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Risk parity fund unwind tipping point
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Risk parity fund unwind tipping point

  #11 (permalink)
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We have bats here where I live.

I notice when I go out for my walk in the rice paddies in the evening, at the hour of "dog and wolf", that there are no bats out yet. I keep saying to myself that it's already dark enough, where the hell are they.

Then, suddenly, at some imperceptible shade of gray, they are suddenly all out darting about.

Some economic events are like this, too. They take forever to happen, then they happen all at once.

Two other cases in point:

-- JGB widowmaker trade
-- Chinese corporate bond short trade

I am sure it must be super painful to be paying the premium on either of these trades. And especially with your investors saying that it hasn't happened yet ergo it ain't gonna happen.

[SIDEBAR I used to be embarrassed to admit reading Zero Hedge, much less cite it in a discussion. But now that the MSM has lost all credibility, I say screw it, ZH it is. Why the f$ck not?]

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  #12 (permalink)
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Large debt and negative cashflows to sink nat gas cos in USA

The article (see link at bottom), shows that shale gas companies are heavily cashflow negative and that the impact of there potential bankruptcy could be very large and hurt many pension funds hold their debt.

---------
Fracking shale gas in the Pennsylvania Marcellus generated $204 million in impact fees, but the road damage topped $3.5 billion. What a deal. From the information I have read, it takes an estimated 1,600 truck trips for a single fracked well.

As we can see from all the information and data provided in this article, the Great U.S. Shale Energy Industry has been a complete failure. Moreover, we are witnessing the U.S. Shale Gas Industry, COUNTDOWN to DISASTER. When the industry finally implodes, who will pay to properly cap the tens of thousands of fracked wells?? Who will fix the roads? What happens when the natural gas-electric generation supply drops considerably?

Yes, that is correct. The United States will be in serious trouble. However, Americans today have no clue that the U.S. Shale Energy Industry has made no real money, ripped off landowners of their royalty payments, polluted groundwater and destroyed countless roads across the country, all in the effort to make us "Energy Independent."
http://www.zerohedge.com/news/2016-12-1 ... to+zero%29

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  #13 (permalink)
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  #14 (permalink)
The fun is in the numbers
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Chinese Yaun

The $USD Strength Just Became a REAL Problem For China
by Phoenix Capital... - Dec 20, 2016 9:28 AM

The $USD is currently above 103. This is a MASSIVE problem for the financial system, particularly China, the second largest economy in the world.

If you don’t believe me, consider that China’s multi-TRILLION Dollar bond market broke last week.

Chinese bond yields soared and authorities halted trading in some futures contracts for the first time on Thursday, as a global bond-market selloff worsened a day after the Federal Reserve signaled a quicker pace of interest-rate increases next year.

This whole situation is beginning to feel a LOT like August 2015, right before China implemented a massive Yuan devaluation triggering a stock market meltdown. We believe another similar move is about to hit… catching 99% of investors off guard.
The $USD Strength Just Became a REAL Problem For China | Zero Hedge

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  #15 (permalink)
The fun is in the numbers
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Market internals

... an overextended syndrome this extreme has only emerged at the market peaks preceding the worst collapses in the past century. Prior to the advance of recent years, the list of these instances was: August 1929, the week of the bull market peak; August 1972, after which the S&P 500 would advance about 7% by year-end, and then drop by half; August 1987, the week of the bull market peak; July 1999, just before an abrupt 12% market correction, with a secondary signal in March 2000, the week of the final market peak; and July 2007, within a few points of the final peak in the S&P 500, with a secondary signal in October 2007, the week of that bull final market peak.

They also offer a consistent framework to understand market fluctuations. Recall for example, my April 2007 estimate of a 40% loss to fair-value, and then following that 40% loss, my late-October 2008 comment observing that stocks had become undervalued. Over the complete market cycle, valuation is quite a strong suit for us.

Similarly, as I wrote at the March 2000 bubble peak:“Investors have turned the market into a carnival, where everybody ‘knows’ that the new rides are the good rides, and the old rides just don’t work. Where the carnival barkers seem to hand out free money for just showing up. Unfortunately, this business is not that kind - it has always been true that in every pyramid, in every easy-money sure-thing, the first ones to get out are the only ones to get out..

Over time, price/revenue ratios come back into line. Currently, that would require an 83% plunge in tech stocks (recall the 1969-70 tech massacre). The plunge may be muted to about 65% given several years of revenue growth. If you understand values and market history, you know we’re not joking.”

As it happened, the S&P 500 lost half of its value by the October 2002 low, while the tech-heavy Nasdaq 100 Index lost an oddly precise 83% of its value.

After more than three decades as a professional investor, it’s become clear that when investors are euphoric, they are incapable of recognizing euphoria itself. Presently, we hear inexplicable assertions that somehow euphoria hasn’t taken hold. Yet in addition to the third greatest valuation extreme in history for the market, the single greatest valuation extreme for the median stock, and expectations for economic growth that are inconsistent with basic arithmetic, both the 4-week average of advisory bullishness and the bull-bear spread are higher today than at either the 2000 or 2007 market peaks.

Disciplined investing isn't easy (and whenever it seems like it is, you're about to learn a costly lesson). The market has been in a more than two-year top-formation with internals lagging the major indices, with investors chasing high-beta stocks (those with amplified sensitivity to market fluctuations)

If history is a guide, nobody will remember the patience, discipline, and tolerance for frustration that were required to avoid or to benefit from the 50-60% market loss that we estimate over the completion of this cycle.

source:
Hussman Funds - Weekly Market Comment: Red Flags Waving - December 19, 2016

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  #16 (permalink)
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“When prices are unusually elevated relative to the norm, it’s almost always because trend-followers (and other price-insensitive buyers) are ‘all in.’ Those positions are - and in fact have to be - offset by equal and opposite underweights by value-conscious investors. A sudden increase in the desired holdings of trend-sensitive traders has to be satisfied by inducing a price increase large enough to give value-conscious investors an incentive to sell. Conversely, a sudden decrease in the desired holdings of trend-sensitive traders has to be satisfied by inducing a price decline large enough to give value-conscious investors an incentive to buy. Any tendency of investors to buy on greed and sell on fear obviously amplifies this process.

Source:
Hussman Funds - Weekly Market Comment: Red Flags Waving - December 19, 2016
-------

I think you can see from the above that the trend-followers will keep increasing prices until the point where a few start to sell. But then you need a large down-gap for value-buyers to start to return. They received above-valuation prices to get them to sell and to buy they will need below valuation prices.

AS in marginal utility the highest prices are the last of the buyers and when all buyers are in there are none left on the slide.

(expect perhaps the market manipulator the FED who buys will the taxpayers money stock its BB are desperately dumping)

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  #17 (permalink)
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we are rapidly approaching the trailing edge of the hurricane

But despite President Trump’s best efforts, says Casey, he won’t be able to stop the bloodbath coming in the bond market, a preview of which has been available for all to view in China, where the government halted trading last week following a record bond market crash.

People forget that the last peak in interest was between 1980-1982 when T-Bills were yielding over 16%… since then interest rates have been in a 35 year bear market going to below zero, which i thought was metaphysically impossible… So, interest rates are going to go up… Low interest rates and negative interest rates are actually destructive of capital and civilization because it discourages people from savings.



It doesn’t matter what these stupid governments do… interest rates are headed up… and I think they’re headed way up for a long time at this point… so if you own bonds sell them… hit the bid.

Doug Casey is the founder of Casey Research and well known for his forecasting prowess, having accurately called the crash of 2008 and many other trends over the last four decades. In his latest interview with Future Money Trends Casey explains what a Donald Trump Presidency will mean for financial markets, economic stimulus, and geo-politics. As he’s noted previously, 2008 was just the first part of the storm and we are rapidly approaching the trailing edge of the hurricane. This time around it’s going to last much longer and be much worse than what we experienced before.

source:
Doug Casey Warns "We're Going To Have Financial Chaos... It's A Dangerous Situation" | Zero Hedge

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  #18 (permalink)
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Yes but its been 7 years - or has it..

One never expects a market top right after a bottom - that just wouldn't have been a bottom would it?

In a msg from a friend
"We were casually talking about the economy and the future of real estate market etc. I said i think not far in the future there will be major market correction. My friend who knows me for many years said "yes but you have been saying that for 10 years." He is actually kind of right about that. "

Well let's pull this fellow's comment (i.e "yes but you have been saying that for 10 years.") apart

The low was March 2009 - that was a fall of 58.5% for the market and 80 to 90 percent for many stocks.
(spy 161.61 to 67.10)

Even at that the fall was only arrested with massive intervention by the Fed and money printing for their banking buddies that increased the fed debt from 11 to 17 trillion.

A correction is a 10%+ decline and bear market 20% or more.
Until the market had risen 61.8% of the fall from the low you could be in a retracement within the bear market.

So one would not start saying the market at a top and due for a crash until at least the old high was attained. (May 2013). We are 3 1/2 years later.


Many things have happened including:
The PIIGS debt (which no it still hasn't gone away - see Italy's 3 largest bank and the oldest in the world insolvent except for gov't money infusion)
Cyprus
Iceland
Bank of Scotland
Greece - several times
Spanish banks
now Italy

China once touted has the boon to drive the world markets is now seen as a hard landing candidate - with shadow banking, zombie companies and ghost cities.
  • Is China the USA friend? -no
  • If China surprise devalues it's Yuan will it do it when it is the most or least opportune for the USA? - least.
  • Can China buy puts just before a surprise devaluation attack and profit from the knowledge? - for sure.
  • If equity speculators (eg the banks) see a rapid fall in equities and understand that the landscape has changed and they will have to pay some interest on margin accounts will they dump stocks or buy? - perhaps buy until they see that it has exceeded 10% and then reverse.

Each time in the last 3 yrs there has been a flash crash the Fed has stepped in at exactly a 10% fall (to the tick!).

Will they on the next one? -Probably.

Will it stop the cascade? perhaps initially ( but eventually it won't. IMO)



A good time for the Chinese to launch a yuan devaluation attack? -Perhaps over the holidays or just after Trump steps in.

Keep your mind in the future, in the now.
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  #19 (permalink)
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chinese commodity bubble

Less than a month ago we warned that the Chinese commodity bubble 2.0 was bursting as speculative volume had exploded relative to open interest and exchanges had begun (after unreal surges in prices) to crackdown on the speculation. The carnage continued and over the last few days has bloodbath'd even more as China warns that it will miss its growth targets.

Spot The Odd One Out...
Zinc -22%
Iron Ore -20%
Steel Rebar -20%
China Coking Coal -25%
Copper -13%
Bitcoin +18%


It appears as China housing bubble pops, commodity bubble pops, and credit-fueled growth bubble pops... there is only one place left for Chinese trend-followers to flee to - Bitcoin.
source: Commodity Futures Plunge Following China Growth Downgrade | Zero Hedge

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  #20 (permalink)
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The Chinese and Japanese economies are chained together at the neck.

And now the long-awaited inflation in Japan has finally showed up, on top of the trouble in China.

This is extremely worrisome, because although the Chinese economic system can be isolated to some extent, the Japanese cannot. It's much more integrated into the global economy.

"Wasn't Japan deep in a deflationary spiral that they needed to print mounds of currency and drop rates to below zero to fix? Not anymore they're not."

Early In Japan's Runaway Inflation: A Building Market Risk - SPDR S&P 500 Trust ETF (NYSEARCA:SPY) | Seeking Alpha

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