Kolanovic Unveils His 2018 Outlook: The “Frogs Are Almost Boiled” So Start Hedging

Barely two months after JPMorgan’s Marko Kolanovic previewed the next financial crisis, which he dubbed the “Great Liquidity Crisis”, and which would be catalyzed by the following liquidity disrupting elements:
Decreased AUM of strategies that buy value assets Tail risk of private assets Increased AUM of strategies that sell on ‘autopilot’ Liquidity-provision trends Miscalculation of portfolio risk Valuation excesses … the quant wizard is back in a more conventional form, this time summarizing JPM’s 2018 outlook for equities, volatility and tail risk.
Starting at the top, it may seem otherwise paradoxical – although in the new normal nothing surprises any more – that JPM which holds a near apocalyptic long-term forecast for the world in a derivative context, is also the bank with the highest 2018 S&P target among its bank peers. Here’s Kolanovic:

This post was published at Zero Hedge on Dec 14, 2017.

Bank Of England Warns The UK: ‘Economic Collapse’ If UK Keeps Borrowing Money

The Bank of England is putting the United Kingdom on alert. Should the UK keep borrowing money, there will be a ‘Venezuela-style’ economic collapse that will devastate normal citizens.
A senior Bank official has warned that the UK’s economy would be unlikely to survive borrowing any more cash. Richard Sharp, a member of the Bank’s Financial Stability Committee, claimed an extra 1trillion had already been borrowed since the 2008 financial crisis, and any more could see the economy collapse in the same quick manner that Venezuela’s did.
The Times reported on the stark warning mere days after Philip Hammond announced a 25 billion spending spree in the budget.

This post was published at shtfplan on December 13th, 2017.

Jim Grant: “Markets Trust Too Much In The Presence Of Central Banks”

James Grant, Wall Street expert and editor of the renowned investment newsletter Grant’s Interest Rate Observer, warns of the unseen consequences of super low interest rate and questions the extraordinary actions of the Swiss National Bank.
Nearly ten years after the financial crisis, extraordinary monetary policy has become the norm.
The financial markets seem to like it: Stocks are close to record levels and the global economy is finally picking up. Nonetheless, James Grant sees no reason to sound the all-clear signal. The sharp thinking and highly regarded editor of the iconic Wall Street newsletter Grant’s Interest Rate Observer argues that historically low interest rates are distorting the perception of investors.
Principally, Mr. Draghi has robbed the marketplace of essential information, he criticizes the head of the European Central Bank for example. Highly proficient in financial history, Mr. Grant also questions the strategy of the Swiss National Bank. He fears that the voluntary depreciation of the Franc undermines the status of Switzerland as a global financial center.

This post was published at Zero Hedge on Dec 12, 2017.

John Burbank Shuts Flagship Hedge Fund, Plans Launch Of Cryptocurrency Unit

The writing for John Burbank’s Passport Capital was on the wall back in August, when as we reported, in his latest letter to investors Burbank reported that at what was once a multi-billion fund, total firm assets at Passport had shrunk to just $900 million as of June 30 as a result of net outflows totaling a whopping $565 million, or a nearly 40% loss of AUM due to redemptions. The collapse in assets took place just a few months after Passport announced it was liquidating its long/short strategy in April.
And unfortunately for Burbank, just four month later, a chapter of Passport Capital’s history comes to a close, because as Bloomberg reported, the fund would shutter its flagship hedge fund after returns slumped and following unprecedented redemptions. Passport – which shot to fame for its lucrative bet against subprime housing ahead of the global financial crisis – peaked at around $5 billion but lately managed a fraction of that after a double digit loss last year and further losses in 2017.
The fund’s “returns over the past two years are unacceptable and cause me to rethink how to manage money in this environment,” Burbank wrote in a Dec. 11 letter to investors, the Wall Street Journal first reported overnight. Passport will continue to operate its roughly $300 million special opportunities fund, which holds some of the firm’s more successful bets on companies such as Alibaba Group Holding Ltd.

This post was published at Zero Hedge on Dec 12, 2017.

The Process Through Which the First Major Central Bank Goes Bust Has Begun

In the aftermath of the Great Financial Crisis, Central Banks began cornering the sovereign bond market via Zero or even Negative interest rates and Quantitative Easing (QE) programs.
The goal here was to reflate the financial system by pushing the ‘risk free rate’ to extraordinary lows. By doing this, Central Bankers were hoping to:
1) Backstop the financial system (sovereign bonds are the bedrock for all risk).
2) Induce capital to flee cash (ZIRP and NIRP punish those sitting on cash) and move into risk assets, thereby reflating asset bubbles.
In this regard, these policies worked: the crisis was halted and the financial markets began reflating.
However, Central Banks have now set the stage for a crisis many times worse than 2008.
Let me explain…
The 2008 crisis was triggered by large financial firms going bust as the assets they owned (bonds based on mortgages) turned out to be worth much less (if not worthless), than the financial firms had been asserting.
This induced a panic, as a crisis of confidence rippled throughout the global private banking system.
During the next crisis, this same development will unfold (a crisis in confidence induced by the underlying assets being worth much less than anyone believes), only this time it will be CENTRAL banks (not private banks) facing this issue.

This post was published at GoldSeek on 11 December 2017.

The Euro Is Not Dead, Claims EU Survey

The mood has shifted.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. Europeans are finally learning to love the euro, it seems, at least according tothe latest edition of the Eurobarometer, which is published twice yearly by the European Commission: 64% of the respondents, representing 16 out of 19 Eurozone economies, believe that having the euro is ‘a good thing for their country,’ the highest proportion since 2002, and up from 56% in 2016. Only 26% of respondents thought it was a bad thing.
A further 74% of respondents said that the euro is a good thing for the EU as a whole, the highest proportion in the 2010-2017 series. This is somewhat ironic given that even the ECB conceded this week that the main idea behind the euro as a driving force for regional economic convergence has produced, let’s say, mixed results, having essentially failed where it mattered the most, in Southern European economies:
‘It is striking, however, that little convergence has occurred among the early euro adopters, despite their differences in GDP per capita. In contrast to some initial expectations that the establishment of the euro would act as a catalyser of faster real convergence, little convergence, if any, has taken place for the whole period 1999-2016’
Nonetheless, the results of the survey point to a marked improvement in Europe’s love affair with the single currency, as growth in the Eurozone has reached its highest level (a forecast 2.6% for 2017) since the financial crisis began 10 years ago.

This post was published at Wolf Street on Dec 8, 2017.

BIS Issues An Alert: Tightening “Paradoxically” Leading To Excessive Risk Taking; Reminds What Happened Last Time

Valuations in asset markets are ‘frothy’ and investors are basking in the ‘light and warmth’ of the ‘Goldilocks economy’, believing that nothing can upset a future of ‘sustained growth and low interest rates’. We observe a heavy dose sarcasm from the media briefing coinciding with the Bank for International Settlements’ (BIS) latest quarterly review. Specifically, we wonder why is it always the BIS which warns its central bank members and investors about the risk of an approaching financial crisis…and why do most of them never listen. We’re not sure, but here we go again, with the BIS warning that conditions are similar to those before the crisis.
As The Guardian reports:
Investors are ignoring warning signs that financial markets could be overheating and consumer debts are rising to unsustainable levels, the global body for central banks has warned in its quarterly financial health check. The Bank for International Settlements (BIS) said the situation in the global economy was similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by central banks to tighten access to credit. The BIS was one of the few organisations to warn during 2006 and 2007 about the unstable levels of bank lending on risky assets such as the US subprime mortgages that eventually led to the Lehman Brothers crash and the financial crisis.

This post was published at Zero Hedge on Dec 4, 2017.

Jim Grant Interviews Alan Fournier: “Pension Funds Are So Desperate For Yield, They’re Systemically Selling Vol…”

In the latest installment of RealVision’s interview series featuring Jim Grant, longtime publisher of Grant’s Interest-Rate Observer, the newsletter publisher sits down with Alan Fournier, the billionaire founder of Pennant Capital, to discuss one of the most widely discussed topics across modern asset markets: Volatility – or rather, the systemic risks posed by not only the paucity of volatility in modern markets, but how risk parity and low-vol targeting strategies have created imbalances that could lead to massive dislocations should volatility spike.
***
In the beginning of the talk, Fournier and Grant discuss how volatility has been artificially suppressed for so long that it’s essentially become an asset class unto itself. Investors have devised all these new volatility targeting strategies – like risk parity, for example, that have generated outsize returns since the financial crisis. But many don’t recognize the underlying risks. With so much money piled into the short-volatility trade, a large enough spike could trigger extremely painful selloffs in both bond and equity markets.

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

UK’s Top Fund Manager: “So Many Lights Flashing Red, I’m Losing Count”

Neil Woodford is the founder of Woodford Investment Management, with $20 billion under management, and was appointed a Commander of the Order of the British Empire (CBE) for services to the economy in the Queen’s 2013 Birthday Honours List. However, he’s not very happy in his latest outlook for equity markets, nor is he happy with the recent performance of his funds, although he’s been in this situation before – ahead of the tech crash in 2000 and the sub-prime crisis in 2008. According to the Financial Times.
Neil Woodford, the UK’s most high-profile fund manager, has said he believes stock markets around the world are in a ‘bubble’ which when it bursts could prove ‘even bigger and more dangerous’ than some of the worst market crashes in history. The founder of Woodford Investment Management, which manages 15bn of assets, warned investors to be wary of ‘extreme and unsustainable valuations’ in an interview with the Financial Times, likening the level of risk to the dotcom bubble of the early 2000s. ‘Ten years on from the global financial crisis, we are witnessing the product of the biggest monetary policy experiment in history,’ he said. ‘Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations. ‘Whether it’s bitcoin going through $10,000, European junk bonds yielding less than US Treasuries, historic low levels of volatility or triple-leveraged exchange traded funds attracting gigantic inflows – there are so many lights flashing red that I am losing count.’ Woodford likes to be contrarian: few people believed that Brexit was a buying opportunity, for example. Given his value investing style, it’s not surprising that’s he’s avoiding high-profile momentum driven names and boosting holdings in old economy ‘bricks and mortar’ companies, literally. The FT continues.

This post was published at Zero Hedge on Dec 1, 2017.

Dutch People Are Different – ABN Amro Employees Want To End Bonus Scheme

We always shudder slightly when we discuss ABN Amro, since nothing ever seems straightforward in the ongoing saga of the Dutch bank. However, this time at least nobody has died. In 2015, we notedthat Chris Van Eeghen, head of the bank’s corporate finance and capital markets ‘startled’ friends and colleagues after the ‘always cheerful’ banker reportedly committed suicide. Van Eeghen was the fourth ABN banker suicide since the financial crisis.
When it comes to bonuses, ABN also has a chequered history. The Dutch government nationalised the bank at the height of the financial crisis at a cost to Dutch taxpayers of 22 billion Euros. There was a national outcry in 2015 over bonuses ABN paid to its top executives, as Business Insider reported.
Public outcry over bankers’ bonuses is pretty common, but the anger sweeping the Netherlands, over nationalised ABN Amro’s executive pay packets is on a completely different level. Over the last week, Dutch newspapers Financieele Dagblad and NOS (Holland’s version of the BBC), and other media outlets were awash with debates over the justification of how ABN Amro’s high ranking executives were getting huge bonuses ahead of the bank being re-privatised.
In fact, the outcry was, and continues to be, so bad that Dutch finance minister Jeroen Dijsselbloem delayed the IPO of the nationalised bank at the end of March because the row over giving six executives a 100,000 (73,000) bonus on top of their salaries escalated so greatly.

This post was published at Zero Hedge on Dec 1, 2017.

US Retail Companies Have a Massive Bill to Pay Come 2018

Right now, retail stores are closing at a pace that we haven’t seen since the 2008-2009 financial crisis. Some are calling it a ‘retail apocalypse’ as a number of major headwinds approach, including increasing pressure from Amazon and the sad fact that most brick-and-mortar retailers simply built way too many stores and borrowed too much money to do so.
Though many are likely aware of the above, what isn’t so well known is how much debt is coming due starting next year. That’s really the heart of the issue, which is why America’s ‘Retail Apocalypse’ Is Just Getting Started, Bloomberg’s Matt Townsend explained to Financial Sense Newshour on today’s podcast.
Debt Is the Main Challenge Retailers Face
Though online retailers are definitely a threat and many traditional retail businesses are overstored, what’s really going to drive the shakeout of legacy retailers is debt.
‘What really drives a company out of business is, if they have a lot of debt and their business is deteriorating, that will force them into bankruptcy and potentially liquidation,’ Townsend said.
And the fact is, a lot of this debt is starting to come due next year, Townsend stated, and many retailers may not to be able to pay it off or refinance it.

This post was published at FinancialSense on 11/29/2017.

US Gross National Debt Jumps $723 billion in 12 Weeks, Yellen ‘Very Worried about Sustainability of US Debt Trajectory’

But only a few lost souls in Congress care. Even as lawmakers are trying to cobble together a tax-cut bill that would cut revenues by $1.5 trillion over ten years, the gross national debt has spiked $723 billion over the past 12 weeks since Congress suspended the ‘debt ceiling.’ It just hit $20.57 trillion, or 105% of GDP.
Over the past six years, since November 2011, the gross national debt has surged nearly 40%, or by $5.8 trillion. Back in 2011, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. There are no signs that the relentless rise in the debt is slowing down. On the contrary – the tax cuts are going to steepen the curve:
***
In the chart above, note the last three debt-ceiling fights – the flat lines in 2013, 2015, and 2017, followed each time by an enormous spike when the debt ceiling was lifted or suspended, and when the ‘extraordinary measures’ with which the Treasury keeps the government afloat were reversed.

This post was published at Wolf Street on Nov 30, 2017.

29/11/17: Four Omens of an Incoming Markets Blowout

Forget Bitcoin (for a second) and look at the real markets.
Per Goldman Sachs research, current markets valuation for bonds and stocks are out of touch with historical bubbles reality: As it says on the tin,
‘A portfolio of 60 percent S&P 500 Index stocks and 40 percent 10-year U. S. Treasuries generated a 7.1 percent inflation-adjusted return since 1985, Goldman calculated — compared with 4.8 percent over the last century. The tech-bubble implosion and global financial crisis were the two taints to the record.’
Check point 1.
Now, Check point 2: The markets are already in a complacency stage: ‘The exceptionally low volatility found in the stock market — with the VIX index near the record low it reached in September — could continue. History has featured periods when low volatility lasted more than three years. The current one began in mid-2016.’

This post was published at True Economics on Nov 29, 2017.

US Home Prices Surge At Fastest Pace Since July 2014

As the latest housing data shows an uptick in sales, Case-Shiller’s 20-City Composite index surged 6.19% YoY in September – the fastest rate of gain since July 2014.
As Bloomberg notes, the residential real-estate market is benefiting from steady demand backed by a strong job market and low mortgage rates. The ongoing scarcity of available houses on the market, especially previously-owned dwellings, is likely to keep driving up prices.
Eight cities have surpassed their peaks from before the financial crisis, according to the report.

This post was published at Zero Hedge on Nov 28, 2017.

China Regulators Seek To Calm Mania For HK Stocks As Plunge Protectors Make An Appearance

The Chinese authorities’ efforts to contain leverage and reduce risk across the nation’s financial system took another step forward overnight with the ban on approvals for mutual funds that plan to allocate more than 80% of their portfolios to Hong Kong stocks. This looks like a response to surging capital flows into the territory from the mainland and the equity market euphoria in Asia, which saw the Hang Seng index cross the 30,000 mark last Wednesday for the first time in 10 years. As we noted in ‘Very Close To Irrational Exuberance: Asian Equities Break Above All-Time High As Hang Seng Clears 30,000’.
Ongoing southbound flows from the mainland exchanges in Shanghai and Shenzhen – via the connect trading scheme – helped to propel the rally.
The South China Morning Post has more:
China’s securities regulator will suspend the approval of new mutual funds that are meant for investing in Hong Kong’s equity market, putting a temporary cap on southbound capital that has boosted the city’s benchmark stock index to a decade high.
Chinese mutual funds which plan to allocate more than 80 per cent of their portfolio to Hong Kong-listed equities will no longer be approved for sale on the mainland, according to two state-owned funds familiar with the matter, citing an order by the China Securities Regulatory Commission. Only funds that allocate less than half of their portfolio to Hong Kong will be approved, the funds said, echoing a Monday report on the China Fund website, an industry news site.
The Chinese regulator ‘s latest instruction reflects the concern that Hong Kong’s key stock benchmark has risen too much too quickly to a level that was last attained in 2007, before the global financial crisis a year later caused the Hang Seng Index to plunge 33 per cent, and wiped out billions of dollars of value.

This post was published at Zero Hedge on Nov 28, 2017.

The Importance Of Knowing

At Peak Prosperity, we strive to help people advance in three key areas: Knowing, Doing and Being.
Doing and Being are the resilience-building steps we recommend. Helping folks develop their own personal action plans in these areas is the main focus of the seminars we run.
But Knowing? That’s the essential first part to master. Without sufficient understanding and insight to guide you, any action you take is merely groping in the dark.
That’s why Chris and I spend the majority of our time info-scouting: following the data and analyzing where macro trends are likely to head next given the latest developments.
We dedicate so much time and energy to this because it’s not the domino that’s falling today that matters. What’s much more important is: Which dominoes will fall tomorrow as a result?
And make no mistake, the pace of falling dominoes is accelerating. From the geo-politically destabilizing regime change in Saudi Arabia, to the ending of the central bank liquidity bubble, to the largest species extinction wave in millennia, to the bursting retirement dreams of the Baby Boomer generation, to the fast-worsening net energy predicament — change is afoot. The relative calm of the false ‘recovery’ that the world’s central planners engineered in response to the Great Financial Crisis has reached its terminus.
Now, more than ever in recent years, understanding where events are headed next is critical to preserving your wealth and well-being.

This post was published at PeakProsperity on Monday, November 27, 2017,.

Francesco Filia: The World’s Twin Asset Bubbles Could Collapse Under Their Own Weight

In this week’s MacroVoices podcast, Erik Townsend interviews Francesco Filia, a fund manager at Fasanara Capital. After exchanging pleasantries, Townsend begins the interview by asking Filia, an analysts who’s widely regarded for his research about how post-crisis monetary policy has impacted distorted markets, about the different metrics he uses to determine whether a certain asset is in a bubble.
Filia begins by ticking off a laundry list of metrics that all point to the same conclusion: That today’s market is more overvalued than at any point in recent history – including the run-up to the financial crisis.
Thank you, Erik. I think the equity bubble is quite uncontroversial, is quite unambiguous. There are a lot of different valuation metrics for those that care to look into them. They’ve been valid for over a hundred years of modern financial markets. And this time is no different in that respect. There are the usual metrics that the valuation guys are looking at, like financial assets to disposable income that shows that this market is way more expensive than at any point in history including the big dot com bubble and the Lehman moment in 2007-2008.

This post was published at Zero Hedge on Nov 25, 2017.

The Debt Bubble Is Beginning To Leak Air

‘The current state of credit card delinquency flows can be an early indicator of future
trends and we will closely monitor the degree to which this uptick is predictive of
further consumer distress.’ – New York Fed official in reference to rising delinquency rate of credit cards.
The recent sell-off in junk bonds likely reflects a growing uneasiness in the market with credit risk, where ‘credit risk’ is defined as the probability that a borrower will be able to make debt payments. This past week SocGen’s macro strategist, Albert Edwards, issued a warning that the falling prices of junk bonds might be ‘the key area of vulnerability that could bring down the inflated pyramid scheme that the Central Banks have created.’
The New York Fed released its quarterly report on household debt and credit for Q3 last week. The report showed a troubling rise in the delinquency rates for auto debt and mortgages. The graph to the right shows 90-day auto loan delinquencies by credit score. As you can see, the rate of delinquency for subprime borrowers (620 and below) is just under 10%. This rate is nearly as high the peak delinquency rate for subprime auto debt at the peak of the great financial crisis. In fact, you can see in the chart that the rate of delinquency is rising for every credit profile. I find this fact quite troubling considering that we’re being told by the Fed and the White House that economic conditions continue to improve.

This post was published at Investment Research Dynamics on November 22, 2017.

Whose Private-Sector Debt Will Implode Next: US, Canada, China, Eurozone, Japan?

Canadians, fasten your seat-belt. Here are the charts. The Financial Crisis in the US was a consequence of too much debt and too much risk, among numerous other factors, and the whole house of cards came down. Now, after eight years of experimental monetary policies and huge amounts of deficit spending by governments around the globe, public debt has ballooned. Gross national debt in the US just hit $20.5 trillion, or 105% of GDP. But that can’t hold a candle to Japan’s national debt, now at 250% of GDP.
And private-sector debt, which includes household and business debts – how has it fared in the era of easy money?
In the US, total debt to the private non-financial sector has ballooned to $28.5 trillion. That’s up 14% from the $25 trillion at the crazy peak of the Financial Crisis and up 63% from 2004.
In relationship to the economy, private sector debt soared from 147% of GDP in 2004 to 170% of GDP in the first quarter of 2008. Then it all fell apart. Some of this debt blew up and was written off. For a little while consumers and businesses deleveraged just a tiny little bit, before starting to borrow once again.

This post was published at Wolf Street on Nov 22, 2017.