Archive - Oct 2015

The inherent problem of "eternal bullishness" is the "wilfull blindness" to the underlying data in an effort to chase short-term returns. This leads to the unfortunate problem of being "all-in" on every hand which has a devastating consequence when a mean reverting event occurs. In the end, it does not matter IF you are "bullish" or "bearish." The reality is that both "bulls" and "bears" are owned by the "broken clock" syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being "right" during the first half of the cycle, but by not being "wrong" during the second half.

With 1998/99 analogs abounding, we thought it worth looking at a more ominous similarity. The breadth of the US equity market is "narrowing" dramatically; and bad breadth was a big flashing red feature of 1999.

It was only a couple of months ago that a rapidly rising dollar was pushing the global economy closer to a new crisis. It seems unlikely that the conditions that made a rapidly rising dollar a problem in August have all been resolved by October. Those who bought stocks last week in response to hints of more easing from Draghi – and the rate cut in China – may find themselves in the same position as Pavlov’s dogs, wondering why no meal follows the ringing of the bell.

Polling for the GOP presidential primary has begun to stretch even the most flexible limits of reality and credibility.

Distillate storage utilization in the US and Europe is nearing historically high levels, following near record refinery utilization, only modest demand growth (especially relative to gasoline), and increased imports from the East on refinery expansion and Chinese exports. As Goldman warns, this raises the spectre of 1998/2009 when distillate storage hit capacity, pushing runs and crude oil prices sharply lower. This also raises the question of whether today’s oil market can rebalance through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity and forcing prices below cash costs – is unavoidable.

"The nightmare for the Riksbank board is maybe something like this: they are gathered in the south of Sweden, looking out over the Baltic Sea, when they see a giant wave of money coming in from the euro zone and try to fight it with a hose."

After earlier in the year exposing "the greatest shorting opportunity since 2007-2009" and trading it profitably through September with "front row seats to an imminent market shock," Billionaire Crispin Odey's flagshipfund has suffered recently. As Bloomberg reports, the fund plunged 16.8% in the first 16 days of October, after the fund profited in August and September from Odey’s negative view of the Chinese economy. Odey believes that the only way economies will be able to work their way through the next downturn is by writing off capacity. Therefore, with credit tightening as well, according to Odey, it’s a good time to be short...

While we still await the Indian government to unveil the "threats and fines" part, it started the "urging" when during an address on his monthly radio programme of "Mann Ki Baat", Indian prime minister Modi "exhorted people to help convert gold to the nation's economic strength by joining in various schemes to be launched soon" adding that "gold can be converted from dead money to an economic force. To leave gold lying as dead money is behaviour not in sync with the modern times," he said.

It is obvious that the Healthcare Industry in the US is in need of some major overhaul, and I am not talking about a politically expedient solution as was the latest undertaking by the Obama administration.

The world is witnessing the destruction of Syria, a country with a rich history going back millennia. But there is one significant minority that faces total annihilation if the radical factions prevail: Syria’s Christian community.

With just days left until the November 3rd D-Day when the Treasury runs out of emergency cash and is forced to prioritize debt repayments over government spending, moments ago Politico reported that "congressional leaders and the White House are working toward a two-year agreement. A debt ceiling measure is on a parallel track."

"The end of QE mattered" admits BofAML, adding that "the impact was not replaced by BoJ or ECB dollars." It is this new 'hostile' investment backdrop as liquidity cheer swings to illiquidity fear (and two years of non-stop "pain trades") that has faith in the big three bull beliefs fading fast. October's "pain trade" has been a broad-based rally in all risk assets, but there are a number of factors preventing BofAML getting more bullish now that risk has surged.

"Investors should (and most don't) realize China is a credit bubble of epic proportions," warns an anxious Marc Faber during a brief Bloomberg TV interview. "China is not just a country, it's an empire," Faber adds, and warns that while some sectors may have growth ("just ask Yum Brands" he jokes), "but other very important sectors like industrial production aren't  growing at the present time." In fact, Faber warns "I don't think China's economy is growing at all," and while policy-makers may be able to "cushion the downturn somewhat," he warns that achieving any soft-landing will be "very difficult," even as he expects China to continue devaluing the Yuan.

The following story of corporate greed, corruption, and fraud is surely one of the best in recent years.