It was just over two months ago – well before VIX hit its record stretch of nearly 20 days below 11 – when we first discussed why one of the major threats to the complacent market was the danger of a forced liquidation by trend-following and vol-neutral, CTA and risk-arb funds – many of whom have been the fundamental catalyst for the unprecedented VIX compression seen in May – resulting in an explosive unwind of vol positions. Of course, nobody knew just what catalyst could led to such an outcome, which is perhaps why last night’s quasi-black swan sequence of events involving Trump, which has prompted at least some analysts to suggest could end in impeachment, has had such a dramatic impact on stocks. It is also why vol kept grind lower and lower, as the mechanics of vol-supression in the fund level, as observed most recently in the Catalyst fund collapse, created a feedback loop whereby lower vol led to even more vol selling, and so on, until eventually VIX dropped to an all time low below 9 just a few days ago. Now, it may be payback time….
So what did you think a U.S.-styled “soft coup” would look like? What we’re seeing regarding the intended removal of President Trump is not that much different from what has happened in dozens of other countries, whether Iran in 1953 or Ukraine in 2014 or Brazil in 2016. This one just has a few extra American touches.Like other coups, there are often vague and unproven accusations leveled against the target and his or her entourage. Even though hard evidence is usually lacking, “process crimes,” such as making misstatements to prosecutors or obstructing justice, are developed as a substitute under the popular saying: “the cover-up is worse than the crime.” Whatever the case, a complicit media then trumpets alleged wrongdoing into grave and impeachable offenses
Just recently my colleague Jesse Felder penned an excellent piece discussing the use of the “four most dangerous words” in investing: “this time is different.” The whole article is a must read, but he hit on a particular point that has become a mantra for speculative investors as of late: “In other words, valuations don’t matter as much as they did in the past because ‘this time is different’ in that interest rates are so low.” The basic premise of the interest rate/valuation argument has its roots in the “Fed Model” as promoted by Alan Greenspan during his tenure as Federal Reserve Chairman. The Fed Model basically states that when the earnings yield on stocks (earnings divided by price) is higher than the Treasury yield; you should be invested in stocks and vice-versa. In other words, disregard valuations and buy yield……Let me warn you now this will not end well.
Making The Military-Industrial Complex Great Again—-Trump To Announce $350 Billion Arms Sale To Saudi Arabia
Donald Trump will use his upcoming Saudi Arabia trip to announce one of the largest arms sales deals in US history – somewhere in the neighbouhood of $98bn to $128bn worth of arms. That could add up to $350bn over ten years……The deal will be what the Washington Post said is a “cornerstone” of the proposal encouraging the Gulf states to form its own alliance like the North Atlantic Treaty Organisation (Nato) military alliance, dubbed “Arab Nato.”
Total debt held by US household reached $12.73 trillion in the first quarter of 2017, finally surpassing its $12.68 trillion peak reached during the recession in 2008 according to the NY Fed’s latest quarterly report on household debt. This marked a$479 billion increase from a year ago, and up $149 billion from Q4 2016 after 11 consecutive quarters of growth since the deleveraging period immediately following the Great Recession.
Who designed the malware worm that is now wreaking havoc on tens of thousands of computers internationally by hackers demanding a king’s ransom? The U.S. government. Who is the biggest black market buyer and stockpiler of cyberweapons (weaponized malware that can be used to hack into computer systems, spy on citizens, and destabilize vast computer networks)? The U.S. government. What country has one the deadliest arsenals of weapons of mass destruction? The U.S. government. Who is the largest weapons manufacturer and exporter in the world, such that they are literally arming the world? The U.S. government. Which is the only country to ever use a nuclear weapon in wartime? The United States.
For the first time since January 2009, sales of cars declined year-over-year in all three of the world’s largest auto markets of Western Europe (-6.8%), China (-1.8%) and the United States (-3.7%). Combined, these three markets account for roughly 70% of the world’s auto sales (chart per Bloomberg).
Lenders are tightening the spigot on new auto loans, making it harder for U.S. consumers with weak credit to buy a car, data from the Federal Reserve Bank of New York show. New car loans for subprime borrowers fell in the first quarter to $25.9 billion, the lowest in two years, according to the New York Fed’s quarterly report on household debt and credit…….The share of auto debt more than 90 days overdue rose to 3.82 percent in the first quarter, the highest in four years.
While America’s corporate press remains singularly obsessed with unproven and likely fabricated Russia-collusion conspiracy theories, Wall Street’s well on its way to getting away with financial murder thanks to an army of cronies embedded within the Trump administration. Indeed, Goldman Sachs running Donald Trump’s economic policy is perhaps the most concerning aspect of his Presidency when it comes to negative impacts on average citizens, yet it’s almost never placed at the forefront of the corporate press narrative.
But…but…so much of what Trump claimed he wanted to get done flies in the face of the establishment. Because of this, no matter what he does he will never receive support in congress for his actions – all of the democrats and at least half of the republicans are against him. He will never receive support from the court system – so far, every ruling has been against him. From where does his support come? Well, that’s obvious…it comes from those who voted for him based on what he said he would do: drain the swamp, put Hillary in jail, repeal Obamacare, make nice with Russia. I could go on, but you get the idea. Trump could keep doing crazy (i.e. politically incorrect) stuff as long as he stayed focussed on his promises.Yet…one by one…he turns on those “promises.” Little by little, he erodes his only basis for power. And instead of his enemies seeing that Trump can be a “team player,” they only see a wounded beast, capable of nothing more than waiting for the death blow…by impeachment or losing the re-election.