Category Archives: Manias

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.

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.

 

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.

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.

Alas, No DUSY

After the last bubble ate their 401(k)s, it seems that quite a few people deserted the stock market and started speculating in old cars. I say old cars instead of classic cars, because in the process of creating yet another bubble the definition of classic became, shall we say, broader. Pretty much any piece of junk that had wheels, or had wheels at some point in the past, became classic. But the buyers loved them – shiny, you know – and felt they understood the values much better than those of the pieces of companies whose names they barely knew.

In addition to the consequent elasticity of supply, old cars earn no income and their value is only what someone will pay for them. A pure speculation, like gold, of course, with the only real utility being conspicuous display. There are funds that speculate in cars, but so far I have not seen any ETFs.

Alas, this bubble is now popping. Entirely predictable, of course. I am a little disappointed that now the time has passed and the DUSY ETF may never appear. I confess I like old cars as much as the next guy, although I don’t own any nor plan to I do follow an auction site “Bring A Trailer.” It is amazing that the conviction remains that it is essential to buy cars “before the price moves out of sight,” even though the same cars frequently re-appear on the site at prices lower than their previous sales.

Why I Like The Dutch

Mario Draghi visited the Dutch parliament today and received an “unenviable grilling” from Dutch MPs for nearly two hours which, as the FT said, left the usually implacable Italian confrontational and riled up as tempers flared.

At the end of the meeting, the Dutch gave Draghi a gift – a tulip.

At least someone still has a sense of humor.

The Swamp

President Trump promised to “drain the swamp” in Washington. In doing so, he took on not only the Democratic party but also the McCain-led Republican party establishment, both part of the same swamp, to say nothing of the “deep state” of politicized judges, bureaucrats and contractors.

While it clearly needs doing, the swamp is fighting back, obstructing him at every turn. So far his strategy has been appeasement and it has not worked. Does Comey’s firing mark a return to open hostilities?

We’ll see. But the conflict does mean that government is essentially at a standstill and will remain so indefinitely. It puts basis of the Trump rally in grave doubt. Taken together with an economic slowdown and the mess resulting from Obama’s disastrous international relations policies, the whole situation is an accident waiting for a place to happen.

Don’t believe the VIX as a measure of risk. These days, it is simply a trader’s tool for running short squeezes. Risk is as high as it gets.