It Has Never Been Cheaper To Hedge A Market Crash Using This One Trade

In mid-August, at the height of the North Korea geopolitical turbulence, and amid uncertainty about the Fed balance sheet unwind, fears of a government shutdown and the US debt ceiling, as well as the fate of Trump tax reform and Obamacare repeal, when the VIX soared following a series of missile launches by Kim Jong Un only to crash right back to near all time lows, we used an analysis from BofA’s derivatives analyst Benjamin Bowler to show “How To Hedge A Near-Term Market Shock: Here Are The Best Trades”
As we said then “if the events from last week demonstrated something, it is that just when there appears to be virtually no risk, is when the likelihood of a historic surge in volatility is greatest, as many experienced first hand last Thursday. Hence the need to hedge. But what? And using which product?” As Bowler explained “the decision about whether it’s rational to hedge is really a matter of looking at the price of tail insurance embedded into option markets and asking if the probabilities they assign are ‘fair’ or not.” As he further wrote, when it comes to predicting what the next “severe tail event” could look like, “we find that not only are some markets like Gold pricing in a very low probability of Korean risk escalation, there are significant differences across assets in terms of what they imply about potential risks.”
He then presented the chart below which shows how historical worst 3M drawdowns since 2006 are priced by 3M 25- delta options across asset classes; hedges that are most underpricing their historical drawdowns are at the top and those most overpricing their tails are at the bottom. What the chart shows is that gold call options imply less than a 1 in 100 chance of a severe tail event over the next month, despite being among the most reactive assets to rising Korean tensions last week. With record low Gold vol slaved to record low real rates vol, this represents a loose anchor which likely won’t hold in any significant geopolitical risk escalation. In contrast to gold, Nikkei is at the other end of the spectrum with options assigning over a 5% chance of a near term tail-event.

This post was published at Zero Hedge on Oct 3, 2017.

Bond Traders Place Biggest Short in Treasuries Since Fed’s ZIRP and QE Began (Zirp The Surveyor)

(Bloomberg) – After the worst losses for Treasuries in 10 months, investors are ramping up bets that the world’s largest bond market will decline further.
A JPMorgan Chase & Co. survey for the week through Oct. 2 found that clients as a whole soured on Treasuries, with 44 percent holding a short position relative to their benchmark. That’s the most since 2006 and up from 30 percent in the prior period. Among those who actively place bets, such as speculative accounts, a record 70 percent were short.
The shift shows how a confluence of factors is weighing on the minds of bond traders as the fourth quarter begins. The Federal Reserve will start unwinding its balance sheet this month, and Chair Janet Yellen has signaled that stubbornly low inflation won’t deter policy makers from tightening. Meanwhile, in the betting markets, former Fed Governor Kevin Warsh, seen by some traders as having a more hawkish tilt, has the highest odds to succeed Yellen.

This post was published at Wall Street Examiner on October 3, 2017.

Fed Poised to Downplay Weak Data

Big data week ahead that ends with the employment report for September. Considering the ongoing inflation weakness, one would think the Fed would be looking for a series of very strong job reports to justify a rate hike in December. But with Fed officials largely convinced that the soft inflation numbers are transitory, a middling jobs report would likely be sufficient to keep them on track, and even a weak report if they can attribute disappointing data to the busy hurricane season.
The personal income and outlays report for August, released last Friday, came in on the weak side, with a decline in real consumer spending during the month. Hurricane related? Almost certainly in part, although the Bureau of Economic Analysis is not able to provide an estimate of the impact. Note that despite the monthly gyrations, the underlying trend of consumer spending has been consistently near 2.5% year-over-year since the beginning of 2016. The post-election confidence bump did not pump up spending, which remains soft in comparison to consumer sentiment. Survey respondents simply didn’t put any money forward to support their convictions.
Remember that August bounce in core-CPI inflation? It didn’t follow through to PCE as expected (the housing component that helped drove the CPI number has a smaller weight in the PCE index). The Fed probably already guessed this would be the case. Still, it is another blow to their predictions that soft inflation numbers this year are temporary. Core-PCE inflation stood at 1.3% over the past year, equivalent to the annualized three-month change.

This post was published at FinancialSense on 10/03/2017.

“Total Stoppage”: Barcelona Paralyzed By General Strike, Barricades As Protesters Take To The Streets

The Catalan rebellion escalated on Tuesday, resulting in a day of “total stoppage” for the Catalan capital, in which Barcelona metro stations were closed, pickets blocked main roads and civil servants walked out on Tuesday in response to a strike called by pro-independence groups as separatist activists took to the streets of Barcelona to press home their demands for independence after winning an referendum on Sunday which despite a violent crackdown by the Spanish government, saw nearly 90% of the vote cast for splitting away from Madrid.
According to Bloomberg, public transport and shops were closed as demonstrators gathered in the center of the Catalan capital to protest the police violence that marked Sunday’s vote and reinforce their demands for a split with Spain. Photographs showed traffic backed up behind protesters on one of the main highways connecting Catalonia with the rest of Spain. Roads are blocked in 48 places in the region, the Spanish traffic agency said.
Regional traffic authorities in Catalonia told The Spain Report on Tuesday morning that more than 50 barricades or protests had blocked roads across the region, including major toll roads and motorways used for commercial traffic to and from France.

This post was published at Zero Hedge on Oct 3, 2017.

Gold Sales at Australia’s Perth Mint Doubled Last Month

Gold sales at Australia’s Perth Mint doubled in September. Meanwhile, sales of silversurged 78%.
Sales of gold coins and minted bars jumped to 46,415 ounces in September, up from 23,130 ounces a month ago. Silver sales during the month came in at 697,849 ounces, compared with 392,091 ounces in August.
Australia ranks as the second largest gold producer in the world behind China. The Perth Mint refines more than 90% of the country’s gold.
Officials at the mint said investors seized upon the opportunity offered by the drop in the price of gold in late September to buy. The price fell after a hawkish Federal Reserve meeting and hints that the US central bank would raise interest rates again in December. The unveiling of the Trump tax plan also seemed to strengthen the dollar, placing price pressure on gold and silver.
Late last month, ‘commodities king’ Dennis Gartman said investors should take this opportunity to buy gold, predicting the bull run is not over.

This post was published at Schiffgold on OCTOBER 3, 2017.

What Could Possibly Go Wrong With Tax Reform? The Answer, According To Goldman, Is “Plenty”

One of the reason why the torrid dollar rally of the past few weeks appears to have plateaued, at least for the time being, is that just like earlier in the year, doubts have emerged about the viability of the “new and improved” tax plan, which according to the Tax Policy Center would mostly benefit the “Top 1”, even as it eventually pushes taxes for the upper middle class progressively higher. One catalyst is a Bloomberg report overnight, in which Bob Corker was quoted as saying that the White House is showing “softness” on ending the $1.3 trillion federal tax deduction filers get for their state and local taxes, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul.
The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such ‘pay-fors,’ Congress might have to settle for only temporary tax cuts.
Needless to say, temporary tax cuts would have far less of an impact on both stocks and the dollar than if Trump’s “biggest ever” tax reform is permanent.
But it’s not only the suddenly shaky future of SALTaxes. As Goldman’s economists write overnight in a report looking at “what could possibly go wrong” with tax reform, they note that while “recent developments on tax reform have been positive” with the Senate’s “tentative budget agreement likely headed for passage in the Budget Committee this week” and the Big Six framework signaling narrower tax policy differences, there’s “plenty that could still go wrong.”

This post was published at Zero Hedge on Oct 3, 2017.

Nightstick Democracy at its finest…

The last several days in Venezuela have been absolutely mind-blowing.
Pretty much all the stories you’ve heard are true – countless people eating out of garbage cans, the appalling shortages of basic staples like food, medicine, and even soap… and the lines.
Oh boy, the lines.
The longest lines I saw, in fact, were not at grocery stores, but at banks.
Hundreds of people were queuing up, many of them to pull money out of their accounts to exchange cash on the black market.
Lines snaked through a bank’s cavernously large lobby, continued outside, wrapped around the entire building, and terminated at some point down the street.

This post was published at Sovereign Man on October 3, 2017.

How Many Times Can the President Be Called ‘Unfit’ Before It Undermines Confidence in America?

The point of having a President is that in times of crisis there is one leader who can speak quickly and directly to anxious citizens and rally their confidence and trust and optimism to push forward to create a better day for themselves and their country. Franklin Delano Roosevelt was the embodiment of such a leader. We have reprinted below his Christmas Eve message to the nation on December 24, 1941 as a much-needed reminder of how a President of these United States should conduct himself in a time of crisis.
In the case of President Donald Trump, it took him four days to pull himself away from public bickering with NFL athletes and notice that an unprecedented humanitarian disaster was unfolding in Puerto Rico following the devastation unleashed there by a direct hit from Hurricane Maria. Then, over the next ten days, the President alternated between reminding Puerto Ricans, all of whom are U. S. citizens, that they must deal with their debt to Wall Street; get their financial house in order; and adding a final Tweeted insult that implied Puerto Ricans were lazy slackers waiting for a handout. What kind of leader talks to his own citizens like that when they don’t know where they will find food or water to survive over the next week and when 95 percent of the 3.4 million residents of Puerto Rico remain without electricity.
Today, the New York Times has titled a column by Michelle Goldberg, ‘An Unfit President Fails Puerto Rico.’ Goldberg writes:
‘Reports from post-hurricane Puerto Rico tell of American citizens experiencing a level of humanitarian desperation usually seen only in the poorest of countries. As of Saturday, according to the Department of Defense, only 45 percent of customers on the island had access to drinking water. People are frantically seeking food and medical supplies, and there’s not enough diesel to deliver much of the aid that’s reached San Juan. While that city’s mayor pleaded with the world for help, the president of the United States tweeted racially inflected insults at her and her people from his golf club. He implied they are lazy and ‘want everything to be done for them’ rather than helping themselves.’

This post was published at Wall Street On Parade on October 3, 2017.

Asian Metals Market Update: October-03-2017

Technically gold and silver are bearish and can fall further. Copper looks bearish. The Euro/usd will see another wave of sell off if it trades below 1.1682 today. The US dollar looks strong due to European woes. Lack of Chinese influence can be seen on industrial metals and silver. Fundamentals of the global economy are stronger than ever before. Japan, Europe, China and the USA have all reported strong manufacturing growth numbers. The slowdown in UK manufacturing growth does affect global growth. Fundamentally the global economy has been so strong and for a long period of time. There are lot of concerns that a global recession can come very soon. Only a mad move by NATO by increasing the geopolitical risk level can derail the current pace of global economic growth. Geopolitics is the key to global economic growth.
US jobs will be hit the headlines once again this week.

This post was published at GoldSeek on 3 October 2017.

Kolanovic: “This Is What The Next Crisis Will Look Like”

There are two distinct parts to the latest, just released research note from JPM’s quant “wizard” Marko Kolanovic.
In the first part, the infamous predictor of market swoons takes on an unexpectedly cheerful demeanor, and explains why contrary to his recent market outlooks, near-term risks for a market selloff appear to have abated. First, he looks at the tax-related rotations within the market in the past month, and notes that in September “the administration drip-fed US tax reform news, which propped up the market and spurred large sector rotations.” As a result, “financials, Industrials, and Materials were up ~5%, Energy ~9% and Small Caps ~7%. On the other side of the Tax trade were bond proxies (Utilities, Staples, REITs) down ~2-3% and Technology-heavy Nasdaq that was down ~0.5%. These offsetting sector moves reduced the typically elevated September volatility to its lowest level since 1964.”
He then goes on to note that in addition to the tax rotations, “volatility was reduced as market rose and got pinned at the 2,500 level for most of the month (this level was popular with option sellers, leaving dealers locally long gamma).”
Picking up on what Deutsche Bank’s Aleksandar Kocic has been writing about in recent weeks, namely the apparent failure of “exogenous shocks to shock the market”, as shocks themselves become endogenous phenomena, Kolanovic also writes that in fading daily headline risk, “tax reform and infrastructure will remain a central focus for investors, and it seems that bits and pieces of information can still excite fund managers”, something he previously called the ‘Trump Put’ effect.
As a result, between rotations and fundamentals, the coast – at least for the near-term – appears to be clear:
“With the upcoming positive Q3 earnings season, uptick in global growth, promise of tax reform keeping fundamental funds invested, and low volatility keeping systematic strategies invested, near-term risks of a sell-off have abated.”
Putting this view into a trade recommendation, Kolanovic says that “our equity market upside trades include upside on Small Caps, Financials, Value and diversified tax-beneficiaries basket.”

This post was published at Zero Hedge on Oct 3, 2017.

CBS Fires Exec Who Slammed Vegas Dead As “Country Music Fans Who’re Often Gun-Toting Republicans”

CBS has fired on of its top lawyers after she took to social media to explain why she was “not even sympathetic” to victims of the Las Vegas shooting because “country music fans often are Republican.”
As Fox News reports, Hayley Geftman-Gold, the network’s now-former vice president and senior counsel, took to Facebook after a gunman opened fire at the Route 91 Harvest Music Festival in Las Vegas, killing at least 58 people and sending more than 500 others to hospitals.
‘If they wouldn’t do anything when children were murdered I have no hope that Repugs [sic] will ever do the right thing,’ Geftman-Gold wrote in a now-deleted message that was first reported and captured by The Daily Caller.
Geftman-Gold continued: ‘I’m actually not even sympathetic bc [sic] country music fans often are Republican gun toters [sic].’

This post was published at Zero Hedge on Oct 3, 2017.

The Gold Coin Dilemma, Politics and Nonsense

There are five identical bags of gold, and each contains ten gold coins. However, one of the five bags contains fake gold. The real gold, fake gold, and five bags appear identical, except the coins of fake gold each weigh 1.1 ounces, and the real gold coins each weigh 1 ounce. You have an accurate digital scale and CAN USE IT ONLY ONCE.
How do you determine which bag contains the fake gold? (Thanks to my friend Brian C. for sending me this dilemma.)
There is a straight-forward answer to this question, but let’s speculate on what happens when we involve politics and prejudice. The European Politician: As Prime Minister Junker said, ‘When it becomes serious, you have to lie.’ Forty ounces of gold is serious wealth, and we discourage using gold, so this is one of many times when lying is required. These gold coins are fakes and we are confiscating them. The supposed owner will be charged with several crimes.
The Dallas School Politician: We are planning to rename schools bearing the names of Confederate generals and leaders because the Confederate economy used slavery and slavery was bad. The Southerners also used gold for trade, so we are opposed to using gold as well.

This post was published at Deviant Investor on October 3, 2017.

US Plans To Expel 60% Of Cuba’s Washington Embassy Staff

Stop us if you’ve heard this one before.
In the interest of maintaining diplomatic ‘parity’ between the US and Cuba, the Trump administration is reportedly planning to ask the Cuban government to reduce the staff at its embassy in Washington by 60% following last week’s announcement that the US planned to recall two-thirds of its diplomatic personnel in Havana, according to the Associated Press.
While the government didn’t cite a justification for its decision beyond the ‘parity’ line – notably the same excuse used by the Trump administration when it ordered Russia to close its consulate in San Francisco and reduce the head count at its embassy in Washington – it’s clear that the move was meant as retaliation for a series of mysterious sonic attacks that have left 21 diplomatic personnel in Havana with injuries ranging from minor pain and nausea to permanent brain damage.
The attacks, which began shortly after the election last fall, are considered to be ongoing, yet US intelligence hasn’t been able to confirm any specifics about the weapon used to carry out the attacks – to say nothing about the identity of the attacker or attackers.

This post was published at Zero Hedge on Oct 2, 2017.

Thunder Down Under: Some Australian Junior Gold Miners Take Off

Gold mining stocks have been treading water for what seems like forever. But in a remote part of Australia, a potentially big find by a tiny exploration company is generating some welcome excitement.
The story in a nutshell: Back in the 1990s, Newmont Mining geologist Quinton Hennigh came up with a novel theory about the origin of South Africa’s immense Witwatersrand Basin gold deposit. He left Newmont and spent the next couple of decades searching for similar geologic structures that he hoped would contain similar amounts of metal.
He eventually found one in a remote part of western Australia, and formed Novo Resourcesto explore it.
A few more quiet years ensued. But in mid-2017 the floodgates opened as reports of serious deposits – including large numbers of gold nuggets right near the surface, documented on YouTube – caught the imagination of some heavy hitters in the gold world, turning Novo’s stock into a ten-bagger and taking several other explorers with nearby claims along for the ride.

This post was published at DollarCollapse on OCTOBER 2, 2017.

Gold: More than Just a Hedge

Conventional wisdom holds that gold is a good store of value, and provides a hedge of protection against inflation and economic upheaval. But a close look at the data reveals gold offers a long-term growth trajectory comparable to other financial asset classes.
In fact, as we reported in August, gold has actually outperformed the stock market so far this century. If we index both gold and the S&P 500 to 100 as of Dec. 31, 1999, gold had returned 86% more than the market.
Over the past 17 years, the S&P 500 has undergone two major contractions, both of them resulting in a loss of around 40%. Gold, meanwhile, has held its value well, boosting its appeal as a portfolio diversifier.’
Analysis by the World Gold Council shows that gold actually compares favorably with a number of financial assets when you analyze growth, whether you look at a 10-year, 20-year, or even a 40-year time span.

This post was published at Schiffgold on OCTOBER 3, 2017.

Is the Gold Price Going Up from Today’s One-Month Low?

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
While the gold price reached a one-month low today (Monday, Oct. 2), it will rebound nearly 10% before the end of the year…
Last week, when the gold price rose back above the $1,300 level on Monday, Sept. 25, it was little more than a fake-out.
Although the rebound appeared promising, gold continued lower the rest of the week to close out Friday, Sept. 29, at $1,285. That marked a weekly loss of 1% from the Friday, Sept. 22, close to Sept. 29. It’s moved even lower today to a one-month low of $1,276.
The decline came as investors moved away from gold and into stocks following the release of Trump’s tax plan on Sept. 27. The plan’s highlights include cutting the corporate tax rate from 35% to 20% and reducing the current seven tax brackets down to three.

This post was published at Wall Street Examiner by Peter Krauth ‘ October 2, 2017.

Russian Gold Reserves Hit Putin-Era High, Buying Frenzy Accelerates

Amid a creeping global de-dollarization, Vladimir Putin appears to be the one leading the charge from the precious metal perspective.
As Bloomberg’s Yuliya Fedorinova and Olga Tanas report, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Putin’s 17 years in power, according to World Gold Council data.

This post was published at Zero Hedge on Oct 3, 2017.