The Great Volatility Crush

Jon

Ten years ago, when I worked on the equity index derivatives desk at Lehman, we used to sit around and dream things up. Like, we wondered out loud if you could actually create a volatility ETF.
It seemed like a brilliant idea. Who wouldn’t want to buy volatility? There were some studies going around that said holding volatility as an asset class alongside a diversified portfolio could improve the portfolio’s risk characteristics.

Around the same time, the Chicago Board Options Exchange (CBOE), owner of the VIX Volatility Index, was busy thinking up ways to securitize the Index. So it listed futures on the VIX, allowing investors take a long (or short) position in a VIX future and be positively (or negatively) exposed to changes in volatility.
Not long afterward, the CBOE listed options on the VIX, providing leveraged ways to play increases or decreases in volatility. (If you think about it, an option on the VIX actually gives you exposure to the volatility of volatility.)

This post was published at Mauldin Economics on NOVEMBER 6, 2014.

Why There Is No Wage Growth: America Will Soon Have More Waiters And Bartenders Than Manufacturing Workers

Jon

While the headline jobs print was a modest kneejerk disappointment at least until it is appropriately spun in some sort of “goldilocks” frame, where the October jobs report was a true disappointment, was in the report of average hourly earnings: rising at just 0.1% for the month and 2.0% Y/Y, it missed expectations across both metrics. As a reminder, even Janet Yellen has observed that with the unemployment rate ridiculously low and thus meaningless to shape policy, the key thing the Fed head is watching is any changes in wages to determine where benign wage inflation is headed. Well, as the chart below shows, it is headed exactly nowhere, because 6 years after the recovery, wages simply refuse to rise.

This post was published at Zero Hedge on 11/07/2014.

SILVER SQUELCHERS PART 5: And Their Interesting Associates

Jon

‘They control the currency and banking system as well as the government and the Federal Reserve. They were safe in permitting others to develop the power systems with moneys invested by the public. Then by manipulating a depression and by retroactive laws written for the purpose, they robbed rivals of their work and the public of their investments. The SEC directed a looting of the public of its investments in utilities. By illegal acts that have been supported by corrupted and packed courts, the conspirators deliberately depressed and manipulated the market for utility securities by its orders and rulings. The TVA was used for the malevolent purpose of smashing the market in utility securities. On the day that the ruinously low rates for TVA power were to be announced, the press and the nation were kept waiting for commissioner David E. Lillienthal from 10:30 AM until after the markets had closed. In the meantime a terrific wave of short selling hit the utility bonds and stocks that depressed them terrifically. There can be no question that the announcement of the TVA rates was a prearranged signal for a killing in the market by these conspirators. These maneuvers cost the investing public hundreds of millions of dollars. The Federal Reserve Board has aided and abetted the swindling of the public by the manipulation of margin requirements. Repeatedly it has forced the public out of stock desired by the powers that be by raising margin requirements at the bottom of the market, just before large upswings were planned. The conspirators then stole a particular class of security in each company.’

This post was published at SRSrocco Report on November 6, 2014.

Lawrence Williams: Gold and silver—will they get worse before they get better?

Jon

It’s easy to say 'don’t panic' but gold’s fundamentals still look good. By well-researched data, Chinese demand is soaring again – the latest Shanghai Gold Exchange figures have had weekly gold withdrawals from the exchange running at the 50-60 tonne levels for almost a month now, which equates closely to global new mined gold supply on its own. Indian demand has been picking up so much that it has the government concerned again. In total it is difficult to see from where all this gold is coming.
Jeff Nichols sums up the situation pretty succinctly in his intro paragraph to his latest offering: "Autumn has been a cruel season for gold investors. In contrast to some anticipated seasonal bump up, the yellow metal’s price has been driven lower by bearish technical indicators and excessive negative sentiment among a small number of large-scale institutional speculators – bullion banks, hedge funds, program traders and the like – trading mostly in futures and over-the-counter “paper” markets for very short-term gains, while remaining indifferent to the metal’s long-term bullish fundamentals."

This post was published at Mineweb

Pierre Lassonde says he doesn’t suspect BIS in gold market manipulation

Jon

Franco-Nevada Chairman Pierre Lassonde, former chairman of the World Gold Council, told GATA today that, contrary to GATA's interpretation of his interview yesterday with King World News about manipulation of the gold market he did not mean to acknowledge the possibility that the Bank for International Settlements might be among the entities doing the manipulating.
In that interview Eric King of King World News said to Lassonde: "Earlier today I spoke with a former board member of Paine Webber who also worked for Goldman Sachs 25 years ago, the very highly respected William Kaye out of Hong Kong. Kaye said the following about today's smash in gold:
"'This is something that you see in precious metals when there is clear evidence of manipulation. We saw 30 tons of gold sold at 2 p.m. Hong Kong time. That is a time in which no one does any real trading. What Asian trading is going to take place is already done by that time of the day. At that time of day people are simply waiting to hand things over to London in a few hours. Regardless, an awful lot of paper gold was intentionally dumped in a programmed algorithm. This was most likely done by the Bank for International Settlements. This was designed to condition the paper market by forcing the price lower. It was also designed to set the market up in London to open up at lower levels.'

This post was published at GATA

Gold And Oil…. Into The Abyss?

Jon

Gold bugs will be pardoned if they are having thoughts of ‘hari-kari’. Gold bugs woke up on November 5, 2014 to another $25 plus drop in the price of gold. Seems that someone found it convenient to dump $1.5 billion of naked gold futures (equivalent to roughly 1.3 million ounces of gold) on the market at around 12:30 AM EST. There are not too many market makers around at that time to absorb the sale. Silver joined the party and at one time, it was down over 80 cents to around $15.20. The dump on November 5 might not have been unusual except the pattern has been repeated on a number of occasions of late.
Since 2011 there has been an ongoing series of gold futures dumps usually in the early hours of the morning when conditions on or around the open of the NY COMEX are thin. The biggest dump was the mornings of April 12 and April 15, 2013 when someone dumped 400-500 tonnes of gold (estimated value at the time of $23 billion) of gold futures (paper) at or near the open of trading in NY.
Gold appears poised to fall into a black abyss. Maybe the black abyss is made of oil as it too has collapsed under $80 and is threatening to fall further. To counter the downward moves of gold and oil something must be going up and it is the US$. Both gold and oil are priced in US$ (see chart – and note US$ is registering an extreme RSI) and they do have an inverse relationship with the US$. The reasons given for the latest decline (and US$ rise) was the Republican win in the November 4, 2014’s mid-term elections. It is well known that Wall Street is quite happy with political ‘gridlock’ in the US.

This post was published at Gold-Eagle on November 6, 2014.

Gold Daily and Silver Weekly Charts – Pity the Swiss

Jon

“England may as well dam up the waters of the Nile with bulrushes as to fetter the step of Freedom, more proud and firm in this youthful land than where she treads the sequestered glens of Scotland, or couches herself among the magnificent mountains of Switzerland.”
Lydia Maria Child, The Rebels, or Boston before the Revolution
Pity the poor Swiss.
The Bankers and the power brokers are frightening them with dire consequences if they should exercise their freedom and politely request that their gold be returned to them, to be kept within their national borders.
Why should they resist? This is not done in the well developed, sophisticated nations. Why should anyone wish to hold their own wealth? Better to give it to someone else to hold, someone who is more intelligent and capable.
And why stop at gold? The Swiss must be foolish, to trouble themselves with keeping the arms with which to defend themselves in their own homes, with heavier weapons such as planes and artillery tucked away here and there in their cantons. What inefficient nonsense.
Wouldn’t it make more sense to send all this weaponry overseas, let’s say to New York, for safekeeping? If they wish to sell, replace, or repair it, it would be much cheaper to do it in one of the countries that are major arms suppliers to the world.
What else do the Swiss cherish? Perhaps they should sell their children into indentured servitude, so they do not have to trouble their minds about educating and caring for them. The Banks and the State can surely do a better job than they. Or perhaps they should sell them to the nation builders in New York or London, where the management of population is done more efficiently and effectively.
Freedom is a burden. And wealth just creates more worries. Better to hand it over to one of the world’s great powers for safekeeping. Change is too risky.

This post was published at Jesses Crossroads Cafe on 06 November 2014.

The Bipolar Market – Extreme Greed & Fear Schizophrenia

Jon

The last 3 weeks have seen stocks surge at their fastest pace in years (on dismally low volume) but CNN’s Fear & Greed-o-meter only got back to “Neutral”. The simple reason is… the components of the index have never been more bipolar – Extreme Greed in stocks and options and Extreme Fear in junk bonds.
One of these things is not like the other…

As various indicators simultaneously exhibit extremes of fear and extremes of greed…

This post was published at Zero Hedge on 11/06/2014.

Former ECB Head Bullied Ireland into Bailout: Trichet ‘Held a Loaded Gun to Their Heads’

Jon

The authoritarian and undemocratic nature of the European Union has once again reared its ugly head.
Former European Central Bank head Jean Claude Trichet – who stepped down in 2011 and is a Bilderberg Steering Committee member and sitting chairman of the European branch of the Trilateral Commission – refused to appear at a hearing after documents revealed his role in giving Ireland a bailout choice it couldn’t refuse:
EU bullyboy Jean Claude Trichet has snubbed calls to appear before the banking inquiry after damning letters confirmed the European Central Bank shoved Ireland into our crushing bailout.
The four letters, released after four years, revealed the ECB would pull emergency funding for Irish banks unless they accepted the 64billion bailout.
[…] He said: ‘The threat to cut off liquidity from the Irish banks was in essence a threat to force Ireland out of the Euro.
‘The Government was essentially left with no choice in the matter. I believe this threat was a clear breach of the obligations of the ECB to act in the interests of all the citizens that use the Euro, not least those of Ireland.
[…] ‘Three years ago, Mr Trichet threatened the previous Government and the Irish people and held a loaded gun to their heads.
Even the famed movie don in The Godfather could hardly muscle a deal that big.
Those involved in the investigation are suggesting it is a dirty deal of the highest order in the interests of the dominance of the superstate:

This post was published at shtfplan on November 6th, 2014.

Why Treasury Yields Have Further To Fall (In 1 Simple Chart)

Jon

Despite the powerful rally over the last several weeks that brought the US equity markets back to their all-time highs, treasury yields are up only slightly and are well below mid-September levels. Meanwhile, as Gavekal Capital notes, speculators are still carrying a hefty short position in 10-year treasury futures and options contracts, implying that yields have further to fall yet.

This post was published at Zero Hedge on 11/06/2014.

“Whatever It Takes” Stage Two; Headwinds Explain Why Draghi Will Fail This Time

Jon

“What’s it all about Alphie” is a sing-along that most have heard.
Take out the word “Alphie” and substitute “Draghi” and the answer is “Assuage Investors” in yet another can-kicking exercise.
ECB president Mario Draghi hopes that if he continues with his kick-the-can tactics long enough, that something good will eventually happen.
Hope is really all the ECB has.
Meanwhile, Draghi Reinforces ECB Stimulus Momentum to Assuage Investors.
Having already cut interest rates to record lows and saying they can go no lower, Draghi is now focused on boosting the ECB’s balance sheet. He told reporters today that he expects to increase assets back toward March 2012 levels. That’s 3 trillion euros, or about 1 trillion euros [$1.2 trillion] more than the current level.
The ECB has issued long-term loans to banks and started buying covered bonds in the hope of flooding the economy with enough liquidity to ease credit constraints. Purchases of asset-backed securities are due to start this month.
‘We are quite confident that the impact on our balance sheet size will be adequate, will be significant, will be sizable,’ Draghi said. ‘The main message is that our balance sheet will keep expanding in the coming months and will continue expanding while the balance sheets of other central banks is bound to contract.’
Berenberg Bank economist Christian Schulz said he sees a 60 percent chance the ECB will enter the 1.4 trillion euro market for investment grade non-financial corporate bonds next month.
“Whatever It Takes” Revisited…

This post was published at Global Economic Analysis on November 06, 2014.

United States: Voters Know Better than Economists

Jon

What head of State would not dream of going into an election backed by 3.5% growth and 5.9% unemployment rate? That would surely insure victory over opponents… However, Barak Obama and the Democrats just lost the mid-term elections. They were already in minority in Congress and now they are sinking even deeper, losing their majority in the Senate in favour of the Republicans.
There is nothing unfair in these results. On the contrary, they simply show that manipulating statistics has its limits. The American people, unlike ‘economists’, columnists and political leaders, know that unemployment is being grossly under-estimated, namely because millions of discouraged unemployed workers are not accounted for in the statistics. People also realise that the Fed’s monetary printing experiment has created a ‘wealth effect’ (QE is good for stocks and shareholders) generating a little growth, but that this growth remains fragile and bubble-like. The American people, in general, are not faring better since the 2008 crisis and there is no real economic recovery: they just let it be known to the politicians in place

This post was published at Gold Broker on Nov 6, 2014.

The Magic Of CPI: Watch How Economists Transform A 400% Price Increase Into A 7.1% Decline

Jon

Manipulating the Consumer Price Index: Hedonic Quality Adjustments
Have you heard the one about CPI?
Suppose that a TV manufacturer retires a product and replaces it with a newer, better, and much more expensive one. If the new TV costs 5 times more than the old one, how can we manipulate the hell out of massage the price of the old TV to make it look like the price fell? By using the dark arts of econometrics, my son!
If you believe the public comments made by the world’s central bankers, the prices that consumers pay for items are not rising fast enough; in some places like Europe they worry that prices might actually fall (a tragedy for the possessing classes, as their manic one-way long bets might not work then). Central bankers are terrified of this outcome. Setting aside for a second the apparent insanity of this logic for your average consumer, who experiences price rises on a near continuous basis, let’s examine in detail one of the jokes gauges economists use for measuring prices: the Consumer Price Index (CPI).
Ostensibly, the CPI is a linear combination of the ‘prices’ of things/stuff consumers could actually purchase weighted by a percentage that the ‘ideal consumer’ spends on any particular stuff/thing in his ‘ideal’ basket. The main problem here is that the ‘prices’ used are not the prices a consumer would actually pay; instead the real price for an item is scaled by what the BLS calls a ‘Hedonic Quality Adjustment (HQA)’. The HQA was designed to solve a real world problem economists face: the market keeps pumping out new and better devices. In practice the HQA is used to artificially depress the prices used in the calculation of the CPI.
Intuitively, the HQA scales prices by their ‘perceived’ quality. We’re not talking about human perception here, but that of a kitchen sink regression model created by BLS economists. Essentially it throws every quality an item might possess into a linear model and performs a regression of these qualities against the prices found in the market for a given product. The prices that feed into the CPI can be intuitively modeled as:

This post was published at Zero Hedge on 11/06/2014.

Housing Market: Desperation Is Setting In

Jon

A colleague of mine who has a second residence in Arizona told me today that he received a card in the mail from Toll Brothers. TOL was offering to reimburse up to $2,000 in travel expenses if the person receiving the card bought a new home in Arizona. Toll must be getting desperate because the only way to get the information needed to mail my colleague was to physically go make copies of the property tax rolls at the County admin offices. He said he had not seen something like this in the 15 years he’s owned a home in AZ.
This is in addition to the massive amount of incentives that these new homebuilders are already offering: free pools in warm States, price discounts and other ‘value-added’ incentives that these companies are throwing in to try and move homes. This is in addition to the fact that they underwrite most of their own mortgages, which enables them to build in subsidized financing.
The housing market is deteriorating quickly, along with the rest of the economy.

This post was published at Investment Research Dynamics on November 6, 2014.

Marching In The Wrong Direction

Jon

MARCHING IN THE WRONG DIRECTION
ZIRP and QE have levitated a number of asset classes without generating sustainable, powerful economic and employment growth in the developed world. The asset price appreciation has delighted investors, and even those who are queasy and concerned about the unsoundness of the post-crisis policy landscape have been coaxed into believing that the low volatility and high asset prices actually have predictive power in suggesting positive economic and financial outcomes for the global economy and financial system. After all, the thinking goes, if ZIRP and QE were going to cause serious generalized consumer price inflation, then it certainly would have appeared by now. The very ‘discrediting’ of the ‘serious inflation’ crowd gives most investors comfort that policymakers are correct and the skeptics are just dyspeptics or partisans.
We cannot possibly make the following statement any more clearly or strongly: Policymakers and pundits, with rare and courageous exceptions, are marching (and looking) in precisely the wrong direction. After the 2008 financial crisis, the developed world has barely experienced positive growth despite six years of zero-percent short-term interest rates and multiple bouts of money-printing that have taken a variety of forms and that have been announced with a plethora of rhetoric and obfuscation. At the start of the crisis, there was also a massive amount of government spending, but it was dominated by political payback and an attempt to maintain the kinds of jobs that had made sense only during the distortionary boom. Of course, the government spending had a supportive effect on the economy (as all spending programs do), but as designed it did not and could not create lasting and catalytic effects on growth.
Over the entire post-crisis period, there have been effectively no significant structural improvements in the basic ability of the developed world to grow faster. We have described pro-growth policies at length and in depth, but sadly they are nowhere to be found.

This post was published at Zero Hedge on 11/06/2014.

3 Things Worth Thinking About

Jon

Is Energy Ready For A “Dead Cat” Bounce? Each week in my weekly newsletter I do a complete overview on major markets, sectors and other market areas such as interest rates, gold and oil. I bring this up because the recent melt-down in oil and energy related stocks is something that I warned about in early August of this year when I wrote:
“Analysis: Massive Divergence Not Healthy
While oil prices have surged this year on the back of geopolitical concerns, the performance of energy stocks has far outpaced the underlying commodity.
The deviation between energy and the price of oil is at very dangerous levels. Valuations in this sector are also grossly extended from long term norms.
If oil prices break below the consolidation channel OR a more severe correction in the markets occurs, the overweighting of energy in portfolios could lead to excessive capital destruction.
While the argument has been primarily focused on the “yield chase,” the “price destruction” will far outweigh the desire for income. It is a good time to take profits in the sector and reweight portfolios back to target goals.”

During the entire reversion process, I kept warning in that weekly missive that things would get worse for both the commodity and the energy sector as the supply/demand imbalance grew and deflationary pressures circled the globe. Those predictions have come to a rather painful realization.
The good news, as I will address in more detail in this weekend’s X-Factor Report, is that the selloff in oil has gotten to extreme levels. This decline should allow for oil prices to experience a rather significant “dead cat” bounce. This is shown in the chart below, where previous plunges to current extremes have resulted in a rather significant bounces back to at least the previous trendline break. (I have used performance to keep the scale in proper alignment),

This post was published at StreetTalkLive on 06 November 2014.

While Brussels Burns In “Anti-Austerity” Riots, Here Is The Real Reason For Europe’s Depression

Jon

Riot police clashed with demonstrators in the Belgian capital of Brussels on Thursday amid a massive protest against government plans to reform the country’s welfare system. This comes on the heels of violent French, Italian, and Spanish youth protests in recent weeks as the citizens of the non-Germanic European Union decry the ‘austerity’ they have been crushed by. What is odd, though, is externally, there has been ‘no’ austerity with debt loads rising for all these nations and debt/GDP at record highs for most. So where is the disconnect between a people under increasing financial pressure and a sovereign issuing more and more debt at will? The Telegraph has the stunning answer: an audit, published this morning, found that 109 billion out of a total of 117 billion spent by the EU in 2013 was “affected by material error’. Brussels accounts have not been given the all clear for 19 years running. In other words, Brussels ‘embezzles’ billions of euros per year, and blames it on austerity. Is it any wonder, Europe is burning?

This post was published at Zero Hedge on 11/06/2014.

Central Banks Don’t Know What They Are Doing……And Credit Markets Now Know It

Jon

Checking the eurodollar curve shows that it does indeed appear as if the July-September trends are back in place. The dominant theme was for shorter maturities to be ‘tight’ while the general eurodollar curve grew flatter out past some (dynamic) ‘attachment’ point where the monetary policy window ended. That threw together a few important variables, including estimates of potential rate hikes and how high they may eventually get, and, perhaps more importantly, how damaging they may ultimately be (flattening).
This tight/flat trend took a breather at the end of September, if only for a few weeks reprieve in downstream markets (gold, Brazil, Russia, etc.). Since mid-October, even before the FOMC’s latest faux ‘hawkish’ stance, the curve moved back to the tight/flat again that was mimicked not just in appearance of the curve movements but in the relatively small degrees to which each segment was carried out.

So far in November, that remains the case though it is difficult to see it below since the changes are so very slight – tighter short (June 2016 3.5 bps) and flatter long (June 2021 1 bp).

This post was published at David Stockmans Contra Corner on November 6, 2014.

SP 500 and NDX Futures Daily Charts – Bliss

Jon

‘I know not why anyone but a schoolboy in his declamation should whine over the Commonwealth of Rome, which grew great only by the misery of the rest of mankind.
The Romans, like others, as soon as they grew rich, grew corrupt; and in their corruption sold the lives and freedoms of themselves, and of one another.’
Samuel Johnson
Stocks continued drifting higher today ahead of the Non-Farm Payrolls number tomorrow.
All is quiet in the Pax Americana. The natives are blissfully uninformed.
Did they know there were protests in London and Brussels?
No, they only hear of the latest fashions, and dark tales of the evil Russian, which are quickly dispelled by the posturing of Taylor Swift, and here and there, gossip about power struggles in the Capitol District.

This post was published at Jesses Crossroads Cafe on November 6, 2014.

Greece Is Number One In Childhood Poverty, But The US Isn’t Much Better

Jon

When it comes to being number one, Greece has a truly spectacular track record: first to riot, first in the Eurozone to hit two-thirds youth unemployment, first (but not last) in the Eurozone to default, and now another less than impressive achievement: according to Unicef, Greece is the place where over 40% of children live below the poverty line. This makes it first in the developed world in childhood poverty. Or last, depending on one’s perspective.

This post was published at Zero Hedge on 11/06/2014.