bottom line was why would you abandon a system that has worked perfectly beautifully for 1,000 years. The answer is you had 200 years of war debts that had accumulated. They were unable to get inflation up enough without causing social unrest, and so the government said hey, let’s take the tally sticks back, and give people this great new innovation called paper money.

You can imagine everyone said I am going to hand over this record, this ledger of my entire net worth, and you are going to give me a piece of paper. Really? This is a joke. In the end, what the government had to do was confiscate the tally sticks, and they took them to parliament to burn them. They misjudged how much heat the fire would throw off, and that is what caused Parliament to burn to the ground in 1834. It was the destruction of the system of accounting and money. In its place, we adopted what we now use, which is piece of paper we call cash. Today, we are on the brink of similar step change, and the way you will do it is you move to electronic money in conjunction with blockchain. Blockchain is the new ledger, and e-money is the new currency.

The question is whose e-money. So everybody in government circles have been watching the Indian experience because the prime minister stepped up to the platform in early November and basically said we are going to move all of you, a billion people, off paper money and onto electronic money, and we are going to do it in three months. They did it, and they did it successfully. Now governments everywhere are saying we want to do that because, guess what happens when you move to e-money. First of all, you really eliminate the black market because you can’t transact anymore without it being seen. And so, for example, the European Union are talking heavily about moving to electronic money because then all this black market activity that happens in Greece and Italy where there’s no tax, we will be able to get all that tax revenue off it. That’s one reason. The second reason is with blockchain you have total transparency over every single step of a transaction, complete providence of every single transaction. The question is who gets to see it. I think this is where governments are suddenly a little schizo because on the one side they think they are going to have the ability to see every transaction that you and I and all the listeners are engaged in, but Ethereum has created this platform where actually they won’t necessarily be in government’s hands, maybe in private hands.

The question is can you trust the private hands who are issuing Ethers as much or more as you trust governments. So governments are being to say let’s create our own version, and that’s where you get the PBOC saying we’ve got to control this. Because otherwise, you are going to end up with private sector currencies that possibly are trusted more than government currencies, and that will lead to transactions offline that governments can’t see. There was a report going around the Internet recently about some guy who made $200 million bucks trading on Ethereum in a month, and the question was who will tax that. The answer is nobody. That freaks governments out to say the least, particularly given their debt situation. So I think this is a huge, huge thing, and all investors have to think very carefully about it. I will say one last thing about it. You have got to get familiar with quantum computing, and there is loads of stuff on the net about it. But the reason it matters is because of the speed at which you can process information. We now have quantum computers. The Chinese apparently have the fastest. There is D-wave out of British Columbia, but basically you can break a block chain password or a Bitcoin password in like less than a minute if you have a quantum computer. The question is who is going to have them, and the answer is mainly governments but big corporations are buying them like crazy. Volkswagen just bought one. We are going to see major corporations buying that computer power.

The question then is who has most transparency over the block chain and e-money, and I would argue it is going to be whoever has the most and fastest processing  power, which may be governments at times, it may be private at times, it may be fluid. That’s what we have to think about as investors.

On The Real Power Of The Plunge Protection Team

Finally, Townsend said he couldn’t resist asking his guest about her time at the PPT, to which she responded that the group’s activities are far more mundane than the popular narrative that portrays them as staunchly interventionist, buying stocks to prop up the market every time there’s a forceful correction. The group’s meetings mostly consist of strategizing about monetary policy, geopolitics and how developments in both realms might impact US investors.

While the group does operate a trading desk, Malmgren said it’s mostly used to monitor capital flows, not actively participate. The group’s genuine operations generally involve crafting statements meant to influence the market that are given by prominent administration officials like the Fed chair or Treasury secretary. The group also leverages the heft of the Fed and Treasury Department to influence markets in more subtle ways. As Malmgren points out, sometimes all that’s needed to move the price of a security or currency is to have the Fed’s trading desk call up a bank and ask for a price.

Erik: Finally, Pippa, I would like to go to a topic that I know a lot of people are going to be very interested to hear from you about, and that’s the President’s working group on financial markets, better known as the Plunge Protection Team. If you were to believe in the rhetoric that you see and some of the conspiracy minded blogs and podcasts on the Internet, this is a sinister organization that exists to undermine free market capitalism by imposing government control and manipulating markets much to the dismay of short sellers and gold bugs and so forth. You have the distinction of having actually served in real life on that so called Plunge Protection Team. Tell us what they really do there. What was it like? What experiences and insights did you gain from serving on the PPT?

Pippa: What is it really? It is a working group that is the Treasury, the Federal Reserve, the controller of the currency, somebody from the White House. They call it the plus one. When I was on it, I was the plus one for the White House. Basically, they are there to confer, to swap notes about what’s going on, especially when there’s a big emergency. They do have a quote trading room, and the trading room is basically a place where they can watch markets, see prices, and see how things are unfolding. What is isn’t it is not a hedge fund. It is not an entity that can just enter the market and buy stocks. It is not like Hong Kong where they can say we are now buying stocks and suddenly the market moves.

It works in more subtle ways. My sense is it is a talk shop. It doesn’t have anything like the influence the markets attribute to it. The more important thing is that all the big financial institutions, they understand that it is better to get along with Treasury and the Fed than be obstructive or confront them. I would go even further, and I said this is in my book Signals, that a lot of people in government are definitely looking to work in the private sector when they leave. So you don’t want to do stuff that’s really disruptive to the banking sector if you expect to be named vice chairman of a major bank. So what I think actually happens is when we are in a big emergency, Treasury knows all of the people in the banking system. They are buddies, and they play golf together. They get together and go it looks really bad. It would be good if somebody came into the stock market and bought some stuff. That would be good. Yeah, I think so.

Then the order goes out to the trading floor buy stocks Monday morning. It is not because they were required to or because the government in any way has issued an order. It is just a sense of I think government is enough uneasy that they will do something. Nobody asks what can they do. They just assume it is government, so they go I think they might do something so we had better get in front of this. This is why the power of words in government is so important. What you get in government, quite literally when you go serve in any of these roles, you get a pen and a flag. It is really important to understand the power of the pen and the flag. You literally write or you say words, and the market moves.

You need to do actually intervene in the stock market directly or the bond market. All you need to do is put the word out that you are getting a little uncomfortable with prices where they are, and you would rather see them somewhere else. Lo and behold, the market starts moving. It is not the Plunge Protection Team that actually do this; it is much more subtle. It is much more subtle than that, and it would happen even if you didn’t have a Plunge Protection Team. It is just Wall Street sniffing out what’s the sensibility of Washington. Having served on it, whenever I read these articles saying we had so much power and we controlled the markets, I burst out laughing because I thought they couldn’t punch their way out of a paper bag. But perception is everything in markets, and the perception is not wrong that government can influence the tone. I just don’t think it does so directly as people think.

Erik: So what you are saying is that the trading room that is operated by the Plunge Protection Team is for monitoring only. There is no account with which to massively short VIX futures in order to try to suppress volatility. There is no money to spend to try to influence prices in the market. Is that correct?

Pippa: There is one entity, and it has been so long since I was there I am ditzing on the name. It was created to deal with Mexico when Mexico had the Peso collapse. Bob Rubin was there at the time, and basically they took oil as collateral in exchange for the loans that they made to Mexico. That’s it. It is called the Exchange Rate Stability Fund. That is a pool of money that is available to the Treasury, and they can deploy it in markets. It is subject to congressional oversight, but Congress gets mad as hell every time they actually use it. What Congress doesn’t like is having pools of money that are not subject to congressional oversight prior to their use. In practice, you have the Exchange Rate Stabilization Fund as a mechanism you could use, but I think in reality it is not actually used very often. But the fact that it exists makes the market guys go, they could. All you have to do if you were sitting in that seat on the trading floor of the Treasury is ask for a price. You don’t have to tell the market what to do. You just have to call up and say just checking prices. You check prices at the right moment, and everybody knows which side of the trade you want the market to be on. Suddenly, they all start moving. Again, I don’t think that it’s really about the direct deployment of capital most of the time. It is really about using the words to create the impression that causes markets to start doing things they might not otherwise be doing.

Readers can find a complete transcript of the conversation here.
 

via http://ift.tt/2uVR3zF Tyler Durden

A Ifop poll released on Sunday showed that the approval rating of France’s new President Emmanuel Macron tumbled by 10 points, hitting 54% in his third month in office, as voters were “either confused by plans for the tax system, shocked by a dispute with the head of the army or unsettled by upcoming labor laws reform”, according to Journal dy Dimanche.

According to Bloomberg calculations, the 10 point slump for Macron, elected in early May, was the second-biggest decline for a French president so soon after election. Jacques Chirac dropped 15 points from his May 1995 election to July, the Paris-based pollster said. The survey for JDD was conducted by phone and online July 17-22 among 1,947 respondents.

Macron, deuxième plus forte chute de popularité en trois mois après Chirac https://t.co/xN5zNc5EJz http://pic.twitter.com/MGqywBGCic

— Le JDD (@leJDD) July 23, 2017

While Macron made a strong start on the world stage and won a solid majority in parliament, dark clouds have emerged in recent weeks, especially after he was widely criticized by opponents and the press as heavy-handed after a row over budget cuts that ended with the resignation of a highly-regarded military chief, who infamous told a parliamentary committee “I won’t let myself be fucked“ before he resigned.

As The Local.fe reports, France’s youngest-ever president, who has sought to project an image of authority since taking office in May, made clear during the row with the military boss that he would brook no insubordination as commander-in-chief. The leftist Liberation newspaper said Macron’s “little authoritarian fit” could be a sign he was drunk on power and said it was time for him “to grow up a bit”.

The 39-year-old leader has also backed a controversial bill to toughen France’s security laws that includes measures some rights groups have branded as draconian. His majority in parliament has drawn concern, with opponents and several newspapers expressing concern over the concentration of power in the presidency.

Despite the steep drop, Macron’s rating is still quite high, especially compared with his predecessors. In September 1981, Francois Mitterand had 48% approval, Francois Holland could boast 56 percent in July 2012, and only Nicolas Sarkozy scored much better in July 2007, with 66 percent.

Prime Minister Edouard Philippe’s approval rating also fell, dropping by 8 points to 56 percent said the poll of 1,947 adults carried out from July 17th-22nd.

“Macron’s entry in the atmosphere is brutal, he’s facing the brunt of several sectors in society,” Jerome Fourquet, the head of Ifop opinion polls, told Journal du Dimanche quoted by Bloomberg. Fourquet said a tax increase that will hit retirees, new measures that that will curtail civil servants’ advantages and his demonstrations of “authoritarian style” in some cases were among reasons cited by those surveyed. “Some of those polled were openly criticizing a presidency based on communication,” he added.

There is hope the recent plunge won’t continue, as the French leader’s agenda this week could help him move on from the domestic troubles. His first event Monday is a conference call with Germany’s Angela Merkel, Russia’s Vladimir Putin and Ukraine’s Petro Poroshenko to discuss the crisis in Ukraine. Later in the day, he’ll meet with scientists fighting the AIDS virus and he’ll finish his day with Bono, the U2 singer and co-founder of the ONE non-governmental organization.

His best chance to shine will come Wednesday at 5 p.m. when he has a meeting scheduled with the pop singer Rihanna at the Elysee presidential palace, according to his official agenda.

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Following the latest weekly battering of the USD, which has tumbled to near one year lows, the latest CFTC net spec positioning (which traditionally represents a lagging picture of price trend and has very limited, if any, informational value) saw a continuation of recent extreme moves, nowhere more so than in Euro and Japanese Yen net spec positions, which have shifted to most long since late 2011, and most short since January 2014 respectively.

A quick summary of the latest FX CFTC net exposure via DB reveals that specs turned net long in CAD futures by 8K contracts for the first time since mid-March, buying over 16K contracts over the week.

They continued to pare their net shorts in GBP by 8K contracts to 16K contracts for the third week in a row.

In the meantime, they increased their net shorts in JPY for the fourth straight week to 127K contracts, the highest since January 2014…

… while turning even more bullish on the Euro, at 91k contracts, the highest net long exposure since 2011.

As a result of the ongoing rout in the USD, the net spec positioning in the greenback now the shortest since mid-2014:

Zoomed in and broken down by offseting FX pair:

* * *

Aside from FX, there was several notable trends in the rates complex, where net spec positioning in TSY futs decreased for the third straight week by 32K contracts in TY equivalents to -120K contracts.

As Deutsche Bank notes, the largest sales came in TU where specs resumed adding to their net shorts by 17K contracts after a pause in the previous week – their net shorts in TU have increased by 263K contracts since May. They also increased their net shorts in WN by 8K contracts and pared their net longs in TN by a half to 12K contracts. In contrast, specs added 25K contracts to their net longs in TY for the first time in the last four weeks.

After Eurodollars hit record net spec shorts in June, there has been a sharp burst of short covering, and the net short here is now roughly half where it was just one month ago.

Yet while shorts were covered in the ED space, a new record net spec short has emerged in 2Y contracts, which just hit a new all time net short of -274K contracts.

Meanwhile, after the recent fireworks in 10Y nets, which violentedly moved from a record short to a record long in the span of week, there has been far less movement in recent days, echoing the somewhat more stable price for 10Y futs.

* * *

A quick look at commodities reveals that there was little to note in the latest NYMEX crude move, with money managers increasing their bullish Nymex WTI crude oil bets by 36,834, the highest net-long bullish position in six weeks…

… the aggressive shorting and unwind of long position in precious metals, including gold…

… but especially silver, has accelerated in recent weeks, suggesting the lieklihood of a sharp short squeeze is rising.

* * *

Finally, looking at equity positioning, reveals a modest increase of 23K net specs in E-mini futs…

… even as hedge funds continue to unwind net long positioning in the tech-heavy Nasdaq, which has seen the net position roughly flat vs one week ago, and rising by 8K contracts to 39K as of the most recent week.

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Content originally published at iBankCoin.com

Crowdfunding site Patreon banned conservative Canadian journalist, author, and YouTube sensation Lauren Southern without notice late last week – denying her thousands of dollars of monthly income following her involvement with an activist group in the Mediterranean.

Patreon just deleted my account.

— Lauren Southern (@Lauren_Southern) July 20, 2017

In a letter to Southern, the San Francisco tech startup with ties to the Kushner family wrote “It appears that you are currently raising funds in order to take part in activities that are likely to cause loss of life. We have therefore decided to remove your page from Patreon.”

“They claimed I’m raising money that will get people killed,” Southern told the Daily Caller – adding that Patreon refuses to consider an appeal..

Alt-Awesome

With over 300,000 subscribers to her youtube channel and just as many Twitter followers, Southern has amassed quite a fan base – and it’s easy to see why. The entertaining Canadian gained notoriety throughout the 2016 U.S. election and beyond as a vocal Trump supporter – appearing at rallies, protests, and even the White House press room.

Covering a wide variety of topics with deadpan humor and a sharp wit, Southern has opined on Fake News, the problem of degenerate women, the war on fathers, and even had her his gender legally changed so SJWs would STFU. When YouTube began demonetizing Lauren’s videos over subject matter deemed too controversial, she made a hilarious advertiser-friendly makeup tutorial.

And while overseas protesting and documenting hoards of migrants flowing into Europe, Southern shot footage at a French train station overflowing with new arrivals.

Migration racket…

In May, 2017 Southern teamed up with activist group “Generation Identity” (Génération Identitaire) – part of the Identitarian “Defend Europe” movement, which “advocates the preservation of national identity and a return to ‘traditional western values.” Founded in 2012, DE has been actively resisting the Islamization of Europe with protests and attempts to physically block migrant entry – while raising money and awareness to help native citizens in need.

Génération Identitaire also organizes, every winter, solidarity tours with Europeans homeless, giving food, clothes and humanity to those whom are abandoned by the State for the benefit of migrants. –GI

Southern was briefly detained by the Italian Coast Guard in May when she joined up with Generation Identity and attempted to block German migrant ferry Aquarius.

“If the politicians won’t stop the boats, then we’ll stop the boats!” –Lauren Southern

More recently, Defend Europe raised €100,000 through crowdfunding  and chartered a 130 foot ship called the C-Star to intercept, disrupt, and send back to Africa the systematic influx of refugees from North Africa into Italy on a massive scale – a phenomenon reported on by ZeroHedge last year.

Southern’s activism in the Mediterranean with a crowdfunded group is thought to be a major factor in Patreon’s decision to ban her from the platform.

Meanwhile, Patreon has no problem letting actually violent Antifa continue to raise money on their platform…

In a case closely monitored by investigative organization Far Left Watch, an Antifa anarchist group known as “It’s Going Down” has been actively raising thousands of dollars through Patreon – despite numerous reports of TOS violations for advocating and taking credit for all sorts of criminal behavior – including snipping fiber optic lines, slashing tires, cutting fuel lines, and pouring concrete on train tracks. In other words, “activities that are likely to cause loss of life.”

Per Far Left Watch:

“Groups like Antifa and other self described “anarchists” have recently made the news for destroying millions of dollars worth of property, violently assaulting people with a deadly weapon, and even stabbing a police horse.

It’s Going Down is a self described “digital community center from anarchist, anti-fascist, autonomous anti-capitalist and anti-colonial movements. Our mission is to provide a resilient platform to publicize and promote revolutionary theory and action.”

So a radical Antifa group can raise money on Patreon, right now, and Lauren Southern can’t because she’s a conservative whose activities “are likely to cause loss of life.”

Someone Call Kushner! 

Founded in 2013, Patreon has raised $47.1 million of investment capital – $30 million of which was led by venture firm Thrive Capital, co-owned and managed by Joshua Kushner – brother of President Trump’s son-in-law Jared Kushner. Of note, Joshua and Jared co-founded real estate firm Cadre – which got of the ground with a $250 million line of credit from George Soros).

Perhaps Josh Kushner can make a call to his buddies at Patreon and ask why they’ve beheaded Lauren Southern’s income while allowing Antifa anarchist groups to raise thousands of dollars per month from their fellow comrades for their jihad against conservatism.

Liberally polarized… 

To say San Francisco based Patreon leans left is an understatement. From a rainbow of hair colors, to hipster everything, to an employee who simply goes by the name ‘Bacon,’ it’s safe to say that Patreon probably doesn’t have a lot of Trump supporters in the office.

And big surprise – a Patreon engineer loves Antifa…

As GotNews published earlier this month, Patreon software engineer Aaron Riggenberg gave his stamp of approval to the “It’s Going Down” Antifa group in a now deleted tweet.

I wonder how many of Aaron’s co-workers, up to and including management, share his views?

Cutting off conservative sources of funding

Over the last year, several conservative pundits and news outlets have experienced sharp dropoffs in ad revenues – such as YouTube personality Mark Dice, who has been getting messed with off and on. Is his Patreon account next?

And in February, liberal ad agency AdRoll canceled their contract with conservative news outlet Infowars – one day after host and founder Alex Jones was featured in a New York Times article, costing Infowars an estimated $5 million in advertising revenue. Two months later, Google instructed it’s employees to rank Infowars as ‘untrustworthy.’

In examining how the staffers working as website “raters” should evaluate a “rather poor site,” the contractor pointed to InfoWars, advising raters to consider the quality of the information and its reputation. –Business Insider

And finally, Infowars host and YouTube star Paul Joseph Watson noted a sharp dropoff in ad revenue right around the same time – along with other conservative content creators.

This is my YouTube ad revenue since the crackdown. I don’t get any of it anyway, but illustrates how independent voices will be strangled. http://pic.twitter.com/GgNwx1Hl0T

— Paul Joseph Watson (@PrisonPlanet) April 5, 2017

As liberal gatekeepers from ad serving companies and crowdfunding platforms deny revenue to conservative content creators, one wonders when conservative competitors to companies like Patreon will crop up to fill the vacuum created by the moralizing left.

Journalist Tim Pool has a great take on the situation: 

p.s.

I won’t let them stop me. If you enjoy my work and want to see me keep doing what I do you can help here:
Paypal: https://t.co/T7GFXZL61q

— Lauren Southern (@Lauren_Southern) July 20, 2017

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Having previously exposed the greatest trick the market has pulled on Biotech investors in the past – What Is The PE Of The iShares Biotech ETF? It Depends On Whether You Read The Fine Print –  it appears investors need another lesson in reality versus perception.

As Horizon Kinetics puts it so eloquently – It’s One Thing to Not Know, It’s Another to Be Told What Isn’t So

"So, in reality one knows that an unprofitable company makes an investment more expensive, while in the world of indexation, such as in the QQQ, unprofitable companies are eliminated, making the P/E lower."

Unpacking a Mainstream Index, the NASDAQ 100

First, the Label

The essential value of an index is that it is a passive form of investing, the opposite  of active management. The active manager’s results are dependent upon security selection; in contrast, indexation’s foundational intent is that the results will derive from broad exposure to a vast array of securities; that no individual security will dramatically impact the result – the entire idea is to avoid company?specific risk.

This might seem self?evident.   But, of course, we write this for a reason. Those who subscribe to and practice indexation – which is increasingly becoming everyone – might wish to take an actual look at the NASDAQ 100. This is a mainstream index, intended to be the 100 largest firms of the NASDAQ Composite Index, which now contains over 3,000 firms. It is available via the popular PowerShares NASDAQ 100 ETF (ticker QQQ), which has almost $50 billion of assets, making it one of the country’s 10 largest.

Just the top five holdingsin the NASDAQ 100, which are Apple, Google, Microsoft, Amazon and Facebook, total 41% of the value of the entire index. If an active manager presented that level of exposure, it would be daring, to say the least. In some jurisdictions, it would violate regulations.

For example, in the European Community, what are known as UCITS1 funds cannot have more than 40% exposure from position sizes of 5% or greater. To do so is considered reckless. Yet, the NASDAQ 100 is available via the iShares NASDAQ 100 UCITS ETF. It has over $1.1 billion in assets under management in the UK alone. In other words, concentration risk that isforbidden to an active manager is considered reasonable and permissible if it happensto be an index.

Clearly, this index is the opposite of diversified – its results depend powerfully on individual securities.

Second, Valuation:  When is A P/E Not a P/E ?, or How To Turn 90 into 22 in Three Easy Steps

According to the PowerShares QQQ fact sheet, the P/E ratio of the NASDAQ 100 is 22.19x, calculated on a trailing basis, and that is roughly comparable to the P/E of the S&P 500. No doubt, the P/E – the price, in essence – is an important fact for investors who are considering whether to own it or not.  

But is it really a fact, as we think of facts? Because the QQQ P/E is not the simple mathematical average of the P/E ratios of all of the companies in the index, as one might naturally expect.

First, it is calculated by excluding all firms with negative earnings.  It also effectively excludes companies with excessively high P/E ratios. Would you do that? Does it make sense?

Let’s reason through the easy one first, the idea of excluding companies with negative earnings.  For the simplicity of round numbers, say an investor in private businesses made a $1 million investment in each of 3 small companies, flower shops, convenience stores, what have you, for a total of $3 million. One business earns $100,000 per year, so it has a price?to?earnings ratio of 10x; the second earns $50,000, for a P/E ratio of 20, and the third earns only $20,000 and so has a P/E of 50. This last one is probably situated on a high?growth street corner.  Averaging the three P/E ratios of 10, 20 and 50 means that the average P/E of the 3?company portfolio is 26.7x.  So far, so good.

But what if business number two loses $50,000 a year instead of making $50,000?   One can see that averaging the three P/E ratios would be misrepresentative, because then the average P/E ratio would be 13.3x (+10, ?20 and +50, divided by 3), which is one?half as expensive asthe original P/E of 26.7x.  Obviously, the portfolio with a loss?generating company is not cheaper than the all?profitable one. In a sense, the ETF organizers are staying within the logic of averaging individual P/E ratios by eliminating the company with the negative P/E ratio from the calculation as a statistical aberration or outlier. Asi f it does not exist or have an impact. The resultant P/E, however, does not represent reality.

To try representing reality better, how do we imagine the private investor would look at his or her investments? I think we all know they’d look at actual dollars. Perhaps they would add up all the earnings of the three businesses, which in the first instance was $170,000 ($100,000 + $50,000 + $20,000), and compare that with the $3 million of total investment:  that’s 17.1x earnings.  In the second instance, including the business that loses $50,000, the three together earn $70,000 a year, not $170,000.  Earnings of $70,000 is not a lot for $3,000,000 of investment; that’s 42.9x earnings or, in income yield terms, 2.03%.  That’s reality. 

So, in reality one knows that an unprofitable company makes an investment more expensive, while in the world of indexation, such as in the QQQ, unprofitable companies are eliminated, making the P/E lower.

Now for the more interesting technique of P/E reduction: neutralizing the impact of the excessively high P/E ratio. Companies with very high P/E ratios, say over 100, are effectively eliminated from the calculation of the QQQ valuation. For instance, in 2016, Amazon earned $4.90 per share. The trailing P/E for its current share price would be roughly 188.7x. Since Amazon is a 6.82% position in the NASDAQ 100 Index, its full inclusion would raise the index P/E by some appreciable and observable degree.

Similarly, by this convention, which we’ll explain shortly, there is no way of informing prospective NASDAQ 100 purchasers of the valuation impact of holdings other than Amazon, such as Netflix, Tesla, and JD.com. Their trailing P/E ratios are 191x, ?82x (yes, that’s negative), and ?117x, respectively. Such names effectively do not exist from a P/E risk measurement perspective, even though as weightings in the index they definitely affect the risk of any dollar invested in the index.

The manner in which this is done is as follows. On the PowerShares QQQ fact sheet (see accompanying excerpt), one will note the aforementioned P/E ratio of 22.19. A footnote to that figure indicates that the P/E is calculated using the Weighted Harmonic Mean.   

Seems harmless enough. Wikipedia provides a definition: The  harmonic  mean  can  be  expressed  as  the  reciprocal  of  the  arithmetic mean of the reciprocals of the given set of observations. Huh?

To translate that bewildering language into the 3?step recipe via which an egregiously high P/E ratio is cleansed into a harmless middling sort of group average, we’ll use a couple of examples. Observe the following hypothetical equal?weighted 4?stock portfolio consisting of a range of low, somewhat high and egregiously high?valuations, ranging from 10x to 300x. A simple average results in a portfolio P/E of 90x.

The first step in the P/E transformation process, from the definition of Harmonic Mean, is to calculate the reciprocals of each P/E ratio, so that, for example, 10 is turned into 1/10, or 0.10.  This is done for each of the 4 companies, and those reciprocals will be added up.

This step is the critical part of the alchemy, because note how Stock D is treated.  Its P/E ratio of 300, which is very large in relation to Stock A’s P/E of 10, is transformed, as 1/300, into 0.003. This is very small. So small, that when those four fractions are added together, Stock D accounts for only 1.61% of the sum of those fractions (.003 ÷ .1867), whereas it began as an equal one?quarter member of the four?stock portfolio.  Now, it is virtually a rounding error.

Steps 2 and 3, as shown in the accompanying table, involve taking an average of the reciprocals just summed, in this case dividing by four, since it is a four?stock portfolio, and then taking the reciprocal of that number.

That completes the strange journey of transforming a fairly understandable, if alarming, P/E of 90x into the more comforting Harmonic Mean P/E ratio of only 21.5x.

A more representative and straightforward way of calculating the index P/E ratio would be to simply divide its total market capitalization by the total GAAP net profit that all those companies produce, as in the private investor example.

Done this way, the P/E is not 22.19, but 25.77x. Moreover, the lowest?P/E stock in the NASDAQ 100 is Ebay, at, oddly, only 4.8x. That’s because almost two?thirds of its $7.8 billion of reported earnings in 2016, was from a non?cash tax adjustment and a gain on the sale of a stock. Its real earnings were $2.3 billion, which is more than analysts expect it to earn this year, and the real P/E is 16.61x. If one is comfortable with this single adjustment, the NASDAQ 100 P/E is 26.33x, not 22.19. 

However, comparing the total market value of the companies in the index to their total earnings is not the accepted procedure and, as a consequence, the NASDAQ 100 Index is not represented as a high?P/E, concentrated portfolio.

Incidentally, measuring the NASDAQ 100 valuation in a manner more aligned with accepted procedure, by calculating the simple average of the P/E ratios of the 91 profitable companies, results in a valuation of 43.6x earnings. Or, even closer to accepted practice, if one calculated the weighted average P/E ratios of the 91 profitable companies (giving proportionately greater weight to the larger companies), then the QQQ valuation is 41.04x. No active manager would be permitted to manage a concentrated, high?P/E portfolio for an institutional client. Only an index enjoys this privilege.

Without dwelling on the figures themselves, the industry sector concentration in the NASDAQ 100 is as extreme as its company?specific concentration. It is readily seen that it lacks many of the presumed characteristics of a bona fide diversified index, and that it is truly expensive if one includes in the valuation those of its components that are in fact remarkably expensive. Indeed, it has many of the characteristics that advocates of indexation claim, not without justification, typify active management, including no sense of risk control and no valuation discipline, yet all available in an index format at a reduced fee.

…

These issues of market saturation and valuation apply to substantially all of the major index?centric stocks that represent ‘the market’ as investors understand it, including the consumer branded products companies like McDonalds and Procter & Gamble. Indexation has unwittingly become the place to go for systemic risk. Whether the index constituents are designated as consumer discretionary or information technology, or as dividend aristocrats or REITs or Non?US Developed Nations, their practical capacity to provide differentiated outcomes has been largely drained away. The diversification exists primarily in name only.

The large?cap and mega?cap companies occupy the same multiplicity of ETFs and experience the same inflow of funds upon which they largely depend for their valuation. As they do upon artificially low interest rates. They have either substantially saturated their markets and cannot expand their sales, in which case they trade at P/E ratios traditionally reserved for growth companies, of 22x to 25x; or they manifest legitimately rapid growth, in which case their P/E ratios are so anomalously high that they are actually excluded from the index P/E calculations.

Under these circumstances, does the safety of the crowd, herd immunity, still pertain?  If the primary risks are systemic, then perhaps one should be outside the system.  No one requires you, many of us are driven to remind our teenage children, to stay at the party if you’re uncomfortable being there. 

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In a somewhat shockingly frank interview with The Washington Post, Senate Majority Leader Chuck Schumer says that Democrats, not Russia, are to blame for Hillary Clinton’s loss to President Trump.

"When you lose to somebody who has 40 percent popularity, you don’t blame other things – [James] Comey, Russia – you blame yourself."

 

"So what did we do wrong? People didn’t know what we stood for, just that we were against Trump. And still believe that."

The reason for Schumer's sudden bout of honesty appears to be a rebranding effort for The Democrats. As The Hill reports,

The Democratic party is planning to unveil a new agenda which includes the slogan, “A Better Deal: Better Jobs, Better Wages, Better Future,” and Schumer vows that it’s an expression “that everyone will use – a better deal for workers, a better deal for women, a better deal for prescription-drug buyers.”

 

Schumer said the new agenda “is not about moving the party left or right, and it’s not about appealing to one coalition or another. A strong, sharp-edged, populist, bold economic message appeals to the Obama coalition and the people who voted for Trump – former Democrats who voted for Trump.”

Of course, this is not the narrative that Hillary Clinton has spewed for the last 8 months. As we detailed in June, Hillary Clinton has put forth a formidable list of culprits for why she lost the 2016 presidential election. The Fox News Research team totaled up the excuses and found a whopping 24 items!

However there seems to be one glaring omission… "Hillary Clinton!"

And it's not just Trump supporters, as Liberty Blitzkrieg's Mike Krieger notes, even Hillary Clinton's former aides are sick of her incessant bullshit… Personally, I’m in the camp that thinks a large percentage of Trump voters didn’t support him out of personal affinity, but rather as a means to ensure that Hillary Clinton would finally shut-up and go away forever. That is not happening.

I issued a code red warning last month highlighting that I thought Hillary Clinton’s ongoing spotlight-hogging, blame deflecting, Russia fear-mongering tour is driven by a remnant burning desire to be President and the delusional dream that it could still happen. As I explained in the post, Manufacturing Resistance – The American Public is Being Manipulated Into Irrelevance:

The current environment is fertile ground for real populist movements to fight for an improvement in the lives of average Americans, but the public is being fooled into focusing all its energy on an unproven Russia collusion theory which hasn’t caused any of our very real national suffering. Our very own homegrown racketeers and thieves are to blame for that, but we’re being told to focus our attention on Russia. This isn’t an accident people, you’re being played, and played quite easily at that.

 

Ironically, “the resistance” is actually sucking all the air out of what should be real resistance. After spending a few months in the woods, Hillary is now actively moving to co-opt the entire movement. Why’s she doing that? I think she still covets the throne, and I think she’s power hungry and delusional enough to go for it.

 

Hillary’s positioning to run again, and there’s still no viable new third party. Even worse, there’s the naive and gullible Bernie Sanders still trying to “change Democrats from within,” a laughable and useless exercise. It’s unbelievably pathetic and disempowering, but it could get a lot worse. Brace yourselves for a few years of Hillary running around in leather jackets talking like a “populist” as she desperately attempts to reinvent herself. Our national nightmare is far from over.

I don’t know much, but I do know if the Democrats renominate Hillary Clinton or some other war-mongering, corporate stooge you can pretty much guarantee eight years of Donald Trump. If there’s no real choice, and we’re destined to go down in imperial flames anyway, we may as well have the reality tv guy entertain us along the way.

*  *  *

Perhaps it is that realization that finally knocked Schumer off his pedestal this morning?

It seems that the National Weather Center may know what comes next…

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

Authored by Mike Shedlock via MishTalk.com,

Meet Akira Ellis a 13-year-old kid.

 

He just bought his first piece of real estate, a $552,000 four-room one bath house in Melbourne’s Frankston.

Akira Ellis snapped up the 575 square metre four-bedroom, one-bathroom home in Frankston in May – when he was still 12 – and recently settled the sale.

 

“[Buying a house] can be quite scary, especially when it’s your first purchase and renovation – there are so many things to think about,” he told the Express Advocate.

 

“It’s a big investment and a mistake can cost you a lot”.

 

Although he hunted down and picked the property, the Gosford teenager is not alone in the venture with a fair bit of help from his parents Frank and Mychel.

 

Even his brother Oliver and sister Saskia chipped in some pocket money to make it a whole family affair. The pint-sized housing prodigy said he planned to ‘totally transform’ the 1970s home before renting it out and looking for his next investment.

 

His plans include replacing the bathroom and kitchen, updating the lights and window furnishings, changing the carpet and polishing the floorboards. Akira also wants to refresh the roof and landscape the garden to boost the property value and make it more attractive to renters.

The article mention he had “help” from his parents but it did not say how much. He did find that house himself, perhaps with help from “renovating for profit”. Akira is already looking for his next property.

What can possibly go wrong?

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The current Fed rate raising cycle began on December 15, 2015. And while we all hear the wild claims about what will “obviously” be the different market reactions to the rate increase, let’s stick to the facts. The knee-jerk reaction to an interest rate increase is to sell gold. According to the consensus, rising rates = falling gold prices. But that theory is total crap.

On 12/9/2015, even tho a Fed rate increase was baked in, my view was it was finally time to buy gold, especially the miners. Yet the esteemed WSJ thought otherwise. Five days after my gold post, the WSJ claimed the likely rate increase, the following day, would be very bearish for gold. But as usual the WSJ, like all financial media, just follows the Wall Street line, and the hip thing to do back then was to be a gold bear (and still is).

So here’s what actually happened to the gold price in December 2015. Gold hit a rally high on 12/4/15, and then on 12/17 it fell $40 to retest the multiyear low of $1046 – two days after the first rate increase in 9 years . After that 12/17 low, gold then proceeded to rally for 7 months and hit a multiyear high of $1374 on 7/6. Interest rate increases are bearish for gold, right?

Now to show how ridiculous the rate increase vs. alleged gold market reaction is, let’s now take a longer term look. Instead of making this boring, and going thru each wildly inaccurate claim about the effects on gold of interest rate increases, let’s just focus on gold in three prominent rate increase cycles, and also one rate decrease cycle. From February 1971 to July 1974, the Fed raised rates a huge 10% points. And gold rallied about 5x up to around $200. Interest rate increases are bearish for gold, right? And then gold fell to $102 in August 1976 during the next rate decrease cycle, even though rates dropped a huge 8% points during that time. Rate decreases are bullish for gold, right? And then gold rallied to the bubble high of $875 in January, 1980. And, you guessed it, rates increased substantially that whole time. Rate increases are bearish for gold, right? And more recently, rates went up from 1.25% in June 2003 to 5.25% in June 2006 . And you guessed it, gold doubled during that time. Rate increases are bearish for gold, right?

And how about the relationship recently – gold fell from September 2011 into the low in December 2015, yet the Fed kept rates at basically zero, and globally rates were plunging. And the Fed has been raising rates since December 2015, yet gold is up. You get the idea.

So looking forward, as opposed to what the mainstream talking points are, what is possibly the single main reason why gold is so bullish, long-term? Let’s view the actual history of gold vs interest rates, which you would think is also available to Wall Street and the financial media. US 3 month T-billsbottomed in January of 1940 at .01%, and then they topped 41 years later in May 1981 at 16.8%. Forty-one years later. And gold must have fallen that whole time, right WSJ? Wrong. Gold was generally stable to rising that whole time until January 1980, as it rose from $35 to $875. Hence the conditions/the environment as to why the rates rise is vastly more important.

Why is all this so important now? Bonds and short-term paper go thru humongous long-term cycles. Bond yields had the 40+ year surge into 1981, when the 30 year yield topped at 15.2% on October 26. And one year ago the final “spring” bottom in bond yields set up beautifully with the 30 Treasury yield hitting 2.1% on July 6th, 2016 (arrow). This was the likely end of the 35 year plunge in bond yields (actually, US shorter-term yields bottomed in 2011). This will have enormous effects on all markets when the bond bear kicks back in soon.

After the Donald J. Trump victory last November, we witnessed the mass selling of bonds (and gold) and the spike in yields. So early last December, amid the 100% certainty of a “crash” in bonds, the beautiful set up arose for me to step up to the plate and buy TLT, which was discussed in this post. At that time in early December, the bearish sentiment was simply extraordinary, rarely is there unanimity of opinion as we saw then. Yet many of these same people were some of the most rabid bond bulls in early July of 2016, smack into the yield bottom. Back then, all of Wall Street was extrapolating low yields forever.

But this price rally from the December 2016 lows was just a counter-trend move within a major bear market. So with the big drop in yields (price rally) over the last 6+ months, now it’s once again time (like in July 2016) to start getting concerned about the next bottoming process in yields (top in prices).

Since the first Fed hike in December 2015, bonds and gold have generally been tightly correlated. And analysts have extrapolated this relationship to eternity. But as shown in this post, the positive correlation is not remotely written in stone as Wall Street now believes. There is much, much more to gold price movement than just at a single Fed rate increase, and then freaking out about gold – it’s the conditions/the environment as to why the rates rise which is vastly more important. Those big picture conditions currently are things such as currency destruction (not just the US$), banking problems, consistent military confrontations, the rise of India/China/emerging markets (yes Russia), general commodity bull market, etc.

So sorry Wall Street, but gold is in a huge accumulation area. And as timing is everything in markets, instead of freaking out about interest rate increases, I’ll use the sudden big selling waves/sentiment shift, “caused” by those rate increase fears, to accumulate the shiny metal. Because the slow, steady mass exodus in bonds over the next few decades, will be very bullish for gold.

via http://ift.tt/2upi2AH Trader Scott

Venezuela’s anti-government protests are growing increasingly violent, with the death toll from clashes between protesters and government forces that began in May topping 100. Despite the country’s increasing political instability, and US President Donald Trump’s half-serious threats of an invasion, President Nicolas Maduro has decided to press ahead with his vote to create a rubberstamp constituent assembly that will allow him to amend the country’s constitution.

With the country’s finances looking ever more precarious, Bloomberg warns that that this decision could bring about the first collapse of a sovereign oil producer. Venezuela has the largest natural oil reserves of any country on Earth, yet the decline in oil prices that began in 2014, coupled with years of economic mismanagement, have been enough to bring the country’s economy to its knees.

“We may be about to see the first sovereign producer to unequivocally fail. The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA. In a global oil market mired in excess inventory and low expectations, Venezuela is the most tangible of wildcards. Its tragic and volatile mix of a failing, oil-dependent economy, political gridlock and simmering unrest is well known at this point.But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.”

While many oil dependent nations are working to diversify or ride out low oil prices in other ways, it seems unlikely that the crisis in Venezuela will be reversed anytime soon. Here’s the full fiscal breakeven needed by OPEC producers, including Venezuela, to help normalize things:

The country’s fate, as Bloomberg explains, is largely tied up in the bond market, where yields on Venezuelan bonds recently soared to 36% as Maduro renewed his calls to rewrite the Constitution. With the US threatening sanctions, investors are worried that the situation could reach a crisis point by Christmas.

“Venezuelan bonds, which haven't looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country's constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.

 

Whether Maduro will, and what those sanctions might be, are the big unknowns here. But there's an awful confluence of factors that could quite easily push this toward a debacle by the end of the year.”

Regardless of what happens to the Maduro regime, the country’s citizens are already living in hyperinflationary hell. As we recently reported, Venezuelans are paying 1000x more for dollars than they were in 2010. The collapse in social services like police has created lawlessness reminiscent of the Mad Max film series, where members of the public routinely lynch suspected thieves, and gangs of bikers waylay merchants carrying commodities to market.

The country’s economy is in free-fall: By the end of this year, it will have shrunk by 32 percent compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt – including bonds owed by the state-owned oil company, Petróleos de Venezuela S.A., or PdVSA – plus billions more in interest. As of this week, Venezuela's international reserves stood at less than $10 billion.

Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies have caused Venezuela's oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela's surplus of oil available for earning export dollars has shrunk considerably.

Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University's Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.

While the US and Venezuela have for years traded hostilities as part of the leadership’s rhetoric, the two countries have enjoyed a lucrative business relationship, with the US buying hundreds of thousands of barrels of Venezuelan oil a day. Even under the late socialist firebrand Hugo Chavez, who never missed an opportunity to antagonize the US, business was steady.

But by pursuing sanctions against Venezuela, the US risks pushing it closer toward Russia’s sphere of influence.  

Further isolation of Venezuela, or a sovereign default, could easily push the country further toward the embrace of Moscow. Rosneft Oil Co. PJSC, Russia's national oil company, loaned money to PdVSA last year collateralized with a 49.9 percent stake in Citgo Petroleum Corp., the U.S. refining and marketing business owned by the Venezuelan oil company. Rosneft is now said to be negotiating swapping that collateral for stakes in Venezuelan reserves and a fuel-supply agreement instead, according to a report from Reuters on Thursday. Swapping valuable downstream assets on U.S. soil for reserves under Venezuelan soil wouldn't look terribly rational from a purely economic point of view. So if this were to happen, the rationales could range from an expectation on Rosneft's part that U.S. sanctions against Russia, and national security considerations, might stymie any chance of actually taking possession of a Citgo stake to a desire to further cement Russian influence in Venezuela on the ground.

According to Bloomberg, allowing Moscow set up camp in Caracas would appear to violate the Monroe Doctrine. Moreover, blocking Venezuela's relatively heavy inflow of oil would squeeze the margins of US refiners set up to process it, and likely lead to higher gasoline prices. Two unattractive options for any president.

via http://ift.tt/2uO3dK0 Tyler Durden