by Market Shadows - October 20th, 2016 11:23 pm
Financial Markets and Economy
Prices for West Texas Intermediate crude, the US benchmark, are down by 2.3% at $50.65 per barrel, while prices for Brent crude, the international benchmark, are down by 2.5% at $51.38 per barrel as of 10:56 a.m. ET.
Federal Reserve Bank of New York President William Dudley repeated that he expects an interest-rate increase by the end of 2016, as the central bank draws closer to reaching its twin objectives of maximum employment and 2 percent inflation.
Investment banking is back! After a rocky few years, to say the least, major Wall Street banks are once again making huge amounts of money from bond trading, a traditional cash cow.
Pound Sterling Performing Worse Than Malawian kwacha (Value Walk)
Pound Sterling – The United Kingdom is one of the world’s oldest democracies has arguably the most respected legal system in the world and is generally considered by investors to be one of the safest places to invest
Why are US consumers defaulting?
That's the question in a big note out from Matthew Mish and Stephen Caprio at UBS, who used evidence from the bank's proprietary US Housing Intentions Survey to try to get at an answer.
Investors Charging Into American Express Should Think Again (The Wall Street Journal)
The credit-card company on Wednesday crushed analyst estimates for third-quarter earnings and raised guidance for the full year. The positive surprise was mainly due to lower expenses and fewer losses than feared on outstanding loans. In a year when AmEx shares were down 12%, this was enough to trigger a sharp relief rally.
Inflation Outlook Rises Everywhere But Japan (Bloomberg)
Japanese five-year inflation swaps remain mired below 0.3 percent, resisting pressure
by ilene - October 20th, 2016 8:54 pm
Moving toward computing at the speed of thought
The first computers cost millions of dollars and were locked inside rooms equipped with special electrical circuits and air conditioning. The only people who could use them had been trained to write programs in that specific computer’s language. Today, gesture-based interactions, using multitouch pads and touchscreens, and exploration of virtual 3D spaces allow us to interact with digital devices in ways very similar to how we interact with physical objects.
This newly immersive world not only is open to more people to experience; it also allows almost anyone to exercise their own creativity and innovative tendencies. No longer are these capabilities dependent on being a math whiz or a coding expert: Mozilla’s “A-Frame” is making the task of building complex virtual reality models much easier for programmers. And Google’s “Tilt Brush” software allows people to build and edit 3D worlds without any programming skills at all.
My own research hopes to develop the next phase of human-computer interaction. We are monitoring people’s brain activity in real time and recognizing specific thoughts (of “tree” versus “dog” or of a particular pizza topping). It will be yet another step in the historical progression that has brought technology to the masses – and will widen its use even more in the coming years.
Reducing the expertise needed
From those early computers dependent on machine-specific programming languages, the first major improvement allowing more people to use computers was the development of the Fortran programming language. It expanded the range of programmers to scientists and engineers who were comfortable with mathematical expressions. This was the era of punch cards, when programs were written by punching holes in cardstock, and output had no graphics – only keyboard characters.
By the late 1960s mechanical plotters let programmers draw simple pictures by telling a computer to raise or lower a pen, and move it a certain distance horizontally or vertically on a piece of paper. The commands and graphics were simple, but even drawing a basic curve required understanding trigonometry, to specify the very small intervals of horizontal and vertical lines…
by ilene - October 20th, 2016 5:16 pm
U.S. crude oil storage is filling up with unaccounted-for oil. There is a lot more oil in storage than the amount that can be accounted for by domestic production and imports.
That’s a big problem since oil prices move up or down based on the U.S. crude oil storage report. Oil stocks in inventory represent surplus supply. Increasing or decreasing inventory levels generally push prices lower or higher because they indicate trends toward longer term over-supply or under-supply.
Why Inventories Matter
Inventory levels have reached record highs since the oil-price collapse in 2014. This surplus supply is a major factor keeping oil prices low.
Current inventories are 45 million barrels higher than 2015 levels, which were more than 100 million barrels higher than the average from 2010 through 2014 (Figure 1). Until the present surplus is reduced by almost 150 million barrels down to the 2010-2014 average, there is little technical possibility of a sustained oil-price recovery.
Figure 1. U.S. Crude Inventories Are ~150 Million Barrels Above Average Levels. Source: EIA, Crude Oil Peak and Labyrinth Consulting Services, Inc.
U.S. inventories are critical because stock levels are published every week by the U.S. EIA (Energy Information Administration). The IEA (International Energy Agency) publishes OECD inventories, but that data is only published monthly and it measures liquids but not crude oil. It also largely parallels U.S. stock levels that account for almost half of its volume. Inventories for the rest of the world are more speculative.
Understanding U.S. Stock Levels
Understanding U.S. stock levels should be straight-forward. Every Wednesday, EIA publishes the Weekly Petroleum Status Report which includes a table similar to Figure 2.
Figure 2. EIA publishes adjustments and defines them as “Unaccounted-for Oil.” Source: EIA U.S. Petroleum Status Weekly (Week Ending September 16, 2016), Crude Oil Peak and Labyrinth Consulting Services, Inc.
The calculation to determine the expected weekly stock change is fairly simple:
by Market Shadows - October 20th, 2016 9:53 am
Financial Markets and Economy
China’s campaign to crack down on illegal capital outflows saw its currency regulator bust underground banking operations that involved more than 1 trillion yuan ($148 billion).
The blockchain technology behind bitcoin was designed to do away with banks. In an ironic reverse, investment banks are now racing to make it work for them – but cash-strapped European players risk falling behind their Wall Street rivals.
China’s construction growth slowed in the third quarter, signaling that developers might have turned more cautious toward a property market seen at risk of becoming a bubble.
With its back against a fiscal wall, Saudi Arabia offered $17.5 billion in bonds on the international market on Wednesday. It’s the largest bond sale on record from an emerging market, topping Argentina’s bond sale in April of $16.5 billion. The amount exceeds previous estimates which had placed the bond offering anywhere between $10 billion and $16 billion.
The European Central Bank kept interest rates and policy guidance unchanged on Thursday but may lay the groundwork for more easing to come in December as it tries to sustain a long-awaited rebound in consumer prices.
Where the Next Crisis Will Come From (Bloomberg)
Next year ends in a 7. If you’re superstitious or a little loose with statistics, that makes us due for another financial crisis. The biggest one-day stock drop in Wall Street history happened in 1987. The Asian crisis was in 1997. And the worst global meltdown since the Great Depression got rolling in 2007 with the failure of mortgage lenders Northern Rock in the U.K. and New Century Financial in the U.S.
U.K. retail sales stagnated for a second month in September as soaring prices and
by phil - October 20th, 2016 8:15 am
That's what we like to say when we get a nice dip when we're shorting. It indicates both the excitement of the trade and it's also a reminder that Futures trading is a lot like playing Chutes and Ladders – things can quickly reverse on you, so you have to know when to take those profits off the table. Yesterday, we initiated our short oil position (/CL) during our Live Trading Webinar at 1pm (replay available here) and, before it was over, we had reduced the position to just 2 contracts, which we decided to leave overnight. Those two contracts made another $2,300 overnight and now we're up $4,110 on a trade in just 19 hours – not bad for a free webinar!
Because we know the NYMEX trading is FAKE, we knew the movement yesterday was also FAKE so we stuck with our short positions despite the "strong" oil inventory report, where the headline 5.2Mb draw in oil was also FAKE because, in fact, we imported 6.9Mb less oil last week than the week before. So not only was the draw NOT due to an uptick in demand but, without the hurricane disrupting shipping, we would have had a 1.7Mb BUILD last week. Meanwhile, those FAKE November contract orders are almost all gone – as we predicted:
That's right, there are now 500,000 (96%) FAKE orders for December crude oil and, as of yesterday's close, when we were shorting it (2:35 pm), it was $51.82. Now it's testing $51 and 0.82 on a futures contract is $820 per contract. That means those 519,754 contracts lost $426M this morning – ouch! Fortunately, we were able to lock up $4,000 of that gift money for ourselves – congratulations to all our Members!
We're done with oil shorts for the moment. Today is rollover day to the December contracts so anything can happen though, of course, we'll short below $51 or $51.50 if we get there on a bounce, using those lines as stops and, of course, we still have our longer-term Oil ETF (USO) puts. We can only hope that, by making contract spoofing more expensive for the pumpers, we can do just a little to curb the practice…
by Market Shadows - October 20th, 2016 12:37 am
Financial Markets and Economy
China’s economy expanded quicker than economists forecast in the third quarter as the services sector offset weaker manufacturing, keeping Premier Li Keqiang’s 2015 growth target within reach.
China GDP: Deflategate Comes to Beijing (The Wall Street Journal)
The world’s second largest economy registered an official 6.9% growth rate, in inflation adjusted terms, in the third quarter compared with a year ago, just a smidgen off the government’s official target of 7%.
While signs of weakness in the Chinese economy rekindled declines in commodities, U.S. stocks ended Monday little changed at an eight-week high as consumer companies advanced before a barrage of earnings reports.
It's 'uninformed' to compare the stock market today to Black Monday in 1987 (Business Insider)
Last week, Citi technical analysts put two charts next two other and emerged with an overlay that gave them "the chills."
The chart showed the S&P 500 this year meshed with the index in 1987, leading up to the "Black Monday" crash that year. On October 19, 1987 — 29 years to this day — the Dow plunged 508 points, or 22.6%.
Saudi Arabia conducted the largest-ever emerging market bond sale on Wednesday, selling $17.5 billion of debt in the government's first international offer while attracting investor orders totaling almost four times that amount.
In the final moments before Japan’s stock exchange closes each day, one investor has increasingly captured the attention of traders in Tokyo: the world’s biggest leveraged exchange-traded fund.
NOMURA ON CHINA GDP: Whatever (Business Insider Australia)
China’s economy did something that it’s never done before in the three months to September – at least in modern times – recording a year-on-year growth rate of 6.7% for the third quarter in a row.
by ilene - October 19th, 2016 8:28 pm
There are a lot of people who don’t believe in the merits of technical analysis. It doesn’t make sense to them that you can look at past price movements and determine future price movements. If stock prices are driven by earnings, how can a chart provide any insight? Well, yeah, stocks are driven by earnings in the long-run, but in the short-run they’re driven by sentiment, which can be observed by measuring supply and demand.
Anecdotally, nonsensical forecasts seems to permeate from technical analysis way more than fundamental analysis, which is the main reason it often gets ridiculed. (By the way, I’m not suggesting nonsensical forecasts aren’t ever driven by fundamental analysis, Dow 36,000 is a great example.) These outrageous claims are provided by technicians that abuse the charts. They’ll draw a few dozen lines, waves and retracements, and use a handful of oscillators. In addition to some of the crazy artwork, the patterns they’ll cite have names that sound ridiculous to the laymen; a rising wedge, head and shoulders, three peaks and a domed house, etc.
Here’s a recent “Red Alert” example from HSBC:
The Head & Shoulders Top with the neckline acting as resistance comes on top of a potentially bearish Elliot Wave irregular flat pattern and the fact that the index is now backing off from the old 2015 highs. A close below 17,992 would be very bearish. Pressure would ease above 18,449.
Here is another example from an article yesterday in the Wall Street Journal with the headline “Technical Analysts are Getting Nervous About This Market.” It included the following statement:
Those who owned S&P 500 stocks only when both the index and its cumulative advance-decline line were below their 50-day moving averages, as is currently the case, would have lost about 50% since 2012, according to FBN Securities.
What does this actually mean!?!
And finally, stuff like this exists, which shows stocks vs. regional surface temperature of the Pacific Ocean…
Requires no further commentary.
by ilene - October 19th, 2016 4:15 pm
Courtesy of John Mauldin, Mauldin Economics
I can remember writing in the ’90s and early 2000s that one of the great things about the United States was our economic mobility. By that term, economists mean the ability of people to shift around on the economic spectrum – to move from being a low-income family to being a high-income family, for example. Karl Marx, in the 1850s, even cited the US as an exception to his struggle-of-the-classes theory, because the economic classes in the US kept changing so much.
The last few years have seen a flurry of studies asserting that this mobility is no longer the case. That is a very uncomfortable fact for me – it cuts right into my emotional comfort zone. If that is true, then the America I grew up in is changing. Which of course should not surprise me because (a) the US is always changing and (b) the evidence in front of my eyes about cultural shifts and the economic difficulties of the younger generation is readily apparent.
An old friend of mine sent me the essay you’re about to read. It’s by Frank Buckley, who is a professor at the Scalia Law School at George Mason University. It appeared in the Hillsdale College publication Imprimis.
Outside the Box is supposed to make you think, even when it is uncomfortable to do so. And Buckley’s essay will make many Americans uncomfortable, even as it allows my Canadian friends to continue to feel smug and superior (although they are always too polite to flaunt it).
What Buckley demonstrates is that the political devolution we have seen in the US in recent years and that has come to a head this year in the form of the Trump and Sanders candidacies, is actually a confirmation of Marxist theory (though Buckley himself is hardly a Marxist). We have erupted into what is essentially class warfare, at least in the political realm. Okay, we all get that middle-class America has been left behind and that the Protected Classes, whether they are Republican or Democrat, have made sure they do well. When you have economic and social mobility, you have a country in which there are social differences, but they are not so extreme that a large portion
by ilene - October 19th, 2016 2:05 pm
Courtesy of Joshua M Brown
“I spend a lot of time researching things we ultimately don’t do.”
- Steve Edmundson, investment chief for the $35 billion Nevada Public Employees’ Retirement System
The quote above perfectly describes the in-house research program that Michael, Ben, Dan and Barry carry out each week. We’re always researching strategies and tactics and funds and ideas but very rarely come across something that makes us sit up and say “let’s roll!”
Most of the work we do ends up confirming that what we’re already doing is probably a better idea. This confirmation is an important trick that keeps us disciplined and helps us do the same for our clients.
Hit the link above to read about how Mr. Edmundson manages one of the better performing state pension systems by not jumping at every new trend, headline or piece of data. Yes, it true that he may be able to do better if he were to make this move or that shift – but he could also be doing much, much worse.
Here’s a Blaise Pascal quote that Charlie Munger often cites: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”
Days spent here reading and researching quietly far outnumber days spent putting on trades or attempting to outsmart the other guys. They are more productive, too – even if the only fruit of all this labor is to say “here’s something else that doesn’t need to be done.”
by Market Shadows - October 19th, 2016 10:42 am
Financial Markets and Economy
The pound rose for a second day as a report showed the U.K.’s jobless rate held at an 11-year low, highlighting the resilience of the economy following Britain’s vote to exit the European Union.
The dollar slipped against major rivals Wednesday, although its decline was lessened after China’s economic data reduced growth worries about the world’s second-largest economy.
Don't Expect Russia to Cut Oil Production Voluntarily (Baker Institute)
Russian oil producers—and certainly, the Russian government—would clearly prefer higher oil prices. But the key question at present is “whose system can withstand more prolonged oil price pain, Saudi Arabia or Russia?” Several structural factors increasingly suggest that it’s Russia who enjoys higher pain tolerance, and that Saudi Arabia will need to lead any production cuts that occur.
Chinese tycoon Wang Jianlin is wrapping up his latest Hollywood acquisition while Washington recently made a decision to review foreign investment that was inspired by his aggressive moves.
Yesterday, billionaire bond investor Jeffrey Gundlach said he thinks the days of negative interest rates are numbered. He was referring to market rates on the benchmark ten-year government bond yields, specifically in Germany and Japan. If he’s right, that means the top is in for bonds.
A gauge of global equity markets climbed to a one-week high on Tuesday, lifted by rising commodity prices and a strong bounce in Europe, while solid corporate earnings helped drive share prices higher.
The Dying Business of Picking Stocks (The Wall Street Journal)
Pension funds, endowments, 401(k) retirement plans and retail investors are flooding into passive investment funds, which run on autopilot by tracking an index. Stock pickers, archetypes of 20th century Wall