Don’t Treat Uber, Lyft Drivers Like Employees: New at Reason

Recently the ridesharing company Lyft, Uber’s largest competitor, settled a pending lawsuit for $12.25 million. Lyft can continue to classify its drivers as independent contractors—a designation that is crucial to the sharing economy’s success. But the settlement may lead to additional difficulties for other sharing-economy companies.

Jared Meyer of the Manhattan Institute for Policy Research explains why labor regulators should resist the urge to force 21st century sharing-economy companies to treat their employees like traditional 20th century workplaces.

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IEX Strikes Back: Charges NYSE With “Tiering” Order Flow, Shows “Latency Arbitrage” Is Real

As most market structure watchers are well aware, the biggest debate currently roiling the field of equity markets revolves around the August 21, 2015 submission by the dark pool made famous by Michael Lewis’ Flash Boys, IEX, in which it is seeking become a public trading venue that will compete with the New York Stock Exchange and Nasdaq Stock Market. What makes IEX different from all other “lit” venues and markets is its embedded technology which implements a 350 microsecond order delay which makes HFT frontrunning, spoofing, and quote stuffing of orders impossible.

This “speed bump” which would apply to everyone has led to a vocal outcry among the established HFT players who allege that what IEX is doing would go against the principle of market fairness, when in reality virtually every exchange provides tiers of access speeds to paying clients, in order to be richly compensated by those who can afford to frontrun general orderflow.

The best example of this may be the recent advent of “laser” trading at the NYSE, duly chronicled here, which seeks to provide a several microsecond advantage to those who can afford it.

In any event, as discussed here previously, at the heart of virtually every complaint against granting IEX exchange status is that a ‘speed bump’, would “result in the investors receiving stale and misleading quote information” according to such prominent competitors as the NYSE.

Overnight, the IEX, faced with stiff resistance from the likes of not only the NYSE but also NY Fed “favorites” as Citadel, struck back and in an op-ed posted on the IEX website on Sunday night, IEX cofounder Don Bollerman said that the NYSE also has a speed bump, one which it has keep quiet about and which serves merely to further enrich its best-paying clients.

Here is the full IEX allegation of impropriety at the NYSE:

IEX is applying to become a registered stock exchange and we find ourselves at the center of a fierce debate over what is, and what is not, permissible in the operation of a U.S. stock exchange. The heart of the issue is the IEX “Speed Bump,” a coil of fiber optic cable that slows down access to our market by 350 microseconds, which is one one-thousandth of the time it takes to blink your eye.

 

Our speed bump has two primary purposes. First, it protects client orders on IEX from being scalped at stale prices by certain high-speed traders who have purchased faster access to information from other exchanges, and know the prices to be stale. Second, it protects clients who use IEX’s Router from being beaten to other exchanges by high-speed traders who are looking to react to the client’s orders by removing liquidity on those exchanges before the orders can be executed.

 

IEX’s detractors are trying to convince the Securities and Exchange Commission (“SEC”) that IEX’s speed bump will harm the entire U.S. stock market and that it gives IEX an unfair advantage. The irony is that over the past ten years, U.S. stock exchanges have invested huge sums of money creating two-tier markets – building and offering faster data and technology infrastructures at a price that only a small niche of traders can benefit from or afford, while at the same time continuing to offer slower products to everybody else.

 

Some of the existing exchanges might say such accusations are unfounded, with the justification that anyone who is willing to pay up can have access to the fast lane. However, the bigger questions remain: why offer both slow and fast access, and how transparent are the relative advantages/disadvantages of each?

 

The NYSE Speed Bump

 

Last year, IEX noticed that its ability to access displayed quotations (our “fill rate”) on the New York Stock Exchange (“NYSE”) had degraded to as low as 84% (meaning we were able to, on average, trade 84 shares out of every 100 shares that were quoted at the time we attempted to trade). On some days, 1 out of every 10 orders sent to NYSE missed ALL available liquidity. In contrast, IEX’s fill rate averages 96.9% across all other U.S. exchanges. We found this especially curious given that our fill rate on Arca, an exchange owned by NYSE and located in the same data center, was 96.8%.

 

While consulting with NYSE, they advised we consider upgrading from the NYSE FIX gateway to their Binary gateway instead. One of the few public documents we found stated that the Binary gateway is a “new, faster protocol [which] reduces bandwidth and latency.”

 

After making the change, we noticed our fill rate on NYSE immediately improved to 97%, on average. The practical explanation: using NYSE’s FIX offering is so much slower than Binary that market participants seeing IEX’s Router trade on other exchanges were able to race ahead of our routing client and cancel or trade with quotes on NYSE through the faster Binary gateway before IEX’s client order arrived through the slower FIX gateway.

Fill Rates by Exchange (%)

 

Source: IEX Router 1/20/2016 – 1/26/2016.

So why does this matter?

First, it offers more validation that “quote fading” or “latency arbitrage” at the microsecond level is real.

Second, by offering the faster binary access method, NYSE effectively imposed a “Speed Bump” on all of its participants who did not upgrade. They essentially slow down everyone else by offering a faster means of access that only a few have bothered to adopt given the amount of development work necessary to do so. We found very little documentation about this offering, and no public filings with the SEC.

Most interesting, the difference we found in the speed between NYSE FIX and Binary ranged from approximately 200 to 400 microseconds. And those microseconds translated into over a ten percentage point difference in fill rates! NYSE’s speed bump was intentionally imposed on existing participants with very little disclosure, and without any review or approval by the SEC. All the while, NYSE continues to be a registered stock exchange with a protected quotation.

 

Moreover, this isn’t just some temporary transitional system upgrade; NYSE has offered both means of access in parallel since 2011.

 

By comparison, IEX’s speed bump is 350 microseconds and is equally applied to all our participants – there is only one lane. IEX has been fully transparent in our dealings with members and our filings with the SEC, but this transparency is being used against us as existing exchanges, including NYSE, are citing the speed bump as a reason to prevent IEX from having a protected quotation, the status that NYSE enjoys under its current fast lane/slow lane model.

 

Does this mean only exchanges that offer an uneven playing field and varying speeds of access will be allowed to operate? And that an exchange that offers a level playing field, with uniform access for all will not be allowed to compete?

 

Some would have you think that the debate over our exchange application is about rules, or even market structure philosophy, but it’s not. What the debate is really about is commercial interests. IEX slows everyone down to make our market more fair. Other exchanges offer products with different access speeds: connection ports, co-location, and market data – charging a premium to the fast which enables them to make money trading against the slow. Manufacturing those kinds of trading “opportunities” creates market share and revenue for those exchanges.

IEX’ conclusion:

If participants are provided the opportunity to choose the IEX exchange model, IEX can grow. If it grows, other exchanges will either lose market share or need to adopt similar investor protections themselves. Either way, the premium on pure speed goes down, and that will cost a select few players, including the exchanges themselves, a lot of money. Clearly those players have a very strong incentive to prevent IEX from ever becoming an exchange.

 

And who are those players? The answer is easy – just read the IEX comment letters.

Normally, this would be an open and shut case, with the SEC granting the IEX its desired exchange status: after all nobody is forcing market participants to use IEX – they would only do it if they themselves agree that the US stock market is, for lack of better words, “broken” and “rigged”, thus benefiting the IEX business model which has set off to fix precisely that. If there was no demand for IEX’s “speed bump” it would disappear on its own without regulatory intervention: capitalism 101.

However, since granting IEX exchange status would lead to an immediate market structure disruption, one which would impair such embedded HFT players as Citadel which, as we have explained previously is the NY Fed’s preferred “arms length” intermediator in the market to ingite momentum at critical downward junctions, we are very skeptical that when all is said and done, the SEC will grant IEX what it wants: after all there are too many status quo revenue models at stake, not to mention a potential threat to the Fed’s preferred market “intervention” pipeline.


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Explaining The “Rise Of The American Protest Vote”: It’s The “Popular Discontent,” Stupid

One theme we’ve explored at length and on a number of occasions over the past 12 months is the global shift towards so-called “radical” political parties and candidates.

Whether it’s Syriza in Greece, Podemos in Spain, or Donald Trump in the US, voters are increasingly turning to candidates outside of the establishment.

Why is the electorate turning its back on the traditional bases of political power, you ask? Well, that is the question of the day and indeed it’s one quite a few people are trying to answer. BofA’s Michael Hartnett recently asked why, if the global “recovery” is real, are populist parties and politicians dominating the political landscape. For those who missed it, here’s a look at how these parties and politicians are polling:

As hinted above, one reason for the political sea change may well be voter disaffection with the economy.

While the general public is probably ignorant to the nuances, Main Street is in tune to a kind of inescapable suspicion that things aren’t what they once were and that the gap between the haves and the have nots is growing. That goes double in countries like Spain, where unemployment is still running above 20%.

As RBS’ Alberto Gallo put it a few months back, “persistent low growth, high youth unemployment and increasing inequality have hurt Europe’s young generation.”

The same can be said of America, although one could argue the problem is less acute.

Ahead of primary season in the US, RBS’ Gallo is out with a fresh look at the rise of “the all-American protest vote” which he says is being driven by “the deeply imbalanced nature of the recovery.” Here’s how RBS describes the state of the American economy:

The deeply imbalanced nature of the recovery could well be driving the protest vote. This US recovery is one of the most uneven on record, looking across both states and industries. In 2014 55% of states grew at a rate of 1.75% or less, whilst only a small number of states (12%) grew faster than 3.25%. This compares to 1988-2014 average of 24% growing less than or equal to a rate of 1.75% and 20% growing faster than 3.25%.

 

 

Looking across industries, structural shrinkage in the manufacturing and construction sectors, where employment has been declining since the crisis, is contributing to pockets of structurally higher unemployment. With many parts of the economy not feeling the full benefits from the US recovery almost 8 years after it began, the protest vote seems to have grown strong enough within the two main parties to begin to challenge for power.

 

And here’s a bit on where the “radicals” are enjoying support:

Who is supporting “protest” candidates? According to YouGov Sep 2015 data, Trump’s supporters are older, less educated and earn less than the Republican average. Over one-third of his supporters earn less than $50,000 per year vs 11% earning over $100,000 per year. One half of his voters have high school education or less vs 19% with a college or post-graduate degree. This pattern was also seen by Civis Analytics data in December, which continues to show stronger support for Trump from older and less educated voters. For Cruz, support is the strongest among women and people over the age of 50. While there is no clear correlation between support for Trump and economic growth statewise, it is notable that the majority of the states that are still in recession or have below 1% growth have strong poll ratings for Trump (e.g. West Virginia, New Hampshire, South Dakota, Mississippi).

 

 

Gallo’s conclusion: “The sustained growth in support for protest parties across Europe provides a lesson for the US – unless the root causes of popular discontent are addressed (uneven growth, pockets of high unemployment and weak wage growth), the protest vote is unlikely to go away. In fact, it may well grow.”

Yes, it “may well” just do that, and the consequences of a protest candidate taking the White House “may well” be decidedly unpredictable.

As we saw in Greece, attempts to rekindle “the dream” (so to speak) can end in new nightmares. That’s not to say America should resign itself to four more years of business as usual inside the Beltway. But we wonder if the old adage “be careful what you wish for” doesn’t apply to both Donald Trump and Bernie Sanders.


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The Best And Worst Performing Assets Of A Miserable January

As DB’s Jim Reid points out, it was definitely not the easiest start to the year with many global equity markets suffering from their worst January in a post-Lehman world.

The S&P 500 (-5.0%), the Dow (-5.4%), and the Nikkei (-8.0%) posted their worst January returns since 2009. Similarly for the Stoxx600 (-6.3%) and Hang Seng (-10.2%) it was also their worst since 2008. The ‘January effect’ was certainly missing in action this year although curiously it has been missing over the last 3 years. The last time we saw a positive January start to the year for the S&P 500 was in 2013 (for a further technical analysis what a poor January means see “As Goes January”… What Happens When Bullish Seasonals Fail).

In terms of the specifics, only 17 out of the 39 global asset benchmarks that DB tracks managed to avoid finishing the month in the red in January. Of the 17 that were up so far on a total return basis, 12 were fixed income indices (core rates or IG credit) although Gold (+5.3%) did deliver its best performance since January last year. Indeed Gilts (+3.8%), Bunds (+2.5%) and US Treasuries (+2.2%) were the main outperformers which have helped IG from a total returns perspective. IG excess returns were negative though on both sides of the Atlantic as spreads finished the month wider. Indeed HY benchmarks, which are less sensitive to rates, finished the month lower. January also marks the third and second consecutive monthly decline for US HY (-1.2%) and European HY (-1.4%), respectively.

The other end of the performance spectrum was mostly dominated by equities and oil. Chinese equities had bad start to the year with the A-share index nearly down 23%. This was followed by Stoxx600 Banks (-15%), FTSE MIB (-13%), Greek equities (-12%), and the Hang Seng (-10%). The worst performer could have been Oil if not for bounce last week. Brent for example would have been down 27% had it not recovered from its intra-month lows. It eventually settled at -6.6% for the month.

Here is the January performance in local currency terms:

 

And when rebased in dollar terms:

Source: DB


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Chipotle Jumps Ahead Of Earnings As CDC Expected To Say Epidemic Is “Over”

Great timing for a short-squeeze rumor? With Chipotle due to report what is likely to be ugly earnings after the bell today, CNBC reports (citing Dow Jones) that the CDS may declare an end to the E.Coli outbreak today.

 

This, as we suggested last night, has ripped stocks 4-5% higher (to one-week highs) squeezing shorts.

 

 

BREAKING: CDC expected to declare end to Chipotle e.coli outbreak as soon as Monday, but cause of e.coli contamination inconclusive – DJ

 

One week highs – not exactly a confidence-inspiring move.


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Colorado Man Had Charges Dismissed for Two Separate Bank Robberies, Refiled After He Complained, Plus More Charges Because Fuck You That’s Why

A real police horror story out of Colorado.

KDVR reports:

Steven Talley said he’s living a nightmare after being arrested not once but twice for the same bank robbery despite the star witness saying he’s not the guy.

A Denver judge released the 45-year-old from jail after the witness stunned prosecutors during a preliminary hearing. U.S. Bank teller Bonita Shipp testified that Steven Talley, the man charged with aggravated robbery, was not the same man who held her up in September 2014.

Talley was arrested in September 2014 for two bank robberies: At a U.S. Bank on Colfax Avenue in May 2014 and at a U.S. Bank on South Colorado Boulevard in September 2014.

Talley said he had an alibi for the first robbery—he was working. His wife identified him based on surveillance camera, but Talley’s lawyer pointed out the man in the video has a mole on his face but Talley didn’t.

Talley also alleged brutality during his arrest, a sort of nut punch:

Talley said he was beaten by members of the Denver SWAT team during his arrest. He said one officer swung a baton at his groin.

“I have what’s called a fractured penis. I didn’t even think you could break a penis,” he said.

According to Talley, the second case was reopened after being dismissed as retaliation for Talley complaining about his treatment:

“I’m going to throw your ass back in jail, we’re going to refile,” is the threat Talley accused [Det. Jeffrey] Hart of making.

In December 2015, Talley was rearrested for the second bank robbery. He was living at a homeless shelter at the time after he said he lost everything because of the first arrest.

“Had a family, had a career and the worst part is I haven’t seen my kids in like 17 months,” Talley said.

Talley’s story aired last Wednesday. On Thursday he faced new charges—an arrest warrant was issued accusing him of trying to influence a public servant.

In the last year and a half, since people started “waking up” on police brutality, there are still pernicious, if not malicious, misconceptions. Perhaps none is more dangerous than that the problem of police violence is merely a problem with individual cops. Such an attitude can be comforting—if we can only get better people onto the police force, the problems would go away. But “top men” never solved anything.

The racist cop as an individual has certainly become the most visible and covered aspect of the story of police brutality. If it’s not an unarmed black man shot by a white cop, the mainstream media appears uninterested—as if black men did not have a right to be armed without being killed and as if police of all races weren’t capable of killing people of all races.

But police violence is actually a systemic problem. That should, actually, be more comforting than the alternative. Humans create systems and humans can reform them. The rules that protect bad actions by cops, thus ensuring more bad action, are all man-made. The Law Enforcement Officers’ Bill of Rights (LEOBR) laws, for example, is an invention of the 1970s. Maryland was the first state to pass it, and through lobbying by police unions and other police apologists, the set of laws propagated across all 50 states.

The reforms can start the same way. The most powerful motivator in any employment is job security. I’ve seen the threat of firing, if it’s real, yield some tremendous results in the private world. The public sector could use the same. Because stories like this about bad-acting individuals are stories about broken systems.

 (h/t Stanton S.)

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How Ted Cruz Turned His Back on Drug War Prisoners: New at Reason

Sen. Ted Cruz was once a leading Republican advocate of sentencing reform. But as Senior Editor Jacob Sullum observes, presidential candidate Cruz seems to have abandoned the cause and turned his back on drug war prisoners:

Unlike every other major-party candidate, Cruz joined [Rand] Paul in opposing the Renewable Fuel Standard on free-market grounds, a principled stand that could have cost both men votes in Iowa, where that mandate benefits corn farmers and ethanol producers. It’s too bad that Cruz, who describes his supporters as “courageous conservatives,” did not have the guts to join Paul in advocating a more enlightened approach to criminal justice.

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Gold And Gold Stocks – A Meaningful Reversal?

Submitted by Pater Tenebrarum via Acting-Man.com,

A Negated Breakdown

There have been remarkable gyrations in the gold sector lately. The typical rebound out of a November/December low (typical in recent years after the end of the tax loss selling period) was initially cut short in January in the course of the global stock market decline. This was a bit surprising, because it was widely held that the recovery in the gold price was a result of said stock market decline.

 

goldmine-700x360

 

 

We suspect that in it was initially still widely expected that stock market weakness was just a fluke and that the downtrend in the gold price would therefore soon resume. Moreover, base metal mining stocks were pounded mercilessly and as we have previously discussed, there is a completely illogical short term correlation between this sector and gold mining stocks, likely due to various tracking products and the mindless automatic buying and selling associated with them. From a technical perspective the action has created quite an interesting situation though:

 

1-XAU-HUI breakdown and reversal

XAU and HUI daily. After initially beginning to recover from November, resp. December lows, both indexes sold off sharply after the first trading week in January, and in the process broke below a previous support level that has been tested many times and has up to that point always held. It looked like yet another breakdown in the long-lasting bear market was underway – but the indexes quickly reversed back above the broken support line – click to enlarge.

 

As the chart annotation indicates, the recent reversal is definitely positive. Both false breakouts and false breakdowns often turn out to be reliable trend change signals. An additional bonus in this case was that the initial breakdown has induced widespread capitulation (judging from anecdotal evidence).

 

Advance in Gold Characterized by Caution

What looks encouraging as well is the recent saucer-shaped bottom in gold – usually this kind of formation leads to a fairly decent rally:

 

2-Gold saucer

Gold begins to rise out of a saucer-formation – click to enlarge.

 

Contrary to the immediately preceding rally attempt, the current one has been a “scared rally” so far. There has been fairly little speculative buying in COMEX futures, and small speculators have actually remained net short up until last week, when their net position turned roughly neutral.

 

3-Gold CoT-1

Speculative buying in COMEX gold futures has so far been far more subdued than during previous rallies – click to enlarge.

 

The mainstream financial press is still busy penning obituaries on gold, which is generally a good sign as well. A playable rally should be widely disbelieved in its early stages. According to the article we have linked to “many still don’t see a bottom”, but in terms of major non-dollar currencies it has of course occurred a few years ago already. In numerous EM currencies gold has in fact attained new all time highs, but even priced in major developed market currencies the performance of the gold price continues to diverge significantly from that in USD terms.

 

4-Gold in yen and euro

Gold in yen and euro. There wasn’t even a bear market in yen terms, merely a correction – and it bottomed in mid 2013. In euro terms the gold price has bottomed in late 2014 and appears to have put in its third consecutive higher low recently. If it manages to exceed its early 2015 interim high, it will be legitimate to speak of a new bull market – click to enlarge.

 

In developed market commodity currencies like the Canadian dollar and the Australian dollar, gold has bottomed in mid 2013 as well and has gained significant ground since then.

As we have remarked in a previous update on the sector, we don’t like it when gold rises for a “reason”, and we found it a bit unsettling that a consensus seemed to have emerged that the gold rally was primarily considered a result of the stock market sell-off.

However, so far it has continued to hold up quite well, in spite of a not overly dovish sounding FOMC statement and a rebound in stocks, so perhaps the gold market is actually beginning to look beyond these presumed correlations. It is a bit too early to judge though – a further short term rally in stocks or in the US dollar may well derail it again.

 

An Update on Divergences

There is one technical development that on the face of it argues for caution. Below is an update of the divergences between the HUI-gold ratio, the HUI and gold. Readers may recall that the last divergence that was put in seemed quite encouraging, as the HUI had failed to confirm a new low in gold. Now a third consecutive divergence has occurred – this time, the above discussed brief breakdown in XAU and HUI was not confirmed by the gold price. However, neither have the two indexes managed to confirm gold’s recent move to an interim high.

 

5-HUI-gold divergences

The HUI-gold ratio, the HUI and the USD gold price – the series of non-confirmations continues, with the most recent one (illustrated by the red line) normally considered negative – click to enlarge.

 

As we have pointed out in “How to Recognize an Emerging Bull Market”,   usually major turning points are first signaled by strength in gold stocks and only later confirmed by a rising gold price. However, given the strange correlation between gold stocks and base metal mining stocks which has developed in recent years, one should perhaps not be too fixated on the indexes, especially as there are large disparities within the sector – numerous stocks are notably lagging and underperforming, while others are performing quite well.

If one looks at the two gold stocks with the biggest market cap and the greatest liquidity, one actually sees a perfect example of how things should be. Both ABX and NEM have begun to rally well before gold made its low and have built quite decent looking bottoming patterns in the process. Both have not confirmed the new lows in XAU and HUI in mid January. ABX looks especially strong:

 

6-ABX and NEM vs Gold

ABX, NEM and the gold price – this is a classic bullish divergence – click to enlarge.

 

On the other hand, GG and RGLD are examples of large cap gold stocks with a fairly strong institutional following that have performed very poorly, so on the whole it is a mixed bag.

 

7-GG and RGLD

GG and RGLD – two major gold stocks that have performed very poorly – click to enlarge.

 

As we have stressed late last year, bottoming processes in the sector are always tricky (see 1992-93 as a pertinent example). It could well be that things are simply especially tricky this time around. Naturally, we can by no means rule out yet that the rebound is just another flash in the pan – that will only be possible once the HUI actually overcomes its 200 dma and manages to hold above it.

 

South African Gold Stocks vs. the Rest of the Sector

We have discussed Harmony Gold in early December after the company had suddenly paid down a hefty chunk of its debt, and the rand gold price broke out to new highs. We revisited South African gold stocks and the rand gold price again in early January (see “The Canary in the Gold Mine” for details). In the meantime, gold in Rand has surged even further, as the rand up until recently weakened quite a bit more in concert with other EM currencies. As a result this sub-sector has delivered an excellent performance – as the combination of fundamental developments and chart patterns a few weeks ago indicated it would.

 

8-South African Gold Stocks

The three South African gold miners that have benefited the most from the weaker ZAR, as most or all their producing assets are located in SA – click to enlarge.

 

However, it seems to us that the time is ripe for at least a short term correction or a consolidation in these particular stocks. If last week’s rebound in oil prices/ industrial commodities and stock markets continues for a while longer, EM currencies are bound to strengthen. As you can see below, the Rand has in fact turned up against the USD last week from extremely oversold levels (shown as “overbought” in USD/ZAR), and the Rand gold price has begun to correct accordingly:

 

9-Rand gold price vs USDZAR

The Rand gold price and USD/ZAR – click to enlarge.

 

Keep in mind though that these stocks have historically tended to add to their gains after such an initial correction, even if gold in Rand only proceeded to move sideways in a new, higher range. This may be because some investors only react once the first earnings results reflecting the move in the Rand gold price have been released. So it seems worth keeping an eye on these stocks.

In the meantime, it could well be that certain laggards in the sector are actually poised to do something analogous to what these stocks have done. Consider for instance the ratio of Canadian gold mining form Kinross (KGC) to HMY. It certainly argues in favor of mean reversion. The chart of KGC by itself looks awful – but so did that of HMY when it approached its low. Another important similarity is that the market fails to reflect a number of positive fundamental developments in KGC’s case as well at present (we will discuss this particular stock in more detail in a separate post).

 

10-KGC-HMY ratio

The ratio of KGC to HMY has moved from one extreme to another – perhaps the time for a mean-reversion has now come? Many Canadian gold stocks have been extreme laggards, and in a number of cases it is not quite clear why – click to enlarge.

 

In short, there may be a few opportunities to redeploy funds from one group of stocks within the sector to another group that still appears to have catch-up potential. As an aside, many silver stocks have also been beaten down a lot and may therefore have bounce potential, but as long as economic confidence is weakening, gold should continue to outperform silver, even though silver is historically cheap relative to gold.

 

Conclusion

In spite of the sector continuing to try the patience of investors, a number of positive things have happened lately – but as so often, it is a mixed bag, as a few short term technical warning signs are in evidence as well (see the discussion of divergences above). Whether a sector-wide trend change is in fact beginning remains of course uncertain until certain technical preconditions have been met (such as overcoming lateral resistance levels and the 200 dma).

However, as we have previously argued, even short term rebounds that are subsequently surrendered again are worth playing in this sector due to its enormous volatility (consider e.g. that HMY has rallied nearly 300% between late November and late January; not too many stocks manage to do this in just two months). At some point there will be a sector-wide rally that will turn out to be the “real McCoy” and we will certainly comment if/when that happens. Note as an aside that the fundamental macro backdrop for gold itself has improved of late.


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Rand Paul’s Iowa Chances

“We must be brave enough to believe that ideas are powerful, maybe even stronger than armies,” said Sen. Rand Paul (R-Ky.), speaking before a crowd at the private Drake University in Des Moines, Iowa, last week.

Throughout the half hour he talked, he was mostly calm, offering sometimes long-winded libertarian truths, getting big cheer lines from an often-rowdy crowd for everything from how we will soon run out of other people’s money, and how we must fight Big Brother; how he will “never ignore the human costs of war” (which triggered a wave of “President Paul!” shouts) and that “we must be the party of justice and justice begins when the war on drugs ends,” while also stressing that we must stop IRS harassment.

Not much he said made him seem like he was fighting on the same ground as any of his opponents, except when he slammed Donald Trump for his practice of eminent domain and Ted Cruz for his hunger for government to swallow up our phone records.

Paul opened with a curiously spiritual rap prefaced with “What victory is faith if we are not free to choose it?” and assured the students that he was the candidate who wanted to build a bigger, broader party, “with more walks of life, with tattoos and without, with earrings and without, in overalls and in suits, a bigger more diverse party because, as my dad always said, ‘liberty brings people together.'” 

Liberty needs to bring a lot of people together for Rand Paul in Iowa’s caucuses tonight for his campaign to have much life left.

Paul’s been doing many similar talks before students and other groups of Iowans over the past week, sometimes drawing over 1,000. Last night, he did a rare dual appearance with his father, former Texas congressman Ron Paul, who won the caucus votes of over 21 percent of Iowans four years ago. (Rand tells reporters he has reason to believe that some extant polling in Iowa seems to be missing a lot of that group.)

He’s been defending a foreign policy opposed to regime change in the Middle East to the last, as USA Today reports:

“You want somebody that’s going to be the commander in chief who has some temperament. That really isn’t eager to pull the trigger,” he said. “I want a foreign policy that defends America. That makes us strong again. But I don’t want a foreign policy that thinks that regime change in the Middle East is going to work.”

The national optics for Paul going into the caucus are as good as can be expected for a candidate who suffers both crummy poll numbers and a general sense that his quasi-libertarian approach seems the last thing GOP voters want in an age of Trump.

Those problems combined have relegated him to “who cares?” status to most media and possibly most voters. He was even denied a seat in the Jan. 14 Fox Business News main debate, an insult that Paul turned into a good earned media opportunity.

As his presentation at Drake indicates, to the extent Paul does do well tonight, sticking to mostly libertarian bonafides will be why. (Even to non-libertarians, Paul’s stances can seem like refreshing common sense compared to his opponents.) But it seems clear that the currently Trump-Cruz dominated party base isn’t libertarian dominated. Even if he shocks the world tonight, Paul will still at best be leading a rump revolution within the Party, not its ruling faction.

Poll numbers in Iowa on the rise got him got him back into the last pre-caucus debate on Thursday (he was 5th in the lastest Des Moines Register poll), his last chance to potentially reach voters across the state who didn’t leave their house to see him.

Paul had a good night. He skillfully, if not necessarily passionately, hit his unique libertarian-ish bonafides over surveillance and privacy, criminal justice reform, and foreign intervention. (He might have whiffed on abortion, from whatever side you approach the matter.) The Washington Post declared Paul the top winner of the debate though also confident it’s still “too little too late” for him. Data journalism superstar Nate Silver at his FiveThirtyEight site also called Rand the winner, as did James Poulos at The Week, praising Paul’s “brilliant combination of high dudgeon and medium chill.”

But what has to happen for him to win even a perception victory in Iowa? As Stephanie Slade wrote here last week, it is going to be about turnout, and Rand had both a campaign and an unaffiliated SuperPac, Concerned American Voters (CAV) working Iowa on that. Paul’s people are confident their get-out-the-vote (GOTV) operation will deliver 10,000 students to caucus for Paul, which in and of itself would amount to over 8 percent of the 2012 caucus turnout.

Cliff Maloney, who’s running the youth operation for the campaign in Iowa, answered some questions about the operation via email. He says they will have made 1.2 million phone calls by the time everything is over today, and currently have 150 active volunteers at their Iowa HQ. While Ted Cruz is also reported to have a very impressive ground and phone operation, Maloney is “confident that Team Rand has the top ground game in Iowa.”

The key to student appeal, Maloney says, is that “every student we speak with loves that Rand is consistent and authentic. Students love that he is an every-day Joe, an eye surgeon from Bowling Green. The more we talk about privacy, a sober foreign policy, and his consistent stance for the principles of liberty, the more we find students joining our SFR [Students for Rand] chapters.”

Matt Kibbe of CAV says that while they have not had a specifically student-focus like the campaign, they are confident they’ve identified and are communicating well with over 30,000 Rand-identified potential caucusers, and are helping house squads of door-knockers for Paul in these last 48 hours.

Paul’s appeal isn’t single issue, says Steve Grubbs, a veteran of earlier Steve Forbes and Herman Cain (among other) GOP campaigns, who has been helming the Paul campaign’s Iowa operations. “With Forbes it was all the flat tax, with Herman Cain it was 999, but with Rand Paul it’s the overall liberty message and how it applies to all issues, but particularly peace through strength, audit the Fed, civil justice reform.”

Grubbs says as of late last week that they had around 1,025 precinct captains for the state’s 1,681 precincts, who are important as folk handling the most granular GOTV efforts, making sure local committeds show up to the polls, and also for handling the vital task of convincing, in short speeches before their neighbors at the caucus meeting, why they should vote for Rand Paul.

Grubbs says that “a significant number” of Iowans don’t really finally settle their decision til after they’ve heard what their neighbors caucusing for the various candidates have to say at the meeting itself. Grubbs says their precinct captains will be giving out lapel stickers to supporters that push three issues: term limits, peace through strength, and flat tax.

I spoke to a handful of Concerned American Voters canvassers, some who’d worked in Iowa and some who are working in Nevada. (The Paul campaign itself holds its volunteers to a non-disclosure agreement, and even ones I reached out to informally over social networking held to it. While I understand message discipline, as with the Ron Paul campaign, a potentially inspirational story of youth and grassroots activism that could be grand for general media optics is there to be told, though the campaign seem to insist it can’t be told, at least not on their watch.)

Adam Sullivan, who was in college in Iowa during the 2012 Ron Paul campaign and who did activism work later with the Paulist Young Americans for Liberty, was a field director for CAV in Iowa this campaign. He says for Rand fans, the “outside, the anti-establishment thing” was hot, and he didn’t think a majority of Rand supporters would necessarily self-identify as “libertarian.”

That said, even among the constitutionalists or conservatives, “I didn’t hear anyone saying we definitely need to keep pot illegal, keep filling the prisons” and he is sure progress on that “is a credit to Ron and Rand Paul.” Despite what current polls might indicate, Sullivan thinks the idea that a vast majority of Ron voters are turned off this year by some perceived softness in Rand’s small-government bonafides is a myth.

Evangelicals are a big thing in Iowa, and Sullivan thinks most of them at least like Rand fine, even if he’s not their first choice. Of the big “values” issues in Iowa, they are far more concerned with pro-life than gay marriage these days. Sullivan, and other CAV canvassers in Nevada, acknowledge that some GOP voters see Paul as “insufficiently aggro” or “too dovish” when it comes to foreign policy. The most likely voter to be hostile to Paul is the Trump voter.

A profile of CAV’s digital video ad strategy in Rare says they’ve found “topics that performed well were Paul’s correct predictions about the perils of arming jihadists, and strong condemnations of politicians for getting us into $18 trillion in debt.”

CAV has spent around a million on such ads, and the PAC’s operator Jeff Frazee told Rare that “Everything [CAV] has done has been very data driven. We’ve made sure to check our own intuitions and opinions at the door, and let the data tell us what messaging is strongest and what’s resonating with voters.”

Kibbe of CAV says that, even though foreign policy might be understood to be a weak point for Paul with the imagined modal GOP primary voter, “his stance on foreign interventions is a key issue for us.” That makes sense since it has been a major way he’s “differentiated himself from a crowded field” in which you need motivated folk to actually show up and wait through Iowa’s long and complicated caucus process. That involves sitting through long meetings and literally standing up in public for your candidate; it’s not like going into a booth, pulling a lever, and heading home. 

Kibbe is confident enough the polls are wrong about Paul that he calls a top-three showing for his man tonight, and vows regardless that CAV is “in it til the day he’s sworn in office” and already has active operations in groundwork in Nevada and social media work in New Hampshire.

CAV has pulled in six-figure donations from a handful of wealthy libertarians, including Whole Foods co-founder and co-CEO John Mackey. Overall, the three SuperPACs dedicated to Rand took in $4.6 million in the second half of 2015, spending $5.9 million in the same period but still holding $4.4 million in reserve.

Paul campaigns believe in phone calls, and plenty of them. As with Ron Paul in Iowa in 2012 I’ve seen some signs that some people are annoyed and frustrated at how many times Rand Paul makes their telephone ring. National Journal reported that your Cruzes and Bushes are also making over 10K calls a day using sophisticated computer data systems, but Trump’s voter identification or GOTV efforts are a black box and may be non-existent.

If that is true, and a huge chunk of those polling now for Trump don’t actually trouble themselves to go caucus for him today, Rand Paul’s hopeful declaration in a press conference last week that polls may be not just 5 but 15 percent off could have some bearing.

The idea that Trump may have picked up a portion of the old Ron Paul coalition just on the basis of being the most convincing “radical outsider” (independent of actual ideas) rings true with some, but not all, Paul watchers. One longtime Paul fan admits that to some in 2012 Ron was not necessarily the libertarian candidate but just the radically anti-Washington “drain the swamps” guy and Trump plays the same role for many now. That same analyst thinks that libertarians, and the GOP establishment, both underestimate how strong in Iowa is the desire to just see “every illegal immigrant sent back home, no matter how many buses it takes.”

Kibbe says from his years of tending the Tea Party grassroots via his previous work with FreedomWorks that the GOP powers-that-be underestimated exactly how much they had pissed off and disenfranchised many of their voters. Many of them now see Trump as “a convenient wrecking ball to take out the Republican Party and start over” which given his character and ideas is a “dangerous game” that Kibbe still hope Paul can block.

Something to ensure Trump doesn’t do as well in Iowa or down the road as currently seems likely is key to the campaign’s or the PAC’s hope. 

Paul is definitely selling a very different spirit than Trump, for those who still want to hear it. While rock n’ roll as the language of rebellion may be an outmoded concept, it still warms this libertarian’s heart seeing Paul take the idea of liberty past just specific things government may be doing, from taxing to spying, that make our lives harder, to a more idealistic and cosmic sense of individual possibility, by quoting that most cosmic of classic rock bands, Pink Floyd.

At his talk last night, as reported in the Des Moines Register, Paul:

elicited the help of Pink Floyd’s infamous “Shine on You Crazy Diamond” to drive home his point that free ideas are the most powerful weapon.

“For the crazy diamonds to shine, government must get out of the way,” he said. “The leave-me-alone generation is a generation that believes they can conquer the world and solve any problems if left free to follow their dreams. You are the leave-me-alone-generation, and I want you to shine, shine on.”

If Iowa doesn’t work out impressively for Paul, what then?

Paul is famously not thrilled with campaigning as a way of life. Will he just chalk up any failure in 2016 to Trump, or the times, and try again in 2020 to proceed further with what’s already been built? One anonymous observer close to the campaign who has spent time with the candidate doesn’t think so. “I personally don’t think he will run again. He just doesn’t enjoy the process. The redeeming thing about Rand Paul is that he’s a family guy, he’s really isn’t fond of D.C. and he’d really just like term limits to get rid of all the rotten people in D.C. I think he wants to return to his family and his eye practice.” 

But that same observer doesn’t think tonight is going to be the end, no matter what happens. He does feel Paul has a sense that it would be “a disservice to the antiwar people and the liberty minded people if Rand doesn’t allow them a place to cast their vote” even if he doesn’t seem on a path to win. But then that observer makes it sound more like hope than expectation. “I hope he stays in, or at worst just suspends active campaigning [if he’s doing poorly in early states], but totally ending it would take away a place for liberty people to vote.”

Paul and his campaign don’t want to speculate about a bad outcome right now. “We’re going to surprise a lot of people on Monday,” Paul said at his campaign speech this weekend. It might be his last chance to do so.

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Snow Expected for Iowa Caucuses, Iran Awards Medals Over Captured US Soldiers, Israel Permits Non-Orthodox Jews to Pray at Western Wall: A.M. Links

  • Snow is expected tonight for the Iowa caucuses.
  • Super PACs in support of Jeb Bush raised a lot less money in the last quarter of 2015.
  • Thousands of people in San Diego were without power and at least one person is dead after a Pacific storm hit southern California.
  • ISIS claimed responsibility for bombings in Damascus that killed at least 45 while John Kerry was in Geneva calling for peace in Syria. Meanwhile in Kabul, at least nine people were killed in a suicide bombing.
  • Iran awarded medals to the navy commanders responsible for capturing U.S. sailors who strayed into its territorial waters last month.
  • Burma’s newly elected parliament convened for the first time, with former political prisoner Aung San Suu Kyi heading the largest party.
  • The government of Israel will open up the Western Wall to prayer by non-Orthodox Jews.

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