Here Are The “21 Charts That Keep The Bulls Up At Night” According To BofA

In the latest sellside attempt to promote skepticism about the “market” (which in the case of the US has supposedly not been nationalized just yet, unlike in Japan), BofA’s Savita Subramanian – who still has a 2,000 S&P year end target – has issued a report titled “Exploring the Dark Side” and subtitled “Charts that keep the bulls up at night” in which the equity strategist says that as the market grinds higher (and earlier today hit fresh record highs) “we continue to see elevated risk of correction.”

She adds that “a picture is worth a thousand words, so inside this report we include four pages of charts that illustrate some of our concerns:”

  • Valuations: US stocks look expensive vs. history on most metrics, although we recognize that valuation is not a great timing indicator.
  • Positioning: Investors aren’t as bearishly positioned as they may seem.
  • Expectations: High expectations for fiscal stimulus and growth appear ripe for disappointment.
  • Economic surprises: Economic surprises have waned since late July.
  • Growth: Outside of the benefits from the oil rally and weaker dollar, underlying sales growth is at a three-year low.
  • China: Recent data have been pointing to a slowdown and expectations for stimulus may disappoint.
  • Credit and leverage: Leverage is high and credit is slowly tightening, while appetite for equity issuance may also be drying up.
  • Elections: This year’s presidential election could come with an uncertainty shock and a slowdown in business investment.
  • The Fed: BofAML interest rate forecasts imply a far more aggressive pace of Fed tightening than is currently priced into the market.
  • Seasonality: September is seasonally the weakest month of the year, in which the S&P 500 has historically been down 56% of the time since 1928.

And here are the charts (and one table), as well as running commentary from BofA:

The S&P 500 looks expensive vs. history on most valuation metrics.

Admittedly, valuation is not a great timing indicator. But we see elevated risk of a correction in the coming months based on a multitude of other factors.

 

Positioning should be less of a driver of market upside here as a result of plunging short interest.  While this may not be an outright bearish signal for equity markets, it does suggest that the market may be more vulnerable to volatility spikes.

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What Will Recreational Marijuana Legalization Mean for California?: New at Reason

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“This [marijuana legalization] initiative goes further than any iniative in the world,” says Lynne Lyman, California state director for the Drug Policy Alliance, speaking of Prop 64, the 2016 ballot initiative calling for the legalization of commerical marijuana sales in California. “We’re really setting a new floor for what marijuana legalization should include.”

Lyman sat down with Reason TV’s Zach Weissmueller to discuss the details of Prop 64, from taxation and regulation to criminal justice reforms to resolving the tension between medical and commercial marijuana. They also took general questions about marijuana from viewers of the Facebook Live stream and speculated about what legalization in the most populous state in the union might mean for the future of drug policy in America.

This video originally aired live on Reason’s Facebook page on August 10, 2016.

Approximately 20 minutes. Shot by Alex Manning and Justin Monticello. Music by Jazzhar.

Click the link below for downloadable versions of this video, and subscribe to Reason TV’s YouTube channel for daily content like this.

View this article.

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Mom Arrested for Leaving Kids Alone in the House While She Went Out for Food

BeachWell this will sure teach moms everywhere not to, um, feed their kids: a mom was arrested in Delaware for leaving her children, ages 8 and 9, alone at their vacation rental home while she went to pick up from a restaurant about five miles away.

As Delaware Online reports:

Susan L. Terrillion, 55, of Olney, Maryland, was arrested and charged with two counts of endangering the welfare of her children on Tuesday, according to Rehoboth Beach Police Lt. Jaime B. Riddle.

Police responded to the 200 block of Country Club Drive around 7:30 p.m. for a report of two young children left alone at a residence.

A witness told police that he made contact with the children when their dogs ran into Country Club Drive in front of his vehicle, Riddle said. The witness stopped to help the children get control of the dogs and learned they were alone, Riddle said.

So really, you have to blame the dogs. Or a guys who calls the cops simply because he came into contact with unsupervised kids and felt the knee-jerk compulsion to get the authorities involved. Or the authorities, who feel compelled to arrest moms for trusting their kids to take care of themselves for a little while.

The mom was arrested, charged and released on $500 bond. What a lovely vacation.

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Some L.A. Public Schools Are Accepting That They’re in a Competition for Students

StudentsJohn Oliver’s cleverly presented but only half-researched (as has become typical for the show) broadside against charter schools was appropriately dismantled yesterday here by Nick Gillespie. To further highlight how misguided Oliver is in believing education isn’t improved by the introduction of competition, head westward to the other coast over here in Los Angeles.

While the teacher’s union in Los Angeles fights as it generally does against the expansion of charter programs and the loss of influence over the system, the school districts themselves have increasingly come to understand and accept that parental control and increased school choice is the future. What that means is that, in order to keep students and even win them back from charter schools, they’re actually making changes to their curricula and even going so far as to engage in marketing. The schools are learning to compete.

The Los Angeles Times notes that the public schools here have been losing students to charter programs. Given that a good chunk of money follows the students, the public schools can’t simply do nothing, or else they’ll go under. Public schools are changing to better reflect the educational needs and demands of a new generation of students, but they’re so used to being the only choice, they are not prepared to sell themselves to parents. Imagine if the Department of Motor Vehicles actually had to convince us to go there.

So Los Angeles Unified School District (LAUSD) has hired a marketing director and is planning a program to help schools better sell themselves. The natural inclination here is to want to blast the district for blowing tax dollars on non-educational programs. But if we consider a reality where we have a hybrid system of public schools and charter schools, making sure all parties have a competitive mindset is healthy for the students. The Times uses Richard Ramos, the principal of Haddon Avenue STEAM Academy in Pacoima to help explain:

“I grew up in this community and there was no question about what schools we were going to go to,” said Ramos, who learned the power of marketing in his previous job at a charter school. “Now things are being looked at through a different lens for sure. With a declining enrollment, you have no choice.”

Five years ago, Ramos’ school had 890 students in grades kindergarten through fifth. By the start of last year, it was down to 785, a decrease that not only injured the school’s pride but probably meant teachers would be cut.

It didn’t matter that the principal had expanded the school’s mariachi classes or brought in a decorated speech-and-debate coach if none of the neighborhood’s parents knew about it.

What did better marketing do? It actually increased enrollment in Ramos’ school in the midst of this decline, and the most important point here: He lured back 39 students who had previously been attending charter schools. Competition with the charters doesn’t mean that the public schools have to be the losers. It means they have to actually up their game and not simply expect demands for more money to be accepted by the taxpayers. Parents are becoming increasingly aware that funding levels aren’t the source of the problem.

LAUSD Superintendent Michelle King is herself pushing hard to promote school choice for parents and students who stick with the public school system. King is planning an online portal as a “one-stop shop” to help parents browse the many specialized school options available to parents within LAUSD. Unsurprisingly, the current systems are not particularly accommodating to parents and are not unified. Each program has its own application process. As KPCC notes, the point of this effort is to make it simpler for parents understand what choices they have for their children within LAUSD and to be better positioned to take advantage of them:

[T]he portal would feature one common application for L.A. Unified’s disparate choice programs; currently, there are separate applications — some online and some on paper — and deadlines for LAUSD’s magnet programs, dual language schools, Schools for Advanced Studies, Zones of Choice schools, intra-district permits and other programs.

“I think anything that improves access for parents to navigate the wide array of choices in Los Angeles is a good thing,” said Myrna Castrejón, executive director of the non-profit organization Great Public Schools Now — a group allied with big players in the charter school sector, but which advocates for expanded school choice in L.A. more broadly.

It’s not clear whether charter schools that L.A. Unified oversees will be part of the unified enrollment system. King has said she’s open to exploring it.

Imagine how much more competitive public schools in Los Angeles might become if parents could actually apply to both public and charter schools through the same system.

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The GOP Is Writing Off 30 Percent of the American Electorate

According to some polls, Donald Trump has been pulling as little as 0 percent of the black vote in key battleground states such as Ohio and Pennsylvania. Zero percent! That’s mind-boggling and sure, it might pick up after his recent speeches identifying with the plight of African Americans living in urban areas that have been under Democratic control for decades.

But if we’re being honest, it’s not going to change very much. That’s not all Trump’s fault, either. It represents a decades-long trend that has seen Republicans essentially abandon all hopes of cracking the lowest possible double digits among black voters. In 2012, Mitt Romney got just 6 percent of black votes. (One Republican who has done better is Ohio Gov. John Kasich, who earned 26 percent of the black vote in his 2014 re-election race).

It wasn’t always this way, of course, and looking at how Republicans went from being the default party of black voters after the Civil War to being a pariah among them is a way of understanding one highly probable future for the GOP as a minor party that represents a smaller and smaller bloc of voters who identify as “white” and “American” in strictly nativist terms.

The GOP’s declining appeal to black voters—again, approaching zero in the Year of the Donald!—is paralleled by the party’s declining appeal to Hispanic voters, too. According to the Census, blacks currently make up about 13 percent of the population while Hispanics account for about 18 percent. In an August 11 Fox News Latino poll, only 20 percent of Latinos support him, lower even than Mitt Romney’s dismal 27 percent showing among Latinos in 2012, which was itself lower than John McCain’s 31 percent in 2008. Between blacks and Latinos, then, the Republican Party is effectively writing off almost 31 percent of the vote before the first ballot is cast in November. And given broad demographic trends, things can only get worse for the GOP.

What’s going on here and what it does it say about Republicans and electoral politics in the 21st century? And what does it say about the possibility for a third party such as the Libertarians to drive up their own national numbers? The short answers: Absent a different agenda and outreach to groups they alternately demonize and ignore, the GOP will harden into an awful party of racial and ethnic resentment. For the LP, which embraces tolerance, diversity, and economic mixing and progress, the sky’s the limit, especially if the Democrats continue to take minorities for granted.

As recently as 1960, the Republican Richard Nixon managed to get about 30 percent of the black vote. From the Civil War on, blacks had favored the “party of Lincoln” for self-evident reasons. Southern Democrats were segregationists and they worked hard not just at disenfranchising blacks at election time but in every way possible. Blacks weren’t even allowed to attend Democratic national conventions until 1924. While he was no great friend to African Americans, Franklin Roosevelt began to win a majority of their votes in the 1930s, mostly for the same reasons he won a majority of nearly every group’s votes during his four presidential campaigns. Blacks were more likely to be poor than average and they warmed to various FDR programs aimed at ameliorating poverty. Harry Truman, writes Brooks Jackson, won 77 percent of the black vote in 1948, the first year that a majority of blacks identified as Democrats (among other things, Truman integrated the armed forces and took civil rights more seriously than most of his predecessors).

While Eisenhower in ’56 and Nixon in ’60 did relatively well with black voters, Barry Goldwater’s refusal to vote for the Civil Rights Act of 1964—and his willingness to run a campaign that tolerated (if it didn’t actively court) segregationists—effectively ended the Republican Party’s relationship with blacks. As former segregationists such as Strom Thurmond crossed the aisle to join the Republicans, the transition was complete and for the past 40-plus years, Republican presidential candidates have struggled to crack double digits with black voters. Running as the “law and order” candidate in 1968 and targeting urban violence (by war demonstrators and race rioters alike), Nixon no longer had much appeal for black voters. The last GOP candidate to crack double digits was George W. Bush in 2004, when he pulled 11 percent.

Something similar is happening with Latino voters, although the trend line is less uni-directional. In 2004, George W. Bush won 40 percent of the Latino vote (some reports put it a few points higher), but since then it has declined precipitously, down to Trump’s pre-election share of 20 percent. The typical conservative Republican response to this is to invoke a master plan by Democrats and/or moral and ideological failings of Latinos. A few years back, I debated Ann Coulter at an event hosted by the great Independence Institute of Colorado. Among the topics was immigration. Coulter, who has taken credit for Donald Trump’s pro-deportation stance in this election, claimed that Ted Kennedy was behind the push to bring in millions of Mexicans and other unmeltable ethnics from Africa, Asia, and especially Latin America, all of whom would inevitably vote for Democrats. “I don’t think any time in the history of the world has a country changed its ethnic composition overnight like that,” said Coulter, following a line of thought that is popular among many conservatives, right-wingers, and Republicans. “It was done by design. It was done to help the Democrats, and it did help the Democrats.”

In fact, the immigration reform enacted in the mid-1960s, much in the spirit of Civil Rights legislation. Its chief authors were New York Rep. Emanuel Celler and Michigan Sen. Philip Hart, and its explicit goal was partly to route around the patently racist quotas from the 1920s that had been based on “national origins.” Disturbed by the rise in immigrants from central and southern Europe, unapologetically racist lawmakers in the ’20s laws moved to limit the number of Jews, Italians, Poles, Slavs, Irish, and other undesirable Europeans. New limits were pegged to percentages of the 1890 Census, when there were fewer foreigners from “bad” countries in the United States. The ’60s reforms, on the other hand, were specifically designed to let Americans of European descent bring over parents and grandparents who had been stranded in the old country first by the Depression and then by World War II. Even as it put family reunification front and center in deciding who could come here, it also allowed for high-skilled folks to emigrate. It was passed against a backdrop of lower and lower levels of foreign-born people in the United States. By 1970, just 4.7 percent of the country was foreign-born, down from a peak of almost 15 percent in 1910.

By the mid-’60s, though, relatively few Europeans were interested in coming to America. Some of them were trapped behind the Iron Curtain and had no easy way West. Throughout free European nations, things were relatively good for most people after a truly grim period that started with World War I. The immigrants that have come to America post-1965 are mostly from Mexico, Latin America, and Asia. In the late 1980s, Ronald Reagan pushed hard to create a pathway to legalization and citizenship for undocumented immigrants who were overwhelmingly of Latino heritage. So you might want blame (or thank) Reagan far more than Ted Kennedy for changing our “ethnic composition overnight.”

But you can and should blame Republicans for failing to appeal to ethnically diverse Americans in the 21st century. Demograhics are not destiny in politics but ever since the mid-’60s, the GOP has done a masterful, if not always conscious, job of making sure that blacks and Latinos feel unwelcome.

In a great piece at Politico, Josh Zeitz writes that “unlike earlier waves, 90 percent of new Americans since 1965 hail from outside Europe—from countries like Mexico, Brazil, the Philippines, Korea, Cuba, Taiwan, India and the Dominican Republic.” Where conservatives tend to see an undifferentiated blob of threats to American identity, Zeitz underscores that post-1965 immigrants “include evangelical Christians, traditional Catholics, anti-statist refugees and the kind of upwardly mobile, economic strivers whom the GOP courted assiduously in past decades.”

Had the GOP worked to engage newer, non-European immigrants, the party wouldn’t be in the position it’s found itself in, where only rare presidential candidates such as Reagan and Bush II can appeal to one-third or more of a rapidly growing part of the citizenry. About the only time contemporary Republicans view immigrants as individuals is when they are signaling out the precise threat each different sub-group represents to the nation:

It’s a party whose presidential nominee uniformly disparaged Mexicans as “rapists” and “killers” and called into question the impartiality of an American-born federal judge of Mexican ancestry. It’s a party that casts a big enough tent to include congressional luminaries like Steve King (for every immigrant child “who’s a valedictorian, there’s another 100 out there who weigh 130 pounds and they’ve got calves the size of cantaloupes because they’re hauling 75 pounds of marijuana across the desert”); Michelle Bachman (who claimed that a top aide to Hillary Clinton had family ties to the Muslim Brotherhood); Peter King (who contends that “80 percent, 85 percent of the mosques in this country are controlled by Islamic fundamentalists”); Louie Gohmert (the GOP’s in-House intellectual, who raised concerns that Muslim immigrants might give birth to “terror babies” who “could be raised and coddled as future terrorists”); and Don Young (who apparently didn’t receive the memo explaining that “wetback” is no longer a term used in polite company.)

“By 2050, non-Hispanic white Americans will comprise less than half of the U.S. population,” writes Zeitz. “Had the GOP focused more on ideology and less on skin color, the party could have thrived from the immigrant influx.”

But it didn’t do that, any more than it has reached out to African Americans on a regular basis. There have been well-intentioned and sincere efforts by some Republicans (Jack Kemp comes to mind, and more recently Rand Paul), but the instinct among most conservatives and Republicans is to ignore issues in the African-American community or to reflexively side with the police, drug warriors, and others who are viewed negatively by blacks. When it comes to Latinos and non-European immigrants, the same distancing act dominates, along with calls to establish English as an official language and appeals to protect bankrupt entitlement programs from pilfering by illegal immigrants who are simultaneously supernaturally lazy and so hard-working they take all of our jobs.

There is very little reason to believe that the Republican Party will pursue any meaningful interaction with racial and ethnic minorites or economic refugees, even when, as Zeitz underscores, they might have strong ties built on common religious and entrepreneurial interests. The attitudes of so many of the GOP’s presidential nominees and boosters in the press have been resolutely hostile to seeing Mexican and Latino immigration as anything other than a scourge upon the land. A few years back, Tea Party favorite Marco Rubio worked on comprehensive immigration refrom legislation until he was shouted down by his own party. By the time he announced for president, he was only interested in talking about cutting off the flow of newcomers. Toward the end of primary season, the Cuban-American Ted Cruz took to attacking Donald Trump as soft on immigration because the billionaire had a “door” in his much-discussed wall on the U.S.-Mexico border. National Review, arguably the flagship publication of the conservative right, has been calling for reductions in immigration from Latin America for decades now and attacked Trump for being insufficiently tough on the issue.

The Republicans’ unwillingness to interact with a more ethnically and religiously diverse America can be the Libertarian Party’s gain. Former New Mexico Gov. Gary Johnson and former Massachusetts Gov. William Weld are the only candidates that are effusively pro-immigration, pro-trade, and socially tolerant. Coming from a border state with a large Latino population, Johnson in particular is in a position to talk about the benefits of immigration and the issues faced by newcomers and their families as well as by longtime residents. His focus on the sharing economy, school choice, and rolling back federal regulations that hamper entrepreneurship also should play well with both blacks and Latinos.

But none of this is easily achieved. Gaining support among any constituency is the result of hard work and years of toiling side by side and shoulder to shoulder. The Republican Party—including Donald Trump in his recent outreach to African Americans—isn’t wrong to say that racial and ethnic minorities aren’t benefitting from Democratic Party policies at the local, state, and federal levels. Social Security retirement benefits ultimately screw over blacks, who have shorter lifespans; protecting union teachers from competition by charters and other forms of school choice hurts low-income minorities most of all; far from welcoming illegals from Latin America, the Obama administration has deported record numbers and split up tens of thousands of families; and on and on.

But simply rattling off such talking points isn’t going to win new votes. That only comes from concerted actions that start at the neighborhood level and work out and up through levels of power and government policy. The political opportunity is there, but it remains to be seen who, if anyone, will take it.

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Hey Students! Make Your School the First Heterodox University!

CollegeStudentsRobertKneschkeDreamstimeThe good folks over at Heterodox Academy are launching an initiative today that aims to help students who want see greater viewpoint diversity on their college campuses. As my Reason colleagues have repeatedly reported, free speech and non-P.C. views are endangered on college campuses around the country. The Heterodox Academy was established by a group of scholars who are concerned about the problem of the loss or lack of viewpoint diversity at universities and colleges. They observe, “When nearly everyone in a field shares the same political orientation, certain ideas become orthodoxy, dissent is discouraged, and errors can go unchallenged. To reverse this process, we have come together to advocate for a more intellectually diverse and heterodox academy.”

The new initiative centers around three proposed resolutions affirming viewpoint diversity that are designed to be introduced by students and adopted by student governments that declare their schools to be a “Heterodox University.” The preamble of the proposed resolutions declares …

… we know that exposure to diversity broadens our minds and prepares us for citizenship in a diverse democratic society. Research shows that the kind of diversity that most improves the quality and creativity of thinking is viewpoint diversity. When everyone thinks alike, there is a danger of groupthink, prejudice, dogmatism, and orthodoxy. People in the majority benefit from interacting with individuals who see things differently.

At a time when American democracy is polarizing into antagonistic camps and informational bubbles, many colleges and universities are becoming more intellectually and politically homogeneous. Orthodoxies arise, dissent is punished, and quality declines. We do not want that to happen in our community.

We therefore welcome heterodoxy, meaning that we want to support those within our community who hold dissenting or minority viewpoints; we want them to express themselves freely and without fear. We value viewpoint diversity not merely out of compassion for those in the minority but also because such diversity helps us all to develop skills essential for life after graduation, including the ability to judge the quality of ideas for ourselves, the ability to formulate arguments against ideas we reject, and the ability to live and work amicably alongside those whose ideas and values we do not share.

The resolutions urge (1) the Faculty Senate at schools to adopt the University of Chicago’s Principles on Freedom of Expression, or (2) implement a non-obstruction policy against shouting down controversial speakers, or (3) asks the university to explcitly include viewpoint diversity in its faculty hiring and curriculum policies.

Last year, the University of Chicago issued a report on freedom of expression on its campus which stated:

Because the University is committed to free and open inquiry in all matters, it guarantees all members of the University community the broadest possible latitude to speak, write, listen, challenge, and learn. Except insofar as limitations on that freedom are necessary to the functioning of the University, the University of Chicago fully respects and supports the freedom of all members of the University community “to discuss any problem that presents itself.”

Of course, the ideas of different members of the University community will often and quite naturally conflict. But it is not the proper role of the University to attempt to shield individuals from ideas and opinions they find unwelcome, disagreeable, or even deeply offensive. Although the University greatly values civility, and although all members of the University community share in the responsibility for maintaining a climate of mutual respect, concerns about civility and mutual respect can never be used as a justification for closing off discussion of ideas, however offensive or disagreeable those ideas may be to some members of our community. …

In a word, the University’s fundamental commitment is to the principle that debate or deliberation may not be suppressed because the ideas put forth are thought by some or even by most members of the University community to be offensive, unwise, immoral, or wrong-headed. It is for the individual members of the University community, not for the University as an institution, to make those judgments for themselves, and to act on those judgments not by seeking to suppress speech, but by openly and vigorously contesting the ideas that they oppose. Indeed, fostering the ability of members of the University community to engage in such debate and deliberation in an effective and responsible manner is an essential part of the University’s educational mission.

As a corollary to the University’s commitment to protect and promote free expression, members of the University community must also act in conformity with the principle of free expression. Although members of the University community are free to criticize and contest the views expressed on campus, and to criticize and contest speakers who are invited to express their views on campus, they may not obstruct or otherwise interfere with the freedom of others to express views they reject or even loathe. To this end, the University has a solemn responsibility not only to promote a lively and fearless freedom of debate and deliberation, but also to protect that freedom when others attempt to restrict it.

Who in academia (or anywhere else in real life, for that matter) could possibly object to these principles? So go here for more details on the Heterodox Academy initiative to help make your school a Heterodox University. Good luck and let us know your efforts turn out.

As a bonus, see the discussion between my colleagues Robby Soave and Matt Welch on “How the Federal Government is Killing Free Speech on Campus” below.

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German Stocks Try To Defend Key Breakout Level

Via Dana Lyons' Tumblr,

The German DAX scored a big technical breakout 2 weeks ago; it is now undergoing a critical test of that breakout level.

As U.S. equity-centric fund managers, our focus is not typically on international markets, except as it relates to our relative strength-based fund selection model. However, there are certain foreign markets that are obviously more significant than others in their influence on global equity movements. Additionally, there are certain junctures on a chart that are more important than others in determining the likely direction of prices. Put those two variables together and you have the makings of a highly meaningful chart that begs one’s attention. This combination also accounts for the 3rd Chart Of The Day and associated blog post in the past 8 weeks pertaining to the German DAX Stock Index.

Of course, the DAX is Germany’s main stock index and, outside of some of the broad, continent-wide indices, perhaps Europe’s most important as well. Given Germany’s status as Europe’s economic linchpin, the DAX is always on our radar as a key barometer of the health and direction of European equities. As such, the 3 recent ChOTD’s and posts (including today’s) are indicative of the significant developments of late in the German (and thus, Europe’s) equity market.

The first post came on June 29th as we suggested it was imperative that the DAX hold key, post-Brexit support that it was testing at the time (German Stocks Facing Must-Hold Level). Specifically, the support was in the form of the post-2009 Up trendline (on a log scale). The index was indeed able to hold the trendline, bottoming within 2 days of the post. Since that hold, the DAX has rallied as much as 17%.

About 3 weeks ago, the rally had led the DAX to another critical juncture, in our view. Specifically, it was the convergence of 2 key trendlines (on a linear scale this time): the post-2011 Up trendline and the post-2015 Down trendline (German Stocks At A Crossroads). We felt that the DAX’s reaction at that convergence would dictate the direction of the market for some time. Break above the trendlines, it was advantage bulls. Fail there and the bears would be in control. Well, after an initial week-long rejection, the DAX was able to break through that convergence of technical resistance – and with authority, rallying 3.5% in a week.

However, after that 1-week push, the rally petered out and the index began to pull back. Fast forward to today and the DAX is now testing the level of that trendline convergence breakout.

image

 

A closer look:

image

 

This test bears the same implications as the last one. That is, holding above the breakout level of the trendline convergence would be bullish. Fail to hold and we have a likely false breakout, giving the advantage to the bears. Of course, the 2 trendlines are now diverging so it is possible that price falls below the Up trendline, yet holds the down trendline. We’ll call that scenario a draw.

At the moment, though, the 2 trendlines are still close enough together that a move above or below could happen easily and swiftly so keep your eye on the ball.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

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Crude Explodes Higher After Iran ‘Reportedly’ “May Support Actions To Prop Up Oil Market”

Another day, another strategically timed headline meant to trigger an HFT algo momentum ignition spike, and sure enough oil explodes higher, even though as Goldman explained yesterday, even an OPEC freeze will do nothing for actual production.

This hit from Reuters, which once again relies on “anonymous sources” to generate the primary source of Reuters revenue: FX volatility, in this case in the CAD.

  • IRAN SENDING POSITIVE SIGNALS THAT IT MAY SUPPORT JOINT ACTION TO PROP UP OIL MARKET – SOURCES IN OPEC, OIL INDUSTRY

and then this happened:

 

Yuuuge volume too, which suggest that this is just the latest headline triggered squeeze.

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China Has Its First Taste Of “VaR Shock” As PBOC 14 Day Repo Sparks Treasury Dump

Chinese Treasury futures tumbled overnight, posting their sharpest fall in three months, after the local market was spooked when the PBOC surprised bondholder by hinting it could avoid broad easing and instead may bring back a far less powerful tool. Overnight, the People’s Bank of China asked banks about demand for 14-day reverse bond repurchase agreements for the first time since February, suggesting it may be expanding its strategy of using targeted, short-term injections rather than cutting interest rates or banks’ reserve requirements (RRR).

As a result, and confirming once again that fundamentals are dead even in China where only liquidity injections matter just like across the entire “developed” market, the price of Chinese 10- Y treasury futures tumlbed 0.38%. This was also China’s first glimpse of what a VaR shock in government bonds will look like once yields spike from recent record lows.

A senior trader at a major Chinese state-owned bank in Shanghai, cited by Reuters, said that “the market interprets the move as another sign that the central bank won’t cut interest rates and RRR for now as it injects more short-term money into the banking system.”  He added that the PBOC announcement “is likely to set a floor for the fall of the yields of government bond futures, and thus investors sold the futures on the news.”

The People’s Bank of China (PBOC) has relied on issuance of seven-day reverse repos in daily open market operations this year, injecting cash on a regular basis to manage short-term money supply. The adjustment may imply the PBOC is preparing to extend the tenor of its short-term money management strategy.

While many have been expecting the PBOC to ease anew, with both housing data and the broader economy once again rolling over while trade data remains subdued, the PBOC has not cut RRR since March, and has not cut long-term guidance interest rates since October.

Still, while the economy urgently needs more easing, if only judged by the recent collapse in Chinese yields, the PBOC knows that more aggressive monetary policy easing will put unwanted additional pressure on the yuan currency, which is near six-year lows, and risk more capital outflows.

However, now that it has tipped its hand, a new risk emerges: VaR shock, something China has not experienced yet.

While that has yet to manifest itself, as Reuters adds, policymakers have clearly grown more concerned recently about the risks of prolonged, debt-fuelled stimulus, and appear to have turned their focus to more government spending instead.

Money markets were mixed after the PBOC’s move, with the volume weighted average of the 14-day repo down just two basis points (bps) to 2.7 percent and the seven-day weighted average rate up six bps at 2.40 percent.  Although the 14-day repo rate has been moving higher in recent days, the weighted average remains far below its recent peak of 2.82 percent in late July.

With the central bank conducting seven-day reverse repos on a nearly daily basis, the benchmark seven-day rate has remained steady for most of 2016, but the 14-day has been more volatile.

So far in 2016, the PBOC has injected a net 654.3 billion yuan ($98.44 billion) through open markets year to date by the week ending Aug 20. It has also injected funds through medium-term lending facilities which allow it to channel money to more vulnerable sectors such as agricultural firms or small businesses.

Finally, China has also injected trillions in bank debt, both in the form of conventional loans and shadow debt, neither of which have merely slowed down the decline.

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