Category Archives: Asset Classes

Nothing To See Here

I just saw that Charles Schwab, the brokerage company, in April announced that the number of new accounts increased 44% y/y in 1Q2017 as individuals were opening up stock trading accounts at the fastest pace the company has seen in 17 years.

Actually the company called them individual investors but I can’t stomach calling anyone trading stocks at these prices an investor.

A more recent announcement from the company showed new accounts in May at 115,000, up 42% from the prior-year month and the sixth consecutive month of 100,000+ growth.

Whoopee! Oh, and 17 years ago, that would be…?

Dreaming

FANG is so over. Now it is FANTASIA (Facebook, Amazon, Netflix, Tesla, Alphabet, SalesForce, Intel, and Apple)

A Bit Of Math

Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of the deadly numbers with a sobering tweet:

A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.

Crude Remarks

WTI crude is down sharply today after an EIA report that showed substantial increases in inventories of both products and crude itself. Inventories remain well above historical ranges, close to or at record levels.

US production has been increasing steadily and a slowing economy appears to be sapping end-user demand. However, one presumes that most if not all domestic producers have taken advantage of crude’s prolonged OPEC-supported trading in the $50 range to sell their output forward, either in the futures market or by private contract. So for the time being they are more or less indifferent to the market price.

The question is, who is holding the bag for all that $50 crude – obliged to buy at that price or just looking at tanks of the stuff. When do they decide to liquidate their positions before $40 crude becomes $30 and then $20?

No Joy In Mudville

Well the employment report this morning was a big miss to expectations on all fronts. The household report showed a net loss of jobs, and overall the quality of jobs declined as part-time, minimum wage jobs replaced full-time. However, the VIX sellers strode in to pump up stocks, leaving Treasuries as the main beneficiary of the report, with the 30-year yielding 2.86% as I write. TRIN at 2.03 shows that while the VIX sellers hold up the mega-caps, there’s a lot of distribution going on.

Oil is trading weak, in the low 47s. Wages disappointed as the employment mix changed unfavorably, even though shortages of skilled workers are widespread.

 

Bubble Blowers

Res ipse loquantur.

Hypocrisy

Apparently Warren Buffett, who publicly disclaims market timing, is sitting on $100 billion in cash, about 40% of the portfolio.

History says he has done this before, even going so far as almost all cash. Do what I say, not what I do.

Where The Fugawi

BofA’s calculation of the world’s most overbought and oversold assets, based on their deviation from the 200 DMA.

For total assets, most overbought are:

  1. European Equities
  2. UK Equities
  3. EM Equities
  4. US Equities
  5. Pacific Rim ex-Japan

And most oversold:

  1. US Dollar
  2. Government Bonds
  3. Gold
  4. Investment Grade Bonds
  5. Oil

Gedanken Experiment

The volatility sellers are working hard this morning to keep the market levitated.When volatility declines, the risk parity funds, descendants of the portfolio insurers that caused the 1987 crash, buy stocks – usually the FANG team (Facebook, Amazon, Netflix, Google, the current four horsemen).

As a thought experiment, could they get volatility to zero? That is the S&P, for example, never changes? I don’t see why not, even the fast-reacting algos would have a limit cycle, of course, like any other control system, but in principle should be able to hold price pretty steady.

The question is who is taking the other side of this trade – and why. Option sellers, of course, want to buy volatility to hedge their risk. Using dynamic hedging, as volatility rises they will need to buy more (and vice-versa). So in the limiting case, when volatility is zero, will the volatility sellers become impotent as there is no demand for their product? So then zero is unstable because there is no control force?

The risk parity funds move both ways, you know.

I wonder if anyone has a Bode plot for this system.

Tipping Point

I think we’re close. Very close. Oil gave up the 50s again today, down about 4.5% as I write. Could be a tell. How about this:

Still, dip-buyers as enthusiastic as ever. It works until it doesn’t, then folks get trampled in the rush for the exits. Markets are making no sense because of massive government intervention. Markets are a voting mechanism, but government doesn’t like the results so it suppresses them.