MIT’s Andrew Lo on Adaptive Markets, Passive Indexing, and Systemic Shocks

A longstanding academic theory for describing how markets work has finally died. Its impact on investment theory and practice was enormous, but has also led to some risks.
The so-called efficient market hypothesis (EMH), which basically assumes that investors are rational and that it’s impossible to beat the market because prices reflect all available information, has been under fire for years.
And MIT’s Andrew Lo, who Time Magazine named as one of the 100 most influential people in the world in 2012, finally put an end to it in his new book, ‘Adaptive Markets: Financial Evolution at the Speed of Thought.’
We recently spoke with him on FS Insider about his book and the theory that will replace the old one. It’s called the adaptive market hypothesis (AMH), which looks at the market less as a high-performance supercomputer and more as a biological organism or ecosystem – an ecosystem that, unfortunately, has become less diverse and more fragile in recent years.
The Adaptive Markets Hypothesis
The basic premise is that market participants are human, Lo noted. This has implications, including that while these people can come together and form a great decision-making apparatus – the market itself – they still make mistakes. They then learn from these mistakes and adapt to changing market conditions.

This post was published at FinancialSense on 07/11/2017.

Investors Are Dumping Emerging Market Debt At A Record Pace

Having warned that Emerging Market debt risks had hit 10-year lows (despite soaring uncertainty) and EM equity risk had hit record lows (amid record inflows), it seems the lagged impact of the collapse in the China credit impulse is finally being recognized as the largest EM Debt ETF (from JPMorgan) just suffered its largest outflows in history…
As a reminder, in the run-up to this dumping of EM assets, expected uncertainty in Emerging Market Equities has never been lower… (in fact EEM implied vol is now less than half its lifetime average of 29.7%)
What was even more stunning than investors’ tolerance for these risky issuers is how little compensation they’re demanding in return. Emerging Market bonds were pricing in the least ‘risk’ since Dec 2007…
The disconnect is a result of historically low interest rates worldwide — notes in Japan, Germany and France have negative yields — as well as what skeptics see as investors’ complacency as they pour into index-based funds without scrutinizing their holdings.

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

5 Charts That Explain Just How Screwed Your State Is

We’ve spent a lot of time of late discussing the precarious financial positions of states like Illinois, Connecticut and New Jersey which each suffer from their own myriad of financial threats including massive budget deficits, monstrous unfunded pension liabilities, pending debt downgrades, etc. In case you’ve missed those notes, here is a recap for your amusement:
Illinois State Official: “We Are In Massive Crisis Mode, This Is Not A False Alarm” “From Horrific To Catastrophic”: Court Ruling Sends Illinois Into Financial Abyss Connecticut Capital Hartford Downgraded To Junk By S&P Connecticut Gov. Signs Exec. Order Taking Over Spending After State Fails To Pass Budget Of course, while Illinois gets all the bad press for being the undisputed champion of the “worst state in the union” honor, there are many other “up and comers” (yes, we’re looking at you California with your massive unfunded pension obligation) aggressively vying for the title.
In fact, the Mercatus Center at George Mason University (GMU) has recently compiled a fairly comprehensive study, based on a number of objective financial metrics, ranking the 50 U. S. states according to their overall fiscal condition. Among other things, GMU analyzed the following metrics:
Cash solvency. Does a state have enough cash on hand to cover its short-term bills? Budget solvency. Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall? Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks? Service-level solvency. How much ‘fiscal slack’ does a state have to increase spending if citizens demand more services? Trust fund solvency. How large are each state’s unfunded pension and healthcare liabilities? All of which resulted in the following ranking map.

This post was published at Zero Hedge on Jul 11, 2017.


In this newest precious metals update, Tom Cloud is announcing a SILVER BUY ALERT. This is one of the few silver buy alerts he has made in his 40 year history in the precious metals retail industry. Tom is not issuing this silver buy alert based on trading data, but rather fundamental analysis via discussions with individuals all over the world, wealthy clients and fund managers about the precious metals retail industry.

This post was published at SRSrocco Report on JULY 10, 2017.

Death Of The Middle Class: The Suburbs Have Absorbed Half Of America’s Poverty Growth

For decades suburbia was home to the highest concentration of wealth in America, and perhaps even the entire world. It was the seat of our nation’s thriving middle class and a beacon of economic mobility. The streets were clean and safe, the schools were highly regarded, and there were plenty of middle class jobs to be had.
But something has changed in suburbia. While offshoring and automation have destroyed millions of jobs across the country, the decimation of brick and mortar stores by online retailers has pounded the wealth base of suburbia. So much so, that there are more people living in poverty in suburbia than any other place in America.
According to a new book, ‘Places in Need: The Changing Geography of Poverty,’ by University of Washington professor Scott Allard, American suburbs are facing economic hardship on a massive, if poorly understood, scale.
As of 2014, urban areas in the US had 13 million people living in poverty. Meanwhile, the suburbs had just shy of 17 million.
The Great Recession of 2008 helped accelerate much of the poverty that emerged in the early 2000s, Allard’s research has found. But another disrupting factor was the technological shift that enabled – and continues to enable – online retailers like Amazon and other e-commerce sites to replace shopping malls and big-box stores.
This ongoing demise has hollowed out many of the jobs suburban Americans once turned to as a means of supporting themselves.

This post was published at shtfplan on July 10th, 2017.

The New World Order Will Begin With Germany And China

In numerous articles over the years I have outlined in acute detail the agenda for a future one-world economic and governmental system led primarily by banking elites and globalists; an agenda they sometimes refer to as the “New World Order.” The term has gained such public exposure and notoriety recently that the globalists have fallen back to using different terminology. Some of them, like the International Monetary Fund’s Christine Lagarde, refer to it as the “global economic reset.” Others call it the “new multilateralism.” Still others refer to it as the “end of the unipolar order,” referring to the slow death of the U. S. economy as the central pillar of the global economy.
Whatever label they decide to use, all of them signal a full spectrum destabilization of the “old world” financial and geopolitical system and the ascendance of a tightly controlled one world edifice dominated openly by globalist hubs like the IMF and the BIS.
Too many people, even in the liberty movement, tend to examine only the veneer of this agenda. Some have deluded themselves into thinking the U. S. and the dollar are actually the core of the NWO and are therefore indispensable to the globalists. As I have shown time and time again, the Federal Reserve is now on a fast track to complete its sabotage of the U. S. economy; they would not be instigating instability and crisis to deflate the massive fiscal bubbles they have created unless America was at least partially expendable.

This post was published at Alt-Market on Wednesday, 12 July 2017.

Global Markets Quieter Ahead Of Yellen Testimony Before U.S. Congress

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
(Kitco News) – World stock markets were mixed overnight. U. S. stock indexes are pointed toward firmer openings when the New York day session begins. Gold prices are firmer in pre-U. S.-session trading. Bulls are trying to keep prices from falling below the technically important $1,200.00 level.
Focus of the marketplace today is on Fed Chair Janet Yellen’s testimony on U. S. monetary policy before a U. S. House of Representatives committee. As usual, markets and Fed watchers will try to glean from her remarks clues on the timing and nature of the next monetary policy action from the U. S. central bank. Many believe the Fed will continue on a path of gradually tightening monetary policy.

This post was published at Wall Street Examiner by Jim Wyckoff ‘ July 12, 2017.

India Gold Imports Surge To 5 Year High – 220 Tons In May Alone

– India gold imports in H1, 2017 greater than all of 2016
– India imported 521 tonnes of gold in first half of 2017
– H1 figure for gold imports $22.2 Bln versus $23 Bln in all ’16
– Gold demand was up 15% year- on-year in the first quarter
– June gold imports climbed to an estimated 75 tonnes from 22.7 tonnes a year ago
– Annual total set to surpass 900 tons, strongest year since ’12
– ‘I trust gold more than the currencies of countries’ – 63% of Indians in Survey
Gold imports into India have surged in the last six months thanks to festivals, economic recovery and concerns over a new tax regime and the push for the cashless society in India.
Imports totalled 521 tonnes in the first half of this year, compared to just 510 tonnes in all of 2016.

This post was published at Gold Core on July 12, 2017.

How Hermitage Capital, Ziff Brothers And The Clinton Global Initiative Prompted The Trump Jr. Meeting

When Trump Jr. took his now-infamous meeting with Russian lawyer Natalia Veselnitskaya he was promised “official documents and information that would incriminate Hillary and her dealings with Russia and would be very useful to your father.” That said, Trump Jr. has since described Veselnitskaya’s ‘damaging information’ as nothing more than “inane nonsense.”
So what “information” was Veselnitskaya peddling that could be used as a political weapon in the 2016 presidential election?
According to a note from Bloomberg this morning, the answer to that question is a very sordid tale that involves Hermitage Capital, Ziff Brothers Investments, The Clinton Global Initiative, a decade-old story on an international tax evasion scandal and a new film Veselnitskaya had been eagerly promoting called ‘The Magnitsky Act – Behind the Scenes’…all of which probably helps explain why a British publicist was involved in setting up the original meeting, why Trump Jr. was confused by Veselnitskaya’s “inane nonsense” and why Jared Kushner decided to leave the meeting after 5-10 minutes.
Where do we start? Veselnitskaya’s story focuses on William Browder, a fund manager at Hermitage Capital, and his lawyer Sergei Magnitsky.
On a side note, if that Magnitsky name sounds familiar it’s because he’s the person behind the “Magnitsky Act” which resulted in a U. S. law that branded 18 Russians as human-rights abusers. Magnitsky died in a Moscow prison after uncovering what he said was a tax fraud that diverted $230 million from Russian taxpayers into the pockets of a handful of civil servants. The 2012 law angered the Kremlin, which then prohibited most adoptions from Russia to the U. S., chilling relations between Washington and Moscow.

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

So what’s happening to gold – and silver? — Lawrie Williams

What a difference a week or two makes in gold sentiment – and in silver which has fared even worse with the gold:silver ratio running close to 80 again at one point – a level which usually is at the top end of the comparison and would seem to signify a great buying opportunity for silver bulls – but is it? Gold sank to $1204 before making a small recovery, and silver to $15.07 before making a slightly larger one (in percentage terms at least.) Prices do seem to be clawing their way back upwards at the time of writing, but is this just a blip in a continuing downtrend? As I write, gold is at $1214 and silver at $15.60.
No doubt the dastardly bullion banks with their huge short positions in both precious metals are being seen as the principal culprits. Certainly trading volumes have been far higher than one would expect, particularly at the tail end of last week, but as usual these are paper gold (and silver) transactions driving the markets, but this time aided by sales of physical metal out of the big ETFs. Gold and silver bulls feel that the end-game is nigh and the big bullion banks (of which JP Morgan comes in for particular stick) will switch tack and drive prices back up again making mega profits on metal they have bought on the cheap. But is this just wishful thinking – no-one really knows. Second guessing the big banks is a mug’s game. JP Morgan, for example, always seems to come out on top in its trades – far more so than normal balanced financial markets would suggest. No wonder there is ever-continuing talk of blatant market manipulation by the big guys.

This post was published at Sharps Pixley

Gold futures debut in Hong Kong better than expected

Two newly launched gold futures products in the Hong Kong market debuted to better than expected turnover on Monday, as gold traders credited physical delivery settlement and longer trading hours for the strong start.
The two products, one traded in U.S. dollars, the other in yuan, mark the third attempt by the local stock exchange to step into gold trading.
As of 7.30pm – 11 hours after their debut at 8.30 a.m. – 3,098 futures contracts had changed hands. Of these, 2,186 were priced in yuan and 912 in U.S. dollars. Each contract represents one kilogram of gold. They will continue to trade until 1am Tuesday morning.
‘The first day’s turnover of the two gold futures was better than expected. The gold market is pretty quiet on Mondays but the fact the HKEX could still achieve such a higher turnover make for a strong debut,’ said Jasper Lo Cho-yan, the chief strategist at King International Financial.
Short trading hours were blamed by many for the previous failures. The gold futures launched in 2008 only traded for eight hours a day, far below the Chicago Mercantile Exchange in the U.S. which trades 23 hours a day.
Lessons appear to have been learned; the two new gold futures markets in Hong Kong will trade for 16 hours a day.

This post was published at South China Morning Post

Hedge-Fund Manager Crispin Odey Says It’s Now More Likely the Market Will Crash

Crispin Odey, who made money for a second straight month by sticking to bearish equity bets, said the chance of a market crash is rising as growth slows and the Federal Reserve normalizes interest rates.
The credit cycle boosted by loose monetary policy has peaked and there’s a widespread slowdown in the auto, commodity, industrial and retail sectors, Odey wrote in a letter to investors. Unlike previous dips since the financial crisis, central banks aren’t responding by printing more money.
‘This time they are doing the reverse,’ which is likely to exacerbate the negative trend, the London-based hedge fund manager wrote. ‘All this sits very uncomfortably with the fun being felt in the stock markets. When I look at the move up since Trump’s election as president, I detect the walk of a drunken man.”
A spokesman for Odey Asset Management, which manages $6 billion, declined to comment.

This post was published at bloomberg

The Destruction of Hamburg is Massive

The destruction of Hamburg has been massive. There is much going on behind the scenes politically with the focus now on intensely monitoring and censorship to be imposed. The degree of violence many view as unprecedented since the raid on Jewish businesses during the Nazi era. Inquiries are now looking into the organizers behind the scenes and where this originated from.

This post was published at Armstrong Economics on Jul 12, 2017.

Trump Jr.: Never Told My Father, “There Was Nothing To Tell”

In his first public appearance since his tweeted emails earlier today, which seemed to confirm that the Trump campaign was aware that the Russian government was willing to help then-Mr. Trump, Donald Trump Jr. admits “in retrospect I probably would have done things a little differently,” telling Fox News’ Sean Hannity that he did not tell his father about the meting because “It was just a nothing. There was nothing to tell.”
Key excerpts include (via Axios):
On whether in retrospect he would have done things differently:
“In retrospect I probably would have done things a little differently. Again this is before the Russia mania, this is before they were building this up in the press. For me this was opposition research, they had something you know maybe concrete evidence to all the stories I’d been hearing about, probably under reported for years not just during the campaign so I think I wanted to hear it out. But really it went nowhere and it was apparent that wasn’t what the meeting was about.”

This post was published at Zero Hedge on Jul 11, 2017.

Is The US Government On The Verge Of Reading Minds?

Researchers at Carnegie Mellon University recently made a scientific breakthrough using machine algorithms to accurately guess what people are thinking. In other words, as the university referred to it, they have ‘harness[ed] ‘mind reading’ technology to decode complex thoughts.’
The researchers report that they can ‘now use brain activation patterns to identify complex thoughts, such as, ‘The witness shouted during the trial.”
Though the technology does not identify the actual words, lead researcher Marcel Just, D. O. Hebb University Professor of Psychology in the Dietrich College of Humanities and Social Sciences, has made enough progress that ‘machine learning algorithms with brain imaging technology’ can effectively ‘read minds.’

This post was published at Zero Hedge on Jul 11, 2017.

“Quant Quake”: What Was Behind Last Week’s Historic CTA Crash, And Is Another One Imminent

While on the surface the market last week did nothing all that exciting, below it things were in abrupt turmoil – driven by the decoupling between stocks and bonds and the volatile, countertrend move in commodities and oil in particular – which was nowhere more evident than in the world of Risk-Parity funds and CTA, which suffered their worst two-week plunge since 2003.
A subsequent report from Bloomberg revealed that the damage among trend-following CTA was especially severe, “by some measures, commodity trading advisers are on track to post the worst yearly return since 1987, when data were first collected on the group.” It also prompted the WSJ to write “Oil Up? Oil Down? Blame the Algorithms.”
But what really happened last week, and will it happen again?
For the answer we go to one of the foremost vol experts on Wall Street, the team of Chintan Kotecha, Ben Bowler et al at Bank of America, who today described what took place last week ‘Quant quake’, and who continues a long trend of pointing out just how “weird” and fragile the market is (no really, in late May he wrote “While not obvious on the surface, these Markets Are Very Weird“) by noting that markets continue to set long-term records for price instability or ‘fragility’, with a five standard deviation (5-sigma) sell-off in the S&P 500 on 17-May, a 3-sigma drop in the Nasdaq 100 on 9-Jun, and most recently a sharp rise in the bank’s cross-asset Fragility Indicator.

This post was published at Zero Hedge on Jul 11, 2017.