Market Update – TheTradersWire
All posts in "Market Update"

Wall Street would freak out if Trump fired Mueller

Trump takes on Mueller in tweetstorm
Trump takes on Mueller in tweetstorm

Wall Street would freak out if Trump fired Mueller

Wall Street would probably flip out if President Trump tried to fire Special Counsel Robert Mueller.

Market analysts warn the stock market would drop sharply, at least at first, because trying to oust Mueller would create immeasurable uncertainty and could even ding the economy.

“That would be stepping on the rule of law and a potential constitutional crisis,” said Art Hogan, chief market strategist at B. Riley FBR.

“That’s a real difficult one to model,” he said, “but it’s sure as heck not a positive.”

Firing Mueller could also raise the odds of a blue wave in the midterm elections that would leave Democrats in charge of Congress.

Isaac Boltansky, director of policy research at Compass Point Research and Trading, said in a report that firing Mueller would represent a “dramatic escalation in political risk.”

The White House has repeatedly said Trump is not planning to fire Mueller. A spokesman repeated that stance on Monday, saying it’s “pretty clear there are no conversations or discussions about removing Mr. Mueller.”

Still, analysts cited Trump’s more aggressive stance against Mueller, as a contributing factor behind Monday’s Facebook(FB)-led market tumble. The Dow dropped 336 points.

“The drumbeat has gotten louder,” Hogan said.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said Trump’s tweets about Mueller over the weekend “raised some uncertainty.”

For the first time, Trump mentioned Mueller by name in a tweet over the weekend, calling the special counsel’s investigation a “WITCH HUNT!”

His legal team also announced the hiring of Washington lawyer Joseph diGenova, an outspoken critic of the Russia investigation. “A group of FBI and DOJ people were trying to frame Donald Trump of a falsely created crime,” diGenova said on Fox News in January.

To be sure, ordering the firing of Mueller would be legally complicated and risk a challenge from within Trump’s own party.

Republican Senator Lindsey Graham told CNN’s Jake Tapper on Sunday that firing Trump would mark the “beginning of the end of his presidency. Because we are a rule-of-laws nation.”

House Speaker Paul Ryan said on Tuesday that Mueller “should be free to follow through his investigation to its completion without interference, absolutely.” And Senate Majority Leader Mitch McConnell said Mueller “should be allowed to finish his job.”

For the most part, Wall Street has shrugged off the Russia investigation. Investors have instead focused on Trump’s agenda, booming corporate earnings and strengthening economic growth.

There have been a few exceptions, though. For instance, last May, the market fell sharply on concerns about the circumstances surrounding the firing of FBI Director James Comey. That proved to be a fleeting sell-off.

Another question is how Mueller’s firing would affect the midterm elections in November. A takeover of Congress by Democrats could spook the market because of the prospect of the reversal of Trump’s tax and regulatory agenda.

The key would be whether the economy would be hurt by a political crisis. Analysts said a prolonged period of uncertainty could slow growth by hurting consumer and business confidence.

“What the market would not be fine with is a drawn-out constitutional crisis,” said Ed Mills, Washington policy analyst at Raymond James.

On the other hand, a quick resolution could be a nonevent, economically speaking.

“I believe a decline would be short-lived,” said Sam Stovall, chief investment strategist at CFRA Research. “If the fundamentals have not changed, I would tend to think it would be a buying opportunity.”

Given the great uncertainty that ousting Mueller would spark, Ed Yardeni, president of Yardeni Research, suggested the best outcome for the market would be for the investigation to continue.

“If you really have nothing to hide, then why not let the investigation move along?” he asked.

—CNN’s Nathaniel Meyersohn, Kristin Wilson and Allie Malloy contributed to this report.

Published at Tue, 20 Mar 2018 18:25:03 +0000

Continue reading >

Facebook fallout; Alwaleed speaks; FedEx earnings

Facebook fallout; Alwaleed speaks; FedEx earnings

sp500 tues
Click chart for in-depth premarket data.

1. Facebook drama: The social network is caught in a data privacy firestorm that shows no signs of cooling off.

Facebook(FB) admitted over the weekend that a company linked to President Donald Trump’s campaign had accessed and improperly stored a huge trove of its user data.

The controversy erupted as UK media and The New York Times reported that data analysis firm Cambridge Analytica tried to influence how Americans voted using information gleaned from millions of Facebook profiles.

Facebook stock suffered its biggest drop in four years on Monday, shedding 7%. Investors still have not heard from CEO Mark Zuckerberg or COO Sheryl Sandberg.

“What matters for this stock, at this time, are the headlines,” wrote analysts at Macquarie Capital.

Facebook is still one of the most valuable US companies, with a market cap of about $500 billion. It’s behind only Apple(AAPL), Google parent Alphabet(GOOGL), Amazon(AMZN), Microsoft(MSFT) and about even with Berkshire Hathaway(BRKA).

Its shares were poised to drop further on Tuesday.

2. Alwaleed speaks: Saudi Prince Alwaleed bin Talal has given his first interview since being caught up in an anti-corruption sweep.

The prince, who spent nearly three months locked up in Riyadh’s Ritz-Carlton, told Bloomberg that he is now looking to reshape his business empire. The billionaire and global investor said he’s likely to split the assets of Kingdom Holding, spinning off its Saudi property business. Kingdom Holding owns shares in Twitter(TWTR) and Citigroup(C), among others.

Alwaleed said he’s also hoping to reassure investors.

“I understand it’s not going to be easy at all — some people in business community will be doubtful, will say, ‘What’s going on?,'” he told Bloomberg.

3. Pound relief: The British pound strengthened 0.2% against the dollar on Tuesday, pushing the currency above $1.40.

Investors are cheering a joint legal agreement between Britain and the European Union on the terms of a transition period lasting about 21 months after Brexit takes effect in March 2019.

There is still much work to be done on hammering out the details of the transition and the UK’s future trading relationship with its biggest export market.

4. Global market overview:US stock futures were lower on Tuesday.

Most European markets advanced in early trade. Asian markets closed mixed.

On Monday, the Dow Jones industrial average and S&P 500 dropped 1.4% and the Nasdaq shed 1.8%.

Before the Bell newsletter: Key market news. In your inbox. Subscribe now!

5. Stock market movers — Oracle: Shares in Oracle(ORCL) were lower after the company reported disappointing sales.

FedEx(FDX) will release earnings after the close.


6. Coming this week:
Tuesday — FedEx(FDX) earnings
Wednesday — General Mills earnings; AT&T trial opening statements; Powell’s first press conference
Thursday — Darden, Nike(NKE) earnings

Published at Tue, 20 Mar 2018 09:53:28 +0000

Continue reading >

Sunday Night Futures

By PublicDomainPictures from Pixabay

Sunday Night Futures

by Bill McBride on 3/18/2018 07:37:00 PM

Schedule for Week of Mar 18, 2018

Goldman: FOMC Preview

• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 2, and DOW futures are down 20 (fair value).

Oil prices were mixed over the last week with WTI futures at $62.16 per barrel and Brent at $66.02 per barrel.  A year ago, WTI was at $48, and Brent was at $51 – so oil prices are up solidly year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.54 per gallon. A year ago prices were at $2.29 per gallon – so gasoline prices are up 25 cents per gallon year-over-year.

Published at Sun, 18 Mar 2018 23:37:00 +0000

Continue reading >

Larry Kudlow is usually wrong

Larry Kudos is usually wrong

by Bill McBride on 3/13/2018 01:29:00 PM

With all the discussion that Larry Kudlow might be named the new director of the White House’s National Economic Council, I’ve been asked to repost a post I wrote in 2016 “Larry Kudlow is usually wrong“. On Kudlow, see from Bloomberg: Trump Says Kudlow Has ‘Very Good Chance’ at Taking Cohn’s Job and CNN Trump tells people he is selecting Larry Kudlow to replace Gary Cohn

Most of the following is a repeat of the 2016 post …

Larry Kudlow is usually wrong and frequently absurd, as an example, in June 2005 Kudlow wrote “The Housing Bears are Wrong Again” (link has been replaced) and called me (or people like me) “bubbleheads”.

Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.

I guess I was one of those “bubbleheads”!

In December 2007, he wrote: Bush Boom Continues

There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.

Note the date of the article. The recession started in December 2007!

Note: At the beginning of 2007 I predicted a recession would start that year – made it by one month.  It seems I’m always on the opposite side from Kudlow of each forecast – and one of us has been consistently wrong.

In 2014, Kudlow claimed: “I’ve always believed the 1990s were Ronald Reagan’s third term.”

In that piece, Kudlow was rewriting his own history.  Near the beginning of Clinton’s first term, Kudlow was arguing Clinton’s policies would take the economy into a deep recession or even depression.  Kudlow was wrong then (I remember because I was on the other side of that debate), so he can’t claim he “always believed” now.  Nonsense.

Also in 2007, right before the crash during President George W. Bush’s 2nd term, Kudlow wrote: A Stock Market Vote of Confidence for Bush:

“I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today’s stock market message is an unmistakable vote of confidence for the president.”

Well, maybe Kudlow had a point … about President Obama!

Now Larry Kudlow might be the new director of the White House’s National Economic Council. Oh my.


Published at Tue, 13 Mar 2018 17:29:00 +0000

Continue reading >

Dow turns lower as industrial stocks weigh

Dow turns lower as industrial stocks weigh

(Reuters) – Wall Street struggled to hold on to early gains on Monday as losses in industrial stocks including Boeing and Caterpillar more than offset gains in chipmakers and technology companies.

Many of the United States’ big manufacturers have suffered since U.S. President Donald Trump announced plans to impose tariffs on steel and aluminum imports, a move that could increase their costs while hampering sales abroad.

But the half percent fall in the Dow Jones Industrial Average followed a near 2 percent gain for New York’s main indexes on Friday after data showed sluggish wage growth in February, easing concerns the Federal Reserve might raise interest rates swiftly.

“It is a quiet day in terms of news and you still have the tariff fears kind of circling in the markets,” said Michael Antonelli, managing director, institutional sales trading at Robert W. Baird in Milwaukee.

Trump softened his stance last week by exempting Canada and Mexico, but negotiations are ongoing as the European Union also seeks to exempt itself from the tariffs.

The tech-heavy Nasdaq, by contrast, gained around 0.4 percent, helped in part by what traders read as further signs of official disapproval of Broadcom’s $117 billion bid for U.S. graphics chipmaker Qualcomm.

The U.S. Treasury said in a letter to Singapore-based Broadcom that it had violated a Treasury order by not giving sufficient notice to a national security panel of its plans to redomicile in the United States.

“It’s … the government coming out and saying that it is leaning towards not allowing this merger to go through,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

“This is a real change, because under the Republican administration, it is generally thought of as less regulatory, less hand-on approach to this sort of this and this is the very opposite.”

Broadcom (AVGO.O) gained 3.4 percent while shares in Qualcomm (QCOM.O) were flat.

Shares of Micron Technology (MU.O) jumped nearly 10 percent after analysts at Nomura raised their target for the stock to $100 – $41 above current rates.

Ocular (OCLR.O) jumped 27 percent after laser and optical fiber specialist Lumen Holdings said it would buy the optical components producer for $1.7 billion. Lumentum’s shares rose 7.6 percent.

Wall Street had its worst two weeks in two years last month as fears of higher wages, inflation and interest rates triggered a selloff that dragged the main indexes into correction territory.

Traders of U.S. short-term interest-rate futures, however, have reeled bets back in on the Federal Reserve delivering any more than the earlier forecast three rate hikes this year.

The S&P 500 in response is just 3 percent below record highs hit on Jan. 26 while the Nasdaq .IXIC is back to a record. By 11:51 a.m. ET, the S&P 500 .SPX was down just 0.1 percent at 2,783.96.

Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur and Patrick Graham

Published at Mon, 12 Mar 2018 16:40:10 +0000

Continue reading >

Premarket: 5 things to know before the bell


Premarket: 5 things to know before the bell

1. Tariff time?: President Donald Trump could formalize new tariffs on steel and aluminum imports on Thursday.

Or not.

There was confusion late Wednesday over whether the paperwork would be ready in time for the planned signing around 3:30 p.m. ET. There’s also confusion about whether some countries would be exempt.

“The expectation is that the order enacting the tariffs will be signed by the end of the week, but the details remain elusive,” said Mike O’Rourke, chief market strategist at JonesTrading.

The tariffs are expected to lead to retaliatory measures from other countries, raising concerns about an all-out trade war.

China’s Foreign Minister Wang Yi said Thursday that “in the event of a trade war — China will make a justified and necessary response.” The European Union is preparing tariffs on US products, including orange juice.

US stock futures were a bit soft.

European markets were mixed in early trading. Asian markets ended the day with gains.

2. Healthy acquisition environment: Shares in Cigna(CI) and Express Scripts(ESRX) could be on the move after the Wall Street Journal reported the insurer and pharmacy-benefit manager are in talks.

The newspaper said Cigna was “nearing a deal” to buy Express Scripts in a transaction that could be worth over $50 billion.

It would be the latest in a series of major health care deals.

3. Earnings:Kroger(KR), Embraer(ERJ) and American Eagle(AEO) will release earnings before the open. El Pollo Loco(LOCO) will follow after the close.

Kroger, the largest grocery chain in the US, announced last week that it would stop selling guns and ammunition to customers under the age of 21. The chain sells weapons and ammunition at 45 Fred Meyer stores.

The grocer may face questions from investors about its decision on guns, and its reported talks with Chinese e-commerce giant Alibaba(BABA).

4. Economics: The European Central Bank will announce a decision on interest rates and hold a news conference on Thursday.

Investors will be watching to see if the central bank gives any hints about its plans to wind down its stimulus program. Concerns over weak inflation and a potential trade war could force the ECB to keep its foot on the gas.

5. Coming this week:

Thursday — International Women’s Day;Kroger(KR) earnings; Trans-Pacific Partnership Agreement set to be signed in Santiago de Chile; Geneva Motor Show opens to the public
Friday — US monthly jobs report

Published at Thu, 08 Mar 2018 09:59:59 +0000

Continue reading >

Stocks soar as trade war fears ease

Trump official: Tariffs won't hurt the economy
Trump official: Tariffs won’t hurt the economy

Stocks soar as trade war fears ease

Fears of a trade war eased on Wall Street — for a day, at least.

The Dow climbed 336 points on Monday after House Speaker Paul Ryan and other top Republicans broke with the White House over President Trump’s planned steel and aluminum tariffs.

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” Ryan spokeswoman AshLee Strong said in a statement Monday morning.

Investors seemed to be betting that GOP opposition could soften Trump’s position.

“You’re starting to get blowback not just from Corporate America but from Trump’s own party,” said Michael Block, chief market strategist at Rhino Trading Partners. “He’s getting pushback and a reminder that if markets and the economy don’t go the right way, it’s going to endanger the GOP’s chances in November.”

Caterpillar(CAT) and Boeing(BA), two companies that would take hits if the tariffs led to a rise in steel prices, led the Dow on Monday. The average snapped a four-day losing streak and turned positive on the year.

Trump announced on Thursday that his administration would impose a 25% tariff on steel imports and a 10% tariff on aluminum.

Top American allies, including Canada and the European Union, have pledged to retaliate if Trump follows through on the plan. White House trade adviser Peter Navarro said on CNN’s “State of the Union” on Sunday that no countries will be excluded from the tariffs.

Wall Street was spooked by the tariffs and the potential that they will set off a global trade war. The Dow lost 491 points on Thursday and Friday. Trump escalated those fears on Friday by writing on Twitter, “Trade wars are good, and easy to win.”

Asked about Ryan’s position on Monday, Trump told reporters, “No, we’re not backing down.”

Published at Mon, 05 Mar 2018 21:15:40 +0000

Continue reading >

Stocks Plummet Amid Fears of a Trade War

Stocks Plummet Amid Fears of a Trade War

By Justin Kuepper | March 2, 2018 — 5:33 PM EST

The major U.S. indexes moved sharply lower over the past week after President Trump announced plans to impose a 25% tariff on steel imports and a 10% tariff on aluminum imports. After the Commerce Department found that steel and aluminum imports posed a risk to national security, the Trump administration gained the authority to establish import tariffs and promised to rebuild the American steel and aluminum industries.

International markets were lower over the past week. Japan’s Nikkei 225 fell 3.25%, Germany’s DAX 30 fell 4.57%; and Britain’s FTSE 100 fell 2.26%. In Europe, European Central Bank (ECB) President Mario Draghi indicated that slack in the Eurozone economy may be larger than initially estimated and noted the slow rise of inflation. In Asia, China voted to end term limits for President Xi Jinping in a move that has some investors and human rights activists concerned. (See also: Where Does the U.S. Import Steel From?)

The SPDR S&P 500 ETF (ARCA: SPY) fell 2.04% over the past week. After briefly reaching February’s pivot point levels, the index moved sharply lower to March’s pivot point levels at $269.21. Traders should watch for a breakout above these levels to retest the 50-day moving average at $273.08 or upper trendline resistance at around $278.00, or a move lower to retest reaction lows at around $258.00. Looking at technical indicators, the relative strength index (RSI) fell to slightly oversold levels of 46.00, while the moving average convergence divergence (MACD) could see a near-term bearish crossover.

Technical chart showing the performance of the SPDR S&P 500 ETF (SPY)

The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) fell 2.99% over the past week, making it the worst performing major index. After briefly hitting its February pivot point at around $258.00, the index moved sharply lower. Traders should watch for a move down to reaction lows or S1 support at $243.83 or a rebound higher past its pivot point at $248.53 to the 50-day moving average at $252.07. Looking at technical indicators, the RSI appears modestly oversold at 42.62, while the MACD could see a near-term crossover. (For more, see: 6 Reasons for Another $6 Trillion Stock Market Correction.)

Technical chart showing the performance of the SPDR Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 1.30% over the past week. After briefly hitting its prior highs of around $170.00, the index moved sharply lower before rebounding from its pivot point and 50-day moving average at around $163.22. Traders should watch for a further rally to retest prior highs or a breakdown from the pivot point and 50-day moving average to reaction lows at around $155.00. Looking at technical indicators, the RSI appears neutral at 52.94, but the MACD could see a bearish crossover.

Technical chart showing the performance of the PowerShares QQQ Trust (QQQ)

The iShares Russell 2000 Index ETF (ARCA: IWM) fell 1.06% over the past week, making it the best performing major index. After nearly reaching February’s pivot point, the index moved sharply lower to its March pivot point at $150.00 before rebounding. Traders should watch for a rally past the 50-day moving average at $153.91 to R1 resistance at $157.54 or a move lower to retest reaction lows and the 200-day moving average at $145.60. Looking at technical indicators, the RSI appears neutral at 49.62, but the MACD could turn bearish.

Technical chart showing the performance of the iShares Russell 2000 Index ETF (IWM)

The Bottom Line

The major indexes moved lower over the past week, with neutral RSI readings and bearish MACD readings predicting further downside. Next week, traders will be watching several economic indicators, including employment data due out on March 9. The market will also be closely watching how China and other trade partners react to President Trump’s new tariffs for steel and aluminum imports. (For additional reading, check out: Tariff Talk May Signal NAFTA Exit: Goldman Sachs.)

Note: Charts courtesy of As of the time of writing, the author had no holdings in the securities mentioned.

Published at Fri, 02 Mar 2018 22:33:00 +0000

Continue reading >

U.S. Light Vehicle Sales mostly unchanged at 17.1 million annual rate in February

U.S. Light Vehicle Sales mostly unchanged at 17.1 million annual rate in February

by Bill McBride on 3/01/2018 03:40:00 PM

Based on a preliminary estimate from AutoData, light vehicle sales were at a 17.08 million SAAR in February.

That is down 1.4% year-over-year from February 2017, and down slightly from last month.

Vehicle Sales
Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for February (red, light vehicle sales of 17.08 million SAAR  from AutoData).

This was at the consensus forecast for February.

Note that the increase in sales at the end of 2017 was due to buying following the hurricanes.

Sales will probably decline again in 2018 after setting a new sales records in both 2015 and 2016.

Vehicle Sales


Continue reading >

The Squeeze Is On

Finance Photo
By geralt from Pixabay

The Squeeze Is On

by The MoleFebruary 26, 2018

Happy Monday everyone! I am happy to report that several of the entry opportunities I posted last Friday are faring well with hopefully more ill-gotten gains beyond the horizon. On the equities side the E-Mini is getting ready to put the squeeze on whoever remains short at this point. And let me tell you right now – if you are a bear, or are still holding short, you are probably not going enjoy this post.

About 2/3 of the late January sell off has already been recaptured and in my mind the recent spike high near 2750 was the final line in the sand for the short term perspective. Every tick higher henceforth now adds additional defensive context for the longs and increasingly reduces the odds of another leg lower. At least on a short term medium term basis. Long term I have a few more thoughts below the fold.

The Zero indicator (you are a sub I hope!) showed us weak but consistently positive participation on Friday, further bolstering our long perspective.

A continued vega squeeze on the VIX has been leading the charge higher as visualized by our trusted SPX:VIX ratio – here plotted against just the SPX. At least short term everything is pointing higher.

Thus it is not surprising that I entered long the ES on a breach of 2731.25 as planned (in the subscriber section – sorry I can’t give it all away). It is now time to advance my stop to break/even.

Crude was slow going at first but now seems to be picking up the pace. I’m advancing my trail to < 62.50. The formation on the daily panel suggests continuation higher.

Gold was another juicy entry last week and I’m now advancing my stop a few ticks < break/even (I didn’t correct the comment on the chart) which is near the 100-hour SMA right now. Reason is that it’s quite possible that we’re going to see another retest of that one which is why I’m putting it < 1332.4.

My BTC campaign wasn’t as lucky and immediately proceeded to ISL after entry. There currently is a new attempt to produce a short term floor but it would be too premature to enter here. The medium term trend still supports the longs here but if they continue to be unable to drag the horse across the 11,800 mark then bad things may happen. That said – a convincing spike low with a retest would put me into another long campaign.

LTC on the other hand is holding steady and I just advanced my trail to the recent spike low. As you can see, no drama, no rumors, no excitement here – simply entries taken as we would in any other market vertical.

More entries and a few additional market perspectives below the fold:


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 Mon, 26 Feb 2018 13:31:27 +0000

Continue reading >

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.


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, 28 Feb 2018 12:32:49 +0000

Continue reading >

Dow, S&P snap winning streak as Walmart weighs

Dow, S&P snap winning streak as Walmart weighs

Published at Tue, 20 Feb 2018 14:31:00 +0000

Continue reading >

Stocks Post Strong Recovery Following Market Drop

Stocks Post Strong Recovery Following Market Drop

By Justin Kuepper | Updated February 16, 2018 — 6:23 PM EST

The major U.S. indexes moved sharply higher over the past week despite a couple of concerning economic indicators. On Wednesday, the Census Bureau reported an unexpected 0.3% drop in January retail sales along with a sharp downward revision in December’s figures. The Consumer Price Index (CPI) also rose an unexpected 0.5% month over month and 2.1% year over year, which sparked concerns that the Federal Reserve could hike rates more quickly.

International markets were also higher over the past week. Japan’s Nikkei 225 rose 0.55%; Germany’s DAX 30 rose 2.58%; and Britain’s FTSE 100 rose 2.86%. In Europe, industrial production rose more than expected in December, which helped power the fastest economic growth rate in a decade. In Asia, investors have been expressing increasing concern over growing corporate and household debt levels that could derail the region’s growth.

The SPDR S&P 500 ETF (ARCA: SPY) rose 4.44% over the past week. After falling to S2 support at $259.41 earlier this month, the index rose past S1 and 50-day moving average resistance levels at $271.81 this week. Traders should watch for a breakout to the pivot point at $278.64 or a breakdown to retest S2 support on the downside. Looking at technical indicators, the relative strength index (RSI) rose to neutral levels of 51.62, while the moving average convergence divergence (MACD) could see a near-term bullish crossover following its bearish crossover in late January. (See also: 12 Stocks to Buy for Market’s Upturn: Goldman Sachs.)

Technical chart showing the performance of the SPDR S&P 500 ETF (SPY)

The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) rose 4.09% over the past week, making it the worst performing major index. After briefly touching S2 support at $238.70 earlier this month, the index rebounded to its S1 and 50-day moving average resistance at $250.88. Traders should watch for a breakout to the pivot point at $257.49 or a breakdown to retest S2 support levels on the downside. Looking at technical indicators, the RSI appears neutral at 51.19, but the MACD could see a near-term bullish crossover.

Technical chart showing the performance of the SPDR Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) rose 5.88% over the past week, making it the best performing major index. After briefly reaching reaction lows at around $153.00, the index rebounded past its 50-day moving average and S1 resistance levels to the pivot point at $165.51. Traders should watch for a breakout to retest prior highs at around $171.00 or for a move lower to retest S1 support and pivot point levels on the downside. Looking at technical indicators, the RSI appears neutral at 54.34, but the MACD could see a bullish crossover. (For more, see: Stock Investors Should Fasten Seat Belts for More Plunges.)

Technical chart showing the performance of the PowerShares QQQ Trust (QQQ)

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 4.58% over the past week. After briefly touching its 200-day moving average support at $144.91, the index rebounded past S2 resistance levels to S1 and 50-day moving average resistance at $153.66. Traders should watch for a breakout to the pivot point at $156.48 or a breakdown to retest S2 support at $148.32 on the downside. Looking at technical indicators, the RSI appears neutral at 51.53, but the MACD could see a near-term bullish crossover.

Technical chart showing the performance of the iShares Russell 2000 Index ETF (IWM)

The Bottom Line

The major indexes moved higher over the past week, with neutral RSI levels and potential MACD crossovers signaling a new intermediate-term bullish uptrend. Next week, traders will be closely watching several key economic indicators, including existing home sales on Feb. 21 and jobless claims on Feb. 22. The market will also be keeping a close eye on evolving political risks both in the United States and abroad. (For additional reading, check out: Why Stock Market’s Big Rally Won’t Last.)

Note: Charts courtesy of As of the time of writing, the author had no holdings in the securities mentioned.

Published at Fri, 16 Feb 2018 23:23:00 +0000

Continue reading >

Goldman: “Federal fiscal policy is entering uncharted territory”

A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013. REUTERS/Brendan McDermid

Goldman: “Federal fiscal policy is entering uncharted territory”

by Bill McBride on 2/18/2018 08:02:00 PM

A few excerpts from a note by Goldman Sachs economists: What’s Wrong with Fiscal Policy?

Federal fiscal policy is entering uncharted territory. … While most of the recent fiscal expansion has not come as a surprise to us, this nevertheless raises new questions about the plan for US fiscal policy.

The Treasury continues to borrow at low rates and it should be able to do so for a while even if market rates move higher in our view, thanks to a nearly 6-year average maturity of outstanding debt. … In the past, as the economy strengthens and the debt burden increases, Congress has responded by raising taxes and cutting spending. This time around, the opposite has occurred. …

While the continued growth of public debt raises eventual sustainability questions if left unchecked, we note that the level of debt at the moment is within the range of several other DM economies, albeit at the high end of the range. Where the US is more of an outlier is in its cyclically adjusted deficit.

The fiscal expansion should boost growth by around 0.7pp in 2018 and 0.6pp in 2019, but will likely come to an end after that … the growth effect comes from the change in the deficit … some of the recent deficit expansion relates to changes unlikely to be repeated, such as the temporarily large effect of certain tax provisions.
emphasis added

CR Note: The Federal government is the only entity that can run counter cyclical fiscal policy during a recession (increase spending to offset the downturn). State and local governments cut spending during a recession, as do households. Standard policy would be to reduce the Federal deficit in the later stages of an expansion, and then increase the deficit during the next downturn. The opposite of the current fiscal policy.

Current fiscal policy is really in “uncharted territory”.

Published at Mon, 19 Feb 2018 01:02:00 +0000

Continue reading >

Permanent Market Support Operations


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

All Images, XHTML Renderings, and Source Code Copyright ©

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

Continue reading >

U.S. market gurus who predicted selloff say current calm an illusion

U.S. market gurus who predicted selloff say current calm an illusion

NEW YORK (Reuters) – You ain’t seen nothing yet.

Some veteran investors who were vindicated in calling for a pullback in shares and a spike in volatility could now be cheering. Actually, they’re looking at the risks that still lie ahead in the current relative calm.

The last week’s wild market swings confirmed that the market was in correction territory – falling more than 10 percent from its high. The falls were triggered by higher bond yields and fears of inflation but came against a backdrop of a stretched market that had taken price/earnings levels to as high as 18.9. Adding to downwards pressure was the unwinding of bets that volatility would stay low.

The fall had come after a growing number of strategists and investors said a pullback was in the offing – although the consensus opinion was that the market would then start rising again.

The big question is: what comes now?

“Do you honestly believe today is the bottom?” said Jeffrey Gundlach, known as Wall Street’s Bond King, last week, who had been warning for more than a year that markets were too calm. Gundlach had been particularly vocal in his warnings about the VIX, Wall Street’s “fear gauge,” which tracks the volatility implied by options on the S&P 500.

The sell-off in U.S. stocks derailed some popular short volatility exchange-traded products, which contributed to more downwards pressure on the market. Gundlach in May last year warned that the VIX was “insanely low.”

Hedge fund manager Douglas Kass from Seabreeze Partners Management Inc was short SPDR S&P 500 ETF and said he “took a lot of small losses” last year but says he still sees more stress ahead. He said he is now re-shorting that ETF.

Investors who bet low volatility would continue will need time to unwind their strategies, Kass said.

Dan Fuss, known as Wall Street’s Warren Buffett of bonds, has been warning for years that Treasuries were vulnerable to a vicious sell-off and set for much higher yields and lower prices. “I‘m not trying to be an ‘end of the world person’ here, but it is a possibility,” Fuss told Reuters last November.

In a telephone interview this week, Fuss, the vice chairman of $268-billion Loomis Sayles and one of the world’s longest-serving fund managers with six decades of experience, said he had built cash and cash equivalent reserves to their most extreme levels in his Loomis portfolio and had put some of that money to work last week.

His biggest worry in 2018: “The geopolitical side. Nothing beats peace.”

Veteran short-seller Bill Fleckenstein, who ran a short fund but closed it in 2009, said that “last week’s action was an early indication that the end of bull market is upon us.”

Fleckenstein said there was a lot of money in the market with no conviction behind it, for example, buying index funds and ETFs just “to be part of the party” which was an element of “hot money.”

“Last week was just the preview to the bigger event that we’ll see this year probably,” Fleckenstein said. Fleckenstein said he is not short at the moment – although he did make “a couple of bucks” last week shorting Nasdaq futures. He said he is looking for an opportunity to get short again. He said he has “flirted with the idea of restarting a short fund”.

“I‘m not short at the moment, because the action was such that I covered, but I expect that I’ll be short aggressively at some point this year. It’s not quite time, but it’s pretty close.”

Many strategists have been bullish about the market’s potential to stretch the near-nine-year-old bull market further. Many had said they expected a pullback, but then a resumption of gains.

The drop in the benchmark S&P 500 last week did not dent strategists’ expectations for mild to moderate gains in the U.S. stock market by the end of the year, as they cited strength in corporate earnings and interest rates not expected to derail equities.

Byron Wien, longtime Wall Street strategist who is vice chairman in the Private Wealth Solutions group at Blackstone, said in his predictions for 2018 that this year the S&P 500 would have a 10-percent correction.

“I don’t think we’re done,” said Wien, who ultimately thinks the bull run will continue some more and that the S&P would end the year above 3,000. But the path there could be bumpy. Wien thinks the correction “did not cleanse the optimism sufficiently” and sees further downside beyond the 10-percent fall – which has since been partially recouped.

“Everyone says: ‘Oh, well, now we’ve had the 10 percent correction that everyone was waiting for, then we go back up again’,” said Wien. “But it’s not as simple as that.”

(This version of the story was refiled to remove the erroneous “percent” from P/E level in paragraph 3)

Reporting by Jennifer Ablan and Megan Davies; Editing by Nick Zieminski

Published at Fri, 16 Feb 2018 11:38:15 +0000

Continue reading >

‘Main Street is roaring’: Wages are rising, survey says

by geralt from Pixabay

‘Main Street is roaring’: Wages are rising, survey says

Small business owners across the United States say this is the best time in decades to expand.

Nearly a third of Main Street businesses say it’s a good time to expand, the highest since the National Federation of Independent Business began asking in 1973.

“Main Street is roaring,” said NFIB CEO Juanita Duggan. “The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.”

Wages and prices are going up, too.

About 31% of small businesses reported paying employees more, the highest since 2000. The share of owners raising prices rose to 11%, the highest in the NFIB surveyin three and a half years.

Overall, small business optimism rose in January to one of its highest readings ever. The NFIB attributed that to the passage of the Republican tax package in late December.

That’s all good news for American workers and businesses, but it gave Wall Street a slight chill.

Global markets have whipsawed for two weeks because of investors’ fears about inflation and faster interest rate hikes. The Dow opened down more than 150 points on Tuesday.

News of higher wages on Main Street comes a day before a government report on U.S. inflation, which could soothe or further concern investors.

In the big picture, higher wages mean the economy is healthier, and the small business survey reflects that trend.

In January, average U.S. hourly wages rose 2.9% from the year before, the best increase since 2009. Two-thirds of small businesses plan to raise pay this year, according to a survey published Monday by the National Small Business Association and ZipRecruiter, a job recruitment site.

More broadly, unemployment is the lowest since 2000, and the United States has added jobs every month for more than seven years,the longest streak on record. The economy has been growing, albeit slowly, since 2009, making this expansion the third-longest in U.S. history.

For the past eight years, the Federal Reserve has kept interest rates historically low to help the economy while wages and inflation showed little signs of life.

But the hot job market and a shortage of workers are increasingly forcing employers to pay more to retain and recruit employees. That competition for workers could in turn boost inflation.

Published at Tue, 13 Feb 2018 14:49:31 +0000

Continue reading >

U.S. stock market chill threatens to ‘put IPOs on ice’

U.S. stock market chill threatens to ‘put IPOs on ice’

NEW YORK (Reuters) – Wide swings in the U.S. stock market has blunted initial public offering (IPO) activity on Wall Street in what was set to be the busiest week for new listings in more than two-and-a-half years.

All signs points to the disruption to IPOs continuing.

Ten companies had planned U.S. stock market debuts for this week, according to Renaissance Capital, a manager of IPO-focused exchange traded funds. It would have followed the biggest January haul of IPO proceeds on record, and would have been the most active IPO week since June 2015, Thomson Reuters data showed.

Only six companies went ahead with their IPO due to the volatile stock market, which has sapped much of the investor demand for new listings.

This bodes poorly for companies looking to pull the IPO trigger in the short term.

Forty companies have filed for an IPO with the U.S. Securities and Exchange Commission in the past year, aiming to raise an aggregate $9.2 billion, according to data from Renaissance Capital. This does not include so-called confidential IPO filings which are not yet visible on the SEC’s website.

“This volatility has the potential to put IPOs on ice,” said Kathleen Smith, principal at Renaissance Capital.

A saving grace for the IPO market is that mid-February typically sees a lull period for new listings. This is because the year-end financial information necessary for filing an IPO by a calendar-year company with the Securities and Exchange Commission (SEC) goes stale in the middle of this month. After that, companies will need to compile and audit a new set of quarterly earnings. Only three IPOs are currently scheduled for next week.

“When stability does come back to the market, the IPO market should benefit from a growing domestic and global economy with heightened consumer confidence,” said Lear Beyer, co-head of Equity Capital Markets Origination and head of Financial Institutions Group Origination at Wells Fargo & Co.

U.S. stocks see-sawed this week, demonstrating swings Wall Street has not seen in years. The S&P 500 closed down 3.75 percent on Thursday and was on track for its biggest weekly percentage drop since 2011.

IPO postponements included a $500-million listing of IPSCO Tubulars, the U.S. subsidiary of Russian oil and gas pipe maker TMK; the $220-million flotation of Turkish fast-food chain operator TFI Tab Food Investments; and a $130-million listing by Argentine biotechnology firm Bioceres.

Medical technology company Motus GI, scheduled to list on Thursday, also did not price its IPO this week.

The biggest IPO to go ahead was the $437-million listing for Cactus Inc, which supplies wellheads and pressure control equipment.

Other listings included Victory Capital Holdings and Chinese wearable technology company Huami, although the Victory IPO priced at $13 per share, below its $17 to $19 indicated price range. Cardlytics priced on Thursday in a $70-million listing.

Listings for blank-check company Mudrick Capital and medical aesthetics provider Evolus Inc went ahead, while Quintana Energy Services sold shares at $10, below its $12-$15 target range.

Of the seven listings this week, four were trading below their IPO prices on Friday.

“Investors will be looking at what companies and sectors will benefit from the impact of the recent tax reform and a higher interest rate environment relative to inflation fears that have disrupted the market,” said Beyer.

Reporting by Joshua Franklin in New York; Editing by Nick Zieminski

Published at Fri, 09 Feb 2018 20:22:44 +0000

Continue reading >

The biggest losers: Global stock market edition

How high-speed trading causes market turmoil
How high-speed trading causes market turmoil

The biggest losers: Global stock market edition

Sure, the Dow and S&P 500 have been in sell-off mode lately. But the losses are way worse in places like China and Argentina.

The Dow Jones industrial average and S&P 500 plunged just over 10% after hitting all-time highs in late January. The Nasdaq dropped by 9.7% too, though the indexes are now staging a small bounce back on Friday.

Concern about rising inflation, interest rates and bond yields in the United States helped trigger the selling around the world.

“Whilst the recent declines in the U.S. have attracted the lion’s share of attention, the major benchmarks have actually [performed] relatively well compared to several other international indices in recent sessions,” said David Cheetham, chief market analyst at the U.K. brokerage, XTB.

The biggest companies in the world — in both developed and emerging markets — lost $5.2 trillion in market capitalization since recent market peaks at the end of January, according to S&P Dow Jones Indices estimates.

Here are some of the markets that did particularly poorly this week:


The Shanghai Composite has dropped by 14.6% since hitting a two-year high in late January. The Hang Seng in Hong Kong has lost 13% over the same period.

Niklas Hageback, founder of Hong Kong hedge fund Valkyria Kapital, said he believed the Hang Seng in particular had been “severely overextended.” It rallied by 36% in 2017 and kept surging to all-time highs in January.

“This has been the most overbought situation since the financial crisis 10 years back,” he said. “A correction was imminent, and once the U.S. market started to show weakness, the fall has been extensive, especially for mainland financials and property stocks,” he said.

The Shenzhen A-Share index — which was left out of the global stock market rally in 2017 — sold off the most. The index is down 15.4% since hitting a recent peak in late January.

“Chinese domestic markets do show some correlation to other markets in terms of sentiment during these extreme bouts of volatility, however … they still represent an attractive investment case,” said Francois Perrin, a portfolio manager at East Capital. He said now is a good time to “start bottom-fishing” and pick up certain stocks for cheap.


Argentina’s Merval index has dropped the most of all the global indexes. It’s fallen by as much as 16% after setting an all-time high on February 1. It has since recovered a bit.

The index surged by 110% since the start of 2017 to its peak this month, so it’s no surprise that this star performer fell along with the rest of world.

Edward Glossop, an emerging market economist at Capital Economics, said the drop isn’t anything to be concerned about following a long-running rally. But he suggested the fall may have been exacerbated by concerns about recent central bank policy related to inflation.


Japan’s Nikkei index was swept up in the selling this week. It hit its highest level in late January since the early 1990s but has since dropped by 12.6%.

“In a market like this with such an abundance of liquidity, sector diversification and stock picking are almost meaningless, and sell-offs tend to be across sectors and markets,” noted Hageback.


European markets have also fallen this week, but some have fared worse than others.

Specifically, the Dax 30 in Germany has lost 11.7% since hitting an all-time high in late January. And the Stockholm 30 lost as much as 11.5% since a recent peak in early November.

Many other European indexes have dropped by roughly 9% and 10%.


The FTSE JSE All-Share index in Johannesburg, South Africa, fared poorly over the past few days, down by as much as 11% since hitting an all-time high in late January.

“Even though the epicentre of the sell-off appeared to be developments in the U.S., it is not surprising that South African equities have been hit hard too,” said Oliver Jones, an economist at Capital Economics.

“Historically, equities in emerging markets have always tumbled when the U.S. stock market has experienced a correction, even when the cause of the correction has had little or nothing to do with emerging markets. This reflects investors around the world retreating from ‘risky’ assets,” he said.

Published at Fri, 09 Feb 2018 15:53:32 +0000

Continue reading >

381-point Dow surge disappears as bond jitters return

Why stocks roared back after nosedive
Why stocks roared back after nosedive

 381-point Dow surge disappears as bond jitters return


Wall Street’s bond market headache won’t go away.

A 381-point surge on the Dow disappeared by Wednesday’s closing bell as concerns about rising Treasury yields returned. The Nasdaq slumped almost 1%, while the S&P 500 fell modestly.

The stock market appeared to be making a comeback after historic plunges on Friday and Monday. The Dow surged 567 points higher on Tuesday, and at one point Wednesday it was poised for a two-day gain of almost 1,000 points.

But Wall Street is still nervously watching the bond market, where the trouble started last week.

U.S. stocks pulled back on Wednesday after heavy selling lifted the 10-year Treasury yield back to 2.85%, matching a four-year high. The jump came after an auction of 10-year Treasury notes drew less than stellar demand.

Investors fear the rapid rise in Treasury yields this year could signal inflation and faster rate hikes from the Federal Reserve. Higher bond yields also make stocks look less attractive by comparison.

“The global bond bubble is leaking air,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients after the Treasury auction. He said assets like stocks that are valued off of bonds are “vulnerable too.”

While the market failed to hold on to the early gains, the mood has calmed significantly. Extreme fear drove the Dow down by a record 1,175 points on Monday. The VIX(VIX) volatility index fell about 15% on Wednesday after exploding during the market turmoil.

Despite the volatility, analysts believe the fundamental backdrop is solid. Corporate earnings have never been higher, and U.S. and global economic growth has gathered momentum.

“We believe the recent sell-off is a correction rather than the start of a bear market,” Pierre Blanchet, head of multi asset strategy at HSBC, wrote in a report on Wednesday.

Overseas market jitters mostly eased after plunging earlier this week. European markets raced higher, while stocks in Asia were mixed.

The question now is whether “this draws a line under the recent stock market correction or whether this is merely a dead cat bounce,” currency analysts at ING wrote in a report on Wednesday.

Published at Wed, 07 Feb 2018 21:34:14 +0000

Continue reading >
1 2 3 7
Page 1 of 7