Tag: finance

High yield energy credit markets are in trouble again, with risk now at its highest level in 7 months.

Despite this morning’s Iran-hyped OPEC bullshit and a small draw in Gasoline, it appears the reality of surging US shale production and lagging demand is weighing down oil (and gasoline) markets…

Macquarie’s head ofoil & gas research warns…

• ‘A WHILE’ BEFORE OPEC TAKES BACK CONTROL OF MARKET
• ‘HUGE WAVE’ OF U.S. SHALE OFFSETTING OPEC CUTS

Brent crude extends drop falling below $45/bbl for the first time since November 15.

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Last night, in CNN and Anderson Cooper’s effort to desperately avoid discussing the Democratic debacle unfolding in Georgia, Cooper decided to pivot his discussion with former New York City Mayor Michael Bloomberg to focus on the 2020 election cycle.  We can only imagine the thought process: ‘ignore Georgia, surely there must be some silver lining for Democrats if we just look far enough out on the horizon, right Mike?’

Unfortunately, Bloomberg didn’t offer up the reassurances that Cooper, and his employer, were so desperately seeking.  Instead, he pegged Trump’s re-election odds at 55% and predicted the entire Democratic party would be in complete disarray by the time the next election cycle rolls around.

Cooper:  “I think recently you gave the chance that Trump would be re-elected of 55%.”

 

Bloomberg:  “Yeah, sure.  The incumbent always has an advantage.”

 

“And the Democratic Party is going to be torn apart by the left and the centralists.”

Of course, after Wikileaks’ DNC leaks exposed the complete corruption of the DNC, which went to great lengths to undermine the candidacy of Bernie Sanders, the real question isn’t whether the Democratic party will suffer the consequences of a deeply divided electorate, but rather why that division hasn’t already manifested itself in the form of a deep party restructuring.

But the trainwreck, at least for CNN, didn’t end there.  Asked why Hillary lost, Bloomberg seemingly had two explanations: 1) Republicans are dumb and got duped by a catchy slogan and 2) the media, “given that it is mostly Democratic” should have done even more to help Hillary.

“Hillary never got a real message out.”

 

“Whereas Donald had a great saying: ‘Make America Great Again.’ I don’t know what ‘Again’ means, but ‘America’, that’s patriotic and great…that’s a good word.”

 

“Slogans matter.  You don’t think that’s what your decision’s based on but it predisposes you to really want to do something.”

 

“And I never understood, given that most of the media is Democratic, why Hillary couldn’t find someone to give her a good tag line.”

Guess Mayor Bloomberg is done pretending that the mainstream media bias is a ‘right-wing myth.’

via http://ift.tt/2ttoOo1 Tyler Durden

Authored by Michael Snyder via The Economic Collapse blog,

Do you have an emergency fund?  If you even have one penny in emergency savings, you are already ahead of about one-fourth of the country.

I write about this stuff all the time, but it always astounds me how many Americans are literally living on the edge financially.  Back in 2008 when the economy tanked and millions of people lost their jobs, large numbers of Americans suddenly couldn’t pay their bills because they were living paycheck to paycheck.  Now the stage is set for it to happen again.  Another major recession is going to happen at some point, and when it does millions of people are going to get blindsided by it.

Despite all of our emphasis on education, we never seem to teach our young people how to handle money.  But this is one of the most basic skills that everyone needs.  Personally, I went through high school, college and law school without ever being taught about the dangers of going into debt or the importance of saving money.

If you are ever going to build any wealth, you have got to spend less than you earn.  That is just basic common sense.  Unfortunately, nearly one out of every four Americans does not have even a single penny in emergency savings…

Bankrate’s newly released June Financial Security Index survey indicates that 24 percent of Americans have not saved any money at all for their emergency funds.

 

This is despite experts recommending that people strive for a savings cushion equivalent to the amount needed to cover three to six months’ worth of expenses.

For years, I have been telling my readers that at a minimum they need to have an emergency fund that can cover at least six months of expenses.  It is great to have more than that, but everyone should strive to have at least a six month cushion.

Unfortunately, that same Bankrate survey found that only 31 percent of Americans actually have such a cushion…

The June survey also found that 31 percent of Americans have what Bankrate considers an ‘adequate’ savings cushion — six or more months’ worth of money to pay expenses — which means that nearly two-thirds of the country isn’t saving enough money.

That means that a whopping 69 percent of all Americans do not have an adequate emergency fund.

So what is going to happen if another great crisis arrives and millions of people suddenly lose their jobs?

Just like last time, mortgage defaults will start soaring and countless numbers of families will lose their homes.

If you do not have anything to fall back on, you can lose your spot in the middle class really fast.  And in the case of a truly catastrophic national crisis, trying to operate without any money at all is going to be exceedingly challenging.

Just recently, the Federal Reserve conducted a survey that discovered that 44 percent of all Americans do not even have enough money “to cover an unexpected $400 expense”.

That is almost half the country.

And a different survey by CareerBuilder found that 75 percent of all Americans have lived paycheck to paycheck “at least some of the time”.

Unfortunately, in a desperate attempt to make ends meet many of us continue to pile up more and more debt.  According to Moneyish, Americans have now accumulated more than a trillion dollars of credit card debt, more than a trillion dollars of student loan debt, and more than a trillion dollars of auto loan debt.

We’ve racked up $1 trillion in credit card debt — and that’s just a fraction of what we owe. That’s according to data released this year from the Federal Reserve, which found that U.S. consumers owe $1.0004 trillion on their cards, up 6.2% from a year ago; this is the highest amount owed since January 2009. What’s more, this isn’t the only consumer debt to top $1 trillion. We now also owe more than $1 trillion for our cars, and for our student loans, the data showed.

Overall, U.S. consumers are now more than 12 trillion dollars in debt.

We often criticize the federal government for being nearly 20 trillion dollars in debt.  And that criticism is definitely valid.  What we are doing to future generations of Americans is beyond criminal.

But are we not doing something similar to ourselves?

When you divide the total amount of consumer debt by the size of the U.S. population, it breaks down to roughly $40,000 for every man, woman and child in our country.

When someone lends you money, you have to pay back more than you originally borrow.  And in the case of high interest debt, you can end up paying back several times what you originally borrowed.

If you carry a balance from month to month on a high interest credit card, it is absolutely crippling you financially.  But many Americans don’t understand this.  Instead, they just keep sending off the “minimum payment” every month because that is the easiest thing to do.

If you ever want to achieve financial freedom, you have got to get rid of your toxic debts.  There are some forms of low interest debt, such as mortgage debt, that are not going to financially cripple you.  But anything with a high rate of interest you will want to pay off as soon as possible.

And everyone needs a financial cushion.  Unless you can guarantee that your life is always going to go super smoothly and you are never going to have any problems, you need an emergency fund to fall back on.

Yes, you may need to make some sacrifices in order to make that happen.  Nobody ever said that it would be easy.  But just about everyone has somewhere that a little “belt tightening” can be done, and in the long-term it will be worth it.

When you don’t have to constantly worry about how you are going to pay the bills next month, it will help you sleep a lot easier at night.  Many of us have put a lot of unnecessary stress on ourselves by spending money that we didn’t have for things that we really didn’t need.

And now is the time to get your financial house in order, because it appears that another major economic downturn is not too far away.

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

Bio-tech used to be an upside leader over the broad market coming off the 2009 lows. Bio-tech gave up its leadership back in 2015, where it peaked and started under performing the broad market. Over the past 15-months, Biotech has started acting a little better.

Below looks at Bio-tech ETF XBI and updates the pattern is has been forming of late.

CLICK ON CHART TO ENLARGE

Bio-tech ETF XBI is in an uptrend since the lows in early 2016. Of late it looks to have formed a bullish ascending triangle and is working on a breakout at (1).

We highlighted two overheadtests that could become potential resistance zones that could become overhead tests.

 

This information is coming to you from Kimble Charting Solutions.  Home of the Power of the Pattern where we provide Concise, Timely and Actionable chart pattern analysis and commentary so in very little time you know the pattern at hand and action to take 

Send us an email if you would like to see a sample or trial to our research

 

Website: KIMBLECHARTINGSOLUTIONS.COM

 

Questions: Email services@kimblechartingsolutions.com or call us toll free 877-721-7217 international 714-941-9381

 

 

 

 

 

 

 

 

 

 

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One month ago, unleashing the latest series of warnings that the current period of low volatility will not have a very unhappy ending, came from Bank of America, which said that “These Markets Are Very Weird.” A few weeks later, JPM’ Marko Kolanovic warned that complacency will end in “catastrophic losses” for short vol strategies followed promptly by Deutsche Bank’s Aleksandar Kocic who demonstrated that there is no scarcity of scary adjectives when he likewise warned that the current period of market “metastability” will showed lead to “cataclysmic events.” Now it’s Goldman’s turn.

In a note by Goldman’s Christian Glissman seeking to explain “The upside of boring – risks and asset allocation in low volatility regimes”, the vol strategist joins the bandwagon and writes that while “low volatility periods do not have to end in tears, they often do.” His explanation:

Volatility tends to cluster and is often low for a good reason – this indicates investors should add risk during those periods. However, a prolonged low vol period can also eventually result in excessive risk  taking and latent risks from elevated valuations. But moving out of a low vol period does not have to come with a material ‘risk off’, at least initially. Usually volatility tends to spike and equities settle into a higher volatility regime first (Exhibit 37) and the average drawdown is less than 5%.

 

Markets often enter a higher vol regime before there are larger equity corrections, usually 6-24 months later (Exhibit 38). This suggests a more gradual risk reduction as markets shift into a more persistent higher volatility regime as the macro backdrop worsens. Currently, we see little recession risk in the next 12 months although growth momentum may have peaked and the US economy is moving more late cycle.

So if not a recession, what could unleash more images of traders with hands on their faces? Here Goldman channels the latest note by Matt King, and says that the “bigger risk could prove to be central bank tightening, which could drive more volatility in the near term, especially owing to the elevated uncertainty around the balance sheet runoff by the Fed and ECB.”

Further, volatility can spike due to unexpected shocks and tail events – with higher vol of vol risk, running increased cash allocations and some tail risk protection appears sensible. This is particularly true as valuations across risky assets remain high, resulting in poor asymmetry for LT returns.

The shift from a low volatility regime to a higher is shown below:

There are other dangers too, for example low volatility masking correlation risk in multi-asset portfolios.

In multi-asset portfolios, investors might face further risk based on the premise of diversification. Absolute cross-asset correlations tend to increase with higher volatility (Exhibit 39). This is especially a risk for risk parity funds and volatility target funds which often increase risk based on volatility by asset class and on a portfolio level. Since the 1990s bonds have provided hedges for equities in periods of higher volatility, allowing multi-asset investors to run higher risk/leverage levels. But right now, as both bonds and equities appear expensive, bonds may be less good hedges for equities in drawdowns, and there is the potential for negative rate shocks to weigh on equities, as central banks tighten policy. Commodities have helped in high inflation periods like the 1970s but they have been more a source of risk recently, with large oil price declines and still-low inflation.

So why not just go long vol? Well, in a world of BTFD the theta is simply far too great. The result: everyone is shorting vol instead, even though “Short vol strategies are becoming riskier.” For more on this, see the latest Kolanovic note.

Unsurprisingly, short vol strategies tend to very profitable in low vol periods, while being long vol tends to be costly. Exhibit 41 shows that being long vol through the VXX (long shorter-dated VIX future ETF) has been very costly since 2011 – the VXX is down 99% since then. It is not just low realised S&P 500 vol but also the contango in the VIX futures curve (in-line steep equity vol curves) that creates a painful rolldown, even if volatility is unchanged (see Navigating the VIX ETP market, April 25, 2017). VIX options can be a better way to position for a rise in the VIX.

 

As the VIX spikes revert rapidly, it has also been particularly difficult to capture ‘risk off’ episodes through a long VIX future position recently. On the flipside, this has made short vol a popular (and profitable) carry trade; for example, the XIV (short shorter-dated VIX future ETF) has nearly tripled since the beginning of last year. As a result, the net and outright short position in VIX futures is at all-time highs. But the risk of short vol strategies in most markets is clearly rising. For example on May 17, 2017, following to the VIX spike due to concerns on the impeachment of President Trump, the XIV was down 18%.

Taking all of the above, Goldman’s advice: go to cash, and reduce risk.

This further strengthens the case for increased cash allocations and also for broader diversification. Alternatives such as real estate and private equity can help, although they often introduce liquidity risk in the portfolio and also carry equity and duration risk. Generally, a more momentum-based investment approach can help manage risk-adjusted returns in periods of rising volatility – with declining momentum in risky assets in low vol periods, we believe investors should further reduce risk.

One last chart: according to Goldman calculations, 1-month S&P500 realized vol now finds itself in the 0%th percentile. It has never been lower.

via http://ift.tt/2sQrX3s Tyler Durden

$1247 gets you $1220, but above  $1214 and the $1550 target is still in play

via Soren K. Group for Marketslant

It should be noted that we are concerned that Gold under $1247 gets us to $1220. But the wave count we have been following says that a sell-off above $1214 still keep it intact. It is just hard for us to buy dips on short term trades. We’d rather buy a bounce off the lows. But as long as Gold remains above $1214 both the wave  count and our own feel corroborate each  other. It is just a matter of a person’s time frame.

Chart HERE

The only other thing we can  add to the excellent analysis below is that there is now a double  bottom on the 30 minute chart. That is something we like to buy with a stop out right below that level for a bounce swing trade in a bearish mindset. it would be nice if what we see as a swing trade  is in fact really a bottom as Enda says it could be.- Fay Dress writing for SKG

GOLD bullish at 3 degrees of trend

via Enda Glynn and Bullwaves.org

My Bias: Long towards 1550
Wave Structure: ZigZag correction to the upside.
Long term wave count: Topping in wave (B) at 1550
Important risk events: USD: Existing Home Sales, Crude Oil Inventories. 

Downside momentum in GOLD has now flatlined after todays sideways action.
Wave ‘ii’ brown is now likely complete at the lows of the day of 1241.23.

Remember this market has now completed a rally and decline to higher lows at three degrees of trend over the last six months.
I believe we are now on the cusp of a serious acceleration higher in the GOLD price.

The momentum situation is very bullish again on all three charts.
And this setup coupled with the bullish wave count
should make even the most skeptical onlooker sit up and take notice.

Wave ‘iii’ brown will begin with a break of 1259.09 and a correction to a higher low.
I have shown that possible rise as waves ‘1’ and ‘2’ pink.

For tomorrow;
Look for signs of a turn higher,
And an Elliott wave buy signal off the lows.

30 min

4 Hours

Daily

More analysis at Bullwaves.org

Previously:

• MYSTERY SOLVED? GOLD OVER $1214 GIVES $1550 AS TARGET
• Project $1550 Gold: Buy Dips Above $1248
• Why Gold is Up and Why $1550 is Still The Target.

via http://ift.tt/2tOj7jW Vince Lanci

Illinois is teetering on the edge of bankruptcy.

Illinois Governor Bruce Rauner said this month:

We’re like a banana republic ….

 

We can’t manage our money.

Well, yes … all of America has become a banana republic.

via http://ift.tt/2tOlKCq George Washington

Russia’s deputy foreign minister Sergey Ryabkov cancelled an upcoming meeting with the US Under Secretary of State for Political Affairs Thomas A. Shannon, Jr., according to AP, in retaliation to the Trump administration’s announcement on Tuesday that it has imposed sanctions on 38 Russian individuals and firms over Russian activities in Ukraine.

Ryabkov said that “the situation is not conducive to holding a round of this dialogue” that was scheduled for Friday and criticized the U.S. for “not having offered and not offering anything specific” to discuss.

“We have said from the very beginning of Washington’s exceptionally destructive policy in regard to applying anti-Russia sanctions, that [such measures] will not and cannot have an effect desired by the US on our individuals or entities,” Ryabkov told  RIA Novosti Tuesday.

The decision to widen the list came as President Trump met with Ukrainian President Petro Poroshenko at the White House.

Shannon, who is currently meeting with United Kingdom officials in London, was set to meet with Ryabkov in St. Petersburg on Friday.

Earlier on Wednesday, the Kremlin said it regrets the new U.S. sanctions against Russia and warned of possible retaliation. Vladimir Putin’s spokesman Dmitry Peskov said that the U.S. move wasn’t constructive, adding that “various options are being considered on expert level.”

Russia also said the new U.S. sanctions continue the “destructive trend” set by Obama administration.

On Tuesday, the Trump administration announced it has imposed additional sanctions on 38 Russian individuals and firms over Russian activities in Ukraine. Treasury Secretary Steven Mnuchin said that the penalties are designed to “maintain pressure on Russia to work toward a diplomatic solution.” However, overnight Democrats were furious after House Republicans stalled the recently passed broader Senate bill expanding sanctions on Russia further – and which led to loud protests by European allies over potential fines over use of the Nord Stream 2 gas pipeline – stating the bill violated the origination clause of the Constitution.

via http://ift.tt/2sQe2KG Tyler Durden

As we have pointed out numerous times, Goldman notes that elevated US policy uncertainty and geopolitical risk indicate heightened risk of more frequent political and geopolitical tail events, in the form of both ‘known unknowns’ or ‘unknown unknowns’…

 

And given the extreme complacency in markets, Goldman suggests the following trade as a clean way to play that concept of reality emerging into market pricing once again…

Which equity option strategies work in low volatility markets?

While systematic call overwriting usually helps improve asymmetry of equity returns, in low-volatility periods with markets trending up slowly, such as in 2014 and right now, overwriting becomes a drag on returns. This points to cash extraction, i.e., replacing existing equity positions with ATM calls. Also, buying OTM puts seldom pays off given that low volatility periods can last and 1-month drawdowns are often not large and long enough to move into the money. Even in cases when the market fell the most from low levels of volatility, it rarely fell more than 5% in the subsequent month. Hedging with OTM puts mainly pays when moving into a higher vol regime, which is when the market tends to have larger and more prolonged drawdowns – on average buying puts was a drag on returns in low vol periods. Collars (long OTM puts funded by calls) can reduce the negative carry, but again they are most likely to work in larger equity drawdowns that occur in high vol regimes.

Steep vol term structures point to very short- or long-dated calls

Volatility term structures are very steep right now (Exhibit 49), which is common in low vol periods when short-dated vol is pulled down by low realised and longer-dated reflects medium-term concerns about higher vol. In part, they also reflect elevated policy uncertainty.

As a result, investors should focus on shorter-dated options (1-month) or longer-dated (2-year+) to mitigate the negative rolldown.

To manage equity drawdown risk, we particularly like longer-dated call options for multi-asset portfolios – in Europe and Japan, where option premia are low due to low forward prices and long-dated vol is anchored due to structured product flows. Along a similar vein, convertible bonds are an asset class that tends to become more attractive in low vol periods due to their embedded longer-dated equity options and comparably low duration risk.

Elevated skew points to put spreads

For the S&P 500, skew (the cost of puts vs. calls) is close to all-time highs.

This reflects in part more restrictive regulation for banks but it could also again reflect the increased policy and geopolitical uncertainty, coupled with the US moving more late cycle. For EURO STOXX 50, skew has also increased sharply recently. However, this makes puts more expensive.

We like put spreads to protect from tail events and from an end to the current low vol period and a shift towards higher volatility regime – a S&P 500 97-93% put spread would currently offer a 25x payout in the event of a 7% drawdown.

Owing to volatility clustering, ex ante the probability of a 93-97% put spread having a positive payoff from current low levels is relatively low (c.5%). But we think it is an attractive, low cost tail risk hedge for a multi-asset portfolio at this stage, before moving into a more persistent high vol regime. The last time 97-93% put spreads were priced as low was in 2007 and 2014.

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

Authored by Craig Wilson via The Daily Reckoning,

Jim Rickards joined Boom Bust and host Lindsay France to discuss the latest monetary policy moves from the Federal Reserve.

While the interview was held prior to the Federal Reserve’s quarter point hike to interest rates, all of the core items covered are even more relevant now. To dive further, Jim Rickards explains the real reason the Fed raised rates and what he thought was next for the Fed and the market.

The Boom Bust host began by asking what he was looking at for reaction to the Fed. The economist remarked,

“It was already priced into the markets. What the market is really looking for is some guidance from the Fed about balance sheet normalization. Before the last financial crisis the balance sheet was about $800 billion. They’ve taken it to $4.5 trillion which is how much money the Fed has printed in the last eight years. They now want to normalize that and get it back down.”

 

“The reason they’re doing both… raising rates and the reason they’re normalizing the balance sheet is because they’re getting ready for the next recession. Research shows that you’ve got to lower interest rates about 3% to get out of a recession.”

Fed Hikes and Recession

Then, to show complexity to the monetary measurements Rickards urged, “But what if a recession happens next month or even next year? This expansion is one of the longest in history. A recession will come sooner than later.”

“How is the Fed going to get us out of a recession if interest rates are only 1%. They’ve got two missions. One is get them up to 3 or 3.5% – at the rate they’re going it may take to 2019. They may not make it that far before the recession hits. If you’re only 1 or 1.5% and the recession hits causing you to lower it to lower to zero, the other thing you can do is QE4 and expand the balance sheet. You’ve got to reduce the balance sheet before you can expand it.”

 

“They’re getting ready for the next recession… but the economy is looking extremely weak right now and we might even be in recession by the summer. The Fed might even cause the recession they’re preparing to cure. That’s what you get for eight years of manipulation."

When asked what about the Fed acknowledging weakness on inflation, Rickards responded, “Here’s the Fed model. They’re on track to raise rates four times a year by 25 basis points each time. Every March, June, September and December between now and the middle of 2019 they will raise rates until they hit the 3 or 3.5% target.”

Rickards then warned the only way such moves would be stopped was,

“One of three factors come into play that would cause it to pause. One is, if you see job creation drop below 75,000 per month…”

 

“The second one is disinflation. The Fed has a target called personal consumption expenditures (PCE) that excludes energy and food prices. They want that at 2% but it is dropping where it hit 1.6 in March. 1.5% in April and looks like it is going the wrong way. It is not going down fast and far enough to stop [the Fed raising] in September.”

 

“The third factor is a disorderly decline in the stock market. Not a normal decline, the stock market can go down 10% over four or five months and the Fed could care less. If it goes down 7 or 8% over two weeks, the way it did in August 2015 or January 2016 that could cause them to pause.”

Giving investors a greater understanding for the Fed and rate hikes he highlighted, “If you don’t see one of those pause factors expect them to raise rates.”

The Fed, Trump and Monetary Policy

When prompted on President Trump’s thoughts on low interest rates and Federal Reserve Chair Yellen, Rickards’ was asked about Trump’s policy toward the Fed. Rickards narrowed in, “Trump has no consistency. I think he is an interesting figure… The point is, you never know what Trump is going to do next. I would note to watch what he does and not what he says.”

Speaking in terms of the administration and what to expect from the White House on appointments to the Fed, Rickards provided, “They’ve leaked some nominations for some of the vacancies on the Fed. One is Professor Goodfriend who has indicated he’d like a more rule based approach [to monetary policy].”

“[That is] talking about the taylor rule or something like it, that says that interest rates should be 2 or 2.5% now. It indicates [Trump] is looking to put ‘hard money’ people on the Board of the Fed even though he’s noted he likes ‘easy money’ policy.”

 

“I think that these appointees will continue the path that Yellen is on. The problem with Yellen and the appointees, whoever Trump puts on, is that the Fed is tightening into weakness. They haven’t done that since 1937.”

Giving a historic context to his proof points the currency and central bank expert reminded, “Normally you tighten when the economy is really strong, unemployment goes down. The Fed never leads the market, they always follow the market… Here we are in a situation where the economy is cooling down.”

Leaving with a sober warning Rickards’ highlighted that, “Retail sales are down, auto sales are down, labor force participation is down, job creation is down and we have disinflation. Those are lots of reasons to believe the economy is slowing.”

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