• Bruce Krasting
    12/18/2014 - 21:42
      The one thing that Jordan can't do in this war is appear to be weak.
  • Marc To Market
    12/20/2014 - 12:21
    When the dollar falls, we are told it is logical.  The empire is crashing and burning.  When the dollar rises, the markets, we are told are manipulated.    Well, the dollar is...

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Archaea Capital's 5 Bad Trades To Avoid Next Year

Blind faith in policymakers remains a bad trade that’s still widely held. Pressure builds everywhere we look. Not as a consequence of the Fed’s ineptitude (which is a constant in the equation, not a variable), but through the blind faith markets continuing to place bets on the very low probability outcome – that everything will turn out well this time around. And so the pressure keeps rising. Managers are under pressure to perform and missing more targets, levering up on hope. Without further delay we present our slightly unconventional annual list. Instead of the usual what you should do, we prefer the more helpful (for us at least) what we probably wouldn’t do. Five fresh new contenders for what could become some very bad trades in the coming year.



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The Annotated History Of Russian Crises Since 1860

While the current episode of Russian geopolitical and economic turmoil may seem significant, the following chart from Goldman Sachs shows the tempestuous time the nation has had over the past 150 years...



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I'm Not Buying It - Not The Wall Street Rip, Nor The Keynesian Rap

The current illusion of recovery is a result mainly of windfalls to the financial asset owning upper strata, the explosion of transfer payments funded with borrowed public money and another supply-side bubble - this time in the energy sector and its suppliers and infrastructure. But that’s not real growth or wealth. Indeed, the desultory truth about the latter is better revealed by the fact that the American economy is not even maintaining its 20th century level of breadwinner jobs. And the real state of affairs is further testified to by the lamentable trend in real median household incomes. That figure - not distorted by the bubble at the top of the income ladder - is still lower than it was two decades ago. So much for the Keynesian rap. Yet that’s about all that underpins the latest Wall Street rip.



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The Baltic Dry Index Has Never Crashed This Fast Post-Thanksgiving

We are sure it's nothing - since stock markets in China and The US are soaring - but deep, deep down in the heart of the real economies, there is a problem. The Baltic Dry Index has fallen for 21 straight days, tumbling around 40% since Thanksgiving Day. This is the biggest collapse in the 'trade' indicator (which we should ignore unless it is rising) since records began 28 years ago...



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Junk Bonds Are Going To Tell Us Where The Stock Market Is Heading In 2015

Do you want to know if the stock market is going to crash next year?  Just keep an eye on junk bonds.  Prior to the horrific collapse of stocks in 2008, high yield debt collapsed first.  And as you will see below, high yield debt is starting to crash again. 



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China's Stocks Worth 50% More Than Rest Of BRICS Combined

Thanks to the massive surge of speculative trading account openings, Chinese stocks are up 28% in the last month and a stunning 52% since China unleashed 'QE-Lite'. This has sent the total market capitalization of China's stocks soaring relative to the rest of the BRICS. In fact, Chinese stocks are now worth 55% more than Brazil, Russia, India, and South Africa combined... the most ever.



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The Housing Bubble Explained in One Little Gem of an Excerpt...

It feels like a good time to review what we can expect when our government and its agencies attempt to create wealth out of thin air.  We can see the absurdity and hubris of our policymakers who believe they can circumvent economic laws in the following excerpt from the “The National Homeownership Strategy: Partners in the American Dream”. This little gem which we are suggesting is the document that led us to the economic devastation from which we are yet to crawl out. "For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership." So what lesson did we learn the hard way?  Looking around today, absolutely nothing.



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When Shale Hedges Fail: The Downside Of Three-Ways

"[Shale Oil]Producers are inherently bullish," warns one energy-hedging firm, and that truth belies the weakness in the apparent hedging programs many over-optimistic energy firms are facing now. We hear day after day that, in the short-term, low prices can be handled "because they're hedged," but producers were so exuberant about the direction of oil prices they didn't do simple linear hedges (swaps or futures) to manage price movements, but instead, as Bloomberg reports, used the so-called "three-way collar." Simply put instead of a floor and a ceiling for prices, there is a 3rd (bullish) leg of low-strike sold puts that subsidized the cost of the hedge... unless the price of oil goes below that strike, in which case the hedge fails and, as a lot of producers are finding, they are now losing money.



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Former BIS Chief Economist: "The System Is Dangerously Unanchored; It Is Every Man For Himself"

"There is no automatic adjustment of current account deficits and surpluses, they can get totally out of hand. There are effects from big countries to little ones, like Switzerland. The system is dangerously unanchored. It is every man for himself. And we do not know what the long-term consequences of this will be. And if countries get in serious trouble, think of the Russians at the moment, there is nobody at the center of the system who has the responsibility of providing liquidity to people who desperately need it. If we have a number of small countries or one big country which run into trouble, the resources of the International Monetary Fund to deal with this are very limited. The idea that all countries act in their own individual interest, that you just let the exchange rate float and the whole system will be fine: This all is a dangerous illusion."



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"Something Changed" - Comparing E-Mini Liquidity In 2009, 2012 And Today

As Eric Hunsader rhetorically notes, "eMini Liquidity was cut in half starting Dec 12. Unknown why." Actually "known" as we explained in "How The Market Is Like CYNK."



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5 Things To Ponder: Variegated Contemplations

Yes, it is that magical week leading up to Christmas and the subsequent low volume push into the new year. It is "magic time" as hopes are high that "Santa Claus" will come to WallStreet. "Ignoring valuation – ignoring risk – is a recipe for disappointment and is the thing that is most likely to lead investors to ruin"



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Why The US Is About To Be Flooded With Record Oil Production Due To Plunging Oil Prices

One would think that plunging oil prices and the resulting mothballing (or bankruptcy) of the highest-cost domestic producers would lead to a collapse in US oil production. And sure enough, if looking simply at headline data like the Baker Hughes count of active rigs in the US, then US oil production grinding to a halt would be all but assured. However, what will actually happen, even as the highest-cost producers and those with the weakest balance sheets are taken to their local bankruptcy court, is that as Bloomberg reports, the US is - paradoxically - set to pump a 42-year high amount of oil in 2015 "as drillers ignore the recent decline in price, pointing them in the opposite direction."



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Central Banks Are Now Uncorking The Delirium Phase

Virtually every day there is an eruption of lunacy from one central bank or another somewhere in the world. In short, the central banks of the world are embroiled in a group-think mania so extreme and irrational that it puts one in mind of the spasm of witchcraft trials that erupted in the Massachusetts Bay Colony nearly four centuries ago.  As a practical matter, this mania amounts to a race to the currency bottom and the final extinguishment of the price discovery mechanism in every financial market on the planet. Flying blind, the financial markets are thus bubbling - in the delirium phase - like never before. That is, until they don’t.



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S&P 500 Melts Up Over 100 Points In 3 Days, Nears All-Time High

Well that escalated quickly... The S&P 500 cash index has ripped from 1972.50 to over 2076 in 3 days... And US Treasuries are rallying hard too.



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