JPM Explains How HFTs Caused Friday’s Sterling Flash Crash

On Friday, in the aftermath of the historic pound sterling flash crash, we presented Citi’s forensic take of how in just 30 seconds, bid/ask spreads in cable exploded as wide 600 pips.
Today, we provide another take, that of JPM’s Nikolaos Panigirtzoglou, who looks at the “gapping market” that emerged on Friday morning Asia time, and shares some color on the role of high frequency traders behind the sudden, dramatic plung in sterling.
Below is his full note:
Friday’s flash crash in sterling reinvigorates the debate about market liquidity and the role of High Frequency Traders (HFTs) as providers of liquidity. Similar to previous flash crashes such as the August 24th 2015 flash crash in US equities or the October 15th 2014 flash crash in USTs, market gapping, a step change in prices from one level to another without much trading in-between, raises questions about market structure and liquidity in FX markets. This is also because FX markets are perceived to be a lot more liquid than equity or bond markets, so the conventional view is that FX markets are unlikely to experience flash crashes or market gapping in the absence of high impact news.

This post was published at Zero Hedge on Oct 9, 2016.

Asian Metals Market Update: October-10-2016

Just trade in the technical. Ignore the US presidential debate. Current US president Obama last few days antics won him a second term. So November trend will be the decider. People love politicians mudslinging each other in elections and that is what the media is feeding them. Physical gold and silver demand all over the world should zoom. Technically silver has a triple bottom at $17.10. Silver can rise to $2007 and $2276 in the short term if it manages to trade over $17.10 on daily closing basis. Gold needs to trade over $1233 for the rest of the month for another assault at $1341.
Cable plunged last week. A lot of people’s dreams evaporated last week as they lost money in cable longs. I have always considered cable as a widow maker. Trading in cable, nickel and silver are very dangerous. One makes small profits in them but loses his capital and even more than capital and sometimes his life on even one bad trade in a year. Bottom fishing never works, but with every fall in cable the risk to return ratio moves towards in favor of buyers. Technically the cable needs to trade over 1.2247 against the US dollar to continue its bullish run.

This post was published at GoldSeek on 10 October 2016.

Los Angeles has the lowest homeownership rate in the entire country and rental Armageddon continues.

Los Angeles County continues to have the lowest homeownership rate of any large metro area in the country. This is across all data. Los Angeles County has 10 million people while the larger LA-OC MSA includes 13 million since it brings in Orange County. Any way you slice the data, Los Angeles is simply not a friendly place to buy a home and the vast majority of people rent and spend a bank breaking amount per month on rents. There are cracks forming in the system where home sale volume is weak and prices are reaching a short-term apex. What is telling however is that the Great Recession officially ended in the summer of 2009 but the homeownership rate continues to decline for L. A.
Los Angeles and the lowest homeownership rate in the country
Los Angeles has had a bad track record in terms of homeownership even before the previous housing bubble expanded, popped, and brought the region to its knees. But L. A. constantly reinvents itself and all of those people that lost their homes have been washed away like a poorly directed 80s film. Now we have our new CGI enhanced home buyers! L. A. builds over the graveyard of foreclosures and does it with an Oscar worthy smile.
Despite the boom in prices and the rhetoric that all is well, the homeownership rate continues to decline:

This post was published at Doctor Housing Bubble on October 9, 2016.

THE GROWING THREAT OF A DEFLATIONARY MELTDOWN AND A BIG DOLLAR RALLY…

originally published October 8th, 2016 in the Various Reports Sector
Last week saw a shocking plunge by gold and silver. While this is being classed in many quarters as part of a corrective phase in force since last July, and possibly the last part, the ferocity of this decline may have deeper implications, which is what we are going to look at here.
The sharp break lower by gold may be telegraphing a strong advance by the dollar, and last week, as gold plunged early in the week and continued lower later in the week, the dollar pressed higher and broke above nearby resistance, which might be a prelude to an upside breakout from the 18-month long trading range in the dollar. At the same time a truly frightening pattern appears to be completing in the broad market S&P500 index, which is now increasingly vulnerable to a brutal plunge.
Putting all these major pieces of the puzzle together, it looks like we are in for another 2008 style deflationary episode, which this time will be much worse, because rates are already at zero, and there is no-one left to resort to for a bailout. The only palliative that can be resorted to is immediate ‘helicopter money’ drops which will eventually lead to hyperinflation. It is presumed that such a deflationary episode will be triggered by the failure a major bank or banks or something similar, which is certainly very possible considering the trouble they are in, especially in Europe. In the absence of emergency measures such as helicopter money the economy will simply implode, with banks slamming their doors, ATMs ceasing to function, supply and distribution networks breaking down, quickly leading to a widespread state of anarchy.
We’ll now go through the charts and attempt to put the larger pieces of the puzzle together.

This post was published at Clive Maund on October 8th, 2016.

Two Words Suddenly Strike Fear In Silicon Valley Hearts…”Price Reduced”

Remember way back in the glory days when the combination of ‘everything social’ and ‘IPO’ meant near instant stardom and riches? For those who might be having a little trouble remembering; it was way back in days past just a little under 24 months ago. Yes, that’s months, not years.
Yet, as far as the many still clinging to IPO cash-outs, or stock option redemption in lieu of salary? It’s bordering on an eternity. And, believe it or not, that waiting game may have just been extended. The reason?
Look no further than the once hailed songbird of both ‘social,’ and in a larger context, much of what being a tech firm in ‘Silicon Valley’ encapsulated: Twitter
Twitter has truly morphed into the literal ‘canary in the coalmine’ of what I believe portends in the not so distant future for much of ‘The Valley’ and ‘social media’ in general. i.e., Laying on their backs, in the bottom of their cages, with nothing more than rumors and innuendo of either an offer to buy, or worse, an offer to just look. The latter having the worst of consequences once the ‘Thanks, but no thanks!’ formality becomes public.
It would seem, in my opinion, Twitter received the equivalent of both in the very same week. Can anyone say (or should I say tweet?) Ouch!

This post was published at Zero Hedge on Oct 9, 2016.

Federal Repression System

The Fed’s Fruitless Follies
In the Middle of a Massive Monetary Policy Error
How Do You Mess Up the Easiest Prediction in the World?
Dallas, Planning, and Writing
‘However beautiful the strategy, you should occasionally look at the results.’
– Winston Churchill
And from ‘To a Mouse, on Turning Her Up in Her Nest with the Plough’:
Scottish version:
But Mousie, thou art no thy-lane,
In proving foresight may be vain:
The best-laid schemes o’ Mice an’ Men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!
English translation:
But little Mouse, you are not alone,
In proving foresight may be vain:
The best laid schemes of Mice and Men
Go often askew,
And leave us nothing but grief and pain,
For promised joy!
– Robert Burns, 1785
The Federal Open Market Committee, to almost no one’s surprise, did absolutely nothing at its last meeting other than say that maybe, if the data allow, they will raise rates in December. My cynical view on their dithering will be detailed below. And of course, the Bank of Japan met and decided that maybe they had gone a bridge too far; and rather than lowering already negative rates when the yield curve was flat out to 40 years, they decided to see if they could create a fulcrum around the 10-year Japanese bond at zero. So far, the move has not been a rousing success.

This post was published at Mauldin Economics on OCTOBER 9, 2016.

As Reek of Desperation Surrounds EU Banks, Regulators Prepare for ‘Derivatives Clearing Crisis’

Zombification of EU banking system gathers momentum.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The past week’s events in Europe were dominated by the pound sterling’s spectacular flash crash to its lowest point in 31 years. As is often the case with flash crashes, we will probably never know what exactly triggered the currency to free-fall by 6% during Asian trading hours, though the most cited cause, apart from a ‘fat finger,’ is the gathering realization that a so-called ‘hard’ Brexit is a very real possibility.
But it’s an eventuality that can be expected to play out in roughly two and a half years’ time, at the earliest, and in light of the powerful forces arrayed against it, it may never occur at all.
In the meantime, something far more dangerous is happening on the other side of the English Channel: the slow-motion meltdown of the Eurozone’s banking system.
In its Global Financial Stability Report, the IMF warned that banks in Europe were too weak to generate sustainable profits even if – and here’s the kicker – the region saw strong economic growth. That hasn’t happened for years.
The IMF also cautioned that the banks’ weak profitability, caused by subdued growth in the Eurozone and ultra low or negative interest rates – something the ECB vehemently denies, preferring to blame the crisis on Europe’s smaller regional or local banks – could further erode their financial buffers and undermine their ability to support economic recovery.

This post was published at Wolf Street on October 9, 2016.

A Mile-High House Of Cards

According to Webster’s Dictionary, an economic depression is ‘a period of time in which there is little economic activity and many people do not have jobs.’
Italy has had virtually no productive growth since it joined the euro in 1999.
Today, the Italian economy (real GDP per person) is smaller than it was at the turn of the century.
That’s almost two decades of economic stagnation.
The economy today is 10% smaller than it was before its peak prior to the 2008 financial crisis. More than 25% of Italy’s industry has been lost since then.
Unemployment is around 12%. Youth unemployment is around 36%. And these are only the official government statistics, which almost certainly understate the true numbers.
The International Monetary Fund (IMF) predicts it will take at least until 2025 for the Italian economy to return to its 2008 peak. Since nobody can accurately predict what’s going to happen next year, let alone nine years from now, the IMF is basically saying it has no idea how or when the Italian economy could ever recover.

This post was published at Zero Hedge on Oct 9, 2016.

Hangzhou, We Have A Problem: “Over 71% Of New Chinese Loans Went To Fund Mortgages”

As Evercore ISI notes in its latest China weekly summary, the “biggest China policy development last week, was multiple cities establishing new rules to slow the spreading housing mania,” adding that this was “surely at Beijing’s behest“, it now indeed appears that China is once again trying to cushion a soft landing for a housing market that even Beijing is worried has gone too far.
While news that China’s housing bubble – especially in Tier 1 cities – is fully back, are not new, documented several weeks ago in shown in our post “Chinese Home Prices Jump Most On Record: “The Numbers Are Hard To Believe”, and shown in the following charts…

This post was published at Zero Hedge on Oct 9, 2016.

Hillary Wages Gender War in Addition to Class and Race Wars

Many readers keep writing in to ask what is my personal opinion with all the latest row centering on Trump and women. The Washington Post in digging up old tapes of Trump and destroying the entire election process. Who has said something stupid 20 years before? This is why really qualified people would NEVER run for office. You have to be a loser with no real job skill other than how to bullshit people with a straight face to run for any office. Pathological lying can be described as the habituation of lying. It is when an individual consistently lies for no personal gain, or in the case of politicians, to always pretend to be something they are not. The lies are commonly transparent and often seem rather pointless assuming people are stupid. There are many consequences of being apathological liar and they involve political candidates. Why would any one run for office? The press will dig up whatever they can and use ex-girlfriends or ex-boyfriends to discredit you with just slander having nothing to do with your qualifications. Life is a learning process. We are not born perfect. You have to make mistakes in order to learn. This standard of perfection imposed by the press is just not realistic. People have often asked why I would not run for some office. I am not interested in such nasty confrontations. I joke and say when the position of dictator arises, fine. Otherwise, forget it. Your entire life must be put on display. This is totally insane.
This advertisement called Mirrors is clearly taken out of context. But what I am finding offensive is Hillary is revealing that she is a hard-core feminist who really does detest men behind the curtain.


This post was published at Armstrong Economics on Oct 9, 2016.

Bull Markets Have Corrections

Human nature is nothing if not consistent. I’ve seen this dozens of times. At every single intermediate cycle low traders begin to doubt. No matter how strong the bull signals are, when a correction occurs traders find, or make up reasons for why the bear market is still in force or a new bear market is starting.
Folks, bull markets have to have corrections. They don’t signal the end of the bull, they are just profit taking events when price gets stretched too far above the mean, or when sentiment becomes too bullish.
A couple of months ago I warned that the metals would need to either correct, or trade sideways for a while as the entire sector had just gotten too stretched above the 200 day moving average. Well as it turns out it did both. It churned sideways for 3 months and then corrected as well.

This post was published at GoldSeek on 9 October 2016.

IMF Wants to Spend Billions on Global Trade to Reduce Populist Anger

World Finance Officials Pledge More Resources to Aid Growth … World finance leaders pledged Saturday to use more resources to try to bolster economic gains as they confront stubbornly slow growth and a rising backlash against globalization. The policy committee for the 189-nation International Monetary Fund said the world has ‘benefited tremendously from globalization’ but that protectionism is a threat. Increasing anger over globalization dominated the annual meetings of the IMF and its sister lending agency, the World Bank. – ABC/AP
What’s the solution to Brexit? More spending on international trade.
Because people are angry about globalism, the IMF has decided its member states need to spend more money counteracting the ‘globalist’ backlash.
We’ve been following the ‘populism versus globalism’ meme closely and have written it is justifying increased spending on globalist programs, as you can see from this excerpt above.
We have always been suspicious of the Brexit outcome, believing that elites in Britain could have manipulated votes against Brexit if they’d wished to do so.

This post was published at Zero Hedge on Oct 9, 2016.

Mexican Peso Soars In Response To Trump Tapes Scandal

When it comes to the market, there is one instrument which reveals, perhaps better than any other asset class, Trump’s presidential chances: the Mexican Peso, or MXN. As we reported in mid-September, the Mexican currency plunged to record lows at the same time as Trump’s presidential odds were rapidly rising and even briefly surpassed Hillary’s.
However, following the first presidential debate two weeks ago, the Peso spiked, erasing much of its recent losses. More importantly, market participants were looking at the MXN to see how the market would react to the Trump Tapes scandal. The answer came moments ago when in early trading, the Mexican Peso has soared, and the USDMXN tumbled out of the gate, an indication of Peso strength, and a confirmation that at least for now, the market’s reaction to the Trump Tapes is that his presidential chances have deteriorated substantially.
Specifically, in the premarket, the USD/MXN extended losses ahead of U. S. presidential debate at 9am Monday time in HK/Singapore. Spot was down as much as 1.6% to 18.9967, hitting 18.9883 earlier in session, lowest since Sept. 13 and past 19.00 technical support. As Bloomberg notes, a breach of 19.00 puts 50-DMA at 18.8878, 100-DMA at 18.7462 in sight

This post was published at Zero Hedge on Oct 9, 2016.

Jeff Berwick on the TF Metals Report: The Keynesian Madness Must End

The following video was published by TheDollarVigilante on Oct 9, 2016
Jeff is interviewed by Turd Ferguson for the TF Metals Report, topics include: the origins of The Dollar Vigilante, the overall situation in the global markets and where things may be headed, Keynesian insanity, one world currency and central bank, the role of cryptocurrencies, bitcoin and Steemit, the elite asset stripping the world prior to the collapse, the risk of one world government tyranny, the Shemitah and Jubilee year cycles, Galts Gulch Chile, speaking truth to power, investing in the precious metals sector, plus the pros and cons of smoking!

US Air Force Drops Dummy Nukes in Nevada Dessert

The U. S. Air Force dropped two dummy nukes in the Nevada desert earlier this month in what it called an effort to modernize and assess the performance of the U. S. nuclear stockpile.
In collaboration with the National Nuclear Security Administration (NNSA), the Air Force successfully tested two B61 nuclear bombs. Neither carried a live warhead.
An NNSA statement reads:
The primary objective of flight testing is to obtain reliability, accuracy, and performance data under operationally representative conditions. Such testing is part of the qualification process of current alterations and life extension programs for weapon systems. NNSA scientists and engineers use data from these tests in computer simulations developed by Sandia National Laboratories to evaluate the weapon systems’ reliability and to verify that they are functioning as designed.

This post was published at Zero Hedge on Oct 9, 2016.

Never. Been. Higher.

Societe Generale’s Albert Edwards is more worried than ever… and more hopeful than ever. His weekly note has a smattering of Good (hope for a Kevin Warsh Fed), Bad (the ignorance of a Larry Summers debtfest), and Ugly (corporate leverage has never, ever, been higher)…
The Good
Much to my own regret I had never familiarised myself with the views of Governor Warsh, who was at the Fed from 2006-11, and played a key role in navigating the Fed through the crisis. He got a rousing reception from the BCA audience as he talked a lot of sense – in particular on how the Yellen Fed has lost its way and current policy is deeply flawed.
He explained that the Fed has been “captured” by a groupthink of academics led by the “Secular Stagnation” ideas of his friend, Larry Summers. Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required.

This post was published at Zero Hedge on Oct 9, 2016.

Moving Forward with Marin Katusa

Late Friday, I had the opportunity to visit again with Marin Katusa, founder of Katusa Research and author of the best-selling book, “The Colder War”. After the sharp correction in both the metals and miners, I think you’ll find this podcast to be of great value.
With the HUI index down more than 30% from its August highs and the metals falling sharply last week, I jumped at the opportunity to visit with Marin again. Over the course of this call, we discuss:
the reasons and forces behind this recent correction

This post was published at TF Metals Report on October 9, 2016.