Tag: finance

Via The Daily Bell

New technology can be scary. It certainly presents risks and challenges. But I have to admit, one technology I am very excited about is autonomous vehicles or self-driving cars.

We’ve talked about the potential for the Internet of Thing to leave us with nowhere to hide, and self-driving cars are part of that. We have also mused about the possibility of the government ruining self-driving cars.

But let’s take a moment to balance those positions with the benefits of autonomous vehicles.

First, it frees up so much valuable time for humans. Time is the most precious resource and morbidly limited. As many as 90% of working Americans drive a car to work. The average commute is about 25 minutes. This means an average American worker would get over 4 hours of their life back each week!

Granted, they would still be in a car, but most people have pressing tasks that can be accomplished on a smartphone or laptop. Over the course of a lifetime, this amounts to getting a full year of your life back, that would otherwise be spent flipping off other commuters, and beeping the horn in frustration. Nevermind that most people will use that year to scroll Facebook.

Second, way fewer people will die in car accidents. I know it is scary to let go of control, but automation of traffic patterns will lead to far fewer roadway fatalities. Currently, about 1.3 million people worldwide day each year in traffic accidents. Many more are seriously injured.

The possibility that cars will be hacked is scary. But seeing as this is a pressing concern for consumers, it would be very bad publicity for whatever company has their car taken over by hackers. So far no hacker has been able to do so in industry tests which reward hackers for finding vulnerabilities in their systems.

Also, most cars can already be hacked. It is much easier to make a murder look like an accident when humans are behind the wheel.

Third, economic resources that were once spent on cars and insurance will be freed up! Most people will not have to buy a car, they will simply use rideshare programs. The ones who do buy cars will likely have a much lower cost to insure the vehicle.

Fourth, we no longer have to worry about drunks, elderly, teen drivers, or distracted drivers. Think of all the social problems this immediately removes! No more debates about taking driver’s licenses away at a certain age. No more tweaking regulations and legislation in a fruitless attempt to curb teen accidents.

Go ahead and text in your car, talk on the phone, mess around with friends, and even crack open a beer! It doesn’t matter, the technology is in control.

In America, over 10,000 deaths per year from drunk driving accidents will be prevented when all cars on the road are self-driving.

Fifth, and possibly widely overlooked, is that autonomous vehicles really throw a wrench in most excuses for the police to engage you. Police can currently pull you over when driving for almost anything. If they see a taillight out, if you cross the center line, if you are driving a bit too fast, if you speed up for a yellow light, if you swerve, and so on and so forth.

Most people will be able to go from their own private property to the private property of a car. Then they will exit onto a business or individual’s private property, and never give the government a chance to violate their rights.

About 1.5 million people are arrested each year in the U.S. for Driving Under the Influence. Think of how much it costs taxpayers to send those people through the court system.

Then there are all the people arrested for drugs after the police search their vehicles during a traffic stop. Again, the court system is unburdened. Fewer rights will be violated. Fewer illegal searches will be conducted.

Cops will be safer since they won’t constantly be walking up to strangers in vehicles. People will be safer and not have to worry about being shot when a cop can’t see their hands for a split second. This removes entire swaths of dangerous interactions between the police and the public.

Autonomous vehicles might prove instrumental in changing the cultural acceptance of being stopped, questioned, and searched by officers for no real reason.

Like with any other new technology, there will be difficulties and unforeseen dangers to autonomous vehicles. But these five benefits only scratch the surface.

There will be changes in the landscape, social activity, and recreation. There will be new opportunities for shipping, selling, and conducting business.

What are you most worried or excited about for the advent of autonomous vehicles?

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Last week we warned of 'low volume highs' as internal cracks began appearing in the markets. Today, J. Lyons' Fund Management's Dana Lyons points out another 'crack' – The recent string of Nasdaq new highs occurring with negative breadth has only been matched by a stretch in 1999-2000.

In the last few months, we have observed a recent cluster of 52-week highs in the Nasdaq Composite occurring along with negative breadth on the exchange, i.e., more declining stocks than advancers.

Wednesday marked the 7th such occurrence in the last 3 months. That is the largest string of these days on record, outside of a run of 12 that ended in late January 2000. I probably don’t have to tell you what happened soon after that episode.

This chart shows all of the 3-month clusters of at least 5 occurrences going back to the late-1980′s.

So is this a red flag regarding the durability of the bull market?

Some will point to it as evidence of a thinning out of the rally.

We certainly have seen these clusters pop up in the lead up to some tough markets in the past, e.g., 1998, 2000, 2007, 2011.

Furthermore, as Nasdaq has soared  – SOMEONE has been buying downside protection…

To its most extreme level since November…

So these new highs are not seeing an exuberant following.

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According to a report in South Korea’s Munhwa Ilbo newspaper, which cites an unidentified government official, South Korea’s military is preparing a “surgical strike” scenario that could wipe out North Korean command and missile and nuclear facilities following an order by S.Korea’s President Moon Jae-in. Munhwa adds that the military is to report the scenario to presidential office after completing it as early as August 1.

As the report details, South Korea’s Special Forces are preparing a special strike op which would be launched in response to President Moon Jae-In’s order to remove the North Korean leadership in case of emergency. This operation is taking place in addition to separate preparations currently conducted by the country’s military forces.

Targeted by the surgical strike would be North Korea’s core facilities. As part of the operation, South Korea’s forces would launch Taurus cruise missiles from F-15 fighters, which would be able to strike all key facilities in Pyongyang and can also strike the office of the Chairman of the Labor Party, Kim Jong Eun, at the Pyongyang Labor Party headquarters.

The newspaper also adds that the South Korean military’s own strike-hit scenarios include plans to create a special mission brigade of 1,000 to 2,000 at the end of this year with plans to eliminate war leadership figures such as Kim Jong Un and paralyze warfare command facilities in case of emergency. The military authorities have already commenced the CH-47D (Chinook) performance improvement project to transport these special mission brigades

According to the military authorities on March 31, the South Korean military’s own strike-hit scenario is being drafted jointly by the Strategic Planning Division of the Joint Chiefs of Staff and the Ministry of National Defense, rather than the National Security Office of Cheong Wa Dae, and the “Nuclear Weapons of Mass Destruction (WMD) It was known as the core department. The nuclear and WMD response centers will take on a major role in the early response, and will be activated in response to the North Korean nuclear and missile threats once they cross a critical “Red Line” threshold.

The full report, google translated is below:

Scenario of ‘North Precision Strike’ Scenario Taurus will be installed in F-15K for 170 additional units until next year.

 

South Korea’s Special Forces Operation Squad To Be Established In response to President Moon Jae-In’s order to remove the North Korean leadership in case of emergency , it was confirmed that the military is preparing its own unique North Korean core facility precision strike scenario. In addition, with the launch of the second inter-continental ballistic missile (ICBM) test, the two countries will begin negotiations on revising the missile guidance in five years. see. According to the military authorities on March 31, the South Korean military’s own strike-hit scenario is being drafted jointly by the Strategic Planning Division of the Joint Chiefs of Staff and the Ministry of National Defense, rather than the National Security Office of Cheong Wa Dae, and the “Nuclear Weapons of Mass Destruction (WMD) It was known as the core department. The nuclear and WMD response centers, which are scheduled to be expanded to operations headquarters in the future, will take on a major role in early construction of their own response capabilities, such as South Korea’s own precision strike scenario in response to the North Korean nuclear and missile threats that have reached the critical threshold of the Red Line. 

 

At the core of the precise striking scenarios of North Korea’s core facilities and early measures to secure their own batting power, which are known to be being drafted by the Ministry of National Defense and the Joint Chiefs of Staff, are cruise missiles such as TAURUS, a long-range air- And the mainland-2, and the Ham-Daeji / Zamdaeji-3-series ballistic missiles. 

 

Taurus, the core power of precision strike in North Korea, can strike all key facilities in Pyongyang if fired from F-15K fighters over Daejeon. Taurus can also strike the windows of the office of the Chairman of the Labor Party, Kim Jong Eun, at the Pyongyang Labor Party headquarters. The army is expected to introduce about 170 ships by next year, and it is said to have about 100 ships. The Defense Ministry issued a warning to North Korea on May 4 after releasing the Taurus video after the first test launch of the Hwaseong-14 type in North Korea. 

 

On June 23, Moon Jae-in, Moon Jae-in visited the field, and the Hyundai-2C ballistic missile was evaluated to have improved the accuracy rate compared to the Hyundai-2A (300km) and Hyundai 2-B (500?) ballistic missiles. Our military possesses 300, 500 and 800 km of ballistic missiles and 1,000 km of cruise missiles.

 

Negotiations on the amendment of the ROK-US Missile Guidelines are also expected to become effective in securing deterrence against North Korea. If you increase the 500kg weight of warhead to 1 ~ 2t from the 800km standard, you will have a destructive power that can reach 10-20m in the underground concrete bunker in North Korea. In response, Defense Minister Kim Young-woo said on May 30, “Defense Minister Song Hyung-moo seems to be willing to insist on the weight of the warheads (over 800 km) 

 

The South Korean military’s own strike-hit scenarios include plans to create a special mission brigade of 1,000 to 2,000 at the end of this year as one of the KMPR plans to eliminate war leaderships such as Kim Jong Il and paralyze warfare command facilities in case of emergency. The military authorities have already commenced the CH-47D (Chinook) performance improvement project to transport these special mission brigades.  Jung Chong Shin reporter csjung@munhwa.com   

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Authored by Lance Roberts via RealInvestmentAdvice.com,

There is an increasing amount of commentary which suggests this time is different. Active management of portfolios is no longer needed, as Central Banks continue to be supportive of the markets, so join in on the “passive indexing” sweeping the country.

Of course, such commentary has always the case near the peak of a cyclical “bull market” as the psychological drive to “not miss out” erases the pain of the previous losses. This “exuberance” is what tends to lead individuals into making poor investment decisions as it relates to their long-term outcomes.

I was asked recently why an individual with 30-years to retirement should not just buy an index, invest money, and forget about it? With a 30-year horizon, they surely don’t need to worry about market volatility right?

Maybe they should.

Let me use the example for a previous study on the impacts of valuations and long-term outcomes. (See the full analysis here.)

“So, with this understanding let me return once again to the young, Millennial saver, who is going to endeavor at saving their annual tax refund of $3000. The chart below shows $3000 invested annually into the S&P 500 inflation-adjusted, total return index at 10% compounded annually and both 10x and 20x valuation starting levels. I have also shown $3000 saved annually in a mattress.”

“I want you to take note of the point made that when investing your money when markets are above 20x earnings, it was 22-years before it grew more than money stuffed in a mattress.”

The mathematical analysis suggests, at current valuation levels, individuals may be just as well off storing money in cash rather than investing in the markets. That is just the math.

The financial markets will do one of two things to your future financial security:

1. If you treat the financial markets as a tool to adjust your current savings for inflation over time, the markets will KEEP you wealthy. 
2. However, if you try and use the markets to MAKE you wealthy, your capital will be shifted to those in the first category.

Let’s focus on the first one.

Financial Security: More Than Just The Financial Markets

Financial security is not only about investing correctly, but also the things that are important to long-term capital preservation. The following are some thoughts in this regard and cover both rules of investing as well as rules of capital preservation.

1. Buy low, sell high.

As obvious as this seems it is the one thing that most investors do exactly the opposite of. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. The simple reality is that 100% of your rate of return is determined by when you enter, or leave, the stock market.

2. The price of the stock market is always right.

The only thing that truly matters in investing is the price. If prices are rising – then you are long the market. If they are falling; you are in cash or short. What you ‘think’ the market should be doing at any given time is irrelevant. With all things being equal, the longer you stay on the right side of the stock market, the more money you will make. The longer you stay on the wrong side, the more money you will lose.

3. Every market or stock that goes up will go down and vice versa.

The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as the “trend always changes” rule.

4. Your career provides your wealth.

You most likely will make far more money from your business or profession than from your investments. Only very rarely does someone make a large fortune from investments, and it is generally those that have a business investing wealth for others for a fee or participation. (This even includes Warren Buffett.)

5. Don’t assume you can replace your wealth.

The fact that you earned what you have doesn’t mean that you could earn it again if you lost it. Treat what you have as though you could never earn it again. Never, take chances with your wealth on the assumption that you could get it back.

6. The trend is your friend.

Since the trend is the basis of all profit; understanding both the long and short-term market trends are useful in understanding the risks versus the reward in putting capital at risk. Contrary to the short-term perspective of most investors today, all the big money is made by catching large market moves – not by day trading or short term stock investing.

7. You must let your profits run and cut your losses quickly.

This is the key to investing success. Trading discipline is a necessary condition of investment success. If you do NOT have a highly disciplined approach to trading – you will not make money over the long term.

8. Traditional technical and fundamental analysis alone may NOT enable you to consistently make money in the markets.

Successful market timing is possible but not with the tools and analysis most people employ. The problem with most analysis is it is biased to sell product and, therefore, is optimized, employs data mining, subjectivism, or other such statistical tricks to promote a specific perspective, opinion or objective. Focus on what the data is telling you rather than what you want it to be.

9. The worst thing an investor can do is take a large loss on their position or portfolio.

You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that your starting point is critical in determining your total return, if you buy low, your long-term investment results are irrefutably better than someone who bought high.

10. The most successful investing methods require changes at the margin.

A strong investment discipline requires patience, discipline, and work. However, once a portfolio is built and operational maintenance is a function of changes at the margin. Investing is a long-term process with a view towards changes of trend. Such a portfolio requires very few changes between major trend changes. If you are trading regularly – you are speculating and will eventually wind up losing more money than you made.

11. Don’t use leverage.

When someone goes completely broke, it’s almost always because they used borrowed money. Using margin accounts, or mortgages (for other than your home), puts you at risk of being wiped out during a forced liquidation. If you handle all your investments on a cash basis, it’s virtually impossible to lose everything—no matter what might happen in the world—especially if you follow the other rules given here.

12. Whenever you’re in doubt, it is always better to err on the side of safety.

If you pass up an opportunity to increase your fortune, another one will be along soon enough. But if you lose your life savings just once, you might never get a chance to replace it. Always err on the side of caution. Always ask the question of what CAN go “wrong” rather than focusing on what you “HOPE” will go right.

13. Create a bulletproof portfolio for protection.

A portfolio of low-risk investments, fixed income and a healthy level of cash will ensure that no matter what happens in the markets, or in your life, you will be in a financially sound position to handle it. A portfolio should be able to survive any uncertainty that arises and in today’s world, there are plenty of uncertainties to choose from. It isn’t difficult, or complicated, to build a portfolio that can deliver lower volatility, income, and capital preservation.

It is easy to get sucked into the “hype” particularly at the latest stages of a rampant bull market advance. We all want to be able to under-save today for tomorrow’s needs by hoping the markets will make up the difference. This is the same bit of logic every major pension fund in America has utilized for the last 25-years and are now facing the underfunded consequences of believing the markets will generate 7-8% every single year.

Trust me. I get it.

It’s not too late to start making better choices.

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Last night we showed the dramatic impact Amazon has had on the retail sector, where over $6 billion in retail debt has filed for Chapter 11 protection YTD…

… a 110% surge compared to the first half of 2016, and pointed out that there was one recurring name mentioned among 2017’s bankrupt retailers listed in the chart below: brands such as Gymboree, Payless, rue 21 and the Limited all cited Amazon affect as a contributor to their downfall.

It’s not just the direct casualties of Amazon’s encroachment on the retail sector that are having nightmares about Jeff Bezos’ $500 billion juggernaut, however.

As Bloomberg, which picked up on the topic of Amazon references this morning points out, “it’s It isn’t the chaos in Washington or rising worker pay” that is keeping corporate America up at night: “It’s what Amazon.com Inc. is, or could be, doing to their business models.”

With the expanding online behemoth morphing from a retail category killer to a much broader enterprise that now competes with everything from high-end grocers to technology developers, “America has taken notice – and is increasingly concerned about the competition. So much so that Amazon’s overshadowed the Trump administration’s inability to claim a signature legislative achievement after more than six months in office.”

Bloomberg has quantified this by looking at the last 90 days of earnings calls and other corporate events such as investor days, which reveals a trend: “Amazon comes up a lot. It was mentioned a staggering 635 times over that time frame, while President Trump came up just 162 times and wages were discussed 111… It’s become even more pronounced over the past 30 days, with Amazon garnering 165 mentions compared with 32 for Trump and 22 for wages.”

As Bloomberg adds, the trend holds over the past 12 months, which encompasses the period when Trump pulled off his surprise election victory. Yet, Amazon was mentioned 1,800 times on earnings calls over that span, compared with 1,000 for Trump and 406 for wages.

On the surface this would suggest that while Trump may be taking credit for the market’s upside, corporate America is terrified by Amazon (and not Washington politics, and certainly not Trump) as catalyzing the next move lower, if not for the market, then certainly for thousands of mostly-public US corporations.

Some more from Bloomberg: 

Amazon typically comes up in discussions about efforts to expand into new business lines in a shifting retail landscape. For instance, on the McDonald’s Corp. second-quarter earnings call this month, Chief Executive Officer Steve Easterbrook pointed to Amazon’s purchase of the upscale grocery chain Whole Foods Market Inc. as an example of how rapidly the food industry is being transformed. “It just demonstrates how disruptive the business world is and how quickly it moves,” he said.

So quickly, in fact, the the Washington Post itself – a newspaper owned by Amazon CEO Jeff Bezos – issued a front page article asking “Is Amazon Getting Too Big”, i.e. a monopoly. The answer, remarkable, is as close to yes as a WaPo editorial would be allowed to go:

If Amazon is so small and its growth so benign, she asks, then why does the prospect of Amazon’s entry into a market dramatically drive up its own stock price while driving down those of its rivals? Why, she asks, have so many large and successful bricks-and-mortar retailers been unable to make significant inroads into online retailing while so many small retailers feel they have no choice but to use Amazon’s platform to reach their customers?

 

Antitrust analysis generally assumes dominant firms often exercise their market power by raising prices, but what if Amazon exercises its market power, Khan asks, by squeezing the profit margins of its suppliers? What if its strategy is to keep prices low in markets it dominates to gain entry into new markets that will generate still more sales and profits?

 

How, she asks, can antitrust regulators analyze the structure of a market, and Amazon’s bargaining power in it, when so many of Amazon’s competitors are also its customers or suppliers? Why did Sears stock rise 19 percent on the day that it announced its Kenmore line of appliances would be sold through Amazon? Why do Walmart, Google, Oracle and UPS all consider Amazon their biggest threat?

And if Amazon is not a monopolist, Khan asks, why are financial markets pricing its stock as if it is going to be?

 

“Antitrust enforcers should be . . . concerned about the fact that Amazon increasingly controls the infrastructure of online commerce and the ways it is harnessing this dominance to expand and advantage its new business ventures,” Khan wrote in her law review article.

All good questions, and ones which we are confident, will be asked by Congress, the FTC and the administration in the not too distant future.

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There is no getting away from it: in what has become a long-running tradition, every day brings a new explanation (or at least attempt) to the current low-vol regime from a major bank, and today it was (again) Bank of America’s turn to explain why the VIX, and cross asset vol in general, both continue to trade near all time low.

In a nutshell, BofA, which prefaces the current conundrum as follows: “going into the summer break there are two questions investors seem to be grappling with. What to make of lowflation? And can the low vol regime last?”, the bank attributes the record low vol not to selling of vol – something Morgan Stanely and JPM would disagree with – but the combination of low inflation, stable growth and solid corporate earnings. As the Bank’s James Barty explains, “low volatility and lowflation are linked as the latter keeps central banks quiescent. But it is their combination with strong earnings in 2017 that has led investors to buy dips and keep realised vol so low. It is this, rather than selling of vol, that has dragged implied vol lower.” On the other hand, BofA cautions that “the longer it continues the more the current low vol regime echoes 2004-07,” and everyone remembers how that ended…

BofA also writes that while low vol can continue, the run of no 5%+ pullbacks has to end at some point and we see evidence of rising risks. Michael Hartnett’s Bull Bear indicator, which we noted last week, is close to a sell signal (7.6 vs 8 threshold) “and the potential for a debt ceiling stand-off in September could be another catalyst. Investors should use the low level of vol to protect portfolios.“

* * *

Below we present BofA’s full thoughts on lowflation and the “low vol conundrum“:

Going into the summer break there are two questions investors seem to be grappling with. What to make of lowflation? And can the low vol regime last?

 

Neither was really expected coming into this year and investors are trying to work out what they mean for markets. Inflation has significantly surprised on the downside in the US, with the Fed now acknowledging it is not just down to one off factors. In the Euro Area too our economists are projecting inflation to be around 1% next year. That half of the reflation trade has definitely disappointed, even if the growth half hasn’t. Yet despite (or perhaps because of) that, equity markets have prospered with vol almost non-existent. The VIX has been consistently sub-10 since mid-July and 100 day ealized S&P 500 vol is sub-8. Even Nikkei and SX5E 100 day realized vol is now barely above 11.

 

 

Lowflation may have been a blow to the reflation trade in its purest form but it is good for equity markets if it keeps central banks quiescent. As our derivatives colleagues have noted in vol near 90yr lows; what’s driving it and how long can it last? it is important in keeping vol low, because central banks are not seen to be pulling the put from underneath markets so investors can buy the dip. That dip buying is important in driving low realized vol. Indeed, they argue that implied vol is being pulled lower by low realized vol rather than pushed lower by vol selling.

 

Although some have highlighted the vol selling as a driver behind low vol, it is worth pointing out that, despite the rise of short vol, ETFs’ net vega in ETF products is still net long. Speculative short positions in VIX futures are also highlighted as evidence of ongoing vol selling, and for sure they are at record highs at the moment. Nevertheless, being short futures is the normal state of affairs other than at times of peak market volatility (see chart). So while vol selling might be having a modest downward effect on vol it is unlikely to be the major driver. Rather, we see the mix of stable fundamentals and the still visible effects of unprecedented central bank policy amidst a low growth recovery as driving vol lower.

 

It does though raise the question of how those short vol positions might accentuate any spike in vol in a sell off. There is clearly a risk that it might cause vol to spike higher than it would otherwise do.

 

 

The low level of realized vol weighs on implied vol simply through the effect of the cost of carry of any long vol position. Dip buying because of the central bank put is one theory as to why realized vol is low but to our mind it isn’t the only or even the main reason.

 

Low inflation and supportive central banks have been there all through the periods of outsized volatility over the last few years. Compare, for example, the 2004-7 period with the 2014-17 period; the latter has seen much bigger drawdowns. The real difference this year is that low inflation is being combined with a solid economic upturn and strong earnings growth. Indeed, the chart below shows just how different 2017 is turning out to be on the earnings side compared to any other year since the GFC.

 

 

We link this back to the mid-cycle thesis from our last note. If we are mid-cycle then we can have accelerating growth, robust earnings and low inflation. The latter keeps the central banks gradual in their tightening cycle. Or as Ajay Kapur so succinctly put it in his recent Inquirer: “Hello Goldilocks”.

 

As long as we are in such an environment then volatility is likely to remain low. Indeed, in 2004-2007 we saw such a period of sustained low vol. So perhaps we are exiting a higher vol regime characterized by fragile economic growth and a lack of sustained earnings growth into something more sustainable. Lowflation is important because as long as the central banks move gradually then markets are likely to remain calm as growth will not be choked off.

 

 

 

The charts above look at the different regimes of low inflation, rising or falling earnings and rising or falling inflation. The key conclusion is that vol is lowest when inflation is low and earnings are rising. And tends to be highest when earnings are falling.

 

It does not mean that there will be no vol events, it just likely means that they will prove short lived with investors buying the dip. Indeed, we continue to look for hedges that are low cost to provide protection when we think there are downside risks or markets are overbought, as per our NDX put spreads. One potential near term event is, of course, the debt ceiling brinkmanship in Sep/Oct. We already own NDX put spreads which we roll to October but today we add a collared call in the VIX, selling the 12 strike put to buy the 14-19 call spread, for around zero cost upfront. That just provides us with some protection over that potential standoff, which David Woo, our head of Fixed income and FX strategy thinks could get quite ugly.

 

The other big risk from a vol perspective that David also highlights tensions with North Korea. The issue with geopolitical risks though is how to gauge them and when they might occur. We prefer to hedge such risks with our relative variance positions, long SX5E, NKY, RTY vs SPX which continue to carry broadly flat and which we see as having convexity to the downside.

 

The big threat to the low vol regime outside such events would be when central banks get more aggressive in removing their easing bias. Lowflation has given them all the excuse they need to start to stretch out the likely tightening. In the FOMC statement this week the Fed dropped “somewhat” from the below 2% comment on inflation and Yellen has acknowledged that it is not just down to one off factors. A number of Fed members have noted that should inflation continue to undershoot the Fed’s inflation target that interest rates hikes might have to be deferred. In short, compared to the dot plot, even the Fed is now saying the risks are that they undershoot.

 

 

Similarly for the ECB, Draghi’s reiteration that any moves on rates would only follow the end to QE has prompted our economists to push out their expectation for the first technical rate hike to Q1 2019. They also think the more the Euro rallies the more the ECB is likely to drag things out on the tightening front. We drop our short Dec18 euribor trade in response to those views.

 

We would be a lot more concerned about lowflation if it was being combined with weak growth but that does not seem to be the case. The US data has been patchy but with Q2 GDP coming in at 2.6%, the economy has still expanded by around 2% ytd. Elsewhere, the data remains robust. While European and Japanese PMIs were off their highs, they are still elevated and the IFO survey and Tankan both hit new highs. German business confidence was actually described as “euphoric”. Our GlobalCycle strengthened again in Q2, while our quant team’s Global Wave and Style Cycle continued to post gains, the former for the 14th month in a row.

 

 

Of course there is a risk that if lowflation becomes embedded that central banks may end up in the next downcycle with inflation much lower than they would like. That is, the longer term risk but from our perspective lowflation fits with the view we discussed last month of a global output gap that is still negative, giving the central banks room to keep policy loose. That should be supportive of the ongoing rally in risk assets.

 

For bond markets though it is a different question. In our piece two months ago, we discussed the bond market equity market divide and argued that the one way where bond markets and equity markets could both be right was simply for inflation to remain benign even as growth stayed strong. We described that at the time as a narrow path. We still think that is the case given the very limited tightening priced into the Fed curve in particular, but we have to admit the path does seem to be a little wider than we thought.

 

Our stance has been to be defensive in the US bond market, short 3Y nominal and 10Y real rates, given we believe the biggest threat to our equity market longs is either a Fed scare or a taper tantrum. The latter might well be associated with the unwind of the Fed’s balance sheet, which they confirmed they intend to proceed at the latest FOMC. We are comfortable doing that given we have added a bit more vol protection over a possible debt ceiling standoff.

 

 

So while lowflation and low vol have been unexpected this year they are, in our view, supportive of an ongoing rally in equity markets. Michael Hartnett still warns of the risk of a “big top” in the autumn (another reason we run hedges), but he acknowledges it probably requires more hawkishness from central banks or a top in EPS momentum. With the Q2 earnings season progressing well currently it doesn’t look like the top is here just yet but we are getting closer on some measures. Our Bull Bear indicator which looks at a variety of different positioning and technical indicators has reached 7.6 now just shy of the 8 level which in the past has flagged a risk of a pullback.

 

Indeed, notwithstanding our view that low vol might be here to stay for a while we are conscious that a world where the S&P500 has not had a 5% pullback all year is not sustainable. So we continue to be of the view that investors should use the low level of vol to provide protection against a resumption of more normal market behaviour.

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With only a few hours remaining before the widely-expected Bitcoin network’s SegWit activation and its anticipated fork, there is a bifurcation in the crytpo-world with Bitcoin higher (up 5%) and the rest of the major virtual currencies lower (down 4%). For now, crypto markets seem relatively calm and stable ahead of what was feared to be an extreme volatility moment.

Spot the odd one out…

As CoinTelegraph reports, after falling to below $1,800 in the middle of July, Bitcoin price has recovered to be trading around $2,700 as at the time of writing.

But more significant is the overall market behavior which is expressing relative calmness as price movement are less volatile than is usually experienced in seasons of anticipation.

Iqbal Gandham, UK Managing Director at eToro, on the possible Bitcoin split, comments:

“The surge in pricing we’ve seen since the start of this year has thrown digital cryptocurrencies into the public eye. Bitcoin in particular has been making headlines, as the possibility of it one day becoming a real world currency used throughout the world looks increasingly likely, even if this is a long way off.

 

“But Bitcoin’s sharp increase in popularity has also risked its demise. Demand for Bitcoin has been so high in recent months, that those creating the cryptocurrency can’t keep up, slowing transactions. For Bitcoin to continue to scale and have the potential to become a globally used currency, this slowdown in transactions has to be addressed.

 

“Although the Bitcoin community has now agreed on a process for speeding up transactions – the mystic sounding Segwit – not everyone is happy. Some in the community are threatening a split to create an entirely new cryptocurrency created using a different process, called Bitcoin Cash. Nobody can be sure how this is going to play out over the short term.

 

”Over the long term, regardless of the outcome, it’s clear that blockchain technology can completely remake the world of money, and that in the future, a blockchain powered cryptocurrency, like Bitcoin, will be used by billions of people. This makes for a huge investment opportunity, but naturally one that comes with a few bumps in the road.”

CEO of Never Stop Marketing, Jeremy Epstein thinks that the current market behavior is as a result of the growing confidence of Bitcoiners about the technology as a long term phenomenon. Epstein tells Cointelegraph:

“I think that the reason for a relatively stable market at this time is the fact that more and more people are getting comfortable with the idea of Bitcoin over the long-term.

 

They realize that this is a short-term disruption and it is a feature, not a bug, of the way that the system operates. As a result, people are playing patience and they recognize that the age of decentralization is truly upon us so they can tolerate some of these challenges in the near term.”

CEO of Netcoins, Michael Vogel believes that the relative calm being experienced in the industry ahead of a major decision is due to the outlook of Bitcoin users. Vogel also notes that the actions of the exchanges may be significant in influencing how Bitcoiners perceive the process. He says:

“SegWit activation is largely viewed as positive news for Bitcoin. And although I believe the Bitcoin Cash altcoin fork will be a footnote in the long run, there's less worry among the customers that I've been speaking with.

 

Even if there is a negative effect on BTC price after a fork, one might assume there would be a positive effect on the BCC price (and vice versa). That being said, with most exchanges choosing not to carry BCC, that has given many Bitcoin users the clarity that they've been seeking about the future of Bitcoin.”

As CoinTelegraph conlcudes, Bitcoin as a decentralized technology will undergo several stages of development. Having survived the initial setbacks of its early days, it has grown significantly over the last few years both in volume and market capitalization. With the increasing level of awareness and understanding that is prevalent in the industry, it is safe to assume that in the long term Bitcoin will form a significant part of human existence.

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Authored by Jason Ditz via Anti-War.com,

Sen. Rand Paul (R – KY) has blocked a motion by majority leader Mitch McConnell (R – KY) to advance the 2018 National Defense Authorization Act (NDAA), the massive military spending bill, saying that the bill should instead face debate and possible amendments.

This sets the bill back for 6 weeks, at least.

In particular, Sen. Paul is seeking two amendments, one which ends NDAA authorization for indefinite detention of suspects, and another related to the Authorization for the Use of Military Force (AUMF), something that was added to the House version but later quietly removed by the Speaker.

Paul’s protest is expected to delay the NDAA vote through at least the August recess, meaning a vote is unlikely until September. While this gives plenty of time for amendments to be debated, it’s not clear the Senate leadership will allow that no matter how much time they’re given.

Indeed, Senate Armed Services Committee chairman Sen. John McCain (R – AZ) was critical of any delay on any grounds, insisting the bill and its huge spending increase are a “solemn obligation” for the Senate to pass without delay.

“It is unfortunate that one senator chose to block consideration of a bill our nation needs right now,” McCain said in a statement.

 

“We must uphold our solemn obligation to provide for the common defense and give our men and women in uniform the training, equipment, and resources they need to defend the nation. Our brave service members — many now serving in harm’s way — deserve nothing less.”

Other Senators have repeatedly been angry with Sen. Paul for not getting
their way on bills, but the military spending bill is such a large one
it’s likely to be particularly unpopular to debate, as quietly slipping
it through is the way these things usually go.

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As the mainstream media continues to report 24×7 on their Russian collusion narrative in a shameless attempt to take down a Republican administration without any actual evidence of wrongdoing, the Democrats find themselves embroiled in yet another actual scandal, with actual crimes, where people have actually been arrested by the FBI while actually trying to flee the country…yet shockingly, none of these actual crimes seem to be of any interest at all to traditional media outlets.

Be that as it may, the rather curious case of Imran Awan continues with the latest development coming courtesy of the Daily Caller who notes that Imran was frantically liquidating nearly $2 million in real estate holdings right up until the day has was arrested at Dulles airport.

Imran Awan, a congressional aide arrested by the FBI after wiring $300,000 to Pakistan and misrepresenting the purpose, had previously wired money to the country and was frantically liquidating multiple real estate properties on the day he was arrested, The Daily Caller News Foundation Investigative Group has learned.

 

Imran’s real estate properties provide a source of money that could be sent directly to Pakistan when two upcoming home sales close. Prosecutors have since filed paperwork saying they fear “the dissipation of the proceeds of the fraud and destruction of evidence in other locations.”

 

Imran was arrested July 24 — four months after the FBI says his wife Hina Alvi moved to Pakistan after learning the family was the subject of a criminal investigation into their work as IT administrators for House Democrats. On the day of Imran’s arrest, the couple accepted a buyer for one house owned by Hina with an asking price of $618,000 (Hawkshead Dr.) and listed another property for sale at $200,000 (Pembrook Village), real estate records show.

 

On June 20, a third house his wife owned was “sold” to his brother-in-law for $360,000 (Sprayer St.). In November 2016, a fourth home his wife owned was “sold” to his brother Jamal for $620,000 (Linnett Hill Dr.). In both cases, the bank financed nearly all of the purchase.

 

So why real estate?  As the Daily Caller notes, title companies, unlike individuals, can wire large sums of money to international bank accounts without arousing the suspicions of federal investigators.

Title companies can wire large sums abroad without attracting the suspicion Imran did at the bank, and with Hina — the nominal sole owner of each of the houses — residing in that country, it would be natural to send the proceeds to her.

 

In addition to the three houses sold or slated to be sold since June 20, Imran’s lawyer, Chris Gowen, told The New York Times that the $283,000 wire in January was preceded by other similar transfers to Pakistan. “Gowen said the transfer represented the latest payment by his client for a piece of property he was buying in the country,” The Times reported.

 

Gowen would not tell TheDCNF whether the proceeds of the $360,000 June 20 home sale were wired to Pakistan, nor where the income from the two upcoming sales would go. The office of the U.S. Attorney for the District of Columbia declined to comment on whether it would block the disbursements.

 

The value of the known homes that have been sold since November or are currently being sold is $1.8 million. There is also the $283,000 January wire transfer from the Congressional bank, in addition to previous wires of unknown amounts that Imran’s lawyer acknowledged.

 

Since Imran’s lawyer said the January wire of nearly $300,000 was the latest in a series of wires, the transfers may have been about moving money from the $4 million in House payments or other sources.

As we noted last week, Imran Awan was charged with bank fraud after being picked up by the FBI as Dulles airport while attempted to flee to Pakistan via Qatar.  That said, it is still unclear whether that charge is just a placeholder for other charges that are yet to come. 

While details are scarce, media reports have alleged that Awan and his brothers potentially ran a procurement scheme in which they bought equipment, then overcharged various House members that employed their IT firm.  Meanwhile, some congressional technology aides have alleged that the Awan’s were blackmailing representatives based on the contents of their emails and files, due to the fact that these representatives have displayed unwavering and intense loyalty towards the former aides.

As background, Imran was first employed in 2004 by former Democrat Rep. Robert Wexler (FL) as an “information technology director”, before he began working in Rep. Debbie Wasserman Schultz’s office in 2005.

The family was paid extremely well, with Imran Awan being paid nearly $2 million working as an IT support staffer for House Democrats since 2004. Abid Awan and his wife, Hina Alvi, were each paid more than $1 million working for House Democrats. In total, since 2003, the family has collected nearly $5 million.

In total, Imran’s firm was employed by 31 Democrats in Congress, some of whom held extremely sensitive positions on the House Permanent Select Committee on Intelligence and the House Committee on Foreign Affairs.

Some of the #Democrats who had Pakistani IT workers (currently under investigation) on their payroll. #AwanBrothers https://t.co/XvrJ6H1iW9 http://pic.twitter.com/gVjNkfqWH3

— Nick Short ???????? (@PoliticalShort) May 22, 2017

 

Of course, one of the most intriguing parts of the Awan narrative is precisely why former DNC Chair Debbie Wasserman-Schultz (DWS) decided to keep him on her taxpayer-funded payroll right up until his arrest and whether that decision had anything to do with the whole DNC / Hillary email scandals that erupted last summer.

A preliminary hearing for Awan is scheduled for August 21.

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