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What Is Your Trading Battle Rhythm?

What Is Your Trading Battle Rhythm?

In a recent Forbes article, a special operations leader made use of the term “battle rhythm”.  His point was that businesses tend to operate on cycles of observing, planning, and implementing that are too slow for the business landscape.  SEAL teams have to work with rapid battle rhythms, as the battlefield is ever-changing.  This means that teams are highly active and interactive, continually gathering information and processing that information to shape tactics and strategy.  Operating in a fast environment with a slow battle rhythm is like drawing a sword in battle and moving slowly.  If it’s a sword battlefield, you need dancers, not plodders.

This helps to explain why many traders either fail to make money or fail to perform consistently:  their battle rhythm does not keep pace with their trading frequency.  In other words, they may plan once a day (early in the morning) and then fail to adapt when markets change character and direction during the day.  If your trading is much more frequent than your planning, eventually you’ll get stuck when markets zig instead of zag.

When we see a trader who can place many trades per day and make money consistently, we tend to marvel at the speed of his or her pattern recognition.  In talking with these traders, however, what jumps out is the speed of their decision-making processes.  They truly work with rapid battle rhythms, constantly taking in market information, assessing its implications, and shifting tactics accordingly.  One trader I recently met with rapidly switched from trading individual stocks making idiosyncratic moves to trading the broad indexes and back again solely on the basis of how things were moving relative to each other.

When our battle rhythm doesn’t keep up with our trading, we set the stage for inevitable frustration.  The market will change more quickly than our planning will adapt.  Success requires that we trade a time frame that is longer than the time it takes us to observe market conditions, make sense of them, and figure out their relevance for our trading.  We overtrade when we place new trades faster than we can engage in new thinking.

Published at Thu, 01 Mar 2018 18:36:00 +0000

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Volatility Begets Volatility

Volatility Begets Volatility

Markets never move in a straight line and the 12% correction in the S&P 500 in late January sent an IV shockwave through the financial system from which it is still attempting to recover. What usually follows a large volatility event is a counter reaction followed again by smaller events until either the old market regime re-asserts itself or something even more dire happens.

We now find ourselves at that very threshold at which the market direction for the remainder of this year will be determined.  And that incidentally not only applies to equities but also to the FX and crypto space. What happens here will set the stage for whatever transpires over the rest of this year and beyond, so we’d better pay attention.

I best speak in charts, and I usually put my money where my mouth is. Which is why I just grabbed a long position here with a stop below 2705.25. For one the formation on the short term panel is looking very bullish to me, so does the sequence of higher highs and higher lows on the daily. Until I see a breach < 2682 I have to be long here.

Should we breach below that then I would have to get confirmation via a breach and retest of the 100-day SMA. Only a spike high below that mark would get me to take on short positions. The exception being that I see very concerning divergences on my momo charts and of course our trusted Zero indicator:

Which by the way consistently pointed downwards during yesterday’s sell off. However I don’t see any major warning signs on the hourly panel (left). It is slightly divergent but not sufficiently yet to warrant short positions. If you are a short here then I suggest you trail your positions and keep an eye on the Zero signal (in case we get a bullish divergence today or tomorrow). By the way if you trade the E-mini and you are not a subscriber yet then sign up here – you’ll be glad you did.

Now on the currency front the EUR/USD has been somewhat weakening recently and then stabilized in a ‘wait and see’ formation in anticipation of Powell’s speech. I wasn’t even aware that he was scheduled to speak until sometime Friday when I checked the event schedule for the coming week. Which once again speaks to the power of simple price action to tell you what’s up without having to follow a ton of fundamental or macro-economic data.

Since Jerome Powell’s slightly hawkish hearing in Congress the Euro has once again descended lower and in the process managed to trigger a short position I had proposed sometime last week (to the subs that is). It’s a bit too early to move my stop to break/even as price action is choppy and there may be another push higher. As a matter of fact I don’t think the odds are great for this campaign and it only was presented as the potential payoff could be large due to a potential long squeeze scenario. My target range for this campaign would be near 1.2 from where its 100-day SMA currently hails.

Crude is a stop out at about 1R of profits – not much given the time it was active but we always need to adjust our time horizons to the price action and not the other way around. Some symbols move slowly but steadily, some more volatile (BTC sends its regards), and some do both for extended times. Crude isn’t in an easy market regime right now and trading it takes patience. However when it starts trending then it usually makes a b-line for its target range – hopefully we’ll see it switch back to that soon again.

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Published at Wed, 28 Feb 2018 12:32:49 +0000

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Collaborative Learning: A Totally Different Trading Edge

Collaborative Learning: A Totally Different Trading Edge

What if the success rate among traders is low, not simply because of the complexity of markets, but because the learning methods traders employ are not suited to complexity?

What if the greatest edge we could achieve in markets comes, not from another indicator or software tool, but from revolutionary ways of learning and understanding markets?

Considerable research suggests that active learning methods are superior to passive ones, with particular benefits associated with team-based learning, including greater engagement of students and greater depth of learning in such fields as medicine and psychology.

As I note in the latest Forbes article, structuring mentoring and coaching within trading teams has greatly increased the success of training traders.  The technique of the daily report card, in which traders review key aspects of their trading daily and share their grades and observations with mentors, coaches, and peer traders, has meaningfully accelerated the learning curves of many traders who have adopted this framework.

If you have not achieved the trading results you desire, I encourage you to consider the possibility that the problem may not lie with your psychology or with your use of any particular set of trading tools.  Rather, you may be honing your skills in entirely the wrong way.  You would never learn and master basketball, chess, or surgery in a classroom or through videos, followed by solo experimentation.  Why would the performance domain of trading be any different?

I encourage you to reflect upon the daily report card framework and how turning learning into an active and interactive enterprise could accelerate your learning curve.

Published at Mon, 26 Feb 2018 23:54:00 +000

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Profiting From a Dirty Secret of Trading

Profiting From a Dirty Secret of Trading

Kudos to Downtown Josh Brown for picking up on a Bloomberg article by Ben Carlson that illustrates how it’s not rising rates that are a threat for stocks, but inflation.  Ben notes the human tendency to think in narratives:  this is happening because of that.  Such narratives quickly become consensus within and across trading floors.  That leads to a kind of conformity born of laziness.  Traders don’t develop their own models of rates and inflation, so pick up on dominant narratives.  Excellent shorter-term opportunities can arise when those narratives are driving trader and investor behavior and excellent longer-term opportunities can arise when those consensus narratives are disconfirmed.

Jeff Miller points out that trading problems typically arise when markets change and we are no longer in our comfort zones.  (His site, by the way, does a nice job of tracking inflation numbers, economic sector by sector.)  We become particularly uncomfortable when our dominant narratives are challenged.  When we can’t make meaning out of what we’re seeing, we understandably behave in reactive ways to lessen our discomfort.

We gain flexibility when we view market narratives as hypotheses and not as conclusions.  This is where tracking correlations among markets can be incredibly helpful.  So often, traders focus on their own markets, failing to notice macro drivers that–rightly or wrongly–are impelling near term market flows.  On Friday, I was chatting with a valued trading colleague and we noted early in the session that the market’s dominant cycle was cresting.  That led to a nice, early short trade in the ES futures.  As rates began to move lower, however, and stocks could not sustain downside momentum, I recognized that the “lower bonds, lower stocks” risk-parity bears had an opportunity to be trapped.  The unwind of that narrative led to nice trades as we detected the potential to move from a cyclical to a trending short-term trading environment.

There’s a dirty secret no one likes to talk about:  large traders often don’t do their own research.  They construct narratives based on recent price action and what others are saying on the sell side, trading floors, etc.  That conformity creates opportunity and is a great reason for tracking market chatter–but only as hypotheses!

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Avoid FANG Stocks Until Summer

Avoid FANG Stocks Until Summer

By Alan Farley | February 23, 2018 — 9:10 AM EST

FANG stocks sold off with the broad market into February, caught in a profit-taking wave after months of positive price action. They’ve bounced strongly off monthly lows in the past two weeks but are unlikely to reward newly minted shareholders with breakouts. More likely, the fabulous quartet has entered a consolidative phase that limits gains into the third quarter, making it tough to recommend opening or adding to positions.

Amazon.com, Inc. (AMZN) and Netflix, Inc. (NFLX) have bounced higher than Apple Inc. (AAPL) or Facebook, Inc. (FB), but don’t be fooled by minor thrusts to new highs. V-shaped patterns rarely generate new trends immediately, often reversing as soon as weak hands forget their discipline and take exposure. Deep pullbacks can follow, often testing prior lows before strong-handed buyers retake control. (See also: Hedge Fund Billionaires Bullish on FANG and Retail Stocks: 13F.)

Amazon stock broke out above a six-year rising trendline in January 2018 and surged higher, gaining more than 300 points in just five weeks. It then dropped 230 points in six sessions, trapping late-to-the-party trend followers. The subsequent bounce exceeded the prior high by five points and stalled out, ready to generate a fresh trend advance or downswing that traps complacent bulls.

The sell-off found support at the 50-day exponential moving average (EMA), which has jumped nearly 50 points to $1,330 in the past nine sessions and will soon reach the .618 Fibonacci rally retracement at $1,350. That harmonic zone looks like a minimum target for the next pullback, if it comes, with a bounce generating a strong uptick and breakout while a failure would signal the next leg of a correction that targets $1,100. (For more, see: Amazon Launches Its Own Line of OTC Drugs.)

Netflix shares broke out above October resistance at $205 in early January and took off on a trend advance that added more than 80 points. The decline into February relinquished 50 points, ahead of a bounce that stalled at range resistance earlier this week. The stock fell to a four-day low on Thursday, posting a minor sell signal that could presage a trip down to $250 in the coming weeks.

The Jan. 23 gap between $228 and $248 is partially unfilled and could act as a magnetic target, bringing the Feb. 9 low back into play. Alternatively, a narrow range consolidation lasting another one to three weeks could negate the bearish scenario, yielding a secondary breakout into the $300s. Whatever the outcome, there’s no good reason to jump on board right here, given volatile cross-currents. (See also: The Top 3 Netflix Shareholders.)

Apple stock plunged from an all-time high to a four-month low, bouncing at September support near $150 on Feb. 9. It has squeezed short sellers in the past week, carving a vertical bounce that has stalled at the .786 Fibonacci sell-off retracement level just above $170. A week of narrow range action has failed to move the needle, establishing a deadlock that favors a downturn into the Feb. 15 gap between $167.50 and $169.50.

That level has aligned with fourth quarter range support and the 50-day EMA, establishing a line in the sand that bulls need to hold at all costs or risk a slide back to the monthly low near $150. On-balance volume (OBV) has taken a major hit since topping out in November, signaling the reluctance of institutions to add exposure, given the company’s slowing growth curve. The recent bounce has failed to alleviate this bearish divergence. (See also: Apple Wants to Buy Cobalt Directly From Miners: Report.)

Facebook shares have carved the weakest pattern in the quartet, turning sharply lower after posting an all-time high at $195.32 on Feb. 1. The stock failed a channel breakout two sessions later, dropping nearly 30 points to a four-month low at the 200-day EMA. The subsequent bounce stalled under the 50-day EMA a week ago, with that level now aligned at the 50% sell-off retracement.

The recovery effort could reach stronger resistance in the $180s or roll over here, generating a test of the corrective low. The stock has not traded under the 200-day EMA in 14 months, adding importance to that support level, with a breakdown opening the door to $150. Given the high stakes, informed market players will likely keep their powder dry, allowing other traders to risk their hard-earned capital. (For more, see: Why Facebook’s Rally Is Lagging the Techs.)

The Bottom Line

FANG stocks have bounced off corrective lows but are unlikely to enter new uptrends in the coming weeks. More likely, they’ll carve range-bound patterns into the second half of 2018, working off overbought technical readings following months of higher prices. (For additional reading, check out: Facebook and Google’s Days Are Numbered: Soros.)

Published at Fri, 23 Feb 2018 14:10:00 +0000

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Prepaid Insurance

Prepaid Insurance

What is ‘Prepaid Insurance’

Prepaid Insurance payments are made in advance for insurance services or coverage. The period for which insurance is prepaid is generally one year, but may exceed a year in certain cases. Prepaid insurance that expires in a year is classified as a current asset on a corporation’s balance sheet.

BREAKING DOWN ‘Prepaid Insurance’

Unless a claim has been made, prepaid insurance is usually renewable by the policyholder shortly before the expiry date on the same terms and conditions as the original insurance contract. However, the premiums may be marginally higher to account for inflation and other operating factors.

How Prepaid Insurance Accounting Works

A prepaid expense is an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period. Prepaid insurance is considered as such. When the asset is eventually consumed, it is charged to expense. If consumed over multiple periods, there may be a series of corresponding charges to expense.

A prepaid expense is carried on the balance sheet of an organization as a current asset until it is consumed. The reason why is because most prepaid assets are consumed within a few months of being recorded. If a prepaid expense were likely to not be consumed within the next year, it would instead be a long-term asset (this is not common). The payment of the insurance expense is similar to money in the bank, and as the money is used up, it is withdrawn from the account in each month or accounting period. Prepaid insurance is usually considered a current asset, as it will be converted to cash or used within a fairly short time.

To illustrate prepaid insurance, let’s assume that on November 20, a company pays an insurance premium of $2,400 for the six-month period of December 1 through May 31. On November 20, the payment is entered with a debit of $2,400 to prepaid insurance and a credit of $2,400 to cash. As of November 30, none of the $2,400 has expired and the entire $2,400 will be reported as prepaid insurance. On December 31, an adjusting entry will debit insurance expense for $400 (the amount that expired: one-sixth of $2,400) and will credit prepaid insurance for $400. This means that the debit balance in prepaid insurance at December 31 will be $2,000 (five months of insurance that has not yet expired times $400 per month; or five-sixths of the $2,400 insurance premium cost).

Published at Fri, 23 Feb 2018 04:38:00 +0000

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How matching money turbo-charges U.S. retirement savings

How matching money turbo-charges U.S. retirement savings

CHICAGO – After turning miserly when the Great Recession began nearly 10 years ago, U.S. employers are loosening their purse strings and giving workers more money to boost retirement savings.

Recently, some companies – ranging from Nationwide [NMUIC.UL] to Honeywell – said they will devote funds from the new tax cut to employee 401(k) matches. Yet, even before the tax cut, companies had become more generous with retirement plan matches and profit sharing as their financial fortunes improved.

In 2016, employers gave retirement matches averaging 4.6 percent of worker pay – more than double the level of 2009 and a large increase over 2015’s 3.8 percent, according to a national survey of small and large employers just completed by the Plan Sponsor Council of America (PSCA).

In the depths of the recession, retirement matches plunged to 2.1 percent of worker pay, as many companies hoarded cash.

Companies are increasing 401(k) matches to make up for the demise of pension plans. Others want to recruit and retain workers in competitive fields, said Jack Towarnicky, PSCA executive director.

Regardless of the reason, matching money is crucial to employees because most individuals do not save enough. Almost half of employees will not have what they need for retirement, according to the Center for Retirement Research at Boston College.

Employees, on average, save 6.8 percent of pay, according to the PCSA. That falls short of the 10 percent recommended for people who start saving in their 20s.

It is significantly less than the 12 percent to 15 percent of pay recommended for people who delay saving until their 30s. Matching money provides a gigantic lift to inadequate savings. Research shows people are motivated to save more to take advantage of their employer’s largesse.

The most common matching formula used by companies gives employees an extra 3 percent of pay in a 401(k) if they save 6 percent on their own. In other words, the company matches half of every dollar the employee saves, up to 6 percent of pay.

POWER OF COMPOUNDING

The impact over time is huge. A 30-year-old earning $50,000 and retiring at age 67 would have about $1 million if he or she saved 7 percent of pay and received the 3 percent match each year of work. Without the match, an individual would accumulate just $736,000, assuming the investments earned an average of 7 percent a year, according to the Dinkytown retirement calculator (here).

With $1 million a person could spend about $40,000 a year in retirement. But $736,000 would limit safe spending to $29,400.

About 6 percent of companies now match half of savings ranging from 7 percent to 10 percent, according to the PSCA survey.

Employers offer a match to encourage plan participants to contribute at higher rates, said Lori Lucas, president and chief executive of Employee Benefits Research Institute. “They worry that lower-wage workers will not be able to afford to contribute more and will not be able to get the full match.”

Indeed, low-income workers in 2016 contributed, on average, 6.1 percent of their pay to their 401(k), while higher paid people on average socked away 7 percent, PSCA found.

About 20 percent of people with 401(k)s were not participating at all.

“We’ve made so much progress with those covered by 401(k)s,” Lucas said. “But it’s the haves and the have-nots. Even if they go 10 years without a 401(k), they have lost valuable time.”

Editing by Lauren Young and Steve Orlofsky

Published at Wed, 21 Feb 2018 15:54:19 +0000

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A Powerful Technique for Changing Your Trading Psychology

A Powerful Technique for Changing Your Trading Psychology

From an evolutionary perspective, it makes sense that we make complex behaviors automatic.  Once we can perform tasks mindlessly, we can direct our mind to more immediate, pressing matters.  This is how we can drive a car and hold a meaningful conversation.  It’s also how we can carry out morning routines without effort, allowing us to focus on plans for the day ahead.  Our ability to automatize activity greatly expands our scope of thought and action.

What happens, however, when our automatic routines no longer serve a useful purpose?  They remain as habit patterns and they are the activities, patterns, and behaviors we’re most comfortable with.  Many of the problems we face in life today reflect the fact that we’re living patterns in the present that, at one time, had an adaptive value.  Now they bring negative consequences.

Consider the trader who hesitates before acting on a signal and, when he acts, does so in small size.  That pattern of behavior was part of prudence during the trader’s early learning period.  It guaranteed that he didn’t act rashly and impulsively, and it kept losses small.  Now that the trader has learned and is showing profitability, the old prudent behaviors make him risk averse.  Yesterday’s solutions, carried forward to a new reality, become today’s problems.

To change an old pattern of thought, feeling, or action, we have to be willing to exit our comfort zone.  That means standing outside our patterns and actively viewing them as problems.  At one time in the alcoholic’s life, drinking was a means of socializing and a tool for feeling better.  Fast forward to the point of alcohol abuse, and now drinking is bringing negative consequences for work, health, and relationships.  Alcoholics who change view drinking as their problem, their enemy: they take the automatic pattern and use guilt, disgust, and anger to regain choice over how they think and what they do.  Change begins when we view our problems as ourproblems

One of the most powerful change techniques in psychology is to take a pattern that is interfering with your happiness, fulfillment, and/or success and actively rehearse that pattern in your mind–visualize it, feel it–while you remind yourself of all the ways that it has hurt you.  Literally, you’re bringing that pattern to mind–maybe it’s overtrading or trading too small–and imagining how many times you’ve flushed money down the toilet, how many ways this problem has stood in the way of your success.

Can you imagine how angry you would become if someone hijacked your keyboard and screens and started placing random trades, losing you money?  Well, that is happening to you every time your negative thought and behavior patterns hijack your trading psychology.  Getting angry at those patterns is the first step in refusing to identify with them.  It’s a way of standing up for the healthy parts of ourselves and saying, “I’m not letting you hijack me!”

Visualizing old ways of thinking, feeling, and acting that now bring us pain and allowing ourselves to fully feel all the disgust, guilt, remorse, and anger associated with the consequences of those patterns completely changes our trading psychology.  We no longer fall into comfortable habits, because we no longer feel comfortable with those habits.  We have turned them into enemies.  That is powerful.

This visualization and reframing is just one example of a broader psychological strategy of mental rehearsal.  There are many other ways to use mental rehearsal to build new, positive habit patterns and to reprogram emotional responses to situations.  This week’s Forbes article looks at the science behind mental rehearsal and ways in which we use this method to change our lives.  It’s amazing how, when we change our mind about our problems, we truly change our minds.

Further Reading:
 
 
Published at Tue, 20 Feb 2018 01:10:00 +0000

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Lessons in Trading and Psychology – 5: Cycles

Many times, traders become frustrated and fall into a negative psychology because they are looking for one thing, while the market is doing something else.  In that sense, frustration gives us information: that we are possibly out of sync with what we are trading.

Above we see the S&P futures (blue line) plotted from February 12th through Friday’s close (February 16th).  If we were to create a regression line to best fit this action, we would see a line with a decent fit and a positive slope.  That tells us there is a trend component to how the market is trading over that time horizon.

Notice, however, the trend is far from a smooth upward line.  The red line captures a dominant cycle within the trend, where a 50-bar rate of change is expressed in standard deviation units (left axis).  Each bar captures movement in event time, not chronological time.  In this chart, each bar is drawn when the futures have changed price 500 times.  

The event time bars adjust our time series for the volatility of the market’s price action.  When we have low volatility, we draw fewer bars and vice versa.  Standardizing the market view this way provides us with a more stable time series, and that helps us better assess cycles within the market.  Those cycles tell us when we are relatively overbought or oversold.

In an upward trend, buying the market when we approach a 2 standard deviation cycle trough ends up providing pretty good entry.  Indeed, we can define a trend by the presence of cycle troughs/peaks at successively higher/lower price levels.  Notice also how the frequency of the dominant cycle gives us a window on how “choppy” the market may be–and how changes in the frequency give us a clue as to whether a trend is waxing or waning.

Stocks or instruments displaying greater clarity/consistency of trends and cycles might be the best trading vehicles for a trader.

Looking at price behavior in new ways opens new trading possibilities–and that can expand our psychology, fueling our understanding and sense of mastery.

Further Reading:
 

Published at Fri, 16 Feb 2018 22:15:00 +0000

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Bitcoin Was Only The Beginning…

Bitcoin Was Only The Beginning…


Upset that you missed the boat on the bitcoin craze last year?

Millionaires were minted overnight as bitcoin returned 1,700 percent in 2017, only to see prices crash by more than half since December. The bubble seems to have popped, and not everyone got out in time.

While we may be past the peak temporarily, the cryptocurrency trend is just getting started, and investor enthusiasm is still growing by the day.

(Click to enlarge)

While the bitcoin investment boat may have already set sail, it’s likely far from the last huge opportunity in the space. The cryptocurrency and blockchain market is expanding at a significant rate, and there is one unique and simple investment opportunity that could give investors access to a broad spectrum of the space.

The problem for would-be cryptocurrency investors is trying to figure out the next big thing. Now, a new Canadian investment company will figure that out for you, offering exposure to not just cryptocurrencies by also the entire blockchain ecosystem.

Global Blockchain Technologies Corp. (CSE: BLOC; OTC: BLKCF) is Canada’s first blockchain-focused investment company. Bitcoin captured the interest of the global financial industry last year, but it makes up just a fraction of the blockchain market. The recent collapse in bitcoin prices now has some investors nursing their losses and biding their time until the next big cryptocurrency coin emerges.

More importantly, the underlying blockchain technology is an even bigger story than mere crypto tokens.

Global Blockchain offers the best of both worlds. It offers investors exposure to a curated selection of cryptocurrencies, while also opening the door to investment in blockchain, before the next wave of money rolls into this booming market.

As investors search for profits amid the market disruption caused by cryptocurrencies, Global Blockchain plans to offer a unique solution. This comes in the form of a basket of holdings that:

• Definitively answers massive demand from investors

• Will be one of the first ways to find and gain exposure to a wide breadth of cryptocurrencies and blockchain companies

• Is packaged in a publicly listed security accessible in the U.S., Canada and Europe, with Asia and Australia to follow

• Access to ICOs that investors would never be able to secure on their own

• Is led by major crypto-pioneers who are ready to make the crypto world a lot less cryptic

Here are 5 reasons to keep a close eye on Global Blockchain (CSE: BLOC; OTC: BLKCF), an investment company hoping to become the first-ever vertically integrated originator and manager of startup blockchains and investor in top-tier digital currencies:

1.) Blockchain To Impact Every Major Sector of the Global Economy

Blockchain is automation and collaboration on steroids, with market growth predictions headed into trillion-dollar territory. The technology is the backbone of the exploding crypto-currency market, worth a pretty $333 billion today.

There’s likely no industry that’s isolated from being disrupted by blockchain technology.

– Banking:Seven major global banks have partnered with fintech companies to develop new blockchain technologies, because blockchain and cryptocurrencies simplify so many things in the banking world, from fees for sending payments through middlemen, privacy threats, and security risks to cumbersome lending in the $134-trillion global banking industry.

– Global Logistics: Blockchain technology is already being used to track global trade and shipments in this $8-trillion-plus industry.

– Real Estate: This $7.4-trillion industry is also a major beneficiary of blockchain tech. Look no further than the real estate mecca of Dubai, which is putting its entire land registry on a blockchain.

– Healthcare: The global healthcare IT market, valued at $134 billion last year, is publicly seeking IT solutions from Blockchain.

– Crowdfunding: Even this $96-billion market is embracing blockchain.

And the list goes on …

“Blockchain solutions in finance are virtually endless … any centralized marketplace that is dominated by a few middlemen is likely to be taken over by blockchain technology,” says BLOC Chairman Steve Nerayoff. The opportunities are mind-boggling.

2.) BLOC Offers Exposure to Blockchain Ecosystem

Global Blockchain (CSE: BLOC; OTC: BLKCF) has plans to invest in a basket of holdings within the blockchain space, offering investors a slice of profits from the entire shift towards blockchain tech. This innovative strategy would make Global Blockchain the first global investment company with exposure to a wide cross-section of the blockchain ecosystem — all backed by startup equity and token diversification.

The investment strategy also benefits from diversification, lowering risk for investors by balancing more established companies with hand-picked, high-growth potential small-caps. Global Blockchain also plans to diversify portfolios by balancing cryptocurrencies by category.

You can buy it right now from an online broker, and even add it to your IRA or 401K.

(Click to enlarge)

Here are Global Blockchain’s planned investments:

But it’s not just about a basket of currencies to speculate on; it’s about the potential of building an investment portfolio based on the token economy — one of the first of its kind.

Here is Global Blockchain’s projected Asset Allocation:

(Click to enlarge)

3.) BLOC Led by Cryptocurrency Pioneers

The team behind Global Blockchain (CSE: BLOC; OTC: BLKCF) isn’t comprised of a bunch of financiers new to cryptocurrencies.

Remember the Ethereum ICO? It’s risen over 220,000 percent. Global Blockchain’s Chairman and CEO, Steve Nerayoff, was not only a senior advisor to Ethereum leading up to its ICO, but was the architect of the Ethereum crowdsale, the way the project was funded. He also was a senior advisor to the Lisk Cryptocurrency project, which now has a $1.8-billion market cap. Nerayoff is an early leader of the blockchain industry, and one of its most important pioneers.

But Global Blockchain’s knowledge base doesn’t stop with Nerayoff.

• Rik Willard: Cryptocurrency and ICO veteran, co-founder of the Silicon Valley Blockchain Society, and an advisor to Luxembourg and other countries’ blockchain initiatives.

• Shidan Gouran: Cryptocurrency and ICO expert with a long track record.

• Kyle Kemper: Executive director of the Blockchain Association of Canada.

• Jeff Pulver: Has consulted and invested in 350 startups.

• Michael Terpin: Co-founder of BitAngels, the world’s first angel network for digital currency startups. Managing partner of bCommerce Labs, the world’s first blockchain incubator fund. Founded Marketwire, one of the largest company newswires, which was acquired in 2006 by NASDAQ for $200 million.

And it’s not just their blockchain successes and expertise that investors will harness — it’s also their exclusive access to assets that investors would have difficulty investing in otherwise.

4.) Just The Beginning

If and when the U.S. Securities and Exchange Commission (SEC) approves crypto ETFs for listing on public markets, digital currencies will likely push even higher. Some projections show that as much as $300 million could pour into a bitcoin ETF in its first week, Bloomberg reports.

We’re looking at a potential total current market cap of tokens at $34 billion, and more than $2 billion has already flowed into ICO (initial coin offering) token sales. This is where Global Blockchain (CSE: BLOC; OTC: BLKCF) comes into play, with their expertise to make knowledge-based decisions on which ICOs may have what it takes to be winners, and how to play the futures. They also intend to balance large-cap holdings with small-cap and emerging cryptocurrencies so investors can benefit from the relative stability of one and the growth potential of the other at the same time.

Global Blockchain plans to become an incubator for new crypto technologies, which means that investors are not just investing in assets — they’re investing in innovation.

5.) Global Blockchain Cryptocurrency Incubator

Global Blockchain (CSE: BLOC; OTC: BLKCF) also plans to create additional value with its own incubator for new tokens, taking advantage of a major gap in the token world.

Most new ICOs have poor execution after they are developed. This is where Global Blockchain sees an opportunity. They won’t just help new blockchain companies build; they’ll help brand and distribute, taking equity stakes in the cryptocurrency in return.

While the major cryptocurrencies garner the most attention, sometimes the smaller tokens offer vastly more upside. Verge, for instance, with a market cap of $640 million, has offered a return on investment in excess of 200,000 percent. DigitalNote, a small token with a market cap of just $97 million, have offered investors a return on investment higher than 13,000 percent.

Global Blockchain will find and incubate upstart cryptocurrencies so you won’t have to try to discover them yourself.

Guided by a team with extensive real-world experience and backed by the world’s top blockchain programmers, this venture holds great promise as the next phase of maturity in an industry that lacks development. With Global Blockchain providing investors access to a basket of holdings within the blockchain space, and managed by a team of industry early adopters and pioneers, investors have a chance to access a market of huge proportions, since blockchain is poised to affect every industry.

New waves of money continue to enter the market, and the next wave could be Wall Street hedge funds. After that, possibly ETFs. And then everyone else. Getting ahead of the wave could be possible with Global Blockchain’s investment and incubator strategy.

Honorable Mentions:

Veeva (NYSE:VEEV) Veeva is one of the most prominent cloud services providers out there, focusing specifically on the pharmaceutical sector. The company’s cloud platform for the world’s pharma companies is more popular than ever before.

After rallying to an all-time high last July, its share price has fallen a bit since. While its bigger brother ‘Salesforce’ has a stronger cash flow, Veeva has seen some healthy profits lately. Analysts now argue that the company might be ‘expensive’, but worth it. With an expected growth rate of 24% this year, it looks like investors will be rewarded for their patience.

Sony Corp (ADR) (NYSE:SNE) is a tech heavyweight. From TVs to video games, Sony covers anything and everything media-related. The company’s infamous Walkman was in the hands of every young person throughout the 1980s and 1990s. But Sony’s biggest hit was arguably the PlayStation gaming console.

With over 100-million units sold, the original console sparked a new wave of gaming. The incredible success continued with the PlayStation 2, 3, and the current series, the PlayStation 4. Sony’s PlayStation 4 is now a multi-platform entertainment device, with the ability to stream movies and music, play Blu-ray and DVDs, purchase and play video games, and even browse the web.

Sony’s partnerships and innovative technology make it an appealing investment for those looking for a company with longevity. Sony isn’t going anywhere and is sure to continue its entertainment dominance for years to come.

Raytheon Company (NYSE:RTN) is an emerging tech company specializing in defense and other government markets. Raytheon’s major selling point is its strong command of cybersecurity. While its specialty is in government-centric markets, Raytheon also develops products, services, and solutions in various other markets.

Raytheon reach is far reaching and its potential market share is huge. Smart investors are looking toward cybersecurity firms early. With the recent high-profile attacks, and likely more to come, cybersecurity companies will be the saving grace of the tech boom.

Secureworks Corp (NASDAQ:SCWX) Secureworks Corp is a company specializing in intelligence-driven information security solutions. Clients are protected from cyber-attacks including hacking, ransomware, and the like. The company’s solutions enable its clients to strengthen their defenses in order to prevent security breaches and detect malicious activity in real time. Secureworks Corp is definitely a great pick for those looking to invest in cybersecurity.

Pure Storage Inc (NYSE:PSTG) Data platforms are also a key asset in protecting companies against cyber-attacks. Pure Storage, Inc is a data platform focused on delivering fast, optimized and cloud-capable solutions for its customers while keeping data security as a top priority. This is another company about which investors can be optimistic.

By. Meredith Taylor

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Permanent Market Support Operations

[Stock-market-ticker]

Permanent Market Support Operations

By: Doug Noland | Sat, Feb 17, 2018


U.S. stocks posted the strongest week of gains since 2013 (would have been 2011 if not for late-day selling). The S&P500 surged 4.3%, and the Nasdaq Composite jumped 5.3%. The small cap Russell 2000 rallied 4.4%. After closing last Friday at 29.06, the VIX settled back down to a still elevated 19.46. Foreign markets recovered as well. Germany’s DAX rose 2.8%, and France’s CAC 40 gained 4.0%. The Shanghai Composite was closed for the lunar new year. The dollar index was back under pressure this week, sinking 1.5%, giving a boost to commodities prices. Price instability abounds.

While stocks rather quickly recovered a chunk of recent losses, the same cannot be said for corporate bonds. Notably, investment-grade bonds (LQD) rallied little after recent declines.

February 16 – Bloomberg (Cecile Gutscher and Cormac Mullen): “Corporate bond funds succumbed to rate fears that have gripped stocks to Treasuries. Investors pulled $14.1 billion from debt funds, the fifth-largest stretch of redemptions in the week through Feb. 14, according to a Bank of America Merrill Lynch report, citing EPFR data. High-yield bonds lost $10.9 billion alone, the second highest outflow on record. As benchmark Treasury yields traded at a four-year high, it shook the foundations of a key support for risk assets — low rates. ‘Investors don’t sell their cash bonds in a big way until they are forced to, which happens when the outflows start picking up more sustainably,’ Morgan Stanley strategists led by Adam Richmond wrote…”

U.S. junk bond funds suffered outflows of $6.3 billion (from Lipper), the second highest ever. IShares’ high-yield ETF saw outflows of $760 million. U.S. investment-grade bond funds had outflows of $790 million (Lipper), the first outflows since September. This was a big reversal from last week’s $4.73 billion inflow. The iShares investment-grade ETF had outflows of $921 million, the “largest outflow in its 15-year history.” Even muni funds posted outflows ($443 million), along with mortgage and loan funds.

A strong equities rally into option expiration – after a bout of market selling and hedging – is not out of the ordinary. Hedges put on over recent weeks were unwound, creating potent buying power for the rally. Scores of systematic trading strategies that were aggressively selling into market weakness turned aggressive buyers into this week’s advance.

I’m not much interested in sharing my guess as to where markets might head next week. It certainly wouldn’t be surprising if this week’s buyers panic subsides abruptly and selling reemerges. At the same time, I’ve seen enough of short squeeze and derivative melt-up dynamics to take them seriously. They have had a tendency of taking on a life of their own. I’m not, however, shying away from my view that recent developments mark a critical juncture in the markets – and for the world of finance more generally. Markets could find themselves in trouble in a hurry.

My objective for the CBB is to offer (hopefully valuable) perspective. I believe the blowup of the “short vol” and the revelation of how quickly the great bull market can succumb to illiquidity and losses have fundamentally altered the risk-taking and leveraging backdrop. The cost of hedging market risk, while down this week, has risen significantly. Treasuries have revealed themselves as an inadequate hedge against risk assets. Moreover, exceptionally high asset correlations experienced during the recent sharp selloff have illuminated the shortcomings of many so-called “diversified” strategies. There will be ebbs and flows, often wild and intimidating. Yet I believe de-risking/de-leveraging dynamics will gain momentum. Fragilities will be exposed.

I have serious issues with contemporary finance. Unique in history, the world operates with a financial “system” devoid of limits on either the quantity or quality of “money” and Credit. Unlike a gold standard (or other disciplined monetary regimes), there is no mechanism to contain the creation of new finance. As such, traditional supply/demand dynamics have little relevance in the pricing of finance. Today’s contemporary financial apparatus – where central bankers largely dictate the price of Credit – lacks effective regulation of supply and demand. Importantly, the contemporary system fails to self-correct or adjust. Left unchecked, it feeds serial Bubbles and busts.

Early CBBs focused on the instability of this new world of “Wall Street finance.” Unfettered finance, much of it directly targeted to asset markets, had created powerful asset inflation and Bubble Dynamics. Indeed, by the late-nineties the perilous instability of contemporary finance had become abundantly clear. One could point to “portfolio insurance” contributing to the ’87 crash; the role of non-bank finance in late-eighties excess; the 92/93 bond/derivatives Bubble that burst in 1994; the 1995 Mexican collapse; the ’97 Asian Tiger collapses and the spectacular simultaneous 1998 Russia and Long-Term Capital Management debacles.

Somehow, there’s never been a serious and sustained effort to analyze contemporary finance’s shortcomings. Rather than contemplating evident deficiencies, each burst Bubble led immediately to whatever reflationary measures deemed necessary. Structural issued be damned. All along the way, few have been willing to admit the fundamental flaws inherent in various modern forms of risk intermediation. Rather than mitigate risk, structured finance and derivatives tend to distort, disguise and transfer myriad risks. Various risk intermediation mechanisms work to lower the cost of finance, in the process exacerbating Credit excess, risk-taking, speculation and leveraging.

Perhaps most momentous, the experiment in unconstrained finance spurred an experiment in economic structure. The U.S. economy was free to deindustrialize. With newfound access to unlimited finance and inflating asset prices, Americans were to indefinitely trade financial claims for endless cheap imports. The bane of “twin deficits” had been eradicated. Even more miraculously, the flood of finance the U.S. unleashed upon the world would, largely through foreign central banks, be recycled right back into booming American securities markets.

After the burst of the “tech” Bubble – and, importantly, the 2002 dislocation in the corporate debt market – the Fed panicked. Even more than 1987, 1990 and 1998, the Fed feared “the scourge of deflation.” Somehow, the Fed, Wall Street and others found solace in Bernanke’s radical monetary ideas of “helicopter money” and the “government printing press.” The Federal Reserve was willing to slash rates to one percent – and peg them there in the face of several years of double-digit annual mortgage Credit growth.

Let’s call it what it was: reckless. The Fed looked the other way from conspicuous financial and housing-related excess (as they have more recently in the securities markets). Why? Because they had specifically targeted mortgage Credit as their inflationary mechanism of choice. The Bubble was untouchable.

The 2008 crisis marked the failure of a great financial experiment. Fannie, Freddie and GSE risk intermediation failed. Wall Street structured finance failed. Derivatives markets and Wall Street firms failed. Counterparties failed. Across the financial landscape, catastrophic flaws were exposed. In short, contemporary finance failed spectacularly.

The ’08/’09 crisis should have provided an historic inflection point. The greatest upheaval in decades should have marked the beginning of an era of more stable finance – of sounder money and Credit and firmer economic underpinnings. It would have been an arduous process, no doubt. Central bankers had other ideas.

I’ve never been tempted to give up on the analysis. For going on ten years, I’ve chronicled the greatest experiment in the history of central banking. Central bankers have adopted the most extreme rate, “money printing,” and market manipulation measures ever. They have guaranteed abundant cheap (virtually free) finance for going on a decade now. What was meant to be a temporary rescue of fragile private-sector, market-based finance morphed into history’s greatest global Bubble.

The greatest flaw in central banker doctrine/strategy was to believe that after intervening temporarily with reflationary measures the system would stabilize and gravitate right back to normal operations. Central bankers reflated a deeply unsound financial structure, only exacerbating flaws and compounding contemporary finance’s vulnerabilities. In particular, a decade of reflationary measures profoundly inflated risk intermediation distortions and fragilities.

The “Moneyness of Risk Assets” has seen Trillions flow into an untested ETF complex on the assumption that central bankers would ensure ETF holdings remained a safe and liquid store of value. Reflationary measures also incentivized Trillions to flow into sovereign debt, corporate Credit, structured finance and the emerging markets on the belief that central bankers would not tolerate another market crisis. Trillions have flowed into various derivative trading strategies on the view that central bankers would ensure liquid and continuous markets – no matter the degree of market excess.

The upshot has been market distortions and the accumulation of risks on an unprecedented scale. Fragilities have surfaced on occasion (i.e. “flash crash”), spooking the central banker community sufficiently to ensure that “temporary” reflationary measures evolved into Permanent Market Support Operations. Central bankers had slipped fully into the markets’ trap. Cautious measures expected to normalize policy over time only ensured that financial conditions loosened further – and global Bubble inflation accelerated.

Along the way, Permanent Market Support Operations changed the game – in global finance as well as throughout economies. Everyone was free to assume more market risk – savers, investors, pension funds and institutions, and the leveraged speculators. Corporate management could issue more debt and buy back more stock. Easy “money” ensured an easy M&A boom. It took time, but animal spirits in the Financial Sphere eventually manifested in the Real Economy Sphere.

The most aggressive companies, managers, entrepreneurs and swindlers all enjoyed the greatest success. Seemingly any clever idea could attract funding. With finance virtually unlimited and free, almost any investment could be viewed as having merit irrespective of prospects for economic returns. There was abundant “money” to be thrown at everything – the cloud, the Internet of things, AI, robotics, autonomous vehicles and all things tech, pharmaceuticals, alternative energy, all things media and so on. It became New Paradigm 2.0, with the earlier nineties version now such a triviality.

Things just got too crazy. Central bankers were much too complacent as Bubble Dynamics gathered powerful momentum. Booming asset inflation and 4% unemployment weren’t enough to convince the Fed it was time to tighten up the reins. Meanwhile, the ECB and BOJ clung stubbornly to negative rates and massive QE programs. Chinese Credit went nuts. Through it all, wealth disparities only worsened, fueling in the U.S. a populist movement and anti-establishment revolt that placed the Trump administration in power. Despite a massive accumulation of debt and ongoing large deficits – not to mention increasingly overheated late-cycle economic dynamics – the Republicans pushed through historic tax cuts. Next on the President’s agenda: tariffs and trade battles.

Everyone became so transfixed by daily stock market records, historically low volatility and the easiest conditions imaginable throughout corporate Credit. It was easy to ignore pressures percolating on the inflation front. And it became just as easy to disregard the possibility that central bankers might actually raise rates to the point of tightening financial conditions. Heightened uncertainty began to manifest in currency market volatility. Meanwhile, excesses were mounting in the securities markets on a daily basis – including incredible flows into perceived safe and liquid ETFs, rank speculation, “short vol,” derivatives and leverage.

For the most part during this extraordinary cycle, Monetary Disorder has remained conveniently contained within the securities and asset markets, seemingly staying within the purview of global central bank policymaking. Rather suddenly, however, markets are beginning to realize there are unfolding risks not easily resolved by monetary stimulus. Deficit spending has become completely unhinged, while inflation is gaining sufficient momentum to garner concern. As such, central bankers may feel compelled to actually tighten financial conditions. Bond markets are on edge, commencing a long-overdue price adjustment. At the minimum, the Fed and others will likely be less hurried when coming to the defense of unstable equities markets.

The bulls see this week’s quick stock market recovery as confirmation of sound underlying fundamentals. The selloff was a technical market glitch completely detached from the reality of booming corporate earnings, robust economic growth and extraordinary prospects.

I see this week’s big market rally as confirmation of the Bubble thesis. Markets have lost the capacity to self-adjust and correct. Derivatives and speculation rule the markets. Option expiration week certainly provides fertile ground for short squeezes and the crushing of put holders. But it does raise the important question of whether markets at this point can correct without dislocating to the downside. I have serious doubts. The quick recovery has markets again dismissing mounting risks. Perhaps it will also keep the Fed thinking economic risks are tilted to the upside – that they need to ignore market volatility and stay focused on normalization.

My view is that normalization is impossible. Extended global market Bubbles are too fragile to endure a tightening of financial conditions. At the same time, sustaining Bubbles has become perilous. Especially in the U.S., with deficits and a weak currency as far as the eye can see, the risks of allowing inflation to gain a foothold are significant. For the first time in a while, there is pressure on the Fed to tighten financial conditions. This places the great central bank experiment at risk. Bubbles don’t work in reverse.

The world is changing. These flows out of corporate debt ETFs are a significant development – another step toward “Risk Off.” Similar speculative and hedging dynamics that hit equities hold potential to spark major dislocation and illiquidity in corporate Credit. For further evidence of change, look no further than a Tuesday headline from the Wall Street Journal: “White House Considering Cleveland Fed President Mester for Fed’s No. 2 Job.” A central banker I admire considered for a top Fed post? Is this part of a changing of the guard at our central bank, or perhaps administration officials recognize that with years of huge deficits looming on the horizon, along with dollar vulnerability, the Fed will soon be in need of some inflation-fighting credentials.


For the Week:

The S&P500 rallied 4.3% (up 2.2% y-t-d), and the Dow recovered 4.3% (up 2.0%). The Utilities gained 2.8% (down 5.7%). The Banks jumped 5.1% (up 6.6%), and the Broker/Dealers rose 4.8% (up 6.8%). The Transports increased 3.6% (down 1.0%). The S&P 400 Midcaps rallied 4.4% (unchanged), and the small cap Russell 2000 recovered 4.4% (up 0.5%). The Nasdaq100 surged 5.6% (up 5.9%).The Semiconductors rose 5.0% (up 5.2%). The Biotechs jumped 6.0% (up 11.1%). With bullion surging $31, the HUI gold index rallied 6.0% (down 3.8%).

Three-month Treasury bill rates ended the week at 1.56%. Two-year government yields surged 12 bps to 2.12% (up 31bps y-t-d). Five-year T-note yields gained nine bps to 2.63% (up 42bps). Ten-year Treasury yields added two bps to 2.88% (up 47bps). Long bond yields slipped three bps to 3.13% (up 39bps).

Greek 10-year yields jumped 16 bps to 4.24% (up 17bps y-t-d). Ten-year Portuguese yields fell 10 bps to 2.01% (up 6bps). Italian 10-year yields declined six bps to 1.99% (down 3bps). Spain’s 10-year yields dipped two bps to 1.46% (down 11bps). German bund yields fell four bps to 0.71% (up 28bps). French yields declined three bps to 0.95% (up 17bps). The French to German 10-year bond spread widened one to 24 bps. U.K. 10-year gilt yields added a basis point to 1.58% (up 39bps). U.K.’s FTSE equities index rallied 2.9% (down 5.1%).

Japan’s Nikkei 225 equities index increased 1.6% (down 4.6% y-t-d). Japanese 10-year “JGB” yields declined one basis point to 0.06% (up 1bp). France’s CAC40 recovered 4.0% (down 0.6%). The German DAX equities index rallied 2.8% (down 3.6%). Spain’s IBEX 35 equities index gained 2.0% (down 2.1%). Italy’s FTSE MIB index jumped 2.8% (up 4.3%). EM markets were mostly higher. Brazil’s Bovespa index surged 4.5% (up 10.6%), and Mexico’s Bolsa rose 2.3% (down 1.0%). South Korea’s Kospi index bounced 2.5% (down 1.9%). India’s Sensex equities index was little changed (down 0.1%). China’s Shanghai Exchange rose 2.2% (down 3.3%). Turkey’s Borsa Istanbul National 100 index jumped 2.6% (up 1.0%). Russia’s MICEX equities index advanced 2.6% (up 6.9%).

Junk bond mutual funds saw hefty outflows of a staggering $6.036 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates rose six bps to a near four-year high 4.38% (up 23bps y-o-y). Fifteen-year rates jumped seven bps to 3.84% (up 49bps). Five-year hybrid ARM rates gained six bps to 3.63% (up 45bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.55% (up 21bps).

Federal Reserve Credit last week increased $5.6bn to $4.385 TN. Over the past year, Fed Credit contracted $39.4bn, or 0.9%. Fed Credit inflated $1.574 TN, or 56%, over the past 276 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $11.1bn last week to $3.399 TN. “Custody holdings” were up $230bn y-o-y, or 7.2%.

M2 (narrow) “money” supply gained $7.9bn last week to a record $13.858 TN. “Narrow money” expanded $578bn, or 4.3%, over the past year. For the week, Currency slipped $1.2bn. Total Checkable Deposits declined $3.5bn, while savings Deposits rose $14.9bn. Small Time Deposits were little changed. Retail Money Funds dipped $2.2bn.

Total money market fund assets added $2.0bn to $2.829 TN. Money Funds gained $154bn y-o-y, or 5.8%.

Total Commercial Paper fell $12.2bn to $1.118 TN. CP gained $152bn y-o-y, or 15.8%.

Currency Watch:

The U.S. dollar index dropped 1.5% to 89.10 (down 3.3% y-o-y). For the week on the upside, the South African rand increased 3.4%, the Japanese yen 2.4%, the Norwegian krone 2.3%, the Brazilian real 2.2%, the New Zealand dollar 1.8%, the British pound 1.4%, the Swedish krona 1.4%, the South Korean won 1.4%, the Singapore dollar 1.3%, the euro 1.3%, the Swiss franc 1.3%, the Australian dollar 1.2%, the Mexican peso 1.0% and the Canadian dollar 0.2%. The Chinese renminbi declined 0.6% versus the dollar this week (up 2.61% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index rallied 3.5% (up 0.3% y-t-d). Spot Gold jumped 2.4% to $1,347 (up 3.4%). Silver recovered 3.6% to $16.71 (down 2.5%). Crude rallied $2.48 to $61.68 (up 2%). Gasoline jumped 3.0% (down 2.5%), while Natural Gas declined 1.0% (down 13%). Copper surged 7.1% (down 1%). Wheat jumped 5.0% (up 10%). Corn rose 3.6% (up 7%).

Market Dislocation Watch:

February 11 – Bloomberg (Rachel Evans): “You just can’t keep a good trade down. The ProShares Short VIX Short-Term Futures fund, which lost more than 80% of its value on Feb. 6, took in the most cash on record last week. The product, which goes by the ticker SVXY, was the fifth-most popular exchange-traded fund in the U.S., absorbing more than $500 million…”

February 12 – Bloomberg (Luke Kawa): “Brave volatility traders are betting that lightning won’t strike twice. Two of the three most active options tied to the iPath S&P 500 VIX Short-Term Futures exchange-traded note (VXX) on Monday were way out-of-the-money calls. The major explosion of open interest in these options occurred in transactions that took place closer to the bid than to the ask price, which implies that this was motivated selling rather than fresh bets on another volatility spike. Volatility sellers are likely emboldened by signs the market’s fever is breaking. The Cboe Volatility Index… has roughly halved from last week’s peak, and U.S. stocks are up nearly 5% from their Feb. 9 lows.”

February 11 – Bloomberg (Luke Kawa and Joanna Ossinger): “Investors actively abandoned the world’s biggest passive fund during the onset of market mayhem. The SPDR S&P 500 exchange-traded fund (ticker SPY) suffered a record $23.6 billion in outflows last week amid the worst momentum swing in history for the underlying U.S. equity benchmark. Outflows amounted to 8% of the fund’s total assets at the start of the week, a rate of withdrawals not seen since August 2010.”

February 11 – Wall Street Journal (Alistair Gray and Robin Wigglesworth): “Wall Street is pointing the finger at insurance companies as an unlikely but pivotal source of the turbulence that wiped trillions of dollars off stock market values in recent days. While complex volatility-linked funds and algorithmic traders have been widely blamed for the wild price swings, strategists and investors said a significant portion of the selling could be traced to variable annuities, a popular tax-advantaged insurance-company product that offers customers guaranteed returns. US life insurers suffered losses on variable annuities in the financial crisis. Since then, insurers have responded by marketing variable annuities that put customers’ money into ‘managed volatility’ funds. These vehicles, which aim to produce steadier returns, shed risky assets when volatility spikes.”

February 12 – Wall Street Journal (Asjylyn Loder and Dave Michaels): “The recent implosion of two exchange-traded products is renewing questions about the impact of fast-growing passive funds on the markets they are meant to track. While exchange-traded funds have lowered the cost of investing and given individuals access to strategies once reserved for hedge funds and multibillion-dollar pensions, the $5 trillion global industry has ventured into complex strategies, sometimes with disastrous results. The latest example came on the evening of Feb. 5, as ETPs that bet against Wall Street’s fear gauge lost more than 80% of their value. The strategy has been a popular moneymaker in recent years as stocks marched steadily higher, keeping the Cboe Volatility Index, known as the VIX, at near-record lows.”

Trump Administration Watch:

February 13 – Bloomberg (Steven T. Dennis): “President Donald Trump’s budget blueprint doubles the deficits he forecast a year ago with little expectation they’ll shrink anytime soon. As a result, the $20 trillion federal debt that Trump railed against as a candidate is projected to balloon to $30 trillion a decade from now. And that’s despite the healthy dose of economic optimism in Monday’s budget: 3% growth, low inflation, low interest rates and low unemployment each year. It also assumes trillions in spending cuts Congress has already rejected… The prospect of encroaching inflation and higher interest rates contributed to the biggest stock market rout in two years. Investors who spent January celebrating Trump’s tax package with the biggest rally since 1997 watched as those gains dissolved, leaving the S&P 500 back where it was in November.”

February 12 – Politico (Theodoric Meyer): “Deficit spending is officially back in style, leaving Washington’s professional deficit scolds wondering how they’ll manage to persuade lawmakers to care about red ink again. The one-two punch of Republicans’ recent tax cuts and the bipartisan, two-year budget deal Congress passed last week could boost the next fiscal year’s deficit — the difference between what the government spends and what it collects in taxes — to more than $1 trillion, according to projections. That’s caused a mixture of alarm and depression among the think tanks and foundations that have spent years pushing Congress to shrink the annual deficits.”

February 13 – Reuters (Roberta Rampton and David Lawder): “U.S. President Donald Trump said… he was considering a range of options to address steel and aluminum imports that he said were unfairly hurting U.S. producers, including tariffs and quotas. Trump’s comments – his strongest signal in months that he will take at least some action to restrict imports of the two metals – came in a meeting with a bipartisan group of U.S. senators and representatives… Some of the lawmakers urged him to act decisively to save steel and aluminum plants in their states, but others urged caution because higher prices would hurt downstream manufacturers that consume steel and aluminum.”

February 14 – Bloomberg (Joe Light): “Fannie Mae will request an infusion of taxpayer money for the first time since 2012 because of an unintended but anticipated side effect of the corporate tax cut signed into law in December. The mortgage-finance company… said it will need to draw $3.7 billion from the U.S. Treasury in March to keep its net worth from going negative. The deficit was driven by a $6.5 billion loss in the fourth quarter, which came as a result of a drop in the value of assets Fannie can use to offset taxes. The assets became less valuable when Congress cut the corporate tax rate, resulting in a $9.9 billion hit.”

February 13 – Reuters (Katanga Johnson and Susan Cornwell): “The White House budget chief said… that, if he were still a member of Congress, he ‘probably’ would vote against a deficit-financed budget plan he and Trump are proposing. At a U.S. Senate panel hearing where he defended the administration’s new $4.4-trillion, fiscal 2019 spending plan, Mick Mulvaney was asked if he would vote for it, if he were still a lawmaker… ‘I probably would have found enough shortcomings in this to vote against it,’ said Mulvaney, director of the U.S. Office of Management and Budget (OMB)…”

U.S. Bubble Watch:

February 13 – Financial Times (Demetri Sevastopulo): “Dan Coats, the top US intelligence official, urged Congress to tackle the ballooning national debt, saying it posed a ‘dire threat’ to economic and national security. In presenting Congress with the US intelligence community’s annual global threat assessment — which ranged from the nuclear crisis on the Korean peninsula to Russian interference in US elections — Mr Coats called for action to prevent a ‘fiscal crisis … that truly undermines our ability to ensure our national security’. ‘The failure to address our long-term fiscal situation has increased the national debt to over $20tn,’ Mr Coats, the director of national intelligence, told the Senate intelligence committee. ‘This situation is unsustainable … and represents a dire threat to our economic and national security.’ His warning came a day after President Donald Trump released his budget proposal for fiscal 2019, which jettisoned a pledge from a year ago to eliminate the budget deficit over 10 years.”

February 15 – Bloomberg (Katia Dmitrieva): “Three measures of price pressures for American businesses showed they’re facing higher production costs, adding to evidence that inflation is creeping up in the U.S. economy. The Empire State Manufacturing prices-paid index increased 12.4 points to 48.6 in February, the highest level since 2012… A separate index from the Philadelphia Fed showed prices paid in that region also surging in February, reaching the highest since May 2011 … In Washington, … U.S. wholesale prices rose in January on costs of energy and hospital services. The producer-price index increased 0.4% from the prior month…”

February 13 – Bloomberg (Prashant Gopal): “Home prices jumped to all-time highs in almost two-thirds of U.S. cities in the fourth quarter as buyers battled for a record-low supply of listings. Prices for single-family homes, which climbed 5.3% from a year earlier nationally, reached a peak in 64% of metropolitan areas measured, the National Association of Realtors said… Of the 177 regions in the group’s survey, 15% had double-digit price growth, up from 11% in the third quarter… While prices jumped 48% since 2011, incomes have climbed only 15%, putting purchases out of reach for many would-be buyers.”

February 16 – Reuters: “U.S. import prices rose more than expected in January as the cost of imported petroleum and a range of other goods increased, which could boost inflation in the coming months. …Import prices jumped 1.0% last month after an upwardly revised 0.2% rise in December.. In the 12 months through January, import prices increased 3.6%, the largest advance since April 2017, quickening from a 3.2% rise in December.”

February 13 – CNBC (Tae Kim): “The American consumer is loading up on debt. Total household debt rose by $193 billion to an all-time high of $13.15 trillion at year-end 2017 from the previous quarter, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data report… Mortgage debt balances rose the most in the December quarter rising by $139 billion to $8.88 trillion from the previous quarter. Credit card debt had the second largest increase of $26 billion to a total of $834 billion. The report said it was fifth consecutive year of annual household debt growth with increases in the mortgage, student, auto and credit card categories.”

February 13 – Bloomberg (Luzi-Ann Javier): “Optimism among small companies in the U.S. rose more than forecast in January, fueled by a record number of owners who said now was a good time to expand, according to a National Federation of Independent Business survey… Overall index rose by 2 points to 106.9 (est. 105.3), close to November’s 107.5 reading that was highest in monthly data to 1986.”

February 12 – Bloomberg (Matthew Boesler): “U.S. consumers said they expected to see the fastest wage growth in several years when polled in January, according to a monthly Federal Reserve Bank of New York survey. Consumers polled expected earnings to rise 2.73% in the coming year, the most since data collection began in 2013, according to results of the New York Fed’s Survey of Consumer Expectation… January was only the third month in the survey’s 56-month history in which expected wage growth topped expected consumer price inflation, which fell slightly, to 2.71%.”

February 13 – New York Times (Conor Dougherty): “The United States is on track to achieve the second-longest economic expansion in its history. Unemployment is at a 17-year low. And California’s state budget has a multibillion-dollar surplus. So why is its longtime governor, Jerry Brown, issuing prophecies of doom? ‘What’s out there is darkness, uncertainty, decline and recession,’ Mr. Brown said recently after presenting his final budget to legislators. California has accounted for about 20% of the nation’s economic growth since 2010… nBut Mr. Brown, in his final year in office, has raised the question on the minds of those paid to think about the economy: How long can this last? For California and the nation, there is a long list of things that could go wrong. A surging budget deficit could stoke higher interest rates. And if the recent upheaval in stocks signals a longer-term decline, it would hurt California in particular because its budget relies heavily on high earners whose incomes rise and fall with the market… In 2009, as the last recession took hold, California state revenue fell 19%, versus 8% for state revenues nationwide, according to Moody’s Analytics.”

February 14 – Bloomberg (Sho Chandra): “U.S. retail sales unexpectedly declined in January and December receipts were revised lower, indicating consumer demand in the first quarter may cool… Overall sales fell 0.3% (est. 0.2% gain), the most since February 2017, after little change in prior month (prev. 0.4% increase). Purchases at automobile dealers dropped 1.3%, the most since August.”

February 13 – Wall Street Journal (Gunjan Banerji): “A U.S. regulator is looking into whether prices linked to the stock market’s widely watched ‘fear index’ have been manipulated, according to people with knowledge of the matter. The Cboe Volatility Index, known as the VIX, is derived from S&P 500 options prices. The Financial Industry Regulatory Authority is scrutinizing whether traders placed bets on S&P 500 options to influence prices for VIX futures… Separately, a letter from a law firm Monday representing an unidentified client urged U.S. regulators to investigate VIX manipulation, claiming it has cost investors hundreds of millions of dollars in losses each month.”

Federal Reserve Watch:

February 14 – CNBC (Jeff Cox): “U.S. consumer prices rose considerably more than expected in January, fueling fears that inflation is about to turn dangerously higher. The Consumer Price Index rose 0.5% last month against projections of a 0.3% increase… Excluding volatile food and energy prices, the index was up 0.3% against estimates of 0.2%. The report indicated that price pressures were ‘broad-based,’ with rises in gasoline, shelter, clothing, medical care and food. Markets reacted sharply to the news.”

February 13 – Financial Times (Demetri Sevastopulo, Sam Fleming and Robin Wigglesworth): “The White House is considering appointing Loretta Mester, president of the Federal Reserve Bank of Cleveland, as vice-chair of the US Federal Reserve’s board of governors. One person familiar with the selection process for the powerful central banking role said White House officials had discussed the job with Ms Mester and were ‘impressed’ with her. However, the person stressed that there was currently no frontrunner for the position…”

February 13 – Reuters (Howard Schneider): “The recent stock market sell-off and jump in volatility will not damage the economy’s overall strong prospects, Cleveland Fed president Loretta Mester said… in warning against any overreaction to the turbulence in financial markets. ‘While a deeper and more persistent drop in equity markets could dash confidence and lead to a pullback in risk-taking and spending, the movements we have seen are far away from this scenario,’ Mester said of a market rout…”

February 14 – Wall Street Journal (Justin Lahart): “With the economy throwing off more heat, the biggest risk for the Federal Reserve is that it falls behind on raising interest rates. And if investors suffer as a result? So be it. Inflation picked up again last month. The Labor Department on Wednesday reported that consumer prices rose 0.5% in January from December, putting them 2.1% above their year-earlier level. Core prices, which exclude food and energy, rose 0.3% for a 1.8% gain on the year. Both measures were stronger than economists expected.”

China Watch:

February 12 – Reuters (Kevin Yao, Fang Cheng): “China’s banks extended a record 2.9 trillion yuan ($458.3bn) in new yuan loans in January, blowing past expectations and nearly five times the previous month as policymakers aim to sustain solid economic growth while reining in debt risks. While Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share, the lofty figure was even higher than the most bullish forecast… Net new loans surpassed the previous record of 2.51 trillion yuan in January 2016, which is likely to support growth not only in China but may underpin liquidity globally as major Western central banks begin to withdraw stimulus… Corporate loans surged to 1.78 trillion yuan from 243.2 billion yuan in December, while household loans rose to 901.6 billion yuan in January from 329.4 billion yuan in December…”

February 11 – Wall Street Journal (Manju Dalal, Shen Hong and Chuin-Wei Yap): “An engine of consumer loan growth in China is slowing. But that might not be such a bad thing, at least for regulators and market participants that have fretted about a rise in risky lending practices over the past year. China’s market for asset-backed securities–which bundle up car loans, mortgages, consumer loans and other receivables into bondlike products–surged in 2017, led by issuers including the financial affiliate of Alibaba Group Holding Ltd. and other nonbank lenders. Total issuance of such instruments, which are mostly denominated in yuan, jumped 90% to over $220 billion last year from 2016, according to S&P Global.”

February 13 – Bloomberg (Yuko Takeo and Yoshiaki Nohara): “Debt-laden Chinese conglomerate HNA Group Co. had its credit assessment cut for the second time in less than three months by S&P Global Ratings, which cited significant debt maturities amid deteriorating liquidity. Separately, some HNA directors and top executives have purchased offshore dollar bonds guaranteed by the group… The company is in a ‘very healthy’ financial position, it said. S&P lowered HNA’s credit profile to ccc+ from b.”

February 12 – Bloomberg: “HNA Group Co., the once-voracious hunter of global trophy assets, is seeking to sell more than $6 billion in properties worldwide as pressure intensifies for the Chinese conglomerate to speed up disposals so it can repay its debts. The group… said it agreed to sell two plots of land in Hong Kong it bought less than a year ago for HK$16 billion ($2 billion) to the city’s second-richest man. HNA is also said to have been in talks to sell a pair of office buildings in London’s Canary Wharf district it bought for more than $500 million and offering a raft of properties in the U.S. valued at about $4 billion.”

February 11 – Bloomberg: “Billionaire Hui Ka Yan’s China Evergrande Group, the nation’s number three by sales last year, has started selling homes cheap. A 12% discount will apply to many apartments ahead of a week-long Chinese New Year holiday… Sweeteners include down-payments by installment. The company may see headwinds for the property market amid local governments’ stringent home-buying curbs and the potential for liquidity to tighten. One analyst’s theory: this is a bid to please a government determined to cool housing prices, ahead of a long-standing plan to list a property unit on the mainland.”

February 11 – Wall Street Journal (Scott Patterson and Russell Gold): “Miners push bicycles piled high with bags of a grayish-blue ore along a dusty road to a makeshift market. There, they line up at wholesalers with nicknames such as Crazy Jack and Boss Lee. Most of the buyers are Chinese. Those buyers then sell to Chinese companies that ship the bags, filled with cobalt, to China for processing into rechargeable, lithium-ion batteries that power laptops and smartphones and electric cars. There is a world-wide race to lock up the supply chain for cobalt, which will likely be in even greater demand as electric-car production rises. So far, China is way ahead.”

Central Bank Watch:

February 11 – Reuters (John Miller): “The European Central Bank is concerned that the United States is exerting ‘political influence’ on exchange rates and will make this a theme at upcoming G20 meetings, ECB policymaker Ewald Nowotny said… ‘We in the ECB are certainly concerned about attempts by the United States to politically influence the exchange rate,’ Nowotny told Austrian broadcaster ORF. ‘That was a theme of economic discussions in Davos, where the ECB addressed this, and it will certainly be a theme at the upcoming G20 summit.'”

Global Bubble Watch:

February 12 – Bloomberg (Cecile Gutscher): “Societe Generale SA is telling yield-seeking bond investors to give up the ghost: they can no longer bank on dormant inflation underpinning risk bets, from credit to emerging markets to long-dated government debt. ‘The bear market in rates has started, and with it credit, and eventually emerging markets, should both come under pressure,’ strategists led by Brigitte Richard-Hidden wrote… ‘There has been a regime shift in the market, which implies further increases in yields.'”

February 10 – Financial Times (Chris Flood): “Investors ploughed more than $100bn in new cash into exchange traded funds in January, a record monthly inflow that helped drive assets held in ETFs globally above the $5tn mark for the first time. The surge in January follows four consecutive years of record breaking inflows into ETFs, a tectonic shift that is sending shockwaves across the entire asset management industry… Net new inflows into exchange traded funds and products reached $105.7bn in January, according to… ETFGI…”

February 13 – Financial Times (Joe Rennison and Eric Platt): “The premium investors are demanding to own loans that are packaged into bonds has tumbled to the lowest since the financial crisis, in a sign that the market has not been roiled by the return of volatility in stocks. The market for collateralised debt obligations, as the securities are known, has boomed over the past two years as the juicier yields they offer draws buyers. That, in turn, has driven the issuance of collateralised loan obligations that this year has already eclipsed the record pace of 2017. Barings… priced a $517m CLO — composed of loans made to weaker corporate borrowers — at the lowest spread over a benchmark interest rate since 2008. The safest triple A part of the CLO priced at just 99 bps above Libor…”

February 11 – Reuters (Tom Arnold and Alexander Cornwell): “Sharp swings in global financial markets in the past few days are not worrying since economic growth is strong but reforms are still needed to avert future crises, the managing director of the International Monetary Fund said… ‘I’m reasonably optimistic because of the landscape we have at the moment. But we cannot sit back and wait for growth to continue as normal,’ she said…”

Fixed-Income Bubble Watch:

February 13 – Wall Street Journal (Daniel Kruger and Michael S. Derby): “Bond investors are grappling with concerns that the U.S. government’s decisions to cut taxes and increase spending are stoking an economy that doesn’t need a boost, at the expense of long-term financial health. Selling in government bonds that began after the passage of tax cuts and accelerated amid fears of a pickup in inflation has darkened investors’ outlook in recent weeks. Even as the government boosts its borrowing, the Federal Reserve has stepped away from bond purchases and is now shrinking its holdings, raising worries about the appetite from private investors who will need to make up the difference. Because the 10-year Treasury note is a bedrock of global financial markets, rising yields… can lift borrowing costs, affecting everything from state and local governments to mortgages, credit cards, and corporate loans.”

February 12 – Bloomberg (Netty Idayu Ismail): “Treasury 10-year yields will rise to as high as 3.5% in the next six months as the market prices in a steeper pace of Federal Reserve tightening, according to Goldman Sachs Asset Management. The U.S. central bank will probably raise interest rates four times this year, defying the consensus for around three, said Philip Moffitt, Asia-Pacific head of fixed income…, which oversees more than $1 trillion. Yields will also increase as the Fed trims the holdings of Treasuries it purchased through quantitative easing, he said. ‘As QE gets tapered through this year and into next year, we’ve got a big swing in the supply duration coming,’ Moffitt said… ‘It’s going to put upward pressure on yields. I would think that 3.5% is not a very brave forecast.'”

February 15 – Bloomberg (Sid Verma): “As stocks boogied to the risk-on beat Wednesday, investors in the world’s third-largest fixed-income exchange-traded fund left the party at a frenetic pace. The iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund (LQD) was hit by a record $921 million outflow, the largest daily redemption since its 2002 inception… At 2.7%, it represents the largest post-crisis withdrawal as a share of total assets at the start of the session for the high-grade, dollar-denominated fund. It now manages $33 billion.”

February 13 – CNBC (Jeff Cox): “Fund managers have sliced their bond allocations to the lowest level in 20 years as fears grow that the sector poses the biggest threat to markets. Along with reducing their fixed income exposure, 60% of professional investors also say inflation and troubles overall in the bond market pose the biggest threat of a ‘cross-asset crash,’ according to the February Bank of America Merrill Lynch Fund Manager Survey. Respondents say they’ve reduced their bond portfolios to a net 69% underweight, the lowest since the survey began two decades ago.”

February 14 – Bloomberg (Danielle Moran): “Bankers say bad loans are made in good times, and the $3.8 trillion municipal-bond market may be no exception. High demand from investors, a dwindling supply of new deals, and historically low yield penalties on the riskiest bonds has created an borrower’s market, Municipal Market Analytics analysts Matt Fabian and Lisa Washburn wrote… This atmosphere has produced a rise in issuance in sectors most ‘prone to impairment,’ they said. ‘Over recent years the mix of defaults has become more diversified than it was previously,’ Washburn wrote. Before the 2008 credit crisis, nearly all defaults were concentrated in the healthcare and housing sectors. Now that trend is expanding into utility districts and tax-based issues, typically known as safe sectors, according to the firm.”

Europe Watch:

February 14 – Reuters (Jan Strupczewski): “Euro zone industrial production jumped more than expected in December…, underlining the fastest economic growth rate in a decade that economists expect to continue in 2018. Eurostat said industrial production in the 19 countries sharing the euro rose 0.4% month-on-month for a 5.2% year-on-year gain.”

February 13 – Financial Times (Robert Smith): “When European bond investors tired of private equity firms and the law firms they employ watering down key protections in junk-rated debt, they turned to the Association for Financial Markets in Europe. Influential asset managers such as AllianceBernstein and Schroders wrote a public letter to the board of AFME’s high-yield division — the closest thing the $400bn European junk bond market has to an industry trade body — expressing their dismay. These investor members of AFME took particular aim at the deteriorating quality of covenants — important clauses that restrict companies from taking reckless actions such as raising too much debt. That was in 2015. Today the quality of these covenants… is even worse. Asset managers such as pension funds are worried that whittling away these safeguards will leave them more exposed to losses when the credit cycle turns.”

Japan Watch:

February 14 – Financial Times (Robin Harding): “The yen’s surge to ¥106.5 against the dollar — a 15-month high — does not require market intervention, said Japan’s finance minister, as nerves grow about the currency’s sharp appreciation this year. Speaking to the budget committee of the Diet’s lower house, Taro Aso said the ‘yen isn’t rising or falling abruptly’ in a way that would justify the finance ministry stepping in and selling the currency. Against a backdrop of strong stock markets and solid global growth, Mr Aso’s remarks suggest the finance ministry does not yet fear a hit to Japan’s economy from the rising currency. His words may encourage markets to push the yen higher.”

February 13 – Financial Times (Hudson Lockett): “Japan’s economy has recorded eight consecutive quarters of economic growth — its longest streak for 28 years — despite the pace of expansion slowing in the final three months of 2017. A preliminary reading on gross domestic product from the Cabinet Office reported annualised growth of 0.5% in the fourth quarter, falling from a pace of 2.5% in the third quarter… However, consumption and business investment were both strong, suggesting that Japan’s economic cycle was not on the wane, with robust expansion set to continue in 2018. The eight quarters of growth mark Japan’s longest streak since a 12-quarter stretch that ended in 1989.”

EM Bubble Watch:

February 13 – Financial Times (Robert Smith): “Should investors worry about debt in emerging markets? The past week’s global market sell-off, and the rise in US interest rates that lies behind it, suggest they should at least keep a very close eye… One of the selling points of EMs during the rally in their stocks and bonds over the past two years has been the improvement in their macroeconomic fundamentals… Indeed, there is much less EM debt today than there was in the crisis years of the 1980s and 1990s. But since the global financial crisis of 2008-09, EM debts have been on the rise again. In dollar terms, in the IIF’s 21 countries, they quintupled from $12tn in March 2005 to $60tn in September last year. In relation to gross domestic product, they rose from 146% to 217%. Significantly, as the chart shows, the amount of debt owed in foreign currencies has also risen over the same period, both in absolute terms and as a share of GDP.”

Leveraged Speculation Watch:

February 13 – Bloomberg (Luzi-Ann Javier): “Billionaire hedge fund manager Ray Dalio boosted his holdings in the two largest gold-backed ETFs last quarter before prices of the metal capped the biggest annual gain in seven years. As of the end of December, Dalio’s Bridgewater Associates, the world’s biggest hedge fund, raised its stake in SPDR Gold Shares, its fifth-largest holding, by 14,091 shares to 3.91 million shares…”

Geopolitical Watch:

February 12 – Bloomberg (Gregory White): “The war in Syria is threatening to embroil the major powers in direct conflict. Russian President Vladimir Putin may have declared victory in his Syrian campaign two months ago, but… a strike by U.S.-led coalition forces in the east of Syria last week killed as many as 200 troops working for Russian military contractors. The raid was likely the first such deadly conflict between the former Cold War rivals since the Vietnam War, according to Russian experts. Both sides so far have tried to keep the details secret to avoid escalating an already volatile situation. Just days later, Israel downed an Iranian drone and struck targets in Syria, raising the ante in its efforts to drive forces backed by Tehran away from its border. Following those strikes, Putin urged ‘avoiding any steps that could lead to a new round of confrontation.'”

February 11 – Wall Street Journal (Rory Jones): “The loss of an Israeli military jet to Syrian fire over the weekend has raised the chances of a more forceful response from Israel to deter Iranian military expansion across its border, which could open up another front line in war-torn Syria. The clash began Saturday morning after Israel said it intercepted an Iranian drone that had infiltrated its airspace from Syria. Israel responded that day with airstrikes on Syrian military positions, and Syria shot down one of the Israeli warplanes, which crashed in Israeli territory. Israel then carried out more-extensive airstrikes on Saturday deep inside Syria targeting what its military said were Syrian and Iranian military positions.”

February 15 – Wall Street Journal (Yaroslav Trofimov): “Here’s what happened in Syria over the past week or so. Try to make out who’s whose friend–and who’s whose foe. The Russian-backed Syrian regime gave free passage through its territory to American-backed Kurdish militias so they could fight against America’s NATO ally Turkey. The Syrian regime at the same time attacked these American-backed Kurdish militias in another part of the country, triggering U.S. strikes that killed more than 100 Syrian troops and a significant number of Russian military contractors. In yet another part of Syria, Turkey threatened to attack American troops embedded with these Kurdish forces, prompting a counterwarning of an American military response.”

February 11 – Reuters (Parisa Hafezi): “Hundreds of thousands of Iranians rallied on Sunday to mark the anniversary of Iran’s 1979 Islamic revolution, denouncing the United States and Israel as oppressors. President Hassan Rouhani, addressing flag-waving crowds on central Tehran’s Azadi (Freedom) Square, made no specific reference to Israel’s air strikes in Syria on Saturday which it said were aimed at air defense and Iranian targets. But he told the crowd: ‘They (U.S. and Israel) wanted to create tension in the region … they wanted to divide Iraq, Syria … They wanted to create long-term chaos in Lebanon but … but with our help their policies failed.'”


Doug Noland

Doug Noland
Credit Bubble Bulletin

Doug Noland

I just wrapped up 25 years (persevering) as a “professional bear.” My lucky
break came in late-1989, when I was hired by Gordon Ringoen to be the trader
for his short-biased hedge fund in San Francisco. Working as a short-side
trader, analyst and portfolio manager during the great nineties bull market
– for one of the most brilliant individuals I’ve met – was an exciting, demanding
and, in the end, a grueling and absolutely invaluable learning experience.
Later in the nineties, I had stints at Fleckenstein Capital and East Shore
Partners. In January 1999, I began my 16 year run with PrudentBear, working
as strategist and portfolio manager with David Tice in Dallas until the bear
funds were sold in December 2008.

In the early-nineties, I became an impassioned reader of The Richebacher Letter.
The great Dr. Richebacher opened my eyes to Austrian economics and solidified
my lifetime passion for economics and macro analysis. I had the good fortune
to assist Dr. Richebacher with his publication from 1996 through 2001.

Prior to my work in investments, I worked as a treasury analyst at Toyota’s
U.S. headquarters. It was working at Toyota during the Japanese Bubble period
and the 1987 stock market crash where I first recognized my love for macro
analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated
summa cum laude from the University of Oregon (Accounting and Finance majors,
1984) and later received an MBA from Indiana University (1989).

By late in the nineties, I was convinced that momentous developments were
unfolding in finance, the markets and policymaking that were going unrecognized
by conventional analysis and the media. I was inspired to start my blog,
which became the Credit Bubble Bulletin, by the desire to shed light on these
developments. I believe there is great value in contemporaneous analysis,
and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic
Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke
has referred to understanding the forces leading up to the Great Depression
as the “Holy Grail of Economics.” I believe “The Grail” will instead be
discovered through knowledge and understanding of the current extraordinary
global Bubble period.

Disclaimer: Doug Noland is not a financial advisor nor is he providing investment
services. This blog does not provide investment advice and Doug Noland’s comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. The Credit Bubble
Bulletins are copyrighted. Doug’s writings can be reproduced and retransmitted
so long as a link to his blog is provided.

Copyright © 2015-2017 Doug Noland

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Published at Sat, 17 Feb 2018 06:24:32 +0000

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Trading With Wolves

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By ToffanelloG from Pixabay

Trading With Wolves

by THE MOLE

The swings of the past week serve as yet another healthy reminder that all markets work on a zero sum basis. After all Martin Scorsese called it the ‘Wolves of Wall Street’ for a reason – not the bears or the bulls of Wall Street. However the underpinnings of what may serve as sensationalistic backdrops for summer blockbusters are what we as traders need to deal with in real life on a recurring basis. And it is a reality (mostly) devoid of hookers, drugs, yachts, lambs, and entertainment slush accounts. Trading should be boring because as soon as things start to get exciting significant losses become a growing possibility.

So the bulls are back with a vengeance, for now that is. I’m still not convinced that the fat lady has completed her repertoire and will remain nimble over the remainder of this month. Which means smaller position sizing, wider stops, and being extremely picky with my entries. I’m having a late start today due to various chores I had to attend to today so all I can offer today is a quick update on our running campaigns.

The ZB short campaign was stopped out at ~1.2R. That’s fine and we may actually get another chance at entry by the looks of it.

My debit call spread in the E-Mini is still rocking and if you take a peek at the VIX in comparison with last week then you know why I didn’t grab naked calls in the first place. Vega squeeze would have turned my positions from winning into a losing proposition. This bounce thus far is productive but until ES 2727 is taken out the bears still have a very good chance of taking things lower. Above 2727 we shift back into a more bullish perspective.

The CL campaign is kind of flopping all over the place but I decided to leave it in place as I very much like the formation on the daily. However it’s no guarantor of success and a stop out is still in play.

EUR/USD was a short entry yesterday and quickly proceeded lower. Unfortunately it snapped right back however and stopped me out at break/even (not 1.2R as shown on the chart – sorry). After that I was kind of observing the situation and if you are a sub then you know that my original plan was to go long on a touch of the ILS of my previous short position.

So when that price range was touched I went long with a stop near 1.234 (got to love that one). However things are unfolding quickly now and I’m advancing my trail to < 1.2463. So yeah, a flurry of activity but nothing lost on the short and a wee bit gained already on the long position. THAT’s what I meant by being nimble 🙂

Published at Thu, 15 Feb 2018 17:13:30 +0000

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Lessons in Trading and Psychology – 4: Volatility

Lessons in Trading and Psychology – 4: Volatility

When we understand what is going on in the market, it gives us a psychological sense of clarity and control.  Much of our worst, reactive trading occurs when we feel out of control.  Looking closely at how the market is moving can provide us with understanding–and that can be tremendously helpful not only to our trading, but also to our trading psychology.

In hearing from many traders recently, I’m finding that they are having a difficult time adapting to the market’s shifting volatility.  With volatility declining–and the volatility of volatility waning–we get choppier market conditions.  With volatility expanding–and greater vol of vol–we see momentum moves.  Many times, traders are zigging when they should be zagging because they are misreading–or *not* reading–market volatility.

Above is a tool I created in about 40 minutes from historical data via the e-Signal platform.  Here we’re looking at the volatility (high/low range) in each five minute bar in SPY relative to the average range for that same time bar over the prior five trading sessions.  So, for example, we’re seeing how today’s 9:30 – 9:35 AM EST bar compares in size to the average 9:30 – 9:35 AM EST bar for the prior five trading sessions.

Note how, from the very start of trading yesterday, we were seeing relative ratios below 1.0.  That means we’re getting less movement in each time period than we’ve seen over the past week of trading.  Very quickly that can alert you to the fact that this is not likely to be a high momentum market.  In the lower volatility environment, moves are less likely to extend and we want to be more selective about taking trades and opportunistic about taking profits.

Note also how it would be easy to create this relative volatility measure for any stock or index you’re following.  We typically look closely at price movements and trends; we’re less likely to examine how volatility is trending.  Adapting our trading to the market environment allows us to recognize when we should be trading moves and when we should be fading them.  That can eliminate a helluva lot of frustration!

Further Reading:
 

Published at Wed, 14 Feb 2018 15:19:00 +0000

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Key Change That Nobody Talks About

Key Change That Nobody Talks About

By: Arkadiusz Sieron | Tue, Feb 13, 2018


Last week, everyone focused on the stock market sell-off. Reasonably enough, given the pace of the declines. But the analysts failed to pay enough attention to the very important shift. That change may be more important than Trump’s victory in the presidential election. Will the critical switch make gold shine – or dull?

Three Important Legacies of Yellen’s Fed Tenure

A crucial change is behind us. Powell is the new boss. Yellen is out. For better or worse, she doesn’t serve as the Fed Chair any longer. Although economists rated Yellen’s tenure very highly, President Trump didn’t renominate her for the position. Rightly or not? We don’t care. Let journalists debate endlessly – we will analyze the crucial Yellen’s imprints on the Fed, which could affect the gold market in the future.

First, Yellen focused mostly on the labor market, not without some successes. We don’t attribute it solely to her, but the unemployment rate fell from 6.7 to 4.1 percent under her tenure. As a reminder, the Fed has a dual mandate: maximum employment and stable prices. Although many Fed officials used to worry about high inflation, she was different. Yellen didn’t fear the uptick in inflation as long as there was a slack in the labor market. She, thus, believed that ultra low interest rates could and should stay near zero for far longer than previously thought to combat unemployment. Yellen hiked them not earlier than in December 2015. Since then, she gradually raised them to the range of 1.25 percent to 1.5 percent, which is still very low. The gradual tightening was positive for gold, which would have likely struggled more, had monetary policy been more aggressive. If Jerome Powell continues this cautious policy, gold may shine, despite rising interest rates.

Second, Yellen managed to start the unwinding of the Fed’s massive balance sheet, without triggering stock market turmoil. After unconventional actions of Bernanke, she had to get back to normal monetary policy, but not too fast. She definitely succeeded. If anything, the Fed is behind the curve. This is why gold wasn’t strongly hit by the Fed’s tightening. The U.S. central bank raised interest rates a few times, but the financial conditions remained easy.

Third, Yellen mastered communication with the public. She held quarterly news conferences and smoothly telegraphed the Fed’s moves well in advance. Thanks to well-planned expectations guidance, Yellen – contrary to Bernanke who triggered a taper tantrum by his unexpected remarks in 2013 – avoided any major stumbles. The clear communication transformed gold’s reaction function. The yellow metal now reacts more to the changes in the rate hike expectations than to real monetary policy decisions. Sell the rumor, buy the fact – as one can see in the chart below.

Chart 1: Gold prices under Yellen’s Fed tenure

Jerome Powell – Great Continuator or Game Changer?

Jerome Powell is now the new Fed Chair. Analysts expect that he will continue Yellen’s stance. But will he? How you play depends on your opponent. Yellen faced a sluggish recovery. But Powell sees tax cuts, higher economic growth, very low unemployment and perhaps finally rising wages. He will have to deal with the accelerating inflation, so Powell could move faster on normalization. Actually, such a scenario scared some investors last week into deciding to sell their equities. As people weren’t sure what to expect of Powell, good economic data turned out once again to be bad news for the financial markets. Surprisingly strong payrolls make traders to worry that the Fed will tighten its stance more. Hence, unless Powell convinces the markets that he will continue Yellen’s gradual approach, gold may react paradoxically for a safe-haven: decline on bad news and rise on good news.

But will he intervene to calm the financial markets? We don’t bet on that. Greenspan cut interest rates after the stock market declined 35 percent in the three months after he became the Fed Chair, but the current downturn is much smaller. Actually, we have seen some rebound since Friday. Another paradox: the correction in stock prices may help Powell in doing his job, because lower equity prices could relieve concerns about the formation of dangerous asset bubbles.

Conclusions

The conclusion is clear: although the latest declines were a tough welcome for Powell, they may actually be helpful for him. He is expected to continue Yellen’s policy. It is generally true, but economic conditions changed as well as the composition of the FOMC in 2018. It is now more hawkish than last year.

Given these developments, the shift from Yellen to Powell may importantly strengthen the hawks among the Fed. Hence, unless the correction evolves into turmoil, we still expect three (or even four) hikes this year. Indeed, according to CME data, the Fed remains on track to lift the federal funds rate in March. The market odds of a hike are above 75 percent. Higher interest rates should theoretically be negative for gold. But the usual link seems to be broken now. The part of the answer is the U.S. dollar. Another issue is that we are in the late stages of the economic cycle – as the cycle matures, volatility increases and investors start to buy more gold as a hedge.

By Arkadiusz Sieron


Arkadiusz Sieron

Arkadiusz Sieron
Sunshine Profits’ Gold
News Monitor
and Market
Overview
Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview

Arkadiusz Sieron

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious
metals market enthusiast, currently a Ph.D. candidate, dissertation on the
redistributive effects of monetary inflation (Cantillon effects). Arkadiusz
is a free market advocate who believes in the power of peaceful and voluntary
cooperation of people. He is an economist and board member at the Polish Mises
Institute think tank. He is also a Laureate of the 6th International Vernon
Smith Prize. Arkadiusz is the author of Sunshine
Profits
‘ monthly Market
Overview
report, in which he keeps subscribers up-to-date regarding key
fundamental developments affecting the gold market and helps them prepare for
the major changes.

Copyright © 2014-2017 Arkadiusz Sieron

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

Published at Tue, 13 Feb 2018 13:44:05 +0000

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Data overload: commodity hedge funds close as computers dominate

A computer screen showing stock graphs is reflected on glasses in this illustration photo taken in Bordeaux, France, March 30, 2016. REUTERS/Regis Duvignau

Data overload: commodity hedge funds close as computers dominate

LONDON (Reuters) – “Chocfinger” made his name and his money by taking bold bets on cocoa markets. But after nearly four decades of trading, sometimes winning, sometimes losing, Anthony Ward threw in the towel.

Ward blames the rise of computer-driven funds and high-frequency trading for forcing him and some other well-known commodities investors to close their hedge funds and look for opportunities where machines can’t make a difference.

While computerized trading is not new, Ward and others argue its steady rise has reached a tipping point that is distorting prices and creating uncertainty not only for investors, but for chocolate firms, carmakers and others who rely on commodities.

It was in January 2016, after a slide in cocoa prices, that Ward decided the days of traditional commodity investors doing well from taking positions based on fundamentals such as supply and demand may be numbered.

“It was just too big, too quick, too dramatic. And completely against the fundamentals,” Ward told Reuters.

Commodity markets fell across the board that month after weak factory data in China raised fears of lower demand from the world’s top consumer of raw materials.

Ward blamed the slide in cocoa on what he regarded as misplaced selling by computer-driven funds reacting to the Chinese data, given China has scant impact on the cocoa market.

“The actual fundamentals in cocoa were extraordinarily bullish in January 2016. We were forecasting the largest harmattan in history, which is exactly what happened,” he said.

His prediction that a hot, harmattan wind from the Sahara desert would hit harvests in Ivory Coast and Ghana and drive cocoa prices higher did come to pass – but not before the fund had been forced to cut its losses when the market slumped.

At the end of 2017, Ward closed the CC+ hedge fund that had invested in cocoa and coffee markets for years.

And at the end of January, commodity hedge fund Jamison Capital Partners run by Stephen Jamison closed. He told investors that machine learning and artificial intelligence had eliminated short-term trading opportunities, while commodities did not offer obvious benefits in the long term.

Also in 2017, renowned oil trader Andrew Hall, who earned $100 million in 2008, called time on his main Astenbeck Commodities Fund II.

He had said in an earlier letter to investors that extreme volatility caused by “non-traditional investors and algorithmic trading” made it difficult to hold onto long-term positions when the market moved against them.

In 2016, Michael Farmer, founding partner of the Red Kite fund that specializes in copper, also accused high-frequency traders using super-fast computers of distorting the market and getting an unfair advantage.

DISTORTION?

Other investors have taken refuge in related sectors or left commodities altogether, exasperated by the automated trading that drives about half of U.S. commodity futures trading.

A study by the U.S. Commodity Futures Trading Commission last year showed computerized trading on the world’s largest futures exchange, CME Group, accounted for 49 percent of the volume in agriculture contracts and 58 percent for some energy contracts.

At the same time, data from industry tracker Hedge Fund Research shows the average hedge fund returned 8.64 percent in 2017 but commodity hedge funds eked out returns of just 0.43 percent.

Ward estimates that while in the past automated trading would distort the market by 10 percent to 15 percent from prices justified by fundamentals – which he said was irritating but often manageable – it can now reach 25 percent to 30 percent.

Algorithmic, or systematic, funds use computers to make decisions after processing vast amounts of data, or trade on signals such as market momentum or when prices hit key levels.

Those who run automated funds argue that they inject much-needed liquidity while capturing the dynamics of the market more efficiently than traditional trading strategies.

Farmer and others say, however, that it is unfair for exchanges to allow high-frequency trading (HFT) groups to have co-location platforms, allowing them to put super-computers in the same data center as the exchange servers.

They say that gives HFTs the tiny advantage they need to jump ahead of incoming orders, effectively piggybacking. Traditional investors say this exacerbates market moves and in turn makes it more costly for them to take out hedges when price moves go against them.

MIND-BOGGLING DATA

Systematic fund managers see the rise of their sector as a part of a trend that is transforming not only financial markets but wider society with the advent of artificial intelligence, robots and machine learning.

“I don’t feel too sorry (for traditional fund managers),” said Anthony Lawler, co-head of GAM Systematic, the quantitative part of Swiss money manager GAM Holding, which had assets under management (AUM) of 148.4 billion Swiss francs ($158 billion) at the end of September.

“Information, which used to be expensive, difficult to get, not easily shared, is now ubiquitous. It’s truly mind-boggling the depth of data available,” Lawler said.

“That means it’s much more difficult to have an information edge and advantage to the player who can digest and analyze the data the quickest.”

GAM Systematic, which had $4.3 billion of assets at the end of September, regards commodities as one of many markets it monitors for opportunities by crunching data such as weather forecasts and shipping data that shows how full a vessel is.

He acknowledged that algorithms can lead to mistakes and over-generalization, but said that should just open up opportunities for traditional fund managers.

“If you’re a great discretionary trader, then sit on the sidelines and wait for those missteps … I would be super happy if that trader is successfully picking off some of these missteps,” said Lawler.

Systematic funds also make decisions based on the structure and technical levels of markets. Some analysts argue that markets absorb fundamental information before many analysts are aware of it and automated funds are simply more efficient.

“I used to do a lot of fundamental analysis when I was in equities and I realized it doesn’t really matter, it was a waste of time,” said Guy Wolf, global head of market analytics at commodities broker Marex Spectron.

“The truth is fundamental analysis is effectively the work of a historian, seeking to provide explanation for what has already occurred,” he said.

SCHIZOPHRENIC MARKETS

Some fund managers and analysts say computerized trading has been amplified in commodities because other participants such as banks and pension funds have cut exposure to the sector.

Total global commodity assets under management more than halved from 2012 to 2015 to under $200 billion, though the total has since recovered to just over $300 billion, according to Barclays.

“There’s less liquidity, and therefore prices are more choppy, more schizophrenic, because of the exit of so many market counterparties,” said Robin Bhar, head of metals research at French bank Societe Generale.

Not all those who have closed commodity hedge funds put the blame on computers.

“Either you read the information badly, or you have bad information,” said Christophe Cordonnier, who co-founded the Belaco Capital fund in 2012 after heading investor sales in commodities at Societe Generale.

Cordonnier says Belaco Capital made a bad decision on timing, launching the fund in 2012 and counting on a global economic recovery to boost commodities. After a rebound failed to materialize, the fund closed in 2015.

Other fund managers have survived by being creative, such as Christoph Eibl, chief executive of Tiberius Asset Management, whose commodity assets under management have dwindled from $2.5 billion at its peak to about $350 million.

“Seven years ago we started diversifying our business operations,” said Eibl. He now operates a merchant business in metals with a turnover of more than $1 billion a year, runs tungsten and tin mines in Africa and Asia and is soon to launch a metals-backed crypto-currency.

Ever the risk taker, Ward still plans to trade cocoa and coffee – but only with his own money – while looking for opportunities in the underlying physical commodities markets. And he’s keeping a close eye on computerized trading.

“In the end the whole thing will blow up because when there’s a big problem, a black swan event, they won’t be able to get out. It will be very messy,” said Ward.

Additional reporting by Nigel Hunt and Maiya Keidan; editing by Veronica Brown and David Clarke

Published at Mon, 12 Feb 2018 12:22:46 +0000

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Bounces Happen

Bounces Happen

by THE MOLE

Equities as well as cryptos are seeing sustained buying interest, which given the respective corrections over the past two weeks isn’t surprising. Bounces happen, especially after significant sell offs, and the main question in the minds of investors and traders is whether or not it can be sustained. I saw ZeroEdge claiming yesterday that Goldman had announced confirmation of a regime change in equities, and although I would generally agree I’m always a bit suspicious regarding anything that comes out of Goldman’s PR machine.

Thus it actually increased my confidence that at least a temporary reversal in equities was in play. And this would be a favorable time for it as week #7 is historically positive. But if you look at the remainder of the month and early March then at least seasonally speaking there absolutely is the potential for a larger take down.

If you swung by the comment section or if you caught my tweet on Friday then you may as well hold a few SPY calls. The futures weren’t an option for me – way too risky. And although I absolutely despise buying options on a Friday afternoon the formation on the Zero didn’t leave me much choice:

Those bullish divergences, both on the hourly and the 5-min panels, were absolutely text-book and way too juicy to pass up. By the way, if you’re not a sub yet and don’t want to miss out on entries like these moving forward then you hopefully know what to do. And here’s a link to the tutorial/intro page if you’re a naturally born skeptic and need more convincing.

Anyway, stop management is a bit more involved when it comes to calls or spreads. I usually use alerts on my futures charts (not the Spiders) and you have to increasingly account for theta burn of course. Meaning if I get stopped out at ‘break/even’ I’ll of course will have lost premium. As I used a debit spread (of course) at least I won’t be worrying about vega which I’m sure will get squeezed hard should we continue to ascend higher in equities.

By the way if you don’t understand why I would by a debit spread instead of naked calls after a spike in IV then you definitely need to swing by here more often 😉

I mentioned cryptos in my intro and I also should show you a chart of BTC which is fairly representative of what’s going on in that space right now. Basically we’ve had an extended series of LHs and LLs which to up to this moment remains unbroken. And that is an important fact that bodes repeating. Until BTC pushes > 9500 we technically remain in a sell off formation. Once again bounces happen but it’s the follow up after the first leg higher that really matters. Should BTC fail to overcome this threshold and fall < its spike low at exactly 6000 (how cool!) then I’m afraid that we’ll be seeing quite a bit more pain in cryptos as well.

Quick update on our Dollar campaign which miraculously has survived the weekend. Seems like our trail was well placed and the short term SMA is now starting to push above it. Nothing to do here but wait and see – emotionally I’m still waiting for the big shoe to drop 😉

More goodies below the fold, so please grab your decoder ring and meet me below the fold:

evil_separator

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

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Crypto Tease

After literally weeks of hard work I finally am able to pull large amounts of historical 1-min data from top-tier crypto exchanges like Gdax, Bitfinex, Gemini, Bitstamp and others. See my pertinent blog post from back in January. Anyway, I’m collaborating with a few quants on some internal projects the details of which I am unfortunately unable to disclose. But if you are attracted by the notion of trading crypto currencies this may spike your interest.

This is a backtest of a very simple strategy we put together to test a new crypto trading platform we are busy refining. That’s BTC tested back to 1/1/2015 running against a 1-min series. So a s…load of data and returns seem to be mindbogglingly consistent with only shallow draw downs. What freaks me out about this to some extent is that we literally threw this strategy together in one day by leveraging a few alpha factor concepts we extracted during our IV related research.

If nothing else BTC over the past years has been the proverbial paragon of risky high volatility and I would have not expected that throwing together a few simple alpha factors would produce a P&L curve like this over such an extended time frame. And by the way it does very well on other crypto pairs as well, which isn’t hugely surprising given the high covariance across the entire space. Clearly this is an area I will have to devote quite a bit more time and resources into.

Unfortunately I won’t be able to spill the beans on what makes this system tick. But if there is sufficient interest I may make a strategy like this available as a signal service at some point (email/jabber alerts only). So if you’re interested shoot me an email to admin@ and I put you on the list.

Published at Mon, 12 Feb 2018 14:10:51 +0000

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Picking Over The Survivors

Picking Over The Survivors

by THE MOLE

Long term survival in the financial market is just that, surviving the myriads of traps and tribulations you will invariably encounter during your trading career. Although the risk of a complete wipe out on a day to day basis is pretty small it only has to happen once in order to dissolve years of hard work and compounded assets, sometimes in mere minutes. Of course what spells disaster for those unfortunate or dumb enough to have gotten a tad to greedy near a market peak or those attempting to catch a falling sword, means exciting opportunities for the patient and more seasoned survivors.

Lest we become victims of explosive market volatility ourselves, lets however review a bit of technical evidence and then decide if the time has come to strike. Shown above is the VXV:VIX ratio I mentioned yesterday and of course many times over the past few years. This particular chart is more of a long term version with a slower BB in combination with a slightly smoothed SMA of the VXV:VIX.   What that does for me is to cancel out some of the noise and appreciate the big picture.

But as always we are not taking trades courtesy of indicators alone – all we are doing here is to assess the momentum in implied volatility. Based on prior observation there seems to be a decent possibility that we’ll see a snap back, meaning that IV is ready to revert to its mean. But you can also see that the smoothed signal has not yet pushed > the lower BB. So we don’t have confirmation yet and any entries taken here would be speculative.

The SPX:VIX ratio shows me a little divergence near the close that could possibly drag prices lower again. On its own it’s not a signal but if it subsists we should definitely take note.

The SPX on its own shows us a volume hole between 2700 and 2735ish. That one may be difficult to cross and there may be push back.

UVOL vs. DVOL. The bears were putting up a haphazard fight yesterday morning but then simply walked away in the afternoon. That looks pretty bullish to me and alleviates some of the concerns mentioned above, but it does not outweigh them obviously.

What pushes me back towards equilibrium in my outlook is the Zero signal which looked rather supportive yesterday. There were clear attempts by deep pockets (+2 and +3 signal spikes on the Zero in the right panel) to bang the tape higher and pin a positive close.

I have decided to take out an early exploratory entry near 2680 with a stop < 2610. We are talking a tiny 0.2% position and if it survives the day I’ll add more meat to it. The odds here are probably < 50:50 as it’s equally possible that we’ll see one more retest of the lows. Please don’t make big BTFD bets here, I don’t think we’ll return to business as usual anytime soon.

Update on the EUR/USD campaign. I’m taking profits here at about 1.2R much to my chagrin. To be frank I was quite disappointed by the lousy performance of the USD on Monday and Tuesday. Not sure where all the money went but it’s not going into Dollars or bonds.

Speaking of which my trail on the DX campaign now advances to about 0.5R. Better than a loss but come on – this thing should have exploded higher but the old greenback seemed completely unimpressed and barely pushed higher.

Two more special goodies below the fold for my intrepid subs:

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It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

Published at Wed, 07 Feb 2018 13:03:55 +0000

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Lessons in Trading and Psychology – 3: Identifying Intraday Reversals

Lessons in Trading and Psychology – 3: Identifying Intraday Reversals

OK, so recall what we talked about in the previous post that looked at how we can use volume to understand market movements:  each day in the market offers us one or more important learning lessons.  Our job in reviewing the day is to extract these lessons, so that we can improve our ability to recognize opportunities in real time.

Above we see yesterday’s market (SPY) plotted against five minute closing values for the NYSE TICK.  Recall that we visited the $TICK measure in the first lesson post that dealt with changes of market regime over a period of days.  Now we are examining the change of market character that occurred intraday in Friday’s market.  Note that the scale for the $TICK values is in standard deviation units, so that we can see how stocks are trading relative to a recent lookback period.

Note how the $TICK line quickly moved below zero during the morning session and largely stayed below zero for most the morning.  This tells us that stocks were persistently trading with weakness (on downticks) throughout those morning hours.  Something interesting happened midday, however.  As we made new lows in SPY, we were seeing much less selling pressure.  Indeed, the final low was preceded by a sizable spurt in buying.  From that final low, we saw a significant spurt in buying and stayed above the zero line for most of the remainder of the day.

In short, we saw in transition from selling pressure to buying pressure, with a waning of selling preceding the upsurge in buying.  The trader seeing this shift in supply/demand was alerted to the likelihood that this was not a trend day to the downside and, indeed, there were many traders leaning short who might need to cover.

Notice also that once we surged above two standard deviations in the $TICK measure (both to the downside in the morning and to the upside during the afternoon), we tended to get follow through of price movement (momentum).  Just noticing these dynamics helps keep a trader on the right side of market movement, knowing when to trade a market move and when to fade it.

Published at Sat, 10 Feb 2018 11:55:00 +0000

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Mutual Funds: Brand Names Vs. House Brands

Mutual Funds: Brand Names Vs. House Brands

By Ken Hawkins | Updated February 9, 2018 — 6:58 PM EST

If you stroll down the aisle of any large supermarket today, mixed in with the merchandise of well-known national brands is similar merchandise in the store’s brand. Next to a major brand-name can of creamed corn, you might also see a can of the house brand of creamed corn.

In the financial supermarkets that house today’s large brokerage firms, banks and insurance companies, banks often sell their own investment products and services alongside of those from outside suppliers. And, on the virtual shelves of a large financial company, the mutual funds of major companies—like Fidelity or Franklin—sit side-by-side with the house-brand mutual funds. In this article, we’ll show you how to decide between purchasing a house-brand fund over a major-brand fund. (See also: Picking the Right Mutual Fund.)

House-Brand (Proprietary) Funds Vs. Third-Party Funds

A house-brand, or proprietary, mutual fund is created when the bank or brokerage firm that distributes the fund also acts an investment advisor for the fund. The mutual fund business has two components: managing fund assets and distributing (or selling) funds. Each side can be very profitable and the creation of proprietary mutual funds is considered a form of vertical integration—not to mention a profitable way to leverage an existing sales force. Typically, these mutual funds are developed, managed and sold in-house. (See also: An Introduction to Mutual Funds.)

Third-party mutual funds, on the other hand, are managed by outside, independent managers. These include the big brand names of the business such as Vanguard, T. Rowe Price, Franklin and Fidelity. They might be sold directly to the investor or they may be sold by other companies or by an independent advisor. Those who sell the funds are often totally independent from those who manage the funds. In theory, this should result in totally unbiased advice when advisors recommend these funds to their clients.

Sellers of Proprietary Funds

Proprietary funds can normally be found at just about every company that has a large sales force that can sell mutual funds. This includes banks, credit unions, brokerage firms, insurance companies and wealth management companies. In-house mutual funds were developed by companies to be sold by their own distribution networks, and are now part of an overall move into wealth management.

The brokerage industry entered into the proprietary mutual fund business as a means of averaging out their revenues. The fees generated from managing assets tend be smoother and more predictable than the potentially volatile revenues of their traditional lines of business of investment banking, trading and commissions.

Although most sellers of in-house funds will also offer third-party funds, some advisors or firms may only sell and promote their own funds. Companies that have their own sales force may only sell their brand of funds. If an advisor recommends an in-house fund, investors should ask if they sell third-party funds as well, because they may be required to promote internal funds first.

Issues Surrounding Proprietary Funds

Although there are hundreds of mutual fund companies and thousands of mutual funds to choose from, if you are purchasing funds from an advisor or a company that is only offering in-house funds, this narrows your choices considerably. This could be a problem for a number of reasons:

  1. The investment style they use might currently be out of favor and buying from an in-house fund could result in lagging performances.
  2. The bank may not offer an international growth fund among its proprietary offerings, which may be needed for diversification. (See also: Introduction to Diversification and The Importance of Diversification.)
  3. If the bank does offer a growth fund, the foreign assets that have been selected for the fund may be out of favor for the duration of the client’s investment horizon. This would be less likely to occur if there was a larger offering of international growth funds available.
  4. The type of fund or style you desire might not be found within the fund family.

Pricing
Proprietary funds can be priced differently than third-party funds. The sales commissions and management fees can differ. This will depend on a number of factors:

  • First, the in-house funds might be relatively smaller in size to third-party funds. This means they may not enjoy the same economies of scale, resulting in relatively higher costs. (See also: What Are Economies of Scale?)
  • Secondly, because the same company manages and distributes the funds, it has more leeway about how to charge. For example, some companies might decide to charge lower fees on their proprietary funds as a means of building market share and keeping more money in-house.
  • Thirdly, the company has a captive market, which means it can offer advantageous pricing to catch the “lazy” investors who don’t comparison shop and would rather continue to work with only one broker.

Transferability
Unlike third-party funds, typical proprietary funds may not be transferable from one firm to another. If an investor wants to move his or her account, the units of the in-house funds will have to be sold. This can result in additional fees, commissions and administrative costs. Also, there is some additional market risk between the time the mutual funds are sold and when the proceeds are reinvested. Investors may purchase proprietary funds without appreciating portability restriction and the firms do not necessarily tell their clients that the assets of proprietary funds are not transferable.

Sales Incentives
Because there is the potential for advisors to steer client money to in-house mutual funds that may not be in the clients’ best interest, the Financial Industry Regulatory Authority (FINRA) has outlawed the use of sales incentives for the sale of proprietary funds. The reason FINRA barred this action is because it gives brokers a financial reason to put their interests ahead of those of their clients—which is completely prohibited according to advisor rules

However, some firms may still have incentives in place; although they might meet the letter of the regulations, they do not meet the spirit of the underlying rules. As a result, some advisors and customers have taken the opposite position and will not buy or offer their in-house funds at all in order to avoid any nuance of indiscretion.

Further Buying Considerations

Proprietary funds can be found at almost all large financial institutions. Like third-party funds, they can be excellent investment products. However, before buying these funds, you should make sure you understand what you are buying and how it will fit in with your portfolio. The same due diligence that is necessary for buying mutual funds in general should be carried out when purchasing those developed in-house. Some might argue that even more due diligence is necessary, especially when an in-house fund is recommended over a third-party fund. Advisors should be able to disclose all incentives to the client in writing to ensure they do not offer influenced advice. (See also: Due Diligence in 10 Easy Steps.)

Clients should also check to see if in-house funds can be transferred to other firms and, if so, whether this transfer would involve any costs or fees.

The Bottom Line

If you are careful in your research of these house-brand funds, you may find that you don’t need to put your money in with the major brands to experience good growth and a personalized investing experience.

Published at Fri, 09 Feb 2018 23:58:00 +0000

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Lessons in Trading and Psychology – 2: Volume

Lessons in Trading and Psychology – 2: Volume

Every day the markets teach us lessons in trading and psychology.  Our job is to become good students and learn from these lessons to improve our craft.  In the first post in this series, we took a look at detecting regime changes by assessing shifts in buying and selling pressure.  In this installment, we’ll take a look at volume and its significance.

On any time scale, volume correlates very highly with volatility.  During the recent decline, for example, we traded well over 200 million shares in SPY.  During the low volatility push higher prior to the decline, we commonly traded under 100 million shares.  Who are these additional participants?  For the most part, they are value players trying to take advantage of unusually high or low prices; short-term directional traders trying to take advantage of the movement; and longer time frame participants stopping our of positions.  In short, when we see added volume, it means that the proportion of directional traders relative to market makers has increased.  This facilitates market movement.

Conversely, when we see volume dry up, it means that directional traders are not perceiving opportunity in that instrument.  That leads to less movement on all time scales and what short-term traders experience as “choppy”.

OK, with that in mind, let’s take a look at yesterday’s trade in the ES futures depicted above.  A number of traders who sent me their journals made money on the opening drive.  They recognized that we were oversold and that volume was strong at the open, with buying significantly exceeding selling.  The combination of high volume, buying interest from value participants, and short-covering from those leaning the opposite way created a momentum thrust.

An important way we can identify high volume at the open is with the measurement of relative volume.  In relative volume, we take the average volume for each time of day (above we have five-minute time intervals) and see how today’s volume from 9:30 AM EST to 9:35 AM EST compares with the average volume at that time of day.  High relative volume tells us we have high participation from directional players.  In the first three five-minute segments of the day yesterday, we had volume between 2 and 4 standard deviations above average.

Note how having the right data helps you make the right adjustment in your trading.  We commonly think of psychology as helping our trading, but approaching trading the right way–with the right information–is a big part of having the right mindset.

Interestingly, a number of the traders who wrote to me and who made money in the early morning move gave back money midday.  Why is that?  

Click on the chart above and you’ll see how volume moved meaningfully lower in the midday hours.  By the time we bottomed during the 2 PM EST hour, the average five-minute volume had fallen to about one-fifth of what we saw in the opening periods.  With that waning of volume, we have waning volatility:  no more momentum.  Traders who did not pay enough attention to volume implicitly assumed that we were still in a momentum market.  Every move was taken as a potential breakout–only to reverse due to the lack of participation.  The trader who paid attention to volume was able to adjust expectations and either scalp smaller moves or stand aside altogether.

When we get excited about making money, we often become tunnel-visioned and don’t step back to see what volume is doing.

Even worse, when we get excited, we don’t step back to observe what is happening on the larger time frame.  Notice how volume is drying up as the sellers are coming in.  We had quite negative NYSE TICK readings during that 2 PM EST period and yet volume was drying up.  Moreover, with all that selling pressure, we couldn’t retrace more than about half of the early morning move.  Recognizing that larger pattern set us up for the late day continuation of the upside momentum trade as volume picked back up.

This is how psychology integrates with trading:  The cognitive flexibility to shift between price action and volume and the flexibility to shift from moment-to-moment to the larger time frame complements the ability to track buying and selling pressure and its shifts.  When we become self-focused and P/L focused, we lose that cognitive flexibility.  We no longer trade with perspective.  So much of trading success is using our psychology to detect patterns in the market’s psychology.

Further Reading:
 
 
 

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Published at Wed, 07 Feb 2018 11:54:00 +0000

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