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Biden’s Oil Price Smoke And Mirrors

Biden’s Oil Price Smoke And Mirrors

By Ryan Fitzmaurice, Senior Commodity Strategist at Rabobank

Summary

The White House is playing the…

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This article was originally published by Zero Hedge

Biden’s Oil Price Smoke And Mirrors

By Ryan Fitzmaurice, Senior Commodity Strategist at Rabobank

Summary

  • The White House is playing the political blame game with respect to high gasoline prices

  • Several key agencies, including OPEC, are now forecasting oversupplied oil markets in 2022, but don’t assume oil prices will fall even if this is the case

  • We are expecting a surge of new capital into commodity markets in 1H22, following a stellar year for the alternative asset class as well as the CTA trading community

The blame game

Oil prices fell on the week as the rally appears to be losing steam, but not for the reasons being discussed by the White House. In fact, oil prices have been trading mostly range bound to lower ever since late October, when the year-to-date highs were set, as a combination of bearish seasonal patterns and speculative liquidation take hold.

However, even though oil futures have been falling recently, the rhetoric out of the White House has only increased, highlighting the political vulnerabilities arising from high gasoline prices.

First, President Biden put the blame squarely on OPEC and Russia, who according to him were not increasing oil production fast enough to calm prices. In our view, this statement was largely unfounded and meant to distract voters given OPEC+ is in fact increasing production every month by 400kb/d until pre-pandemic levels are achieved next year.

At the same time, US crude oil production remains significantly below (-1.6mb/d) the pre-pandemic high watermark with little growth pencilled in for the shale industry next year. Unsurprisingly, OPEC+ did not heed Biden’s call for more oil at the last supply meeting and, as a result, the White House moved on to consider a new release of oil from the strategic reserve (SPR) and even a temporary crude oil export ban, both of which could backfire and lead to a surge in global oil prices rather than reduce them. Biden even reportedly floated a coordinated SPR release with China during his virtual meeting with Xi, but prospects for joint action remain low. Not to mention, the US and China have already been quietly releasing oil from reserves but that has had no discernible impact on prices to date as discussed here and here.

To top it off, the Biden administration is now diverting the blame for high gasoline prices away from domestic policies and towards shale drillers, ordering an official investigation into oil and gas companies for potential illegal gouging despite no evidence whatsoever to support these claims.

Flows vs fundamentals

As just discussed, oil fundamentals have been in the spotlight recently given mounting inflation concerns and the political sensitivities at play. Interestingly, several key agencies including OPEC are now calling for an oversupplied oil market in 2022, suggesting relief at the pump and at the ballot box is just around the corner. This is not how we see it, however, and our disagreement has less to do with the fundamental outlook and more to do with the idea that looser balances will result in lower oil prices as the consensus has suggested. For starters, and as we often point out on these pages, the spot price of oil is extremely flow driven and prices do not simply fall because the market is slightly oversupplied, rather a trader or algorithm, as is increasingly the case, must sell oil futures to make the price go down or vice versa on the upside.

Moreover, commodities markets and oil, have a deep and wide cross-section of market participants including commercial traders and speculators. Over time, the speculative interest has become more and more systematic in nature, relying heavily on quantitative market signals such as trend, momentum, and carry to make trading decisions rather than market fundamentals. In addition to systematic commodity funds, a once dormant group of commodity traders known as index investors have reappeared in impressive fashion this year due to soaring inflation. So, between these two groups of influential speculators, fundamentals rarely enter the equation directly. For example, a large multi-asset money manager is little concerned with OPEC signalling a modest oversupply of crude oil next year and is more interested in getting broad-based commodity exposure to diversify holdings and mitigate the impact of inflation on the portfolio level.

To understand the importance of these money flows, all one must do is look back at the first half of this year to see the impact they had on oil prices (Fig. 2). To our minds, these flows were the most important price driver at the time. Further to that end, both groups of speculators are now directionally “long” oil and, importantly, have had a stellar year for returns. As a result, we are expecting another surge of capital into commodities markets in 1H22 as intuitional money chases strong returns, thereby driving spot oil prices even higher, holding all else equal. That is not to say that fundamentals don’t matter, far from it. On the contrary, we believe strongly in fundamentals, however, the price impact is much more likely to play out on the curve structure rather than spot prices.

As such, it would not surprise us to see the oil curve structure weaken next year on the back of a build-up in inventories should the calls for a modestly oversupplied market be realized.

Looking forward

Looking forward, we are viewing the current oil market weakness as a function of speculative liquidation in response to bearish seasonal patterns, an increase in market volatility, and a much stronger US Dollar. Furthermore, we expect the oil rally to resume in earnest early next year as institutional capital pours into commodities following a stellar year for the alternative asset class

Tyler Durden
Tue, 11/23/2021 – 19:40






Author: Tyler Durden

Economics

The Upshots Of The New Housing Bubble Fiasco

The Upshots Of The New Housing Bubble Fiasco

Authored by MN Gordon via EconomicPrism.com,

“The free market for all intents and purposes…

The Upshots Of The New Housing Bubble Fiasco

Authored by MN Gordon via EconomicPrism.com,

“The free market for all intents and purposes is dead in America.”

– Senator Jim Bunning, September 19, 2008

House Prices Go Vertical

The epic housing bubble and bust in the mid-to-late-2000s was dreadfully disruptive for many Americans.  Some never recovered.  Now the central planners have done it again…

On Tuesday, the Federal Housing Finance Agency (FHFA) released its U.S. House Price Index (HPI) for September.  According to the FHFA HPI, U.S. house prices rose 18.5 percent from the third quarter of 2020 to the third quarter of 2021.

By comparison, consumer prices have increased 6.2 from a year ago.  That’s running hot!  But 6.2 percent consumer price inflation is nothing.  House prices have inflated nearly 3 times as much over this same period.

Here in the Los Angeles Basin, for example, things are so out of whack you have to be rich to afford a 1,200 square foot fixer upper in a modest area.  Yet the clever fellows in Washington have just the solution.

Massive house price inflation has prompted the FHFA, and the government sponsored enterprises (GSEs) it regulates, Fannie Mae and Freddie Mac, to jack up the limits of government backed loans to nearly a million bucks in some areas.

Specifically, the baseline conforming loan limit for 2022 will be $647,000, up nearly $100,000 from last year.  In higher cost areas, conforming loans are 150 percent of baseline – or $970,800.  What gives?

If you recall, ultra-low interest rates courtesy of the Federal Reserve following the dot com bubble and bust provided the initial gas for the 2000s housing bubble.  However, the housing bubble was really inflated by Fannie Mae and Freddie Mac.  The GSEs relaxed lending standards and, thus, funneled a seemingly endless supply of credit to the mortgage market.

The stated objective of these GSEs was to make housing affordable for Americans.  But their efforts did the exact opposite.

The GSEs puffed up the housing bubble to a place where average Americans had no hope of ever being able to afford a place of their own.  Then, when the pool of suckers dried up, about the time rampant fraud and abuse cracked the credit market, people got destroyed.

If you also recall, it wasn’t until credit markets froze over like the Alaskan tundra in late 2008 that the Fed first executed the radical monetary policies of quantitative easing (QE).  To be clear, QE had nothing to do with the last housing bubble; ultra-low interest rates and GSE intervention did the trick on their own.  QE came after.

But now, in the current housing bubble incarnation, the Fed’s been buying $40 billion in mortgage backed securities per month since June 2020.  Is there any question why house prices have gone vertical over this time?

The Fed is now tapering back its mortgage and treasury purchases.  This comes too little too late.  And with Fannie Mae and Freddie Mac now jacking up their conforming loan limits, house prices could really jump off the charts.

We’ll have more on the current intervention efforts of these GSEs in just a moment.  But first, to fully appreciate what they are up to, we must revisit the not too distant past…

Socialized Losses

A moral hazard is the idea that a person or party shielded from risk will behave differently than if they were fully exposed to the risk.  A person who has automobile theft insurance, for instance, may be less careful about securing their car because the financial consequence of a stolen car would be endured by the insurance company.

Financial bail-outs, of both lenders and borrowers, by governments, central bankers, or other institutions, produce moral hazards; they encourage risky lending and risky speculation in the future because borrowers and lenders believe they will not carry the full burden of losses.

Do you remember the Savings and Loan crisis of the 1980s?

The U.S. Government picked up the tab –  about $125 billion (a hefty amount at the time) – when over 1,000 savings and loan institutions failed.  What you may not know is the seeds of crisis were propagated by Franklin Delano Roosevelt during the Great Depression when he established the Federal Deposit Insurance Company (FDIC) and the Federal Saving and Loan Insurance Company (FSLIC).

From then on, borrowers and bank lenders no longer had concern for losses – for they would be covered by the government.  The Savings and Loan crisis confirmed this, and further propagated the moral hazard culminating in the subprime lending meltdown.

Obama’s big bank bailout of 2008-09 socialized the losses.  Then the Fed’s QE and ultra-low interest rates furthered the moral hazard.  These are now the origins of the current housing and mortgage market bubble…and future bust.

By guaranteeing mortgage securities up to nearly $1 million in some areas the government encourages risky lending by banks and speculation by investors.  Banks are less prudent about who they loan money to because the loans will be securitized and sold to investors.  Similarly, investors speculate on these securities because they are guaranteed by the government.

Once again, the government is promoting a “heads, I win…tails, you lose” milieu where banks and investors reap big profits taking on big risks and where the losses are socialized by tax payers.  It also sets the stage for massive grift…

The Anatomy of a Swindler

FDR – the thirty-second U.S. President – was responsible for setting up Fannie Mae.  But another FDR – Franklin Delano Raines – was responsible for running it into the ground.

The son of a Seattle janitor, FDR grew up knowing what it was like to have not.  He concluded at a young age it was better to have.

Yet it was while mixing with Ivy Leaguers at Harvard University and Harvard Law School where he really refined his thinking.  He came to believe the government should be responsible for supplying the have nots with tax payer sponsored philanthropy.

FDR came out of school with the wide eyed ambition of a lab rat.  He was determined to sniff out his way to wealth…and once and for all, find that ever illusive cheese at the end of the maze.

The first corner he peered around smelled remarkably prospective.  But he came up empty.  Three years in the Carter Administration didn’t offer the compensation he’d dreamed of.

To have was better, remember.  The next corner FDR peered around was much more lucrative.  He did an 11 year stint at an investment bank.

But it was in 1991 when FDR got his big break.  For it was then that he became Fannie Mae’s Vice Chairman.  And it was then that he garnered hands on access to muck with the lives of millions.  Still, he wasn’t quite sure how to go about it.

To learn such tips and tricks, FDR studied one of the true masters of our time…Bill Clinton.  From 1996 to 1998, he was the Clinton Administration’s Director of the U.S. Office of Management and Budget.  There he discovered you must have a vision…a mission…a delusion that is so grand and so absurd, the world will love you for it.

One evening, in the autumn of 1997, it came to him in a flash.  Staring deep into the pot of his chicken soup, just as it approached boil, he hallucinated an image of a house.  Suddenly a small part of the grey matter of his brain opened up…

For where Hoover had foreseen a chicken in every pot and a car in every garage, FDR now foresaw much, much more.  A chicken and a car were not good enough.  In FDR’s world, everyone should also get a house with a pot to cook the chicken in and a garage to park the car in.  And he knew just how to give it to them.

Yet best of all, FDR also knew he could become remarkably rich pawning houses to the downtrodden.  So in 1999, he returned to Fannie Mae as CEO and got to work on his master plan…

Fraudulent Earnings Statements

It was a pretty simple four point plan…

  1. If low interest rates make housing more affordable, then even lower interest rates make housing even more affordable.

  2. So, too, if 20 percent down put housing out of reach for some, then 10 percent down was better. And zero percent down was optimal.

  3. Similarly, if a borrower’s credit score doesn’t meet the requisite credit standard, just relax the standard.

  4. And lastly, if a borrower’s income is too low to qualify for a loan, just let them state what ever income it is that they must have to get the loan.

With the ground rules in place by 1999, FDR began the pilot program that would ultimately ruin the finances of the western world.  It involved issuing bank loans to low to moderate income earners, and to ease credit requirements on loans that Fannie Mae purchased from banks.

FDR promoted the program stating that it would allow consumers who were, “A notch below what our current underwriting has required,” get a home.

Here’s how it worked…

Banks made loans to people to buy houses they really couldn’t afford.  Fannie Mae bought the bad loans and bundled them together with good ones as mortgage backed securities.  Wall Street then bought these mortgage backed securities, rated them AAA, and then sold them the world over…taking a nice cut for their services.

FDR had a heavy hand in the action too.  By overstating earnings, and shifting losses, he pocketed the large bonuses a janitor’s son could only dream of.  According to a September 19, 2008 article by Jonah Goldberg, titled, Washington Brewed the Poison, FDR “…made $52 million of his $90 million compensation package thanks in part to fraudulent earnings statements.”

Efforts to reform the scheme were stopped by the Democrats in Congress, who weren’t ready to give up the gravy train of money that flowed from Fannie Mae to their campaigns.  

“Barack Obama, the Senate’s second-greatest recipient of donations from Fannie and Freddie after [Christopher] Dodd, did nothing.”

Now, just 13 years later, Fannie Mae and Freddie Mac are at it again…

Here We Go Again

On June 23, 2021, in Collins v. Yellen, the Supreme Court decided the President could remove the FHFA director without cause.  The next day, President Biden replaced Trump’s director of the FHFA, Mark Calabria, with a temporary appointment.

FHFA, as noted above, regulates government-backed housing lenders Fannie Mae and Freddie Mac.  Prior to getting his pink slip, Calabria had been working to reduce the harm these GSEs could do to the economy.

Biden’s replacement immediately reversed course, reinstituting the social engineering policies that brought down the housing market in 2008.  Acting Director Sandra Thomas:

“There is a widespread lack of affordable housing and access to credit, especially in communities of color.  It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.” 

One could mistake these words for those of Franklin Delano Raines.  Certainly, the madness it fosters will be Raines like.  The Wall Street Journal reports:

“The problem the [Biden] administration sees is that housing and rental prices are too high.  The fact that the administration’s own policies have caused an inflationary trend in housing along with food, energy and gasoline, among others, is no deterrent.

“[…] the administration wants people who would otherwise rent to become homeowners.  These young families would take on the risk and the burden of a mortgage, which the government—through Fannie Mae and Freddie Mac—will make much cheaper.  Investors, of course, will buy these risky mortgages from Fannie and Freddie because they are backed by the government. 

“Here we go again.  The only difference between what the administration is proposing, and what brought about the 2008 financial crisis is that the economy is already in an inflationary period, induced by the administration’s other policies.  This will make homeownership even riskier.  In addition, Fannie and Freddie will be buying mortgages of up to $1 million, instead of $450,000.

“But the government’s lower underwriting standards drive down standards for private lenders, too.  Banks and other mortgage lenders—if they want to stay in the business—have to offer their mortgages on similar terms.  People who own homes then dive into the market to take advantage of the low down payments, and housing prices rise even faster. This encourages cash-out mortgages, in which homeowners reduce the equity in their homes, sometimes to buy a boat. 

“The process goes on for years until prices are so high that sales growth falls and homeowners can’t sell their homes to pay off their mortgages.  Housing prices then collapse, mortgages go unpaid.  Banks, other lenders, and even Fannie and Freddie incur losses and another financial crisis begins.”

But wait, there’s more…

The Upshots of the New Housing Bubble Fiasco

House prices are already in bubble territory in many places across the county.  At these prices, who’s buying?

Wall Street.  Pension funds.  BlackRock Inc.  And many, many others…

Institutional investors have securitized the residential real estate market.  Hundreds of firms are competing with regular house buyers.  They’re also bidding up house prices.

Invitation Homes, for example, is a publicly traded company that was spun off from BlackRock in 2017.  Invitation Homes gets billion dollar loans at interest rates around 1.4 percent – about half the rate of what regular house buyers get.  Often times they just pay in cash.

According to a recent SEC disclosure, Invitation Homes’ portfolio of houses is worth $16 billion.  The company collects about $1.9 billion in rent per year.  Thus it takes only about eight years of rental payments to pay back a typical house that Invitation Homes has bought.

Invitation Homes now owns over 80,000 rental houses and has a market capitalization of $24.6 billion.  The company has deep pockets.  Regular house buyers cannot compete.

No doubt, this is an ugly situation.  The ugliness hasn’t been created by institutional investors.  They’re merely scratching for yield in a world where capital markets have been destroyed by the Fed.  Of course, there’s no situation that’s too ugly for Washington to not make even uglier.

According to a recent White House fact sheet:

“As supply constraints have intensified, large investors have stepped up their real-estate purchases, including of single-family homes in urban and suburban areas. […].  Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home. […]

“President Biden is committed to using every tool available in government to produce more affordable housing supply as quickly as possible, and to make supply available to families in need of affordable, quality housing – rather than to large investors.”

This logic validates FHFA jacking up the limits for conforming loans.  Indeed, the clever fellows in Washington want to make housing more affordable by allowing more and more people to take on massive subsidized mortgages.  The logic makes perfect sense…so long as you have the intelligence of a box of rocks.

We all know where this goes.  We all know where this leads.

First time house buyers, competing with institutional investors, will use the government’s relaxed lending standards to chase prices higher and higher.  Then, once the mortgage market is sufficiently riddled with fraud and corruption and tens of millions of Americans are tied into loans they cannot repay, the impossible will happen…

House prices will go down!

…along with the hopes and dreams of those that got sucked into this wickedness.

Sandra Thomas will be flummoxed.  Congress will socialize the losses once again.  And populace rage will be channeled into some new Occupy Wall Street movement.  Then things will really get ugly.

These – and many more – are the upshots of the new housing bubble fiasco.

Tyler Durden
Sat, 12/04/2021 – 09:20








Author: Tyler Durden

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Economics

Omicron Selloff, Is It Over Yet?

In this 12-03-21 issue of "Is the Omicron Selloff Over Yet?"

What’s Driving The Omicron Market Sell-Off
Did The Omicron Selloff Set Up The Santa Rally?
Internal…

In this 12-03-21 issue of “Is the Omicron Selloff Over Yet?”

  • What’s Driving The Omicron Market Sell-Off
  • Did The Omicron Selloff Set Up The Santa Rally?
  • Internal Measures Suggest Risk Remains
  • Portfolio Positioning
  • Sector & Market Analysis
  • 401k Plan Manager

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What’s Really Driving The Omicron Market Selloff

While the media is running around trying to pin headlines on the market moves from the Fed to the Omicron variant, the reality is that we are in the midst of mutual fund distribution season. As Michael Lebowitz noted:

We believe the rotation is not a sudden change in mindset but, likely the actions of mutual funds rebalancing their portfolios. Frequently at year-end mutual funds sell the winners which have become overweight positions and buy the losers which are below their proper weights. The large returns this year in certain sectors are making these actions more visible than normal.

There is still some sloppiness likely over the next week, but such should theoretically provide investors the entry point for a “Santa Rally.”

Stock market December performance

But such should not be a surprise. In mid-November, we discussed the need to reduce risk against a potential correction. To wit:

Does this mean the market will experience a significant contraction? A pullback to the short-term moving averages would not be surprising and would encompass about a 3-4% drawdown.

What would cause such a correction? I don’t know. However, we are entering the mutual fund distribution season where fund managers need to distribution capital gains, dividends, and interest. Given that most funds are carrying very low cash levels, they will likely have to sell holdings to make those distributions.

Then, on the 23rd of November, we added:

Investors’ “wish lists” are hung by the chimney with care, hopeful the “Santa Claus rally” will soon be there. While they remain “snug in their beds, the historical data dances in the heads.”

It certainly seems there is little to worry about.

Except that dip at the beginning of December.

But is the Omicron selloff over?

Omicron Selloff Tests 100-DMA

In the short term, selling pressure is starting to peak, and downside risk got reduced given the more extreme oversold conditions. As a result, volatility also spiked into excessive overbought levels, and the market held strong support at the 100-dma (orange line) on Friday.

S&P 500 market breadth resistance

We are using the more extreme oversold condition to add trading positions to our portfolio. The upside is likely limited to the bottom of the previous trend channel (blue dashed line) that began in 2020. However, we can take advantage of the rally back to those levels to bolster returns in portfolios.

Notably, any failure at that running lower trend line would be concerning. Such would suggest either a retest of current lows in January or, should that support fail, a very different market in 2022.

As noted above, while the media is frantic to pin sell-off on the “Omicron variant,” it is all quite normal within the context of historical trends. Lastly, another of our technical indicators, the McClellan Oscillator, confirms our analysis of a deeply oversold market.

S&P 500 stock market vs oscillator

Please note that I am consistently speaking of “short-term” opportunities.

While the current decline could strengthen back into a longer-term trend, we treat each increase in equity exposure as a trade until proven otherwise.

One mistake individuals make is trying to “buy the dip” and not respecting the potential for much more significant downside “dipping.”

Always maintain your stop-loss levels.




No Guarantees

The current “Omicron selloff” in the markets, combined with distributions, will leave portfolios “offsides” heading into year-end. As a result, portfolio managers will begin to “window dress” portfolios for year-end reporting around mid-month. As shown in the seasonal chart above, that “buying” is what typically pushes markets higher.

Such was a point I discussed with Charles Payne on Fox Business yesterday.

Is a “Santa Claus” rally guaranteed? Absolutely not.

However, as noted, my Mom said I was a “good boy” this year, so I am hopeful I will get more than a “lump of coal” in my stocking.

Besides, I am not sure Santa Claus can afford coal this year anyway.

Coal Prices

While I am optimistic as we head into year-end, I would be remiss not to point out the obvious risks.

Internal Measures Suggests Risk Remains Present

Over the last few weeks, we have discussed the continuing deterioration of market internals from breadth to volume to expanding new lows. At the same time, while market internals weakened, broad markets continued to rise. As shown, stocks trading above their 50- and 200-dma and the bullish percent index turned down in mid-November. Such suggested the market was at risk of a correction; all that was needed was an event to shift psychology.

That’s how you get the “Omicron selloff.”

S&P 500 market technical breadth and participation

However, as Sentiment Trader pointed out this week, other internal measures suggest that investors may see lower returns near term. To wit:

“New lows are one of the most critical breadth measures to monitor in a bull market, especially long-duration ones. When they expand to current levels with the market near a high, something is amiss with market participation. The shot across the bow is a warning that we should be alert to rising risks. As always, it’s essential to use a weight-of-the-evidence approach and not rely upon any single indicator.

The previous risk-off signal from October 2018 led to a substantial decline for the S&P 500.”

S&P 500 vs Lows

As they conclude:

“When new lows expand and the market is near a high, something is amiss with market participation, suggesting rising risks. Similar setups to what we’re seeing now have preceded weak returns and win rates on a short and medium-term basis.”

While the market is now very oversold, volume remains relatively weak along with money flows. Such suggests there is a risk of more selling pressure following any short-term bounce. So, as is always the case, be sure to manage your risk exposures accordingly.

There will be a time to become considerably more aggressive, but we need improvement to the underlying technicals first.



Will FANG Wind Up Like BRIC?

My colleague Albert Edwards had an excellent piece out this week answering a question I have had.

“It is the 20th anniversary of the invention of the BRIC acronym. BRICs, for those who need reminding, was dreamt up by the then Chief Economist at Goldman Sachs, Jim (now Lord) O’Neil, who predicted that the emerging economies of Brazil, Russia, India and China would enjoy superior economic growth and investment returns relative to the developed economies. A few days ago Jim O’Neil marked this anniversary with an update in the Financial Times.”

Coincidently it is also exactly the 10th anniversary of my note that ridiculed ‘BRICs’ as an investment idea entitled ‘BRIC = Bloody Ridiculous Investment Concept’ – A. Edwards

We should not overlook the importance of his commentary. In 1999, the “dot.com” bubble was in full swing, and valuations ran at nearly 42x trailing earnings on a CAPE ratio basis. Today, the top-10 stocks of the S&P 500 comprise almost 30% of the entire market capitalization of the index. With valuations once again approaching the dot.com levels of exuberance. (Valuations are just the reflection of investor psychology.)

S&P 500 valuations vs stock market

In Case You Missed It


The Next Crash

As Michael Lebowitz noted in “Is A 2000 Market Crash Possible?”

“P/E valuations are grossly extended, and in both calculations nearing or surpassing levels in 1999. The graph also show valuations are well above those of 1929.”  

The point here is that valuations matter. The growth expectations for the FANG stocks far exceed any conceivable realistic outcome. As Allbert concludes:

“Investors are desperate to believe the EM and BRIC growth story, for they have so little alternative. The story of superior growth for the EM universe is as entirely plausible as it is entirely misleading. Valuation is what matters for investing in EM, not their superior growth story and certainly, EM equities are not relatively cheap. Yet investors persist in the BRIC superior growth fantasy. But it is no different from many of the other investment fantasies I have witnessed over the last 25 years only to see them end in severe disappointment.” BRICs have indeed been terrible investments over the past decade, underperforming both MSCI World and even the EAFE index by a very wide margin.

Put a date in your diary to look out for my Global Strategy Weekly on 2 Dec 2031. For I have a similar feeling that in a decade’s time FAANGs (and US tech generally) will go the way of the BRICs as another example of acronym investing going horribly wrong. Indeed, only recently I noted that despite US IT’s EPS relative now declining sharply, its nosebleed PE valuation at 30x looks vulnerable vs the market’s 22x – the widest gap since the Nasdaq bubble.”

FANG stocks

Valuations always matter, and they matter a lot. The problem is that investors don’t learn this lesson until it is often far too late to matter.



Portfolio Update

Over the last couple of weeks, we stated that after raising cash and reducing hedges, we were “sitting tight” as we got through the Thanksgiving holidays. We worried about a correction during the first couple of weeks of December as mutual fund redemptions took hold. That sell-off came as Omicron headlines sparked the algorithms into sell mode. Now, much of the overbought and extended conditions in the market are reversed.

With that correction, we are now starting to slowly increase our equity risk exposure as we head into year-end. Given the statistical probability of a year-end “Santa Rally,” we want to position portfolios for that potential opportunity.

However, we are maintaining very tight stop-losses on all of our trading positions, as there is NO GUARANTEE that the market will rally into year-end. As with any good “poker player,” we are “playing the odds.”

We added a trading position in the S&P 500 index on Thursday morning and late Friday afternoon. We also nibbled on some energy exposures after the correction in oil prices. Over the next few days, we will opportunistically add exposure to our Technology, Finance, and Healthcare sectors. We are also monitoring Communications and Discretionary for opportunities as well. The goal will be to increase our equity weighting to 60-70% in our 60/40 allocation models. (Yes, we can overweight and underweight equity risk.)

Portfolio model allocation

Lastly, no matter what you decide to do, do it safely. Chasing markets is fine until something goes wrong. So, have stop levels in place, manage your risk exposure relative to your financial objectives, and take unnecessary risk.

There are still plenty of things that can go wrong by year-end. So, don’t screw up an excellent year by making a stupid mistake this close to the end.


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Author: Lance Roberts

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Economics

Leveraged Bitcoin Traders Flushed Out In Epic Overnight Crash  

Leveraged Bitcoin Traders Flushed Out In Epic Overnight Crash  

The price of Bitcoin was rangebound on early Friday around the $56k handle….

Leveraged Bitcoin Traders Flushed Out In Epic Overnight Crash  

The price of Bitcoin was rangebound on early Friday around the $56k handle. The world’s largest cryptocurrency then spiked when the kneejerk read of the November payrolls came in as very disappointing, seen as postponing the Fed’s plans to accelerate the taper but then began to decline during the US cash session to about $54k-$53k handle by late afternoon as the narrative flipflopped and near unanimous consensus emerged around a Fed announcement that Powell would announce a much faster taper on Dec 15 leading to rate lift off by June.

Then at midnight into the early hours of Saturday morning, during the traditionally illiquid Asian session when things normally go splat in the night for cryptos as one or more super levered Asian momentum chasers blow up, Bitcoin suffered a massive liquidation and crashed into a bear market down to the $42k level, tumbling into a bear market. Price has recovered some, now trading around $47k. 

We noted that the action was that of a margined whale getting liquidated…

… an assessment Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore agreed with, telling Bloomberg the action overnight was leveraged buyers of Bitcoin being flushed out. 

“Markets have also been jittery with all the uncertainty around omicron, with cases now appearing in many countries,” Ayyar said. “It’s hard to say what that means for economies and markets and hence the uncertainty.”

So far, Bitcoin has found support just below the 200dma. 

The plunge is just another sign of risk aversion sweeping across global markets as equities sink and fate havens soar. Spiking inflation is forcing central banks to tighten monetary policy, reducing liquidity for risk assets. However, as we first pointed out yesterday, we are now at the point where the market is starting to price in the first future rate cut – sometime in 2023-2024 – resulting from the Fed’s overtightening cycle.

The omicron variant of COVID-19 has also compounded risk aversion as it derails the global economic reopening. 

Today’s global cryptocurrency market cap is $2.28 Trillion, down 17.5% in the last 24 hours. Total cryptocurrency trading volume in the last day is at $236 billion. Bitcoin’s market cap of all crypto is 38.68%. 

That said, El Salvador President Nayib Bukele is using the dip to buy even more Bitcoin. 

Tyler Durden
Sat, 12/04/2021 – 07:46






Author: Tyler Durden

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