Category Archives: Stocks

Fed Minutes

Another day, more blather from the Fed. Risk is “on” with a vengeance as the Fed continues to demonstrate its unwillingness to “take away the punch bowl” as Fed Chairman Martin put it.  Apparently there is no such thing, in their minds, as too much stimulus. We’ll see about that. In my view, a financial catastrophe is almost inevitable at this point. Overpriced stocks and the fear of inflation have always been a toxic mixture. Add in the overhang of aggregate debt somewhere in the neighborhood of 350-400% of GDP and you have a recipe for a protracted decline to well below fair value, unlike 1987’s brief shock.


VIX Shorts Crater Stocks

Well the bad news is I covered my shorts way too early.

The good news is that we seem to be rid of these inverse volatility products that have been plaguing the market. As I have mentioned before, authorizing securitization of the VIX was a really, really bad idea.

Sir Isaac, Where Are You?

One of the hallmarks of the 1720 South Seas Bubble was the proliferation of new ventures. Especially of note was one – that received funding – which gave its business as “A great enterprise, and noone to know what it is.” (BTW – still unknown)

Well, according to the WSJ, $14 billion has been invested in such companies so far this year.

Just Sayin’

Fun fact: The last time the S&P 500 futures gapped up > 0.5% and traded to a multi-year high before reversing to close negative on the day was January 3, 2000.

Two Easy Pieces

Another excellent piece by Matt Tabibi – The Great College Loan Swindle.

The education industry as a whole is a con. In fact, since the mortgage business blew up in 2008, education and student debt is probably our reigning unexposed nation-wide scam.

One for the history file from zero hedge – The ‘Hyper-Crash’ Is Coming – It’s Not The Everything Bubble, It’s The Global Short Volatility Bubble

  • Instead of being an external measure of risk, volatility has become a tradeable input – making it reflexive in nature;
  • As volatility falls, investors (using leverage) take bigger bets in the same direction, so lower volatility begets lower volatility.
  • The global short volatility trade is more than $2 trillion;

Making volatility easily tradeable will, IMO, turn out to have been the biggest regulatory error in history. It has long been possible to trade volatility by the use of long out-of-the-money put options, but this trading was never large and does not seem to have been pernicious.

Risk and volatility are equated in the algorithmic trader’s lexicon. But risk never goes away – it can be moved around but not eliminated. Tradeable volatility is giving the illusion that this axiom is false, that risk can be eliminated with a few taps of a magic wand on the VIX futures. I don’t think so.

The Bitcoin Market

A Bitcoin token now trades for about $7,000. In 2009, 10,000 bitcoins bought two Papa John’s pizzas. It has no value in any investment sense – it has no utility, cash flow or intrinsic value. The only reason for buying a token is the Greater Fool Theory, the notion that one can always find someone else who also believes in the theory who will pay you more for your token than you paid the lesser fool who sold it to you. Obviously belief in this theory has taken on manic proportions. Tulips, bah! What pikers.

This theory is generally falsified by a panic, which is characterized by the sudden disappearance of Greater Fools – and of course liquidity.

Unfortunately the stock market has become infected with this same notion, although the tokens in this case are a small number of ludicrously overpriced stocks. For example, the NASDAQ 100 index has been leading the market higher, but the index is driven by just 5 stocks that make up 45% of the index’s market capitalization. At the same time, 40% of NASDAQ stocks are below their 200-day moving averages.

This kind of situation has happened before. It has never ended well.

Don’t Look Now

Of course this one is familiar:

But this one is back too:

From zero hedge, of course. Just for the record.

No Comment Needed

Internet Advertising

I’m seeing an increasing number of companies (e.g. Proctor and Gamble, Restoration Hardware, Uber… ) complaining publicly that they are receiving little or no value for their internet advertising spending. It is trite to say that half of every advertising dollar is wasted, you just don’t know which half. But in these cases, companies claim to be reducing their internet ad spending without significant negative impacts. Reasons given include poor placement and fraud, although these seem very hard to quantify.

Given that a big chunk of the market cap out there comes from highly valued internet advertising companies (Google, Facebook, etc.) I think one should “watch this space.” Closely. Very closely.

Nothing Unusual Here

Zero hedge of course. Just for the record.