Are late-day ETF buy/rebalancing programs and the proliferation of price momentum (quant) strategies the 2017 equivalent of 1987’s portfolio insurance? And does it end badly? Yes, it probably does! ……In the two years leading up to 1987’s Black Monday, after several years of rapid economic expansion following the recession of the early 1980s, the rate of growth in the U.S. economy began to slow. Notably, the early 1986 collapse of OPEC led to a halving in the price of crude oil by mid-1986. Nevertheless, the stock market indices enjoyed rapid growth amid an expansion in valuations, fueling a 45% year-over-year gain in the Dow Jones Industrial Averages by late summer 1987.
When FISA was written, telephone surveillance was a matter of wiretapping — installing a wire onto the target’s telephone line, either inside or outside the home or business and listening to or recording in real time the conversations that were audible on the tapped line. Today the National Security Agency has 24/7 access to the mainframe computers of all telecom providers and all computer service providers and to all digital traffic carried by fiber optics in the U.S……..Thus, in 2016, when Trump says the surveillance of him took place, Obama needed only to ask the NSA for a transcript of Trump’s telephone conversations to be prepared from the digital versions that the NSA already possessed. Enter James Bond. Sources have told Fox News that the British foreign surveillance service, the Government Communications Headquarters, known as GCHQ, most likely provided Obama with transcripts of Trump’s calls.
The late Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” A week ago, bullish sentiment among investment advisors soared to the highest level in 30 years, joined last week by a 16-year high in consumer confidence. When one recognizes that the prior peak in bullish sentiment corresponds to the 1987 market extreme, and the prior peak in consumer confidence corresponds to the 2000 bubble, Sir Templeton’s words take on both relevance and urgency. As I detailed last week, the most historically reliable valuation metrics have advanced within a few percent of their 2000 peaks, while the median valuation of S&P 500 components is now easily at the highest level on record.
The senator from Kentucky,” said John McCain, speaking of his colleague Rand Paul, “is working for Vladimir Putin … and I do not say that lightly.” What did Sen. Paul do to deserve being called a hireling of Vladimir Putin? He declined to support McCain’s call for a unanimous Senate vote to bring Montenegro into NATO as the 29th member of a Cold War alliance President Trump has called “obsolete.”…..Did Trump approve the expansion of NATO into all the successor states born of the bloody breakup of Yugoslavia? Or is McCain hijacking U.S. foreign policy on NATO and Russia?
Well, of course they bugged Trump Tower. Why wouldn’t they? Trump’s big blunder du jour is that he tweeted “wiretapped,” like some hapless sap out of a 1950s I Was a Spy for the FBI movie. (I know people who still say “ice box,” too.) So he left himself — or rather poor Sean Spicer — open for a week of legalistic pettifogging by reporters acting as litigators for the Deep State’s intel corps. Anyway, Wikileaks “Vault 7” document release earlier in the month made it clear that US intel has the ability to cover and confuse the tracks of any entity —including especially US intel itself — that ventures to penetrate any supposedly private or secure realm. And, by the way, that probably settles the matter of who “they” are. Whatever statutory restraints once existed against CIA spying on American citizens is long gone by the boards.
Is President Trump a “Jacksonian”? He apparently believes so: On his fifth day in office he installed a portrait of President Andrew Jackson in the Oval Office, and he recently visited the last resting place of his presidential predecessor in Nashville…….Murray Rothbard thought so. In his book, A Monetary History of the United States (page 91), Rothbard wrote that “[N]o movement in American politics has been as flagrantly misunderstood by historians as the Jacksonians,” thanks to all the misinformation about Jackson produced by the leftist, state-worshipping history profession. The Jacksonians were not “ignorant, anti-capitalist agrarians,” or “tools of the inflationary state banks,” as some historians have incorrectly portrayed him as being. “They were libertarians, plain and simple,” wrote Rothbard. (Note to libertarian purists: Murray Rothbard did not say that Jackson and his followers were as pure as the driven snow, like yourselves. They were imperfect human beings, as most of us are, but in the grand scheme of things, their main inspiration was really Jefferson, and they arguably comprised the most libertarian political movement in American history).
It sounds great, but it’s fake news. Blaming a “supply shortage” for end-user, shelter-buyer woes, was a simple narrative that made sense, intuitively, so it stuck….. The chart below tracks household formations against completed housing units from 2001 through 2016 and the rolling supply change (blue line) Bottom line: At peak Bubble 1.0 in 2007 the market was oversupplied by 7.887 MILLION units based on household formations. Today, the market is oversupplied by 7.905 MILLION, as well.
…….And prices are now rising, particularly in services. The Bureau of Labor Statistics reported today that the Consumer Price Index for all urban consumers (CPI-U) rose 2.7% in February from a year ago, the biggest 12-month increase since March 2012…..And here is where inflation hurts consumers the most: Services. That’s where consumers spend the majority of their money. Prices of services (less energy services) rose 3.1% year-over-year. This includes shelter, up 3.5%; medical care services, up 3.4%; and transportation services, up 3.6%.
After months of relative price stability, with WTI oil prices pinned between $50 and $55 per barrel, the floodgates of selling opened wide, as the record amount of long positions that was built up by speculators over the preceding weeks was, quite obviously, liquidated, as evidenced by sky-high volume in both futures and option contracts. There were several catalysts: Crude oil inventories in the United States hit a new, record level, according the Department of Energy’s weekly status report, which also showed U.S. oil production rebounding to within five percent of last year’s record to nearly 9.1 million barrels per day……Saudi Arabia’s patience has been tried, and they have come to realize that their efforts have only served to resuscitate the U.S. shale competition, which is increasingly taking the battle for global market share to OPEC by ramping up exports that have at times exceeded 1 million barrels per day.
What in the name of all that’s holy is going on in North Korea?…The exercises, conducted jointly by US and South Korea and dubbed “Foal Eagle,” are a dress rehearsal for all-out war with the North. In addition to the USS Carl Vinson and a strike force of two guided missile destroyers and a cruiser, the US sent in a squadron of stealth fighter jets as well as B-52s and B-1Bs – these latter capable of carrying nuclear payloads. “Foal Eagle” is an annual exercise, but every year the amount of US firepower gets bigger – and in the context of rapidly rising tensions between Pyongyang and the rest of the world, this does nothing to ease the former’s well-known paranoia. But it isn’t just paranoia that is motivating North Korean behavior: for the first time, there is open talk in US ruling circles of launching a preemptive strike against the regime of Kim Jong Un…..And as crazy as Kim Jong Un may be, the talk of a preemptive strike proves the insanity is not limited to Pyongyang.