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Volatility Holds the Key to Markets in 2019

Volatility Holds the Key to Markets in 2019

Over the last two weeks, after making good on the four-rate interest hike of 2018, Fed Chairman, Jerome Powell, became more dovish to start 2019.

His change in tone is worth considering because of his historical stance on reducing the amount of artificial stimulus coming from the Fed. Last week, after the required five-year holding period for Fed transcripts were up, we got a glimpse into Powell’s thoughts from 2013, before he was Chairman.

Powell tried to persuade then-Chairman, Ben Bernanke, to reduce the Fed’s stimulus, even though it would lead to greater near-term market volatility. That was when the third round of the Fed’s asset-buying program (QE3) was in full swing. The Fed was purchasing an estimated $85 billion per month mix of Treasuries and mortgage-backed securities.

To indicate that the Fed wouldn’t buy bonds forever, Bernanke floated the idea of slowing down its program, or “tapering,” at some non-defined future date.

Powell, on the other hand, believed the market needed a specific “road map” of the Fed’s intentions. He said that he wasn’t “concerned about a little bit of volatility” though he was “concerned that there may be more than that here.”

Indeed, once Bernanke publicly announced the possibility of the Fed’s bond-buying program slowing down, the market tanked, in a response that became known as a “taper tantrum.” As a result, Bernanke backed off the tapering idea.

Fear of more taper tantrums kept the Fed in check after that. The Fed ultimately waited until it had raised rates sufficiently, before starting to cut the size of its balance sheet. But now Powell is the Chairman. And it seems that he is much less comfortable with volatility than he was under Bernanke, as his most recent remarks indicate.

But it certainly wouldn’t be the first time a Fed chairman has modified his views when he was in control. Alan Greenspan, for example, was a staunch advocate of the gold standard when he was younger (and as presented in Foreign Affairs). But once he was Fed head, suddenly he thought a gold standard wasn’t such a hot idea after all. Go figure.

…click on the above link to read the rest of the article…

Oil’s Wild Price Swings Set to Create Global Chaos

Oil’s Wild Price Swings Set to Create Global Chaos

Volatility is here to stay — and the political and economic implications will touch us all.

As the current global oil glut shakes up petro states around the world, oil prices are becoming more volatile than Donald Trump tweets.

Neither Canada, now the dumb owner of a marginal 65-year-old pipeline, nor Alberta, a key exporter of bitumen, a cheap refinery feedstock, has paid much attention to this revolution.

As a consequence Canada has no strategy to deal with the new normal of highly volatile oil prices.

Government incompetence explains the hew and cry in Alberta about its overproduction crisis and the various proposals to solve it, ranging from the purchase of rail cars (a bad idea) to the decision to order companies to cut production of heavy oil by about 325,000 barrels a day (a sensible idea).

Alberta’s panic attack is based on the idea that bitumen from the province’s oilsands producers is selling at a discount because of a lack of pipeline capacity.

The reality is that the dramatic 30-per-cent drop in oil prices since the beginning of October, from more than US$70 to US$50, is upsetting oil exporters, producers and markets around the world.

Different kinds of oil fetch different prices, based on their quality and transportation costs. And all are experiencing dramatic price drops. Alberta’s bitumen, a cheap refinery feedstock, is not the only crude languishing during a global market glut.

Refineries in Japan and Korea, for example, scooped up cheap U.S. oil earlier this year.

…click on the above link to read the rest of the article…

2019: The Beginning Of The End (Free Premium Report)

2019: The Beginning Of The End (Free Premium Report)

What will happen next & what to do now

Welcome to our new readers and a very Happy New Year to everyone!

Now that it’s 2019, we’re going to start the new year here at Peak Prosperity by responding to the wishes of our premium subscribers and making our most recent premium report free to everyone.

For those unfamiliar with our work, it’s based on the idea that humanity is hurtling towards a disaster of our own making.  Several powerful and unsustainable trends are all converging towards an ever-narrowing gap in the future.

Because of this, the individual and collective choices we make today take on ever-increasing importance.  Our collective choices — around such issues as rampant money-printing by central banks, the failure to wean ourselves off of fossil fuels, and tossing an entire younger generation under the bus because that’s most convenient for an older generation afraid of living within its actual means — are all pointing to a diminshed and disappointing future. We need to make better choices that align ourselves with these (and many other) looming realities.

This is our work here at Peak Prosperity.

For ten years now, we’ve been pointing out the many predicaments society faces. And we will continue our vigilance.  No because we enjoy crisis, or that we relish delivering hard messages, but because these are the times in which we live — and those, like you, who are awake to reality, need unvarnished facts and data to make informed decisions.

So we offer to you, today, a peek behind our premium subscription curtain.  The people who subscribe to our work do so to make themselves more resilient, as well as to support Peak Prosperity financially as we carry on our mission of “Creating a world worth inheriting”, which invoves bringing difficult messages to reluctant audiences.

…click on the above link to read the rest of the article…

What Is Behind The Market’s Record Liquidity Collapse

One week ago, when we first previewed this week’s infamous $60 billion pension fund rebalancing out of equities and into bonds which resulted in historic market gyrations, and a violent snapback in the S&P from what was shaping up to be the worst December on record for stocks, we warned that while the buying would “finally be some good news for the bulls” however “the problem is that the sudden deluge of last minute buying may simply be too much for the market to handle, as liquidity has collapsed to the lowest level on record and as a result investors and traders looking for a desperately needed respite from market gyrations may have to deal with yet one more “seismic bout” of volatility.

That’s precisely what happened, and while many are still trying to understand the cause behind last week’s market violence which prompted comparisons to watching the cult classic Pulp Fiction, where chaos is the only constant, the bigger problem that has emerged is a far greater one: how does one trade in a market in which, as we showed last week, liquidity has dropped to the lowest on record?

Practically speaking, the problem is simple as Bertran de la Lastra, CIO at Bestinver Gestion summarized: “If you go into the large caps and you try to do a significant trade – let’s say in a big fund company of $200 billion you’re trying to do a $50 million clip, a $100 million clip – you should be able to do it fairly quickly.” However, “the reality is that you may have to be working on it for a few days.”

…click on the above link to read the rest of the article…

What Is Behind The Market’s Record Liquidity Collapse

One week ago, when we first previewed this week’s infamous $60 billion pension fund rebalancing out of equities and into bonds which resulted in historic market gyrations, and a violent snapback in the S&P from what was shaping up to be the worst December on record for stocks, we warned that while the buying would “finally be some good news for the bulls” however “the problem is that the sudden deluge of last minute buying may simply be too much for the market to handle, as liquidity has collapsed to the lowest level on record and as a result investors and traders looking for a desperately needed respite from market gyrations may have to deal with yet one more “seismic bout” of volatility.

That’s precisely what happened, and while many are still trying to understand the cause behind last week’s market violence which prompted comparisons to watching the cult classic Pulp Fiction, where chaos is the only constant, the bigger problem that has emerged is a far greater one: how does one trade in a market in which, as we showed last week, liquidity has dropped to the lowest on record?

Practically speaking, the problem is simple as Bertran de la Lastra, CIO at Bestinver Gestion summarized: “If you go into the large caps and you try to do a significant trade – let’s say in a big fund company of $200 billion you’re trying to do a $50 million clip, a $100 million clip – you should be able to do it fairly quickly.” However, “the reality is that you may have to be working on it for a few days.”

…click on the above link to read the rest of the article…

Expect the Fed to Pause if Volatility Continues

Expect the Fed to Pause if Volatility Continues

It’s a good thing October is coming to an end. It’s been a particularly lousy month for the markets. October has seen about $5 trillion in value erased from global markets.

Reasons for that sell-off range from fear over Fed rate hikes, trade wars, elections and buyback “blackout” periods during earnings.

Buyback blackouts are ending, which should provide markets some needed lift over the next month. Buybacks have been one of the primary reasons markets have risen this year.

But other areas will keep the level of volatility high into the year-end. The upcoming elections, for example, could reshape Congress. If there is a turnover from Republicans to Democrats, legislation that relates to tax policy, financial regulations and international relations could be stalled or reversed.

Externally, we’re facing global volatility factors that include increasing uncertainty over what Brexit will look like and how it will impact the European economy. The new election of a Trump-like populist figure in Brazil could have ramifications for trade in the Americas and Asia. Emerging-market countries are also seeing their currencies falter against the dollar.

Volatility is nothing new. It’s how you deal with it that matters.

In early 2016, just after the Fed first raised rates in December 2015 after eight years of zero interest rate policy, the markets took a nosedive. As a result, the Fed put the brakes on hiking rates for an entire year.

Meanwhile, the European Central Bank (ECB) and the Bank of Japan (BOJ) ramped up their asset-buying programs, which provided stimulus to the financial markets.

All of that led to calmer markets. Investors believed easy money would continue. That’s why we saw the Dow Jones industrial average rise over 60% through this September from where it was in January 2016.

But now the markets have fallen out of bed.

…click on the above link to read the rest of the article…

Why You Should Expect the Unexpected

Why You Should Expect the Unexpected

End of the Road

The confluence of factors that influence market prices are vast and variable.  One moment patterns and relationships are so pronounced you can set a cornerstone by them.  The next moment they vanish like smoke in the wind. One thing that makes trading stocks so confounding is that the buy and sell points appear so obvious in hindsight.  When examining a stock’s price chart over a multi-year duration the wave movements appear to be almost predictable.

 

The fascinating obviousness of hindsight – it is now perfectly clear when one should have bought AMZN. Unfortunately it wasn’t quite as clear in real time. [PT]

Trend lines matching interim highs and lows, and bounded price movements within this range, display what, in retrospect, are the precise moments to buy and sell. In practice, the stock market dishes out hefty doses of humility with impartial judgment. What’s more, being right does not always translate to success.  Sometimes it is more costly to be right at the wrong time than wrong at the right time.

One fallacy that has gained popularity over the last decade is the zealot belief that the Fed disappears risk from markets.  That by expanding and moderating the money supply by just the right amount, and at just the right time, markets can grow within a pleasant setting of near nonexistent volatility.  Some even trust that when there is a major stock market crash, the Fed, having the courage to act, will soften the landing and quickly put things back upon a path of righteous growth.

Believers in the all-powerful controls of the Fed have a 30 year track record they can point to with conviction.  Over this period, the Fed has put a lamp unto the feet and a light unto the path of the stock and bond market.

…click on the above link to read the rest of the article…

Think You’re Prepared For The Next Crisis? Think Again.

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Think You’re Prepared For The Next Crisis? Think Again.

Even the best-laid preparations have failure points

No plan of operations extends with any certainty beyond the first contact with the main hostile force.

~ Helmuth von Moltke the Elder

Everybody has a plan until they get punched in the mouth.

~ Mike Tyson

Scottish poet Robert Burns aptly penned the famous phrase: “The best laid schemes o’ mice an’ men/Gang aft a-gley.” (commonly adapted as “The best laid plans of mice and men often go awry.”)

How right he was.

History has shown time and time again that the only 100% predictable outcome to any given strategy is that, when implemented, things will not go 100% according to plan.

The Titanic’s maiden voyage. Napolean’s invasion of Russia. The Soviet’s 1980 Olympic hockey dream team. The list of unexpected outcomes is legion.

Dwight D. Eisenhower, the Supreme Commander of the Allied Expeditionary Forces in Europe during WW2, went as far as to say: “In preparing for battle, I’ve always found that plans are useless but planning is indispensable.”

This wisdom very much applies to anyone seeking safety from disaster. Whether preparing for a natural calamity, a financial market crash, an unexpected job loss, or the “long emergency” of resource depletion — you need to take prudent planful steps now, in advance of crisis; BUT you also need to be mentally prepared for some elements of your preparation to unexpectedly fail when you need them most.

Here are two recent events that drive that point home.

Lessons From Hurricane Florence

A family member of mine lives in Wilmington, NC, which received a direct hit last month from Hurricane Florence.

…click on the above link to read the rest of the article…

Understanding The Volatility Storm To Come, Part 4 (Final): Flows Over Fundamentals – How This Ends

Authored by Christopher Cole via Artemis Capital Management,

Read Part 1: Fragility In The Market’s Medium, here…

Read Part 2: Volatility Reflexivity and Liquidity, here…

Read Part 3: The Medium Is Liquidity… And It’s Vanishing, here…

Flows over fundamentals…

When you are a fish swimming in a pond with less and less water, you had best pay attention to the currents. The last decade we’ve seen central banks supply liquidity, providing an artificial bid underneath markets. Now water is being drained from the pond as the Fed, ECB, and Bank of Japan shrink their balance sheets and raise interest rates.

Despite this trend, U.S. equities will very likely escape 2018 without a crisis or volatility regime shift because of the onetime wave of corporate liquidity unleashed by tax reform. Expect a crisis to occur between 2019 and 2021 when a drought caused by dust storms of debt refinancing, quantitative tightening, and poor demographics causes liquidity to evaporate.

The first signs of stress from quantitative tightening are now emerging in credit, international equity, and currency markets. Financial and sovereign credits are weakening and global cross asset correlations are increasing. Meanwhile, China is executing a stealth devaluation of the Yuan which, since 2015, has been a reliable signal of turbulence in global markets.

Artemis predictive models have been consistently bearish through June and July, and as a result we have tactically increased tail exposure in S&P 500 index options and VIX. A higher than average exposure to tail risk has contributed to negative performance the last few months as volatility has remained in the low-teens.

Equity volatility is underperforming credit risk trend by some of the widest margins in history in both the U.S. and in Europe (see below).

…click on the above link to read the rest of the article…

Understanding The Volatility Storm To Come, Part 1: Fragility In The Market’s Medium

What Is Water In Markets? Volatility and the Fragility of the Medium

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”.

-David Foster Wallace, This is Water (2005)

“This is Water” is the title of a commencement speech delivered by David Foster Wallace that has become a masterpiece of meta-thinking. If you haven’t listened to it, put down this paper and do so now. It is worth 20 minutes of your life.

The Foster Wallace parable of two young fish ignorant of the medium that defines their reality is so important on many levels. Foster Wallace contends that we swim in a world defined by self-centered thoughts, that serve to make reality visible, but should never be mistaken as fundamental truth. 

In capitalism the medium that defines reality is fiat money. To this point, does money exist? This seems silly to ask but it is very important philosophically. Yes, money exists in the sense that you can purchase goods and services with it. At the same time, money is only important because of a collective belief in it, and is worthless without that. This is true of any human construct: markets, words, brands, and nation-states… all abstract mediums that have meaning because we collectively believe they do, and hence they give form to reality, but are not real independent of our thoughts.

…click on the above link to read the rest of the article…

“Volatility Erupts”: India Rocked By Biggest Market Plunge In 4 Years

Update: IL&FS has confirmed it is unable to service its obligations in respect of interest payment of the Non-Convertible Debentures, which was due on September 21, 2018.

The fear of contagion has spread across the banking sector and up into India’s sovereign risk, now at 18-month highs…

*  *  *

Turmoil broke out in a relatively stable corner of the global market overnight, when “volatility erupted” in India’s stock market on Friday, after plunges in Yes Bank and Dewan Housing Finance set off an exodus from financial shares and slammed the broader stock market. Yes Bank sank to the lowest level since 2016, losing 30% of its value in one day, after India’s banking regulator refused to extend the tenure of the lender’s chief executive officer,” while Dewan tumbled 43% for its steepest loss on record, Bloomberg reported.

“IL&FS’ problem and Yes Bank’s issues are impacting every financial stock in the market,” A K Prabhakar, head of research at IDBI Capital Market Services Ltd., said by phone. “Leveraged positions are being reduced.”

As a result, the benchmark S&P BSE Sensex plunged, swinging from a 1% gain to a drop of as much as 3% – its wildest intraday move in more than four years – before closing with a 0.8% loss.

Friday’s declines showed that even India is becoming increasingly sensitive to the recent shockwave across the EM space, and that investors remain jittery about Indian financial shares after the recent default by Infrastructure Leasing & Financial Services shook confidence in the sector.

The IL&FS downgrade and default may have nudged investors to avoid potential collateral damage in other financial stocks.

“Downgrades are a serious possibility” for non-bank financial companies, Aneesh Srivastava of IDBI Federal Life Insurance Co. said.

…click on the above link to read the rest of the article…

Uncertainty is the Mother of Volatility

QUESTION: Well you called this year the political year from hell. You got that one right again. Between trying to figure out the politics in the US, we have Britain in turmoil and Italy trying to figure out if they should stay or go. Hungary becoming more defiant and Sweden swinging to the right. You are the best at forecasting this sort of crazy stuff. You got BREXIT right and Trump’s victory. I can see your model looks at the economics and predicts a response that becomes political change. So what does this all mean?

KD

ANSWER: Regardless of your political persuasion be it for or against any of these political issues, the importance is really the impact upon CONFIDENCE. If you are for or against Trump, we still have one thing in common. We just want stability and some sense of the future to bank on. For example, if Trump were to go down, the impact upon the world market could be very dramatic and how we then stage ourselves to survive this type of financial chaos is critical. It is the same situation in Europe. If Italy pulls the cord to get out, the Euro cannot survive. What I hear from Behind the Curtain is that the ECB may be forced to cut its bond purchases by 50% and there are even those demanding Quantitative Easing MUST end by the end of the year. Draghi has DESTROYED the bond markets in Europe. Stopping QE will result in interest rates going up dramatically.

As I have said, Trump is the Counter-Trend or FALSE move. I fear what comes afterward be it now or in 2020.

…click on the above link to read the rest of the article…

Oil Markets Are In For A Bumpy Ride

Oil Markets Are In For A Bumpy Ride

Oil rig sunset

The always-volatile oil market is set for even more volatility over the next two years as investors and speculators try to make sense of the conflicting market forces determining the pace of demand growth and global oil supply.

Over the past month, the two key themes have been how much Iranian oil will come off the oil market from U.S. sanctions in November, and how much demand growth could suffer with the trade wars. More recently, another theme is the emerging markets turmoil following Turkey’s crisis. Throw in all the new and much stricter International Maritime Organization (IMO) regulations on sulfur fuel oil requirements from 2020 that are expected to upend the refining and shipping markets, and oil prices are set for wild swings, industry executives and analysts say.

The severe IMO restrictions on fuel oil’s sulfur content—aimed at reducing emissions—will drive increased demand for middle distillates such as diesel and marine gasoil, which in turn will push up demand for crude oil, Morgan Stanley analysts say. This would boost crude oil demand by additional 1.5 million bpd, potentially sending oil prices to $90 a barrel in 2020, according to Morgan Stanley.

But before the 2020 regulation, analysts and investors are closely watching two currently unfolding developments—the sanctions on Iran’s oil and possibly weakening global oil demand growth—the main bullish and bearish factors, respectively, in the market right now.

“With new sanctions coming into play and also the IMO 2020, we see there is more volatility and therefore more opportunities to trade. So, we see our customers taking, slowly but surely, positions for that to happen,” Eelco Hoekstra, chief executive at independent tank storage company Vopak, told CNBC on Friday.

…click on the above link to read the rest of the article…

Ronald Stoeferle: Gold Is Dirt Cheap Right Now

And a new bull market for the metal is beginning
Fresh from releasing his exhaustive 230-page annual report titled In Gold We Trust, Ronald Stoerferle joins us to summarize his forecast for the yellow metal.

Stoerferle, an author of several books on Austrian economics and head of strategy and portfolio management at Incrementum AG, concludes that gold is extremely cheap right now in dollar terms. And he sees a new bull market beginning for the precious metal — one likely to quickly build momentum as the next (and long overdue) financial market correction arrives.

We’re at the beginning of a new stage of a bull market.

We’ve seen a massive correction with a big drawdown, but we’re now seeing the Commitment of Traders report suggesting that there’s been a washout. We’re seeing that sentiment is really negative. We’re seeing that nobody really cares about gold and mining stocks, and especially about silver. Silver is probably the biggest contrarian investment, though silver mining stocks are probably even more contrarian at the moment.

We all know that the herd behavior in the sector is getting more extreme. I think it has got to do with career risk in the financial industry, so nobody really wants to make a contrarian call. But once we go above this $1,360-$1,380 resistance, which is also the neckline of a large inverse head & shoulder formation, I think gold will hit $1,500, $1,600 pretty quickly.

The most important thing is: in comparison to all the monetary printing that we’ve seen in the last couple of years, gold got significantly cheaper. Gold, in monetary terms, is dirt cheap at the moment. We’re basically at the same levels like in 1971 when it comes to the gold backing of the US dollar. So gold is a bargain at this level.

…click on the above link to read the rest of the article…

When the big ones start going, you better head for the hills.” – Eric Sprott on volatile markets (Weekly Wrap-up, April 06,2018)

When the big ones start going, you better head for the hills.” – Eric Sprott on volatile markets (Weekly Wrap-up, April 06,2018)

 

That’s another week in the books, and Eric Sprott returns once again to break it down for you. In this week’s wrap-up, you’ll hear his thoughts on:

  • What a weak US jobs report means for gold and silver
  • The “terrible vulnerability” of the stock market
  • Plus: Surging open interest in COMEX silver

“The big worry when I look at the stock market in general … I would be very concerned about some of the things that are happening on a macro scale. And one of them, of course, is what happened to cryptocurrencies … It’s a wipeout! People doing exactly the wrong thing with their money … And it just tells you about markets. Let’s go to the stock market … [Facebook, Google, Amazon…] They’re getting picked off one by one. When the big ones start going, you better head for the hills … I just think that this stock market is looking terribly vulnerable. I wouldn’t want to be in it. There are so many things that can go wrong here.”

To hear Eric’s full thoughts, listen here: https://soundcloud.com/sprottmoney/sprott-money-ne…

 

Olduvai IV: Courage
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Olduvai II: Exodus
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