Thursday 8 February 2018

Markets Wobbly, Waiting For The Next Shoe.



Baltic Dry Index. 1097 +02    Brent Crude 65.49

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

The global stock markets remain skittish, following the recent “unexpected” sell off, despite the central banksters desperately spewing oil on the stormy seas, and the stock pedlars all busy promoting buy the dip.  Unfortunately bond yields aren’t following the script, and no one yet know how much damage has occurred from the stock melt down and the cryptocurrency mania disaster.

As China and much of Asia prepare to celebrate the Lunar (Chinese) New Year, next week, it’s more likely to be risk off next week in Asia, than risk on.

Below, waiting for the next shoe to fall.

Asian markets rise modestly amid lingering investor fears

Published: Feb 7, 2018 11:52 p.m. ET
Asian stocks vacillated Thursday as higher market volatility continued and investors struggled with what to make of the past week’s global market selloff.

Indexes in Hong Kong and China turned negative ahead of their midday break, with Shanghai’s stock benchmark also turning negative for the year as large-cap stocks declined.

Meanwhile, Chinese economic data out late morning showed the country’s trade surplus narrowed sharply in January as imports surged. But analysts again warned that Chinese economic numbers are distorted at the start of each year by the timing of the Lunar New Year holiday.

The volatility of the past week was inevitable, given the lull that had preceded it, said Tai Hui, chief market strategist for Asia at J.P. Morgan Funds.

“I’m surprised that people were surprised,” he said, while calling the past week’s stock pullback “somewhat overdue.” Hui is recommending that clients buy stocks in expectation of further gains.

Other analysts were more tempered.

“We think that it is too soon to sound the all-clear,” Capital Economics said in a research note. “Our expectation is that unbridled optimism will give way to growing pessimism as it becomes clear that the U.S. economy will slow in response to tighter Fed policy and fading fiscal stimulus.”

After strong European gains on Wednesday were followed by a late-day selloff in the U.S. that left some indexes at session lows, the Shanghai Composite SHCOMP, -2.09%   was among the notable movers on Thursday in Asia. It ended morning trading down 1.5%, wiping away the rest of this year’s gains.

Coming into today, the index was among the few in Asia still up for 2018.
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U.S. stocks finish lower in volatile trade as investors fret over rising yields

Published: Feb 7, 2018 4:31 p.m. ET

Analyst: Stocks are adjusting to a world with inflation, but aren’t worried about a recession

U.S. stocks finished lower after failing to defend intraday gains Wednesday as investors struggled to adjust to an investment environment marked by both rising bond yields and signs of inflation.

The market’s move south coincided with a spike in the 10-year Treasury yield in the wake of the news of a two-year budget deal announced by top senators that would significantly raise fiscal spending.

Recent trading has seen huge swings in both directions, though the dominant move over the past week has been lower, something analysts said was to be expected after Wall Street scored big gains in January and throughout 2017.

Check out: Why the Dow has suddenly become a hot mess

How did the main benchmarks fare?

The Dow Jones Industrial Average DJIA, -0.08% slid 19.42 points to 24,893.35, after bungee-jumping a 500-point range during the session.

The S&P 500 SPX, -0.50% fell 13.48 points, or 0.5%, to 2,681.66, with energy and technology sectors leading the losers. The Nasdaq Composite COMP, -0.90% shed 63.90, 0.9%, to 7,051.98.

At current levels, major indexes stand about 5% below last month’s record highs.

The yield on the 10-year Treasury note TMUBMUSD10Y, +0.25%  jumped to 2.84% after trading as low as 2.75% earlier.

----There were no top-tier economic reports Wednesday but New York Fed President William Dudley took part in a panel discussion on banking culture during which he said the recent drop in the stock market wasn’t big enough to alter the economic outlook.
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February 7, 2018 / 11:23 AM

Fed's Kaplan says market correction healthy, sees no economic impact

FRANKFURT (Reuters) - The recent selloff on the stock markets is a “healthy” correction from high valuations, Dallas Fed President Robert S Kaplan said in Frankfurt on Wednesday, adding he did not think it would have repercussions on the economy.

“I don’t think so (that it would have economic implications), I think it’s basically a market event and these things can be healthy,” Kaplan said in response to a question.

World's Largest ETF Hit by Biggest Four-Day Outflow on Record

By Sid Verma and Dani Burger
7 February 2018, 11:55 GMT
The global market maelstrom spurred money managers to yank a record $17.4 billion from the mighty SPDR S&P 500 ETF over the past four trading sessions. The $8 billion removed on Tuesday alone was the third-largest daily withdrawal in the post-crisis era.

The last time redemptions were close to matching this frenetic pace? In late 2007, when cracks in U.S. equities began to show before the global financial crisis unfolded.

Even with the historic wave of outflows, the world’s largest exchange-traded fund has received a net $2.4 billion of inflow this year to reach assets of $276 billion, while eking out a 0.85 percent gain.

Investors are catching their breath after the selloff, which followed the fastest-ever flow of money out of funds holding U.S. Treasuries and high-yield debt and into global stocks, in the week to Jan. 31. That spurred Bank of America’s equity sell signal to ring louder. The total inflow into stock funds globally last month surged to $102 billion, according to EPFR Global data.

The worst may be over for the S&P tracker, with bears easing back on hedging options. Contracts protecting against a 5 percent decline surged to their highest price ever relative to calls on Monday, according to three-month data compiled by Bloomberg. That position, known as skew, has since eased to less than a point above the five-year average.

How trading at the speed of light exacerbates market drops

Published: Feb 7, 2018 5:05 p.m. ET
Investors who grew accustomed to calm markets and double-digit annual returns were rudely reminded Monday that stock markets can be volatile, and one of the contributing factors to wild swings is the current market structure.

This isn’t to say that in the good old days we didn’t have big swings. In fact, a 20% one-day plunge in October 1987 still holds the title of the biggest in history, and there were plenty big down days during the bear market following the financial crisis of 2007-’08.

What has changed since those days, however, is technology and the speed at which trades are occurring.

For example, at about 3:10 p.m. Eastern on Monday, after continuous selling all day, the S&P 500 SPX, -0.50% — which was by then down by nearly 70 points — suddenly dropped by an additional 40 points in the span of 10 minutes.

The immediate reaction from market experts was that it was due to machine trading that unraveled too quickly.

The problem isn’t that machines are executing trades the way they were programmed in an age when all transactions are electronic. It is the speed at which these trades are processed, literally before a human can blink an eye and intervene, resulting in flash crashes.

“Monday was really bad and that drop late afternoon was a mini flash crash,” said Joe Saluzzi, partner and co-head of equity trading at Themis Trading.

Saluzzi and his partner at Themis, Sal Arnuk, are authors of “Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio.”

“In the current market structure, there are no traditional market makers who have limit and stop orders on their books. Instead of specialists who are responsible for a single stock on the exchange, there are proprietary high-frequency traders on multiple exchanges with multiple trading strategies. And in time of stress, they all withdraw, exacerbating any drop,” Saluzzi said.

Traditionally, broker-dealers, who could trade on behalf of customers as well as on their own books, had the responsibility and obligation to step in to maintain orderly markets. In return, they were allowed to buys stocks at a lower price and sell at a markup, as well as benefiting from the bid-ask spread when not selling from their own inventory.

“After the regulation NMS and the financial crisis, traditional broker-dealers, such as Morgan Stanley or Goldman Sachs, all shrunk their trading desks. That void has been filled by proprietary trading firms, who have no obligation to keep markets orderly but only to make money. In fact, HFTs thrive when there is higher volatility,” Saluzzi said.
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When is Chinese New Year and which Chinese zodiac sign am I?

We are now just a few days away from the awesome celebration that is Chinese New Year, not just marked in China, but welcomed in around the globe with parades and parties.

We are about to say goodbye to the year of the rooster and welcome in the year of the dog as the Chinese Zodiac continues its 12-year cycle.

----This year, Chinese New Year falls on Friday, February 16, nearly three weeks later than the date it fell in 2017 (January 28).

The dates for Chinese New Year differ each year as it is based on the lunar calendar, not the Gregorian calendar, and falls any time between January 21 and February 20.

The Chinese animal Zodiac works in a repeating cycle of twelve years, with twelve animals you can be depending on the year you were born.

This comes from an old story where the Jade Emperor ordered that animals would become part of the calendar. He stated that the first animals to arrive to him would get this honour.
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There are two kinds of guru . There is the guru that is always wrong, and that knows they are wrong, and glories in it; and there is the guru that is always right — except when you rely upon them, and then they are more wrong than you would think a guru could be in a civilized country.

With apologies to Jerome K. Jerome. 1910.

Crooks and Scoundrels Corner 

The bent, the seriously bent, and the totally doubled over.

Today, here we go again. Wall Street at its finest.

It’s morally wrong to let a sucker keep his money.

Ebenezer Squid, with apologies to W. C. Fields.

Icahn: The market will one day 'implode' because of these wacky funds using so much leverage

  • There are too many exotic, leveraged products and one day these securities are going to blow up the market, Carl Icahn tells CNBC.
  • The billionaire investor says, "The market itself is way over-leveraged," and at some point could "implode."
  • But for now, he believes, "This thing will probably bounce back."
Published 6 February, 2018
Billionaire Carl Icahn told CNBC on Tuesday there are too many exotic, leveraged products for investors to trade, and one day these securities are going to blow up the market.

The market is a "casino on steroids" with all these exchange-traded funds and exchange-traded notes, he said.

These funds, especially the leveraged ones, are the "fault lines" that will eventually lead to an earthquake on Wall Street, he said. "These are just the beginnings of a rumbling."

The latest example is an obscure security, designed to be a bet on a calm market, that's being blamed for causing an influx of selling in recent days. The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) blew up overnight as investors were forced to sell when the market went haywire.

As a result, Credit Suisse on Tuesday said as of Feb. 20, it will end trading for its XIV, which was supposed to give the opposite return of the Cboe Volatility Index (VIX), often referred to as the market's fear gauge.

"The market itself is way over-leveraged," Icahn said on "Fast Money Halftime Report," predicting that "one day this thing is just going to implode." He described the possible implosion as "maybe eventually worse than 1929," making reference to the stock market crash that contributed to the Great Depression.

"The market has become a much more dangerous place," he said, adding the current volatility is a precursor of potential trouble. "It's telling you something, giving you a warning."

Investors are piling into index funds thinking they'll never go down, Icahn said. "Passive investing is the bubble right now, and that's a great danger."

But as much as he was sounding alarm bells, Icahn said, "I don't think this is the explosive time." The market will "probably bounce back," he continued. "I don't think this is the beginning of the end."
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Nomura Sorry for VIX Note Crash That Burned Retail Investors

By Takahiko Hyuga
7 February 2018, 04:29 GMT Updated on 7 February 2018, 07:26 GMT
Nomura Holdings Inc. issued an apology after investors in a $300 million product betting on low volatility were all but wiped out during this week’s stock-market turmoil.

Japan’s biggest brokerage said Wednesday that it has received inquiries from individual investors after its decision to redeem the exchange-traded notes at a 96 percent discount. “We sincerely apologize for causing significant difficulties to investors,” its Nomura Europe Finance unit said in a statement a day earlier.

Nomura’s Next Notes S&P500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN involved a bet against stock-market gyrations by moving in the opposite direction to a gauge of volatility. Its early redemption -- the first of its kind in Japan -- was triggered after the notes lost more than 80 percent of their value amid the global equity-market selloff.
“This is a listed product, and we believe it can be bought by both individual and institutional investors,” Nomura said in an emailed statement. It declined to comment on any positions it took in the product or any impact of its demise on earnings.
The ETN will be redeemed at 1,144 yen per unit, Nomura said. It was valued at 1.3 billion yen ($12 million) as of 3 p.m. in Tokyo Wednesday, down from 32 billion yen on Monday.

Nomura’s product is among more than a dozen worldwide that are being liquidated or halted as bets soured that the calm pervading stock markets would persist. Credit Suisse Group AG is buying back a volatility ETN that’s down 95 percent from a peak of $2 billion last month.

Read about Credit Suisse’s decision to liquidate its ’VelocityShares’ product

The collapse is raising concerns over whether novice investors should pile into such complex trades. BlackRock Inc., the world’s biggest provider of exchange-traded funds, on Tuesday reiterated a call for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products.
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Novogratz Raises $250 Million for Crypto Merchant Bank

By Erik Schatzker
7 February 2018, 14:03 GMT
Mike Novogratz, the former Wall Street macro trader, raised about $250 million for his cryptocurrency merchant bank during one of the biggest routs yet in Bitcoin, according to a person familiar with the deal.

Terry Gou, the billionaire chief executive officer of China’s Foxconn, is among the investors in the private placement, said the person, who asked not to be identified because the transaction isn’t public. Investors committed to buy shares of Novogratz’s firm, Galaxy Digital LP, through a holding company that eventually will trade on Toronto’s TSX Venture Exchange, according to the person.

Novogratz, 53, was able to raise money even as prices for Bitcoin, ether and other cryptocurrencies were collapsing from record highs in December. His New York-based merchant bank plans to trade crypto as well as make principal investments, manage assets for other clients and provide advice on blockchain-related ventures.

Read more about Novogratz’s plans for a crypto merchant bank

Unlike in an IPO, Galaxy is raising money privately as part of a series of transactions that will allow it go public without disclosing financial statements. The process also involves a reverse takeover of a Canadian shell company, Bradmer Pharmaceuticals Inc.

Novogratz announced the private placement and listing plans in a statement last month. Reached by phone Wednesday, he declined to comment. An email sent to Foxconn outside normal business hours in Asia wasn’t immediately returned.

Galaxy Digital marks a comeback for Novogratz, who left Fortress Investment Group LLC in 2015 after the macro fund he managed there lost money. The former Goldman Sachs Group Inc. partner has since reinvented himself as a cryptocurrency investor and champion for blockchain technology.
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F. A. von Hayek
Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

Tesla’s Latest South Australia Battery Project to Rival the Capacity of a Coal Plant

The project is being hailed as “the world’s largest virtual power plant.” But what exactly does that mean?

South Australia is turning to Tesla once again for batteries to support the state's electric grid.

But this time around, the batteries are meant to be installed at homes and paired with solar panels, in what's being billed as “the world’s largest virtual power plant.”

Following the installation of the world’s largest grid-scale battery adjacent to a South Australian wind farm, Tesla was awarded a deal to install solar panels and batteries in nearly 50,000 South Australian homes over the next five years, the company and the state government announced Monday.

Most large-scale lithium-ion battery deployments today come in the form of giant, centralized battery plants. Tesla’s virtual power plant will comprise thousands of Powerwall home batteries, but will operate just like a one big Powerpack system -- charging up when demand and electricity rates are low and discharging when demand and prices are high.

Australia, one of the world’s largest markets for rooftop solar, has been hit with statewide blackouts in recent years. Prime Minister Malcolm Turnbull blamed the blackouts on the surge in solar. The country has since turned into a fast-growing market for energy storage.

Tesla CEO Elon Musk jumped into the blackout debate last summer and bet that Tesla could build 100 megawatts of energy storage in South Australia within 100 days or it would cost the government nothing. Musk met that challenge late last year, ultimately turning to Samsung to supply the batteries.

Tesla said the new deal with South Australia could lead to the installation of its Powerwall 2 batteries and solar panels on up to 50,000 homes in the region by the summer of 2022. "At key moments, the virtual power plant could provide as much capacity as a large gas turbine or coal power plant," according to a company statement.

The South Australian government estimates that the entire project would cost $800 million and be financed by investors and through the sale of electricity. The government is also offering a $2 million grant and a $30 million loan for the project.

The first phase of the project is just a trial, and it will see the technology deployed on 1,100 public housing rental units in South Australia over the course of this year and next. If the initial project is successful, it could be expanded to 24,000 public housing units and eventually include private homes. Residents that live in public housing and participate in the trial will get the tech installed at no cost.
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The monthly Coppock Indicators finished January

DJIA: 26,149 +282 Up. NASDAQ:  7,411 +310 Up. SP500: 2,824 +212 Up.

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