Martes 01.09.15 PMI, ISM manufactureros, gasto contruccion

[Fenix]

Recession Odds Surge To 47%, Highest Since 2011
Submitted by Tyler D.
08/31/2015 - 17:59

Assuming that after being wrong for 7 years about everything, economists are actually right about the market still having some discounting abilities left, what then is the market telegraphing? The answer, according to the Bank of America: the biggest surge in recessionary odds since 2011, which over the past few days have nearly hit a 50% probability of an economic slowdown.



When Every Option In The Financial System Is Grounded In Absurdity, It's Time To Look Elsewhere
08/31/2015 16:36 -0400
Submitted by Simon Black


If you’ve ever picked up a copy of The Economist magazine, you’ve probably heard of the Big Mac Index.

This is an interesting tool where a bunch of reporters from around the world are forced to go into McDonalds and find out the price of a Big Mac in local currency.

In Santiago, Chile, for example, a Big Mac runs 2,100 Chilean pesos, which is around $3. Meanwhile the average price for a Big Mac in the United States is $4.79.

This suggests that the US dollar is substantially overvalued against the Chilean peso.

It’s the same story across most of the world. In Russia, a Big Mac costs 107 rubles, which is just over $1.50.

The reason The Economist uses the Big Mac is because it’s basically the same product no matter where you go in the world.

There are some subtle differences, but McDonalds generally serves the same pink foam disguised as beef wherever you go. So in theory it should all cost the same.

When a Big Mac is too cheap or too expensive, this suggests that the currency is either undervalued or overvalued against the US dollar.

Now I’d like to add a new way of comparing currencies: airfare.

As I travel around the world, I often buy what are known as round-the-world tickets (RTW).

RTW tickets are issued by airline alliances like OneWorld or Star Alliance, and they’re typically very cost effective.

RTW is just like it sounds. You fly, for example, from London to Chicago to Shanghai to Dubai and back to London, all for one special fare.

It’s a cheap, easy way to see the world.

But I’ll let you in on a little secret that I’ve picked up over the years: the price of a RTW ticket varies dramatically depending on the city where you start.

As an example, I just researched a OneWorld RTW ticket with the following itinerary:

Los Angeles – Sydney – Bangkok – Hong Kong – Johannesburg – London – Los Angeles.

Six different cities around the world on five continents.

Now, if I start and stop that itinerary in Los Angeles, the price for a business class ticket is $14,164.60.

That’s not a bad price for a business class experience. But if we experiment a little bit, something interesting happens.

Starting and stopping the journey in Los Angeles means that OneWorld prices my ticket in US dollars.

But it’s also possible to fly the same route by shifting the cities. For example, instead of starting/stopping in LA, I can start/stop in Sydney.

So the route becomes Sydney- Bangkok – Hong Kong – Johannesburg – London – Los Angeles – Sydney.

It’s the same flights to the same six cities, I just start/stop in a different place.

Here’s what’s crazy: if I start/stop in Sydney instead, the price changes. Now instead of $14,164.60, it’s $15,272 Australian dollars, which is about $10,900 USD.

So the same six flights now cost you 23% less.

Note that the RTW ticket is always priced in the local currency of the city where you start.

And unlike the Big Mac Index where the results are skewed by the costs of ingredients, property, and labor, here you’re comparing the exact same product.

I did the same with each city on the list, and the most incredible difference came when I started and stopped the trip in Johannesburg.

Johannesburg – London – Los Angeles – Sydney – Bangkok – Hong Kong – Johannesburg.

Flying to the exact same cities, the price is now 81,395 South African Rand.

Based on current exchange rates, this is just barely over $6,000.

In other words, you pay over $14,000 by starting/stopping in LA, and just $6,000 to start/stop in South Africa, even though you’re visiting the exact same six cities on the exact same flights in the exact same business class cabin.

What’s even more amazing is that if you do the exact same itinerary from LA in economy class, the price is $7,545.

So that means that if someone flies from LA, they’ll pay more to fly in coach than someone starting in Johannesburg pays to fly in business.

Clearly, you’d be better off buying a separate ticket to South Africa and beginning your RTW journey from there.

Or you could spend about $200 and get a ticket to Vancouver, and start a RTW from Vancouver, which costs about $10,000 in business class and gives you a $4,000 savings.

Now, I’m not here to tell you about how to save money on airfare (though I hope you give it a try).

The bigger idea is that it’s clear that the US dollar is painfully overvalued against nearly every currency in the world.

Right now the dollar appears to be the “safe” place to put your money. However, this isn’t based on anything.

The fundamentals for the US dollar are terrible, but people keep dumping money into it like trained monkeys simply because nothing else in financial markets makes any sense.

To be clear, I fully expect the dollar to get even stronger as even more trained monkeys pile into US dollar assets.

But it’s important to show that this perception of ‘safety’ is based on a complete myth. Every credible fundamental suggests that the dollar is dangerously overvalued.

In the long run these things tend to equalize, and the dollar’s strength may end up being the biggest bubble of all.

Of course, it raises the question– if not the US dollar, then which currency is the safe haven? The euro is garbage, the Chinese are fighting a depression, Japan is a disaster.

And that’s precisely the point.

When every option in the financial system is grounded in absurdity, the only solution is to start looking for safety outside of it.

[Fenix]

How China Cornered The Fed With Its "Worst Case" Capital Outflow Countdown
Submitted by Tyler D.
08/31/2015 - 19:24

China has just cornered the Fed: not just diplomatically, as observed when China's PBOC clearly demanded that Yellen's Fed not start a rate hiking cycle, but also mechanistically, as can be seen by the acute and sudden selloff across all asset classes in the past 3 weeks. Now Yellen has about 365 days or so to find a solution, one which works not only for the US, but also does not leave China a smoldering rubble of three concurrently burst bubbles. Good luck.



One Theory About Last Monday's ETF Implosion

Submitted by Tyler D.
08/31/2015 13:41 -0400


Earlier today, we noted that BNY Mellon and SunGard were, as of Sunday evening, still attempting to sort out exactly what happened last Monday when suddenly, a system “glitch” caused widespread errors in calculating NAV for some 1,200 ETFs and mutual funds.

For its part, SunGard claims the problem has nothing to do with the flash-crashing mayhem that unfolded across US equity markets last Monday morning and everything to do with a “corruption” that apparently occurred last Saturday when someone tried to do a system upgrade. As we said earlier, “Bank of New York Mellon can’t simply come out and say that broken markets broke its accounting software because that would be to place the blame squarely where it belongs and everyone knows that is a very dangerous thing to do.”

Of course our guess is that in one way or another, broken markets were in fact the culprit here and SunGard’s system “corruption” was just a casualty of the corruption of capital markets in general.

As we said last week, no one will ever know what exactly happened to cause the ETF pricing model to break down but if one had to venture a guess, it might involve “market makers simply walking away or else putting in absurdly low bids in order to avoid getting steamrolled when the constituent stocks came off halt [and/or] ‘liquidity providers’ acting in ways that neither provide liquidity or appear to emanate from human traders, all of which ultimately conspired to cause market orders to hit absurdly low bids, which in turn served to take out stops, and somewhere amid the rampant confusion, Bank of New York Mellon's/ SunGard's platform simply malfunctioned.”

Or something. But who knows. As Themis Trading’s Joe Salluzi put it, all we know for sure is that “something went wrong here. Somewhere along the way, the ETF pricing model was broken today."

One explanation that in many ways mirrors what we said above comes from FactSet’s Director of ETFs Dave Nadig. Here’s what Dave thinks might have happened, although he, like us, realizes that at a certain level this is all just “voodoo tea-leaf reading.”

* * *

From FactSet

So what happened? Let’s go in time series order.

Pre-Opening

On a normal day, the designated market makers at the NYSE fire pre-opening indications of where they intend to start making a market – what their best bid and offer is going to be. Because of the chaos of Friday’s trading, the NYSE opted to invoke the rarely used “Rule 48.” Rule 48 effectively lets the DMMs not tell anyone where things are going to open until they start trading, removing a level of information from the market.

But remember, not every trade has to go through the market maker, and not every trade has to go through the exchange. So before the open, we had bids and asks being put up on Nasdaq in the range of $70.50 to buy and $74.19 to sell – a very wide opening spread – which implies to me that the market makers were either waiting for the dust to settle or very nervous about the opening trade.

The Open

The market opened with an opening cross of some 70k shares at $72.52 on NYSE, right in the middle of that advertised spread and probably close to the fair value as best anyone could guess (chaos was reigning in S&P 500 stocks at the same time, so it’s a bit of guesswork). That opening auction seems to have gone off without a hitch and pretty rationally.

But that’s when things get squirrelly. While technically trades were occurring right from the start, the best bid/ask was from Nasdaq for the first 20 seconds or so of trading and very wide: $59.22 to buy and somewhere between $65 and $75 to sell.

In those opening seconds, roughly 100,000 shares changed hands in very small lots (many under 100 shares, many of a single share) between $74 and $65. That lower boundary trading triggered the first of 10 halts.

The Halts

Between 9:30:28 and 10:30:06, nearly a full hour, trading in RSP only occurred in 15 to 30 second bursts between halts. The current single stock circuit breaker rule is that any move of more than 10% within a five minute window triggers a halt. So trading halted four times on down moves and six times on up moves as it recovered.

So What?

Here’s my interpretation of what happened, recognizing that this is voodoo tea-leaf reading.

1. Market makers stepped away. Market makers are in the business of avoiding risk. When irrational actors are at work (and let’s be clear, anyone selling RSP for half off isn’t being rational), the smartest thing to do, if you’re the actual human being watching RSP trade, is to simply step out for a cup of coffee. That means stubbing out your bid and ask to a point you think nobody will hit.
2. HFT algorithmic trading was a big part of what we saw. I say this for a few reasons. Firstly, no human being trades one share of anything. Second, about half the trades were flagged as intermarket sweep orders (ISOs), the common form of HFT trade which values speed over price. Mom-and-pop investors aren’t flagging their 80 share trades as ISOs, in my experience. Third, someone selling RSP for $50 when it was demonstrably worth $70 is irrational and working against their profit motive. Since I believe human traders generally express their irrationality more subtly, I think this points to broken HFT models that were unloading positions without regard to price or fair value.
3. Sleeping-stops kill. Of course, not every trade was an HFT algorithm. To the extent any “regular” investor was hurt in RSP during the hour of doom, it was likely from a stop-loss order they had sitting on the books. If you had a stop to sell if RSP crossed under $70, say, right after the open, your order became a market order, and you could have been executed anywhere in the line of terrible trades.
4. The market structure worked. I doubt any of these trades will be canceled. They happened in an orderly, logical fashion (just at stupid prices). The invocation of Rule 48 worked, in that the market makers at the NYSE were seemingly able to step out of the way and let the market come in and fill up the book before they had to act and advertise their own prices. The halts did exactly what they were supposed to do. You can complain all you want about what happened, but you can’t claim the system broke.
5. There are still real issues. I’m unconvinced that the current market structure is actually well-suited to this kind of activity. This is a market where information is processed in milliseconds, yet we have five-minute trading halts. This is a market that increasingly thrives on complete transparency, yet the exchange rule for dealing with volatility is to actually remove transparency. This is a market where speed is often valued over price—and we have an entire set of regulations to ensure that’s OK—yet we cry “foul” when speed is actually more important than price. Lastly, if we’re concerned about protecting individual investors, we need better education and controls around the most dangerous tool in the ETF investor’s toolbox: the market order.

* * *

Bonus: consider the above and then consider the following chart from Nanex

[Fenix]

China Takes "10 Steps Back," Slaps 20% Reserve Requirement On Currency Forwards
Submitted by Tyler D.
09/01/2015 07:44 -0400

Overnight, China decided to take steps to reduce "macro financial risks."

And by that they mean "do something quick to help ease pressure on the yuan" and by extension, on the PBoC’s rapidly depleting FX reserves.

To that end, starting October 15 banks will have to hold the equivalent of 20% of clients' FX forward positions with the PBoC, where the money will sit, frozen, for a year, at 0% interest.

Obviously, that will drive up the cost of taking speculative positions which the PBoC hopes will help narrow the gap between onshore and offshore yuan and bring down volatility, although the degree to which this will help fill the CNY-CNH spread looks like an open question.

"It’s a move to ease the reduction in foreign-exchange reserves," Tommy Ong, managing director for treasury and markets at DBS Bank Hong Kong, tells Bloomberg. "It will also remove lots of speculative trades that aim at short-term gains as the reserves have a minimum lock-up period of one year," adds Stan Chart’s Becky Liu.

Here’s a bit of color from FX strategy desks via Bloomberg:

* Andy Ji, Singapore-based currency strategist at CBA:
o This is typical FX control, as it limits the FX forward positions
o PBOC has intervened before in the forward market, but imposing the 20% limit on outstanding forward position will require less intervention effort
o Spread on CNY and CNH may not substantially narrow on this move alone, as global demand on dollar remains high and China economic grow remains slow
* Fiona Lim, Singapore-based senior FX analyst at Maybank:
o This seems to be another move to discourage yuan forward selling and to lower yuan depreciation expectations
o Offshore-onshore yuan gap has been pretty persistent because of yuan depreciation expectations and officials want to narrow the gap
o Gap will be sustained as the economy continues to remain under pressure
* Becky Liu, senior Asia Rates strategist at Standard Chartered:
o Move aims to curb speculative onshore positions, anchor onshore forwards and hopefully eventually also bring down offshore forwards
o This move itself would reduce the need for PBOC to intervene in the onshore market
o Don’t think it will ease reduction in FX reserves; it basically is just making it a lot more costly to long USD in the onshore market

To the extent that the new currency regime ushered in on August 11 represented a "market-oriented" reform - and that characterization, as evidenced by daily FX interventions, is at best questionable - this move "is 10 steps back," one Hong Kong trader told Reuters, a suggestion that this isn't something the IMF will look favorably on when evaluating the yuan's SDR bid.

In any event, the bottom line is that this requirement will cost banks money, which means the cost of trading for clients will rise and that, China hopes, will translate into less pressure on the yuan and will thus help to curb the FX reserve burn. As we've seen with Chinese equity markets, the more draconian the measures the more likely it is that Beijing feels like it's losing control. As Credit Agricole puts it "while the introduction of reserve requirements for CNY forward trading overnight may help ease the selling pressure on the currency, the measure also reflects the fact that the markets did not really respond to the recent official attempts to prop up the CNY verbally." In the end, this doesn't alter any of the dynamics that are causing the depreciation pressure. Rather, it just punishes anyone looking to capitalize off those dynamics. Which we suppose is consistent with Beijing's general approach to dealing with problems.

[Fenix]

Not "Unequivocally Good" - Canada Enters Recession
Submitted by Tyler D.
09/01/2015 - 08:42

It appears low oil prices are not awesome for everyone. For the second quarter in a row, Canadian GDP dropped (-0.5%) pushing America's northern neighbor back into recession. What is ironic is that this was better than the 1% drop that was expected and so CAD is strengthening.




Global Trade In Freefall: South Korea Exports Crash Most Since 2009
Submitted by Tyler D.
09/01/2015 - 08:07

While the market's attention overnight was focused on China's crumbling manufacturing and service PMI, data which was already hinted in the flash PMI reports earlier in August, the real stunner came not from China but from South Korea, which last night reported an unprecedented 14.7% collapse in exports, far worse than the -5.9% consensus estimate, and more than 4 times worse than July's 3.4%. The number is critical because not only do exports account for about half of South Korea's GDP but because it also happens to be the first major exporting country to report monthly trade data. That makes it the perfect barometer of global trade flows, or as the case may be, the canary in the global trade coalmine. It also confirms what we reported just one week ago when we said that "Global Trade Is In Freefall."

[Fenix]

Two-Thirds Of Global PMIs Deteriorate In August
Submitted by Tyler D.
09/01/2015 - 09:06

First the good news: of the 28 global regions that have reported PMIs so far (the US Markit PMI is due later today), 18 posted a print of over 50, or indicating manufacturing expansion.
Now the bad news: more than two-thirds of PMIs in August deteriorated compared to July suggesting that while the global economy is not in a recession yet, absent some dramatic improvement, a global economic contraction is just around the corner.



US Equities Are Crashing Again - Dow Futures Down 430, AAPL -2.75%; NYSE Unleashes Rule 48 (Again)
Submitted by Tyler D.
09/01/2015 - 09:10

*NYSE AND NYSE MKT CASH EQUITIES MARKETS WILL INVOKE RULE 48

US equity futures markets have just pushed to fresh overnight lows, with the last leg down seemingly triggered by the CAD recession print. Let's hope Cramer and Cook have another email up their sleeves as weakness in AAPL is notable - down 2.75% in the pre-market. Lastly, we noted US equities are rapidly catching back down to the XIV-implied lows as the last few days bounce evaporates.

[Fenix]

Gold & Silver Are Jumping On Heavy Volume
Submitted by Tyler D.
09/01/2015 - 09:16

Modest USD weakness combined with significant risk-off across global equity markets (and a strange un-bid to bonds as China unwinds continue to weigh) has sparked heavy volume flows into precious metals this morning.



Russian Military Forces Arrive In Syria, Set Forward Operating Base Near Damascus
Submitted by Tyler D.
09/01/2015 - 09:59

According to Western diplomats, a Russian expeditionary force has already arrived in Syria and set up camp in an Assad-controlled airbase. The base is said to be in area surrounding Damascus, and will serve, for all intents and purposes, as a Russian forward operating base. In the coming weeks thousands of Russian military personnel are set to touch down in Syria, including advisors, instructors, logistics personnel, technical personnel, members of the aerial protection division, and the pilots who will operate the aircraft.

[Fenix]

VIX ETF Surges Above 'Black Monday' Spike Highs, Numerous ETF Flash-Crashes
Submitted by Tyler D.
09/01/2015 09:39 -0400

As Nanex's Eric Hunsader notes "there are numerous mini-flash-crashes in ETFs this morning," as market structure comes under significant pressure. Nowhere is that more obvious than in the VIX complex with VXX spiking above last Monday's highs and XIV collapsing...

VXX (VIX ETF) spikes above last Monday's highs...

Underlying components very weak...

* *LESS THAN 1% OF S&P 500 STOCKS RISING IN EARLY TRADING



Mysterious Buying And Selling By China Distorts Mid-East Oil Price, Baffles Traders
Submitted by Tyler D.
9/01/2015 - 09:30

Two state-owned Chinese oil trading companies (Chinaoil, which is the trading arm of state-run China National Petroleum Corp. and Unipec, which is owned by Sinopec) have been busy monopolizing the Dubai spot market, as a bout of suspicious trading activity between the two has served to distort prices and confuse other traders.

[Fenix]

Peak Construction Spending?
Submitted by Tyler D.
09/01/2015 - 10:55

Construction spending grew at 13.7% YoY in July. It has only grown at a faster pace than that once - at the very peak of the idiocy in Q1 2006. So that got us wondering... how is it that Construction Spending is surging as Lumber Prices are collapsing? (unless homes are now made of Twitter share certficates). The answer is simple - lag... and we have seen this picture before...




Is George Soros Betting On The Long-Term Future Of Coal?
09/01/2015 10:25 -0400
Submitted by Michael McDonald

Perhaps the greatest nightmare for investors in a commodity stock is that the commodity in question goes the way of coal. After more than a century of dominance in the U.S. and abroad, coal appears to have entered into a structural decline. The EIA and others see coal export volumes declining, domestic U.S. demand remaining questionable, and intense competition from natural gas continuing.

A funny thing happened on the way to the graveyard for coal companies though – one of the industries greatest detractors, George Soros, appears to be stepping in as a supporter.

Soros, whose $24 billion fortune is built on successful trading, appears to have purchased several million dollars’ worth of stock in coal producers Peabody and Arch Coal according to filings reviewed by Britain’s The Guardian newspaper. Thermal coal has been hit hard by shifting utility company preferences for other power sources, while metallurgical has been hammered by the downturn in China which has hit demand for steel and other building materials. 2014 was a terrible year for coal producers, and 2015 has not shaped up much better.

All of this leads one to wonder what a savvy trader like Soros sees in coal. There are a few possibilities. First it’s possible that Soros is simply looking for a short-term bounce in beaten down coal stocks that have been left for dead. After all, the stocks of virtually all coal miners now trade for a fraction of what they did only a few years ago, and investors may be overly pessimistic about the short-term outlook in the sector.

Soros could simply be looking to trade on optimism the stocks related to his own investment, or even simply trying to pick the last coal stocks that will be left standing. In particular, news of Soros’ investment immediately led to a surge in the stock price of many coal firms which created an instant paper profit for Soros. It’s possible that the billionaire was simply looking to capitalize on a bounce he expected from the news, and then sell his shares as the news hit. If so, he did well. Given recent prices for the stocks, Soros could have made up to a 100 percent on his investment – perhaps as much as $2 or $3 million dollars.

But for a billionaire like Soros, $2-3M is hardly worth getting excited about. After all, a minimal 5 percent return on his net worth would yield $1.2 billion in a year or about $4.8 million each trading day – why go to any extra work or take on a lot of risk for a paltry couple million in short term gains?

Another more optimistic possibility is that Soros sees value in the companies given their provable reserves, which are on the order of 11 billion tons. In theory, these resources are worth hundreds of billions of dollars. It’s possible that Soros is looking to buy distressed assets for pennies on the dollar and then profit handsomely if coal prices rise in the future due to a combination of bankruptcies in the industry and reduced regulatory pressures. That theory is a possibility – after all 11 billion tons is a lot of coal, and coal prices are at decade-plus lows with futures prices near $50 a tonne. Perhaps Soros thinks coal has a long future ahead and that the magnitude of its issues are overstated. It’s possible prices cannot go much lower.

Therein lies the issue though. With prices at current levels, the assets themselves may not be economical to exploit. In practice, unless the resources can be profitably extracted from the ground, they are worth nothing.

Of course some commentators think Soros is simply covering pre-existing short positions. Given his well-known political leanings, it would not be surprising at all if Soros had shorted coal. If he did, and the purchases in recent months are merely short-covering, then investors may be getting excited about a false signal of optimism from Soros. There is no way to know if this is the case of course, but given the level of volatility in the industry and the risks to the future of the sector as a whole, investors would be wise to make sure any bets in business are well diversified.

[Fenix]

Third Greek Bailout Suddenly In Jeopardy: Creditors Warn Cash May Be Delayed If Elections Don't Go As Desired
Submitted by Tyler D.
09/01/2015 - 11:14

Just when everyone was convinced that the main "risk off" event of the summer, namely the Greek bailout, was safely tucked away and that having abdicated its sovereignty to its creditors and Germany in particular, who now hold the Greek banking system hostage courtesy of draconian capital controls, that Greece would continue to receive its monthly cash allotment just so it could repay creditors from its first two bailouts and would not make headlines for the foreseeable future , Market News just reported that suddenly even the Greek bailout is no longer on autopilot as a result of the upcoming elections in three weeks, whose outcome is anything but assured.



China: Doomed If You Do, Doomed If You Don't
Submitted by Tyler D.
09/01/2015 - 12:26

Doomed if you do, doomed if you don't: trash your currency and watch capital gush out of your economy and financial sector, or support your currency and watch your export sector's sales and profitability crater.

Whichever option China chooses, it loses.

[Fenix]

VIX ETFs Are In Crisis Mode
Submitted by Tyler D.
09/01/2015 13:21 -0400

That's what happens Larry when there are 64 million shares short and only 52.3 million shares outstanding...

VXX (Long VIX ETF) is exploding higher amid the short squeeze...

XIV (Inverse VIX ETF) is reflexively puking to new lows...

And that is dragging stocks lower...

UVXY (Ultra Long VIX ETF) as the ultras come under major pressure...

But VIX is "stable"...

As The VIX term structure remains in backwardation and longer-dated vol at highs...

It appears that steamroller is getting very close to the fingertips picking up nickels...



BofA Saw Record "Buying Across The Board" Last Week, Just Before The Market Resumed Sliding
Submitted by Tyler D.
09/01/2015 - 13:36

Llast week, during which the S&P 500 was up 0.9% as the market rebounded off of Tuesday’s lows, BofAML clients were net buyers of $5.6bn of US stocks—the biggest inflow in our data history (since ’08) following five weeks of selling. The last time flows were close to these levels was during the (less extreme) volatility in early January of this year, as well as following the Tech/Biotech sell-off in early 2014 (see chart below). Net buying last week was broad based—while no client group saw record flows relative to its own history, hedge funds, institutional clients and private clients were all big net buyers which led to record inflows when combined.

[Fenix]

A Layman's Explanation Of The Wall Street Rigged Casino Analogy
Submitted by Tyler D.
09/01/2015 - 13:11

It doesn’t make sense to you. And it shouldn’t to anyone. Unless – they first go directly to the ‘house bar and media entertainment center’ that is always open and always free with spiked Kool-Aid™. It works better and is cheaper than actual liquor. It’s not actually a drink per se. It’s just hoopla and endless propaganda for the masses. That’s why it’s free and encouraged. It keeps everyone happy within the walls and enhances the experience, while simultaneously acting as one non-stop running commercial to entice anyone foolish to think they too can get rich quick. All legal by the way. The laws were adapted to fit the criteria.



Rigor Mortis Of The Robo-Machines
Submitted by Tyler D.
09/01/2015 - 14:30

Call it the rigor mortis of the robo-machines. About 430 days ago the S&P 500 crossed the 1973 mark for the first time - the same point where it settled today. In between there has been endless reflexive thrashing in the trading range highlighted below. As is evident, the stock averages have not “climbed” the proverbial wall of worry; they have jerked and twitched to a series of short-lived new highs, which have now been abandoned. Surely most thinking investors have left the casino by now. So what remains is chart driven trading programs, racing madly up, then down, then back up again - rinsing and repeating with ever more furious intensity.

[Fenix]

ABN Amro Warns There Is A 40% Chance Mario Draghi Expands ECB QE "As Soon As This Week"
Submitted by Tyler D.
09/01/2015 - 14:41

Just two days before the September 3 ECB governing council meeting and press conference, ABN Amro released the genie from the bottle, when its head macro strategist Nick Kounis said the he now sees "a much bigger risk that the ECB will step up QE as soon as this week’s meeting. We see this probability at around 40%, so it is an increasingly close call.



ConocoPhillips Fires 10% Of Global Workforce, Warns Of "Dramatic Downturn" To Oil Industry
Submitted by Tyler D.
09/01/2015 - 15:06

Where the great oil crash hits close to home for most Americans, is when firms such as Houston based ConocoPhillips announce that the E&P giant is about to terminate 10%, or 1,800 people, of its global workforce, in the next several weeks as it copes with low oil prices. "Our industry is undergoing a dramatic downturn, which has caused us to look at our future workforce needs. As we have assessed the implications of lower prices on our business, we’ve made the difficult decision that workforce reductions will be necessary.”

[Fenix]

The Economics Of Bernie Sanders
Submitted by Tyler D.
09/01/2015 - 16:55

If we could put the economics of Bernie Sanders into a nutshell, it would be this: Burden private enterprise with one directive after another, and then demonize it when it ultimately falls down under the awful weight of taxes, higher costs, and mandates. While many people believe that instituting the Sanders economic agenda would help turn the USA into another Sweden or Denmark, the more likely outcome would be turning this country into another Venezuela.



Here's How High Oil Prices Must Climb To Stop Saudi Arabia's Budget Bleed
Submitted by Tyler D.
09/01/2015 - 17:25

Saudi Arabia is staring down a current account-fiscal account outcome that makes Brazil look favorable by comparison. With the fiscal budget deficit projected at some 20% of GDP and two proxy wars combined with the necessity of maintaining the status quo for ordinary Saudis serving to make fiscal retrenchment next to impossible, you might be wondering how high oil prices need to climb in order for the Saudis to plug the gap. Deutsche Bank has the answer.

[Fenix]

The Mark Of A Bear (Market)
on 09/01/2015 15:35 -0400
Submitted by Lance Roberts

In this past weekend's missive "Market Bounces, Now Execute Sells," the long consolidation process that began early this year finally resolved itself. Unfortunately, the resolution was to the downside as market stresses from China, the threat of rising interest rates and ongoing economic weakness finally overwhelmed the seemingly impervious bullish sentiment.

While the now "official correction" was not a surprise, and is something I warned of repeatedly over the last several months, it is possible that this is more than just a "buy the dip" opportunity. As I stated last Tuesday:

"Is this something more than just a simple correction? The honest answer is that no one really knows. The bulls are "hoping" that the worst is over and that the current bull market will resume its upward trend. However, there is ample evidence suggesting that something else may be afoot from slowing domestic and international growth, collapsing commodities and falling inflationary pressures."

But the underlying fundamental and economic data have been weak for some time, yet the market continued its unabated rise. The Bulls have remained firmly in charge of the markets as the reach for returns exceeded the grasp of the underlying risk. It now seems that has changed. For the first time since 2007, as we see initial markings of a potential bear market cycle.

The first chart below shows the long-term trend of the market

SP500-Technical-090115

The bottom part of the chart is the most important. For the first time since 2000 or 2007, the market has now registered a momentum based "sell" signal. Importantly, this is a very different reading that what was seen during the 2010 and 2011 "corrections" and suggests the current correction may be more significant.

The chart above is also confirmed by numerous other indications that also support the "mark of the bear."

SP500-Technical-090115-5

Importantly, notice that during the 2010 and 2011 corrections, which were ultimately halted by rapid interventions by the Federal Reserve, "sell signals" were never triggered. Currently, those signals have been triggered at levels that have only been witnessed during more severe bear market corrections.
Fed To The Rescue?

The problem for the Federal Reserve is the negative economic impact from a loss of confidence and decline in the "wealth effect" resulting from a significant market decline. During the previous two episodes where shorter-term indicators signaled investor caution, it was shortly met by Central Banker's interventions to stem a more pervasive decline. In 2010, then Fed Chairman Ben Bernanke stated the Fed's goal of using monetary policy to inflate assets prices to spur consumer confidence. With the market once again triggering an important "sell signal" will the Fed opt to move forward with a further tightening monetary policy? Or, are we on the verge of the next intervention?

SP500-Technical-090115-2
Important Numbers To Watch

In my earlier missive "Previous Warnings," I detailed some very important levels for investors to watch for.

"What is critically important is that the market rebounds, and holds, above 2026 by the end of this week to keep the bull market advance alive. A failure will likely lead to a test of the long-term moving average at 1825 or a 14% decline from the peak. However, such a decline from current levels, and at this late stage of the cyclical bull rally, would likely blossom into a full-fledged bear market of 20% or more. In other words, if the market fails to hold support at 1825, the decline will be substantially worse as witnessed in both 2000 and 2008."

SP500-Technical-090115-3

The markets did rebound last week, as expected, but failed to follow through this week. The current decline sets the market up for a retest of the recent lows at 1867. Critically, a failure to hold those lows will not only break the bullish trend that started in 2009, but will likely create a "rush to sell" that could drive markets to substantially lower levels.

SP500-Technical-090115-6

The risk of such a decline, as stated previously, is at some point the erosion of portfolio collateralization will reach levels that "margin calls" become a substantial risk.

"While 'this time could certainly be different,' the reality is that leverage of this magnitude is 'gasoline waiting on a match.' When an event eventually occurs, that creates a rush to sell in the markets, the decline in prices will reach a point that triggers an initial round of margin calls. Since margin debt is a function of the value of the underlying "collateral," the forced sale of assets will reduce the value of the collateral further triggering further margin calls. Those margin calls will trigger more selling forcing more margin calls, so forth and so on."

It is at those levels that the "wheels come off the cart" leaving investors little opportunity to exit the markets.
What If I'm Wrong

Could I be wrong? Absolutely. With Central Banks globally "at the ready," there is a real possibility that markets could be surprised by what happens next. I think there is a greater than even chance that the Federal Reserve balks at raising rates in September, and mentions remaining accommodative for as long as necessary, sending the markets into recovery mode.

If the market should re-establish its bullish trajectory, it will simply be a function of re-allocating risk back into portfolios at that time.

Yes, you will miss a small portion of the recovery, but such a "miss" will be far less of a consequence than a potential 20-30% correction if the markets fail.

Remember, our job as investors is NOT to try and beat some random benchmark index, but to grow our savings in a manner that conserves our principal over time.

The reality is that the majority of investors are ill-prepared for an impact event to occur. This is particularly the case in late-stage bull market cycles where complacency runs high. As Dr. John Hussman concluded recently:

"If you're taking more equity risk than you can actually tolerate if the market goes south, setting your portfolio right isn't a market call - it's just sound financial planning. It's only fun to be reckless if you also turn out to be lucky. Market conditions are now more hostile than at any time since the 2007 peak. If you want to be speculating, and you can tolerate the outcome, then you're not taking too much equity risk in the first place. But it's one or the other. Can you tolerate a 40-55% market loss over the next 18 months or so? If not, take this opportunity to set things right. That's not the worst-case scenario under present conditions; it's actually the run-of-the-mill historical expectation."

The discussion of why "this time is not like the last time" is largely irrelevant. Whatever gains that investors have garnered during the recent bull market advance will be wiped away in a swift and brutal downdraft. However, this is the sad history of individual investors in the financial markets as they are always "told to buy" but never "when to sell."

You can do better.

[Fenix]

How To Trade Quantitative Tightening, According To Deutsche Bank

Submitted by Tyler D.
09/01/2015 18:25 -0400

Last week, the world was introduced to what Deutsche Bank has branded "quantitative tightening" or, in layman’s terms, "reverse QE."

In short, what began late last year with the death of the petrodollar and culminated last month with China’s massive UST liquidation can be broadly conceptualized as the end of the great EM USD asset accumulation or, put differently, as the (black?) swan song for the era of emerging market FX reserve hoarding that has for years served as a source of liquidity for global markets and kept a bid under assets like USTs.

We - as well as Citi, SocGen, and now Deutsche Bank - have endeavored to speculate on what hundreds of billions (if not trillions) in EM FX reserve liquidation may mean for UST yields (see here, for instance), but if you’re looking for other ways to trade QT, Deutsche Bank has another idea and on that note we present the following graphs along and commentary from DB, with the caveat that one should always beware of mistaking correlation for causation.

From Deutsche Bank:

The fact that two thirds of global reserves are held in dollars means that a sell-off should be bullish USD against other reserve currencies. This is because as central banks prop up their currencies against the dollar, they also sell other reserve currencies against the USD so as to keep their FX allocations constant. Indeed, fluctuations in EUR/USD are tightly correlated with changes in global reserves (Figure 25), though this correlation naturally captures causality in both directions.