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.

ISIS?

No. CNN – the Clinton News Network displays a beheaded President Trump in effigy. The left will stop at nothing. Terrorism and intimidation – Antifa – fake news, fear-mongering, anything to brainwash the masses into tolerating the left’s rule. Disgusting.

I mostly try to keep this blog non-political. But there comes a time when I have to express my loathing for violence, terrorism, intimidation and corruption. I was going to post the picture, but I should no more do that than I would repost an ISIS video.

Edit: Apparently CNN has dropped Ms. Griffin, who created the piece. But CNN aired it, and should be sanctioned appropriately. 30 days off the air would work. Dropping Ms. Griffin does nothing to absolve CNN of responsibility.

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.

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.

Macflation

I was able to find the March 2002 Big Mac price for the US, $2.49.

Using the BLS calculator, it “should” be $3.38 in 2017, instead it is $5.06. So while CPI-U inflation for the period was 2.06% annually,  BMI (Big Mac Index) inflation was 4.84% annually.

So basically if you didn’t make 5% a year after tax, you weren’t keeping up. Scary.

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.