Saturday, 10 September 2016

Weekend Update 10/09/2016 – Black Monday?

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

John Kenneth Galbraith.

Well there was no complacency in sight anywhere in the casinos on Friday. Ebenezer Squid and his ilk, long accustomed since their “taper tantrum” success in June 2013, to having their wealth enhanced by central banksters everywhere stealing from savers to give to the squids by goosing stocks.  But on Thursday the ECB’s former Super Mario, let everyone down. He went off reservation by saying he didn’t see any need to further enhance growth.

How dare he! The squids and their cousins the leveraged gambling banksters, are all-in in front running all the free money schemes by the ECB, the Fed and the BOJ. Pulling the plug, even ever so slightly, means the weakest marginal players get hammered. Then on Friday came the interest rate wisdom of Eric Rosengren. Who, most people will say. Well Rosy is the Boston Fed President, who chose Friday to warn against waiting to raise interest rates. In an instant, complacency went right out of favour.   

The world’s longest bull market, (35 years,) and greatest bubble ever, the bond market, might just be coming to an end.  Did fallen former Super Mario and Boston’s Eric the Red Ink just set up the next Black Monday trading rout? If they did, the Clinton campaign will probably spin them as working for Moscow to get “the Donald” elected.

My guess is that the Fedster’s New York City desk of riggers and fix-its will be working overtime over the weekend to undo the unforeseen damage. Still it’s too late for those hammered and carried out on their shields Friday. Like deficits didn’t matter until one day out of the blue, they did. Complacency doesn’t matter until one day it does. Getting out early in a bubble, always beats getting out last. The Fedster’s are well and truly trapped in a (Jackson) hole of their own multi-year making.

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

John Kenneth Galbraith

No Stimulus, No Peace as Stocks End Two-Month Snooze With Plunge

September 9, 2016 — 10:20 PM BST
After two months in which even a 50-point move in the Dow Jones Industrial Average was reason for excitement, investors were shaken out of their slumber as central bankers signaled reluctance to extend stimulus and sent U.S. stocks to their worst week since February.

Damage was worst in the final session, when Boston Federal Reserve President Eric Rosengren warned against waiting too long to raise interest rates. Selling built after European Central Bank President Mario Draghi downplayed the need for more measures to boost growth a day earlier. When it was over, the S&P 500 Index was down 2.3 percent to 2,127.81 on the week, with Friday’s plunge wiping out a slight gain over the first three days.

Among the many beacons of complacency that went dark Friday was a trading range in the S&P 500 that had stood as the tightest ever recorded, a stretch of calm in which no move took the benchmark index above 2,190.15 or below 2,157.03 for 40 days. The gauge closed at a two-month low that sent it below its 50-day moving average for the first time since June, while the CBOE Volatility Index, a measure of price turbulence, climbed above 17 for the first time in 50 sessions.

The end came suddenly for investors who spent the summer pondering the meaning of improving economic data and its influence on Fed policy. In fed funds futures markets, traders briefly pushed bets for a rate increase this month to 38 percent, before lowering them to 30 percent. Odds fell to 22 percent on Wednesday following a string of weaker-than-forecast reports on hiring, manufacturing and services activity.

A selloff such as Friday’s has long been predicted by bears, who saw it as a fitting end to a stretch of unprecedented complacency that lasted most of the summer. It was confirmation to them that however strong economic data may have looked in July and August, gains in global equities are being maintained by central bank intervention.

----The Dow finished the week down 406.51 points to 18,085.45 after closing just under 150 points from an all-time high last week. The Nasdaq Composite Index fell 2.4 percent for the five days, even after reaching a record on Wednesday.

The selling wasn’t limited to stocks, as the central-bank hawkishness sent Treasuries tumbling to the lowest since June. That sparked a rout in equities that serve as bond proxies, with selling Friday harshest in phone and power companies, the two groups that yield the most in the S&P 500 at 4.6 and 3.5 percent, respectively. Shares plunged at least 3.4 percent, the most for either group since at least February 2015. It marked a reversal for the pair, which led the market higher through July 15 with gains of more than 20 percent.

Mutual Swoons Bind Stocks and Bonds in Replay of Past Hawk Raids

September 9, 2016 — 8:16 PM BST Updated on September 9, 2016 — 10:29 PM BST
It was deja vu for stock and bond traders Friday as they relived past bouts of central bank-fomented neurosis.

Both markets plunged in unison, a rare but not unheard of spectacle that is almost always triggered by Federal Reserve hawkishness. The S&P 500 Index tumbled 2.5 percent in its biggest drop since the Brexit vote while Treasuries slumped, sending the yield on the 10-year note to the highest since June.

A simple comparison that adds up percentage losses in the SPDR S&P 500 ETF and iShares 20+ Year Treasury Bond ETF shows that the last time something like this happened was Dec. 3, 2015, when Fed Chair Janet Yellen indicated the conditions had been met for higher rates. The two ETFs haven’t seen declines this big on the same day since June 20, 2013, the start of the so-called taper tantrum, when Ben S. Bernanke said the Fed was about to reduce bond purchases aimed at stimulating the economy.

“Lots of skittishness and the hawkish noise comes as people begin to doubt the efficacy of monetary policy,” said Michael Block, chief strategist at Rhino Trading Partners LLC in New York. “The stock selloff is happening in conjunction with a global bond pullback and that is confounding allocators who thought they were hedged.”

It’s not like bears in both markets haven’t been warning of valuation-related dangers for months. The S&P 500 started the day with a price-earnings ratio above 20, one of the highest since the Internet bubble. Using a yield comparison sometimes known as the Fed model, government debt is even more inflated, trading earlier this year at the highest premium to stocks since 2013.

Today reinforced a 2016 trend in which disparate assets post unified moves. The increased correlation shows up in a Credit Suisse Group AG gauge tracking price relationships in equities, credit, currencies and commodities, which sits at the highest since at least 2008.

The rout started Thursday when European Central Bank President Mario Draghi downplayed the need for more measures to boost growth. Declines accelerated on Friday as Boston Fed President Eric Rosengren warned against waiting too long to raise interest rates.

Equity Markets Catch a September Chill After Calm, Complacent Summer. Will U.S. elections be impacted?

N. Jason Jencka September 10th, 2016 3:13 am ET
The inevitable has begun to occur as U.S. market participants Friday were abruptly reacquainted with the reality that QE-infinity may be reaching its limits. U.S. markets posted their weakest daily performance since the post Brexit miniature meltdown of June 24th. Questionable inflation and growth targets globally may be quietly cast aside as monetary policy hawks make their collective voices heard. There is a paradoxical case to be made that rates (particularly U.S. and ECB) must be allowed to rise if I only to provide room to be lowered yet again in the next inevitable cyclical downturn. With all monetary avenues exhausted the task of crisis response would fall to the same legislative bodies for which it is a great feat agree on the naming of major bills let alone their content or the legislative process. 

Following along the theme of perpetual dysfunction, we come to the U.S. Presidential election and the potential impact of market weakness if it should persist through the roughly two months leading up to Election Day.  Former Secretary of State Hillary Clinton has been running on as a (paraphrased) “stay the course and the renewed prosperity brought on by the Obama administration and expressed through a stock market at record highs" can be continued for another 4 (8) years. Days like Friday, if repeated with sufficient frequency, would cast doubts on Mrs. Clinton’s argument and would bode rather well for Mr. Donald J. Trump.

N. Jason Jencka is presently studying Finance and Economics at Sierra Nevada College, located near the shores of Lake Tahoe on the border of California and Nevada.His interests include the interplay between world markets and the global political sphere, with a focus on developments of both sides of the Atlantic in North America and Europe.In his leisure time he enjoys connecting with those people that have an interesting story to tell and a genuine desire to make an impact in the world.

Below, yet another unintended consequence of the Great Nixonian Error of fiat money, communist money.  On fiat money created out of nothing on the whim of any central bankster with a fiat currency, everything quickly turns into massive leveraged rent seeking.

Chinese Billionaire Linked to Giant Aluminum Stockpile in Mexican Desert

U.S. aluminum executives claim Liu Zhongtian, founder of Chinese metals conglomerate China Zhongwang, used a factory in Mexico to game the global trade system

By Scott Patterson in Los Angeles,
John W. Miller in San José Iturbide, Mexico, and
Chuin-Wei Yap in Liaoning, China
Updated Sept. 9, 2016 1:47 a.m. ET

Two years ago, a California aluminum executive commissioned a pilot to fly over the Mexican town of San José Iturbide, at the foot of the Sierra Gorda mountains, and snap aerial photos of a remote desert factory.

He made a startling discovery. Nearly one million metric tons of aluminum sat neatly stacked behind a fortress of barbed-wire fences. The stockpile, worth some $2 billion and representing roughly 6% of the world’s total inventory—enough to churn out 2.2 million Ford F-150s or 77 billion beer cans—quickly became an obsession for the U.S. aluminum industry.

Now it is a new source of tension in U.S.-Chinese trade relations. U.S. executives contend that the mysterious cache was part of a brazen scheme by one of China’s richest men to game the global trade system.

Aluminum-industry representative Jeff Henderson says he is convinced that China Zhongwang Holdings Ltd. , a Chinese aluminum giant controlled by billionaire Liu Zhongtian, tried to evade U.S. tariffs by routing aluminum through Mexico to disguise its origins, a tactic known as transshipping.

“My Moby-Dick has been Zhongwang,” says Mr. Henderson, president of the Aluminum Extruders Council, a U.S. trade group.

Mr. Liu, a member of China’s ruling Communist Party, denies any connection to the Mexican aluminum or transshipping. “These things have nothing to do with me,” he said in a June interview at his company’s Liaoning, China, plant, where he lives in an apartment inside the factory. He said he wouldn’t know how to establish a business in Mexico, joking that “in that sort of place, there are a lot of killers with guns.”

Company records, trade documents and legal filings reviewed by The Wall Street Journal, along with interviews of people who have done business with Mr. Liu, raise doubts about his account. They show that hundreds of thousands of tons of aluminum were shipped to Mexico from China through a series of companies, including one owned by Mr. Liu’s son and one by someone who describes himself as a longtime business associate of the Chinese billionaire.

The U.S. Commerce Department says it is investigating the Mexican aluminum’s origin as part of a slew of trade complaints by the U.S. metals industry against China, many of which include allegations of transshipping.

China’s booming industrial production has reordered global markets, few more dramatically than aluminum. Fueled by access to inexpensive electricity and tax breaks, Chinese aluminum output doubled between 2010 and 2015. With local demand slowing, more of it was sent to the U.S., which was importing 40% of its aluminum by 2015—up from only 14% in 2010.

By the end of 2016, only five aluminum smelters will be operating in the U.S., down from 23 in 2000.

"In economics, hope and faith coexist with great scientific pretension."

John Kenneth Galbraith.

We close for the weekend with an update on good taste, British style. Born into a Dukedom in Blenheim Palace by his American mother, we present Sir Winston Churchill’s taste in drinks. For those hammered and carried out on Friday, they might want to try a little of each. And with Brexit in mind, to all GB based continentals how good is your grasp of English? After Brexit, could you stay on and pass for English?

How to drink like Winston Churchill

Winston Churchill was well-known for liking the occasional drop - but what did he actually drink? Here are some of his favourite tipples
By Warren Dockter 12:05PM GMT 28 Jan 2015
Winston Churchill's bibulous meals and tendency to keep a whisky going through the day are legendary. Yet most historians agree that Churchill’s supposed abuse of alcohol is a myth; he was no alcoholic.

Of course, Churchill himself did very little to discourage rumours about his alcoholic excess. According to the historian Richard Langworth, Churchill certainly promoted the notion that “he had a bottomless capacity.”

Certainly his capacity was formidable. When he visited the White House, President Roosevelt enjoyed keeping pace with what the White House staff called “Winston Hours.” Supposedly President Roosevelt even slept ten hours a night for three nights in order recover.

But at the same time, Churchill’s famous daily whisky was more like mouthwash than a proper drink, according to his private secretary Jock Colville. Indeed, Churchill often reflected that he was taught by his father “to have the utmost contempt for people who get drunk.”

----Perhaps a more interesting question about Churchill’s drinking habits is what kinds of things he actually enjoyed drinking. His tastes might be thought of as unsurprisingly old-fashioned. He did not care for sugary American cocktails but was known to drink a white German breakfast wine which he called 'Hock’. Here are some of his favourite drinks.

Dry Martini
Though Churchill did not care for Roosevelt’s version of a martini, he was known to enjoy one. His recipe, however, was slightly different.

He loved Plymouth gin but he was not a fan of vermouth. Once, when asked how much he wanted in his martini, he replied: “I would like to observe the vermouth from across the room while I drink my martini.”
This gave birth to the "Churchill Martini”, which is little more than gin poured over ice while vermouth is presented in the same room.

This was a staple of Churchill’s daily routine and was always present during his meals. In 1924, when he moved to Chartwell, he wrote a letter which indicated just how much he loved wine, assuring his wife, Clementine, that he drank “champagne at all meals & buckets of claret & soda in between.”

Johnnie Walker Red Whisky
Churchill’s favourite whisky was, perhaps surprisingly, not a single malt but a blend. Johnnie Walker Red Label formed the basis of his daily whisky and water; a drink which his children called a 'Papa Cocktail’. This consisted simply of a tipple of Johnnie Walker covering the bottom of a glass, then filled with water and sipped throughout the day.

Churchill enjoyed a range of high quality brandies, from Hine, through l’Hertier de Jean Fremi-court (which he drank as an older man), to Prunier (which Churchill served at Potsdam). In 1942, Stalin gave him a bottle of Ararat Cognac from Armenia.

Churchill often drank brandy in the evening after dinner and when he visited the White House for Christmas in 1941, President Roosevelt instructed his wife to make sure they were stocked up on brandy. Churchill reportedly said that the four essentials of life were “Hot baths, cold champagne, new peas and old brandy”.

Champagne Pol Roger
Churchill loved champagne. He was fond of saying that a glass lifts the spirits and sharpens the wits - but “a bottle produces the opposite effects.”

Yet of all champagnes, his favourite was Pol Roger. It had been his choice from the 1920s, so that when he attended a lunch at the British Embassy in Paris in November 1944, after its liberation by the Allies, he and Odette Pol Roger became fast friends for the rest of his life.

Each year on his birthday, a case of Pol Roger would be sent to Chartwell. When Churchill died in 1965, Pol Roger placed a black border around its labels, and in 1984 Pol Roger’s new prestige champagne Cuvée was named after Winston Churchill.

How good is YOUR English? Tongue-twisting poem puts even fluent speakers' pronunciation to the test (and it's harder than it looks)

English is a tricky language filled with silent letters, random vowel sounds and sometimes apparently no logic.
Now a poem that aims to test an English speaker's skill with the language has resurfaced on the web.  
According to the author, Dutch poet Gerard Nolst Trenité, only a true Englishman can pronounce all of the words in his 1922 tongue twister. 
Dearest creature in creation, 

Study English pronunciation. 
I will teach you in my verse 
Sounds like corpse, corps, horse, and worse.
I will keep you, Suzy, busy, 
Make your head with heat grow dizzy. 
Tear in eye, your dress will tear. 
So shall I! Oh hear my prayer. 
Pray, console your loving poet, 
Make my coat look new, dear, sew it! 

Just compare heart, beard, and heard, 
Dies and diet, lord and word, Sword and sward, retain and Britain. 
(Mind the latter, how it's written.) 
Now I surely will not plague you 
With such words as plaque and ague. 
But be careful how you speak: 
Say break and steak, but bleak and streak; 
Cloven, oven, how and low, 

Script, receipt, show, poem, and toe. 
Hear me say, devoid of trickery, 
Daughter, laughter, and Terpsichore, 
Typhoid, measles, topsails, aisles, 
Exiles, similes, and reviles; 

Scholar, vicar, and cigar, 
Solar, mica, war and far;
One, anemone, Balmoral, 
Kitchen, lichen, laundry, laurel; 
Gertrude, German, wind and mind, 
Scene, Melpomene, mankind. 

Billet does not rhyme with ballet, 
Bouquet, wallet, mallet, chalet. 
Blood and flood are not like food, 
Nor is mould like should and would. 

“The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. …..The bargains then suffered a ruinous fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable."

John Kenneth Galbraith. The Great Crash: 1929.

1 comment: