Category Archives: Markets

(P-S) Risks to the Global Economy in 2019 – Kenneth Rogoff

(P-S)

Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies.

CAMBRIDGE – As Mark Twain never said, “It ain’t what you don’t know that gets you into trouble. It’s what you think you know for sure that just ain’t so.” Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies that undermine the credibility of central bank independence, resulting in higher interest rates on “safe” advanced-country government bonds.1

A significant Chinese slowdown may already be unfolding. US President Donald Trump’s trade war has shaken confidence, but this is only a downward shove to an economy that was already slowing as it makes the transition from export- and investment-led growth to more sustainable domestic consumption-led growth. How much the Chinese economy will slow is an open question; but, given the inherent contradiction between an ever-more centralized Party-led political system and the need for a more decentralized consumer-led economic system, long-term growth could fall quite dramatically.1

Unfortunately, the option of avoiding the transition to consumer-led growth and continuing to promote exports and real-estate investment is not very attractive, either. China is already a dominant global exporter, and there is neither market space nor political tolerance to allow it to maintain its previous pace of export expansion. Bolstering growth through investment, particularly in residential real estate (which accounts for the lion’s share of Chinese construction output) – is also ever more challenging.1

Downward pressure on prices, especially outside Tier-1 cities, is making it increasingly difficult to induce families to invest an even larger share of their wealth into housing. Although China may be much better positioned than any Western economy to socialize losses that hit the banking sector, a sharp contraction in housing prices and construction could prove extremely painful to absorb.

Any significant growth recession in China would hit the rest of Asia hard, along with commodity-exporting developing and emerging economies. Nor would Europe – and especially Germany – be spared. Although the US is less dependent on China, the trauma to financial markets and politically sensitive exports would make a Chinese slowdown much more painful than US leaders seem to realize.1

A less likely but even more traumatic outside risk would materialize if, after many years of trend decline, global long-term real interest rates reversed course and rose significantly. I am not speaking merely of a significant over-tightening by the US Federal Reserve in 2019. This would be problematic, but it would mainly affect short-term real interest rates, and in principle could be reversed in time. The far more serious risk is a shock to very long-term real interest rates, which are lower than at any point during the modern era (except for the period of financial repression after World War II, when markets were much less developed than today).

While a sustained rise in the long-term real interest rate is a low-probability event, it is far from impossible. Although there are many explanations of the long-term trend decline, some factors could be temporary, and it is difficult to establish the magnitude of different possible effects empirically.

One factor that could cause global rates to rise, on the benign side, would be a spurt in productivity, for example if the so-called Fourth Industrial Revolution starts to affect growth much faster than is currently anticipated. This would of course be good overall for the global economy, but it might greatly strain lagging regions and groups. But upward pressure on global rates could stem from a less benign factor: a sharp trend decline in Asian growth (for example, from a long-term slowdown in China) that causes the region’s long-standing external surpluses to swing into deficits.

But perhaps the most likely cause of higher global real interest is the explosion of populism across much of the world. To the extent that populists can overturn the market-friendly economic policies of the past several decades, they may sow doubt in global markets about just how “safe” advanced-country debt really is. This could raise risk premia and interest rates, and if governments were slow to adjust, budget deficits would rise, markets would doubt governments even more, and events could spiral.

Most economists agree that today’s lower long-term interest rates allow advanced economies to sustain significantly more debt than they might otherwise. But the notion that additional debt is a free lunch is foolish. High debt levels make it more difficult for governments to respond aggressively to shocks. The inability to respond aggressively to a financial crisis, a cyber attack, a pandemic, or a trade war significantly heightens the risk of long-term stagnation, and is an important explanation of why most serious academic studies find that very high debt levels are associated with slower long-term growth.

If policymakers rely too much on debt (as opposed to higher taxation on the wealthy) in order to pursue progressive policies that redistribute income, it is easy to imagine markets coming to doubt that countries will grow their way out of very high debt levels. Investors’ skepticism could well push up interest rates to uncomfortable levels.1

Of course, there are many other risks to global growth, including ever-increasing political chaos in the United States, a messy Brexit, Italy’s shaky banks, and heightened geopolitical tensions.1

But these outside risks do not make the outlook for global growth necessarily grim. The baseline scenario for the US is still strong growth. Europe’s growth could be above trend as well, as it continues its long, slow recovery from the debt crisis at the beginning of the decade. And China’s economy has been proving doubters wrong for many years.

So 2019 could turn out to be another year of solid global growth. Unfortunately, it is likely to be a nerve-wracking one as well.

(CNBC) Shares of NYSE owner fall as Morgan Stanley and Fidelity plan rival exchange

(CNBC)

  • Shares of the company that owns the NYSE fall as some of Wall Street’s largest investors near the launch of a new, low-cost exchange.
  • Nine banks, brokerages and other firms including Morgan Stanley and Fidelity plan to launch the exchange early this year.
  • The launch of another stock exchange would come amid a mass migration toward cheap, no-fee investing options and exchanges across Wall Street.
Premium EA: Wall Street NYSE exterior rain gloom dark

A woman carrying an umbrella walks past the New York Stock Exchange (NYSE) in New York.John Taggart | Bloomberg | Getty Images

Shares of Intercontinental Exchange — the company that owns the NYSE — fell more than 2 percent Monday as some of Wall Street’s largest financial companies neared the launch of a low-cost rival trading platform.

Shares of Nasdaq also fell more than 2 percent Monday.

The new venue is called Members Exchange, or MEMX. Nine banks, brokerages and other firms including Morgan Stanley, Fidelity Investments and Citadel Securities will maintain control over MEMX. MEMX investors also include Bank of America Merrill Lynch and UBS, as well as retail brokers Charles Schwab, E-Trade and TD Ameritrade.

“MEMX’s mission is to increase competition, improve operational transparency, further reduce fixed costs, and simplify the execution of equity trading in the U.S.,” according to a press release announcing the exchange. “In addition, MEMX will represent the interests of its founders’ collective client base, comprised of retail and institutional investors on U.S. market structure issues. MEMX will seek to offer a simple trading model with basic order types, the latest technology, and a simple, low-cost fee structure.”

Members of the investor group plan to apply for exchange status with the Securities and Exchange Commission early this year. The Wall Street Journal first reported on the upcoming exchange launch.

In a statement, Nasdaq said: “We welcome competition to our transparent, highly regulated equity markets. However, with more than 40 equity trading venues already in operation in the United States, we are keen to learn more about the value proposition of a new exchange.”

The launch of another stock exchange would come amid a mass migration toward cheap, no-fee investing options and exchanges across Wall Street. Another such company, the IEX Group, emerged in 2016 with a system that slowed down trading in an effort to neutralize the effect of high-frequency trading. Controversial at first, the so-called speed bumps have proliferated among U.S. market sites, though they differ from IEX’s to varying degrees.

The 2-year-old IEX, which was founded in 2012, had its first stock listing as of September.

(Time) Warren Buffett Just Obliterated Bitcoin in Four Words

(Time)

Billionaire investor Warren Buffett is taking his already harsh criticism of Bitcoin to another level.

Buffett, who has previously said that cryptocurrencies like Bitcoin will almost certainly “come to a bad ending,” was asked over the weekend at the Berkshire Hathaway annual meeting about comments made by business partner Charlie Munger—who has called Bitcoin “turds” and compared it to rat poison.

Buffett didn’t mince words. Bitcoin is “probably rat poison squared,” Buffett replied.

On Monday, Buffett appeared on CNBC to explain that he was so down on Bitcoin, and cryptocurrencies in general, because they don’t produce anything—so they’re essentially investments based on pure speculation.

“When you buy non-productive assets, all you’re counting on is that the next person is going to pay you more, because they’re even more excited about another next person coming along,” Buffett said. “The asset itself is creating nothing.”

Buffett has said in the past that he and many investors really don’t understand BitcoinOn CNBC Monday, he added that cryptocurrencies’ mystique actually entices investors—because it seems like magic when, say, the price of Bitcoin rose 36% in April. (Mind you, that increase came after Bitcoin’s price had fallen to one-third of its all-time high near $20,000, which it hit last December.)

“It’s better if they don’t understand it,” Buffett said Monday. “If you don’t understand it you get much more excited.”

Embedded video

CNBC@CNBC

Warren Buffett on bitcoin: It’s an asset that creates nothing; cryptocurrencies “just sit there” and “if you don’t understand it, you get much more excited”20410:25 AM – May 7, 2018159 people are talking about thisTwitter Ads info and privacy

Buffett is hardly the only well-respected high-profile investor to blast the cryptocurrency. Yale economist economist Robert Shiller often bashes Bitcoin, once saying that it’s likely to “totally collapse and be forgotten.”

And investing legend Jack Bogle, the founder of Vanguard, trashed Bitcoin when the cryptocurrency was nearing its all-time high last December. “Avoid Bitcoin like the plague,” Bogle said. “Did I make myself clear?”

(ZH) The Richest People In The World Lost More Than $550 Billion In 2018

(ZH) Like the old saying goes: What goes up must come down. And just as the fortunes of the world’s wealthiest swelled during the post-crisis era as QE and ZIRP bolstered asset prices, now that trend has been thrown into reverse thanks to the turbulence in global markets during the second half of the year.

According to Bloomberg, even the world’s richest individuals failed to find respite from a global market meltdown that has rendered 2018 the “worst year for markets on record.”

DB

Bloomberg’s Billionaires Index showed that the 500 richest people in the world had a combined $4.7 trllion in wealth as of Friday’s close, some $511 billion less than they had at the beginning of the year. With one week left to trade this year, 2018 is set to become the second year since the list was created in 2012 that the world’s wealthiest have seen their wealth decline.

Coaster

At their peak, soaring markets drove the aggregate wealth of the world’s wealthiest above $5.6 trillion before the downturn began shortly after the Federal Reserve raised interest rates for the third time this year back in September.

“As of late, investor anxiety has run high,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “We do not expect a recession, but we are mindful of the downside risks to global growth.”

Even Amazon founder and CEO Jeff Bezos, who saw his fortune swell to $168 billion earlier this year, has watched it fall more than $50 billion from the highs as FANG stocks have lead the market lower.

Even Jeff Bezos, who recorded the biggest gain for 2018, wasn’t spared the volatility. His fortune peaked at $168 billion in September, a $69 billion gain. It later tumbled $53 billion – more than the market value of Delta Air Lines Inc. or Ford Motor Co. – to leave him with $115 billion at year-end.

But Bezos’ losses were mild compared with Mark Zuckerberg, whose net worth took the biggest hit among the world’s tech titans.

Zuck

The Amazon.com Inc. founder had a better year than Mark Zuckerberg, who recorded the biggest loss since January, dropping $23 billion as Facebook Inc. careened from crisis to crisis.Overall, the 173 U.S. billionaires on the list — the largest cohort — lost 5.9 percent from their fortunes to leave them with $1.9 trillion.

Billionaires in Asia lost a combined $144 billion…

Even Asia’s fabled wealth-creation machine stumbled as the region’s 128 billionaires lost a combined $144 billion in 2018. The three biggest losers in Asia all hailed from China, led by Wanda Group’s Wang Jianlin, whose fortune declined $11.1 billion.

Despite the turmoil, Asia continued to mint new members of the three-comma club. The Bloomberg index uncovered 39 new members from the region in 2018, although that status proved short-lived for some. About 40 percent had lost their 10-figure status as of Dec. 7.

…While billionaires in Europe also saw their fortunes decline.

From Zara founder Amancio Ortega to former Italian Prime Minister Silvio Berlusconi, most of Europe’s billionaires saw their fortunes fall. Germany’s Schaeffler family, the majority shareholders of car-parts maker Continental AG, lost the most as extra costs and tough business conditions in Europe and Asia hampered the company’s performance.

Georg Schaeffler and his mother Maria-Elisabeth Schaeffler-Thumann are $17 billion worse off than at the start of the year. That sum alone would place them among the world’s 100 richest people.

Mexico’s Carlos Slim, the majority shareholder of Latin America’s largest mobile-phone operator, also suffered big losses. Once the world’s richest person, Slim now ranks sixth with a $54 billion pile. 3G Capital co-founder Jorge Paulo Lemann saw his fortune drop the most among Latin American billionaires, losing $9.8 billion. But even with that fall, he remains Brazil’s richest person.

Russian fortunes on average fared better. The volatility caused by collapsing oil prices, a flare-up in tensions with Ukraine and tightening sanctions was partially offset by periodic gains. The combined net worth of the country’s 25 wealthiest people was down only slightly, ending at $255 billion, according to the ranking.

One outlier, though, was Russia, where billionaires fared better than elsewhere in the world (though only slightly).

Russian fortunes on average fared better. The volatility caused by collapsing oil prices, a flare-up in tensions with Ukraine and tightening sanctions was partially offset by periodic gains. The combined net worth of the country’s 25 wealthiest people was down only slightly, ending at $255 billion, according to the ranking.

Still, 16 of the 25 Russian billionaires on the Bloomberg index saw their net worth fall in 2018. Aluminum magnate Oleg Deripaska, who remains under U.S. sanctions, lost the most — $5.7 billion — and dropped out the Bloomberg ranking of the world’s top 500 richest people.

By contrast, energy moguls Leonid Mikhelson, Gennady Timchenko and Vagit Alekperov added a total of $9 billion. Timchenko, sanctioned in 2014, added 27 percent to his net worth as shares of gas producer Novatek rose 40 percent.

And if the co-CIO of the world’s largest hedge fund is right, the aggregate net worth of the world’s richest and most powerful individuas could be on track to worsen next year, which would, in our view, only ratchet up pressure on central banks to do whatever it takes to spare the global elite any more discomfort.

(Investors) S&P 500 Today Down Sharply; This Sign Will Tell A Lot About Current Stock Market

(Investors) Stocks were broadly lower Thursday afternoon, as the S&P 500 today and other indexes held some of the prior day’s outstanding gains.

Indexes gave up more ground in afternoon trading but were trying to bounce with about an hour left in the session.

The Nasdaq composite slid 2.5% and headed for the fourth straight move (in either direction) of more than 2%. The S&P 500 lost 1.9% and the small-cap Russell 2000 declined 1.8%. (For updates on this story and other market coverage, visit the Stock Market Today.)

Indexes held more than half of Wednesday’s monumental gains. If the market can close with such losses, it could be considered an acceptable loss in the context of the week’s action. But it’s still too early to decide if a new confirmed market uptrend is in play. Read this Investor’s Corner to learn how to spot key turning points in the market.

The Dow Jones industrial average was off 1.7%. Tech heavyweights Apple (AAPL) and Microsoft(MSFT) declined the most, off 3.8 and 3.1% on the Dow. Both are the two largest stocks in the market by capitalization but both are trending lower still.

Market volume was tracking lower compared with the same time on Wednesday. Declining stocks led advancers by a 9-to-2 ratio on the NYSE and by 5-to-2 on the Nasdaq.

Wall Street is waiting for new signals as it winds down the year. Late Wednesday, Bloomberg reported U.S. officials will travel to Beijing in early January to hold trade talks. There was no update on that front Thursday. There was also no news on the partial government shutdown.

The retail sector was today’s weakest, one day after it rallied on strong holiday sales data. The SPDR Retail ETF (XRT) fell 3% after Wednesday’s 5.7% surge. Department stores, online retail and consumer electronics stores were in the bottom 10 industry groups.

Energy stocks were sharply lower, resuming a downward trend. Russia’s energy minister rejected a formalized partnership with OPEC, a decision that reduces the chances to reduce output and shore up oil prices. U.S. crude was down 2.7% to $44.93 a barrel.

Leading stocks performed in line with the broad market. The Innovator IBD 50 ETF (FFTY) fell 1.8%, holding on to most of the 6.3% increase of the previous day. More than half the 50 stocks fell more than 2%, however.

Horizon Pharma (HZNP) tumbled 4.3% as the pharmaceutical company remained below the 50-day moving average, but volume was way below normal levels.

Shares fell even though the company announced the FDA approved expanded use of its Ravicti drug for younger infants. Ravicti is used to treat a rare genetic disorder in newborns that can result in brain damage, coma or death.

(CNBC) Dow rallies 1,000 points, logging its biggest single-day point gain ever

(CNBC)

Fred ImbertEustance HuangPublished 6:28 PM ET Tue, 25 Dec 2018  Updated 12 Hours AgoCNBC.com

Dow posts largest daily point gain in history

Dow posts largest daily point gain in history  13 Hours Ago | 00:45

Stocks posted their best day in nearly a decade on Wednesday, with the Dow Jones Industrial Average notching its largest one-day point gain in history. Rallies in retail and energy shares led the gains, as Wall Street recovered the steep losses suffered in the previous session.

The 30-stock Dow closed 1,086.25 points higher, or 4.98 percent, at 22,878.45. Wednesday’s gain also marked the biggest upside move on a percentage basis since March 23, 2009, when it rose 5.8 percentage points.

The S&P 500 also catapulted 4.96 percent — its best day since March 2009 — to 2,467.70 as the consumer discretionary, energy and tech sectors all climbed more than 6 percent. The Nasdaq Composite also had its best day since March 23, 2009, surging 5.84 percent to 6,554.36.

Wednesday also marked the biggest post-Christmas rally for U.S. stocks ever.

Retailers were among the best performers on Wednesday, with the SPDR S&P Retail ETF (XRT) jumping 4.7 percent. Shares of Wayfair, Kohl’s and Dollar General all rose more than 7 percent. Data released by Mastercard SpendingPulse showed retailers were having their best holiday season in six years. Amazon’s stock also jumped 9.45 percent, snapping a four-day losing streak, after the company said it sold a record number of items this holiday season.

The market closed down 653 points on Christmas Eve—here's where it's headed next

The market closed down 653 points on Christmas Eve—here’s what’s next  15 Hours Ago | 03:07

Energy stocks also jumped as U.S. crude oil prices catapulted more than 8 percent. Shares of Marathon Oil and Hess were the best performers within the energy sector, jumping 11.9 percent and 11 percent, respectively.

John Augustine, chief investment officer at Huntington Private Bank, said he welcomed Wednesday’s rally but added: “We still have a ways to go. We need to have three days of moving higher into the close to stem this wave of selling.”

A strong sell-off on Monday sent the major indexes down more than 2 percent and ended with the S&P 500 falling into a bear market. Monday’s pullback was also the worst Christmas Eve decline ever. The S&P 500 was down 20.06 percent from an intraday record high set on Sept. 21 before Wednesday’s sharp rebound. U.S. exchanges were closed Tuesday for the Christmas holiday.

The recent decline in stocks “is a buyer’s strike due to lack of confidence in policymakers around the world,” said Augustine. “It’s going to take a long time to recover that confidence.”

The plunge in stocks on Monday came after Treasury Secretary Steven Mnuchin held calls with CEOs of major U.S. banks last weekend and issued a statement saying, “The banks all confirmed ample liquidity is available for lending to consumer and business markets.”

Monday’s move lower also came after President Donald Trumpcommented on the Federal Reserve once more, calling it “the only problem our economy has” in a tweet. Trump also said Tuesday the Fed was “raising interest rates too fast because they think the economy is so good.” Trump has been critical of the Fed’s decisions regarding monetary policy this year. The central bank has hiked overnight rates four times this year.

“With the end of the quarter, we could get a bounce in the next few days,” said Peter Cardillo, chief market economist at Spartan Capital Securities. But “the problem is [President Donald] Trump continues to create a lot of uncertainty. We can’t focus on the fact there are a lot of good bargains out there.”

This is all taking place amid an ongoing government shutdown that started last week. The Trump administration and congressional leaders are at a stalemate over funding for a wall along the U.S.-Mexico border. The administration says the wall is important for national security while opponents of the barrier note it will not solve the U.S.’ immigration issues.

“Government shutdown starts with no end game strategy by either side,” L. Thomas Block, Washington policy strategist at Fundstrat Global Advisors, said in a note to clients. “The President … remains convinced that fighting for HIS wall is worth a government shutdown and his base loves the confrontation.”

(ZH) WSJ Discovers How Algos Broke The Market

(ZH) For years, as the market rose in seemingly uninterrupted fashion buoyed by trillions in excess central bank liquidity and algos programmed to buy any dip while frontrunning each and every buy order, virtually nobody – except for a few “fringe”, “fake news” blogs – complained about the threat posed by algo trading and the quiet but dire deterioration in market liquidity.

Now that the S&P has finally suffered its first bear market in a decade, the mass media is out in full force looking for scapegoats and, predictably, in an attempt to deflect attention from the biggest, and only, culprit behind each and every bull-bust cycle namely the US central bank, has focused on “computerized trading.”

In a front page article, the WSJ is out today with “Behind the Market Swoon: The Herdlike Behavior of Computerized Trading“, in which a bevy of WSJ authors, among which the paper’s new ‘Fed whisperer‘ Nick Timiraos (who may or may not have been tasked with delivering a piece drawing attention from the inhabitants of the Marriner Eccles building), write that “behind the broad, swift market slide of 2018 is an underlying new reality: Roughly 85% of all trading is on autopilot—controlled by machines, models, or passive investing formulas, creating an unprecedented trading herd that moves in unison and is blazingly fast.”

A quick note: 85% of this “autopilot” trading also took place on the upside, yet the WSJ – and all the other bulls – were oddly quiet for years and years. Of course, to Zero Hedge readers, the story is all too familiar: after all we have covered all of this not just when the market snapped lower, but more importantly, during its levitation phase, setting up the inevitable crash:

Today, quantitative hedge funds, or those that rely on computer models rather than research and intuition, account for 28.7% of trading in the stock market, according to data from Tabb Group–a share that’s more than doubled since 2013. They now trade more than retail investors, and everyone else.

Add to that passive funds, index investors, high-frequency traders, market makers, and others who aren’t buying because they have a fundamental view of a company’s prospects, and you get to around 85% of trading volume, according to Marko Kolanovic of JP Morgan.

In terms of specific downside factors, the collapse in momentum has been explicitly highlighted:

One reason the dynamic might have changed: Many of the trading models use momentum as an input. When markets turn south, they’re programmed to sell. And if prices drop, many are programmed to sell even more.

Of course, the topic of collapsing momentum was widely discussed here just last Saturday, when we said that as a result of the dominance of algo trading, Deutsche Bank argued that momentum has emerged as the most important force in markets, something we have claimed for years:

However, one key reason why trading has become so complicated for most, and certainly the algos, is that there is currently virtually no momentum in the market – with the MTUM ETF which tracks momentum stocks having its worst month and quarter since its 2013 inception – results in making any attempt to piggyback on the market a money-losing trade.

There are the usual quotes from traders who are suddenly very concerned about stuff:

Boaz Weinstein, founder of credit hedge fund Saba Capital Management LP, said the market had been underpricing uncertainty. Now it’s taking into account political issues “at the same time as the Fed is hiking, the economy is slowing, and a lot of people are feeling like the best days for markets are over,” he said.

Mr. Weinstein says there are dangers building in the junk-bond market. One worry, he says, is that so many junk bonds—he estimated about 40%—are held by mutual funds or exchange-traded funds that allow their investors to sell any day they like, even though bonds inside the funds are hard to sell.

When enough investors want to cash out, such a fund has to start selling bonds. But without much liquidity, finding buyers could be hard.

A selloff could start simply, he said. “It has its own gravity.”

It’s “suddenly” so bad, in fact, that comparisons to virtually every previous crash are coming out of the woodwork:

Some analysts see similarities to the late 1998 pullback in U.S. stocks that followed a year of turmoil in emerging markets, punctuated by the Asian financial crisis of 1997 and the Russian default of 1998 and culminating in the collapse of the highly leveraged Long Term Capital Management hedge fund.

Others point to the market shakeout in late 2015. Like the current episode, it lacked an obvious trigger and was accompanied by anxiety over the Federal Reserve’s plans to raise interest rates—in that case, the Fed’s first rate increase in nearly a decade. Like this year, the 2015 retreat featured a sharp decline in oil prices and a significant drop in the S&P 500.

And the punchline:

Electronic traders are wreaking havoc in the markets,” says Leon Cooperman, the billionaire stock picker who founded hedge fund Omega Advisors.

There is much more in the full WSJ article, which also focuses on the collapse in market liquidity (which we covered just last week), the equity contagion to credit markets (which we also just covered), and virtually all other pernicious aspects of pervasive algo trading which have been discussed ad nauseam on this website for years.

Odd how electronic traders were not “wreaking havoc in the markets” when the markets were rising. A cynic may almost say that the president, the Fed and/or traders such as Cooperman (who have had an abysmal year) are desperate for a diversionary cover, and hence the WSJ article finally reporting on the other key facet of what made market levitation possible for the past decade: HFTs, algos and various other computerized traders, which however merely do what their human programmers instruct them to do, and which is to simply accentuate momentum either up, or as the case may be for the past 3 months, down by frontrunning key shifts in investor sentiment (as a reminder, all HFTs really do is frontrun orderflow) and in the process confirming that instead of adding liquidity to the market, HFTs were notorious in soaking it all up as recent market moves demonstrate.

In any case, we are content that the mainstream press is finally reporting on the event which we have warned for the better part of the past 10 years will ultimately catalyze the next big crash – the takeover of the market by computerized trading – a crash which, however, will only be made possible by the Fed blowing the biggest asset bubble in history to monstrous proportions, something which the WSJ article does at least acknowledge in its final paragraph:

“It’s not just about the equity market throwing a temper tantrum, it’s far deeper than that,” said David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. “This is a much broader global liquidity story.”

Encouraged by signs of economic strengthening, the Fed has been gradually raising interest rates from rock-bottom levels and selling back the trillions of dollars in bonds it bought in the postcrisis years. The central bank says the roll-back of stimulus is smooth. Others aren’t so sure what comes next. There has never been such a huge stimulus, and one has never before been unraveled.

Some believe there’s a hidden risk in debt that consumers and companies took on when borrowing was inexpensive. The Fed’s campaigns were  “fundamentally designed to encourage corporate America to lever up, which makes them more vulnerable to rising borrowing costs,” said Scott Minerd, chief investment officer at Guggenheim Partners. “The reversing of the process is actually more powerful,” he said.

Read the full WSJ article here.

(Yahoo) S&P 500 enters bear market

(Yahoo) The S&P 500 is now in a bear market.

On Monday, the S&P 500 (^GSPC) fell 2.71%, or 65.52 points, and cracked below 2,400. Now at 2,351.1 points, the S&P 500 is at its lowest level since April 2017. The index fell into a bear market at the close, down more than 20% from its September intraday high of 2940.91 points

The Dow (^DJI) slid 2.91%, or 653.17 points, as of market close Monday. The Nasdaq (^IXIC) declined 2.21%, or 140.08 points, having closed in bear market territory on Friday.

Crude oil prices also continued their downward spiral on Monday. Prices for U.S. crude oil fell 6.7% to settle at $42.53 per barrel, the lowest settlement price since June 2017, as investors broadly fled from riskier assets.

Monday was a shortened trading day for investors. U.S. equity markets closed at 1 p.m. ET in observance of Christmas Eve.

On Sunday, Treasury Secretary Steven Mnuchin held individual calls with CEOs of six of the largest banks in the U.S. and discussed liquidity concerns. Mnuchin said in a statement that “the banks all confirmed ample liquidity is available for lending to consumers and business markets.” The discussions come amid an escalating stock market sell-off as well as ongoing tension between President Donald Trump and Federal Reserve Jerome Powell over rising interest rates.

The Treasury Secretary also said he would convene a call on Monday with the president’s Working Group on Financial Markets, a group sometimes known as the “Plunge Protection Team” that also convened in 2009 in the late stage of the financial crisis. The group includes Federal Reserve as well as Securities and Exchange commission officials.

Mnuchin also said in separate Twitter posts that Trump never suggested firing Powell, attempting to quell concerns after reports late last week stated that the president had discussed firing the Fed chairman over the central bank’s recent moves to tighten monetary policy. Markets have responded to the Fed’s latest rate hike decisions with increased volatility, which could potentially threaten Trump’s reelection prospects.

Steven Mnuchin@stevenmnuchin1

(1/2) I have spoken with the President @realDonaldTrump and he said “I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time,…3,42211:02 PM – Dec 22, 2018Twitter Ads info and privacy2,437 people are talking about thisTwitter Ads info and privacy

Steven Mnuchin@stevenmnuchin1

(2/2) especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”1,99311:03 PM – Dec 22, 2018Twitter Ads info and privacy2,191 people are talking about thisTwitter Ads info and privacy

Trump on Monday again assailed the central bank in a Twitter post, calling the Fed the “only problem our economy has.”

Meanwhile, a fresh government shutdown began over the weekend after Congress failed to pass a measure to fund several government agencies that have not yet received appropriations. The affected agencies include the Treasury, Agriculture, Homeland Security, Interior, State, Housing and Urban Development, Transportation, Commerce and Justice departments. Although the Treasury is one of the agencies subject to the partial shutdown, treasury auctions, payments of principal and coupons and other payments including social security should all continue as usual, since those operations are characterized as “essential.”

Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on December 19, 2018 in New York. (Photo by Bryan R. Smith / AFP) (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)

While the shutdown adds uncertainty to an already overwrought market, it will not itself prevent a March Fed rate hike, Andrew Hollenhorst, an analyst with Citi, wrote in a note. But if the shutdown persists, “it might become a marginal reason for the Fed to be more cautious,” he added.

Hollenhorst also noted that the shutdown will create a “limited drag on growth” in the economy, even as about an estimated 380,000 workers are furloughed and another 420,000 continue working with delayed payments.

The Trump administration warned on Sunday that the partial government shutdown could continue into January when the new Congress takes control, Mick Mulvaney, director of the Office of Management and Budget, said on Fox.

ECONOMY: Chicago Fed national activity index rose in November

The Chicago Federal Reserve’s barometer for U.S. activity increased November, with the reading coming in at 0.22. October’s reading was revised to a neutral 0.0. Consensus expectations were for a reading of +0.2 in November, according to Bloomberg data. A positive reading for the index, which accounts for 85 indicators of growth in national economic activity, points to an economy expanding faster than the historical average. Contributions from indicators relating to production, sales, orders and inventories rose in November after decreasing in October, the Chicago Fed said in a statement.

STOCKS: Tesla cuts Model 3 vehicle prices in China

Tesla (TSLA) cut its prices on some of its Model 3 electric cars in China. Prices of certain Model 3 vehicles were cut by as much as 7.6%, with the starting price for a Model 3 in China now the equivalent of $72,000. This marks the third price cut for Tesla vehicles in China in the past two months, and comes after the vehicle maker said it was “absorbing a significant part of the tariff” from the U.S.-China trade war to keep prices affordable for overseas consumers.  Shares of Tesla tumbled along with the broader market, falling 7.62% to $295.39 each as of market close.

A number of Chinese companies are urging employees to boycott Apple (AAPL) products after the arrest of Huawei Technologies CFO Meng Wanzhou, who was arrested earlier this month in Vancouver by Canadian authorities at the request of the U.S. Many Chinese businesses told employees they will get subsidies for purchasing Huawei smartphones, according to a report from the Nikkei Asian Review. Others are boycotting Apple, which competes with Huawei as a smartphone producer. Shares of Apple fell 2.59% to $146.83 each as of market close.

Snap (SNAP) CEO Evan Spiegel reportedly ignored warnings of the company’s redesign of the Snapchat app after visiting China in 2017 and deciding that his messaging app needed an overhaul based on trends he saw there, according to the Wall Street Journal. Snap lost users for the first time in its history after the redesign debuted in February, and its stock has fallen about 76% since then. Spiegel also dismissed Facebook CEO’s Mark Zuckerberg’s interest in purchasing Snap in 2016 and did not report Zuckerberg’s advances to the entire board, the WSJ reported. Shares of Snapchat bucked the trend of the broader market and rose 4.21% to $5.20 each as of market close, bouncing back after hitting an all-time closing low of $4.99 per share on Friday.

(BBG) Whiff of Extinction Blows in Bull Market That Outlived Them All

(BBG)

By Sarah PonczekElena Popina, and Vildana Hajric25 de dezembro de 2018, 22:00 WET Updated on 26 de dezembro de 2018, 06:57 WET

  •  Longest stock rally on record within a hairline of its end
  •  Investors point to a disconnect between stocks and the economy

PauseMuteCurrent Time0:00/Duration Time6:02Loaded: 0%Progress: 0% FullscreenU.S. Stocks Selloff to Continue Amid Trump’s Fed Criticism, ThinkMarkets SaysU.S. Stocks Selloff to Continue Amid Trump’s Fed Criticism, ThinkMarkets SaysLISTEN TO ARTICLE 5:03SHARE THIS ARTICLE EmailIn this articleSPXS&P 5002,351.10USD-65.52-2.71%INDUDJIA21,792.20USD-653.17-2.91%MSFTMICROSOFT CORP94.13USD-4.10-4.17%AMZNAMAZON.COM INC1,343.96USD-33.49-2.43%NFLXNETFLIX INC233.88USD-12.51-5.08%

It’s been derided as a house of cards, a gift to the one-percent, an experiment in monetary policy taken way too far.

Now a bull market that for 10 years has confounded and chastened its detractors — by outlasting all its predecessors — is staggering up to death’s door. And haters and admirers alike are turning out to pronounce last rites.

The fall has been swift, a spasm of nearly uninterrupted selling that dragged the S&P 500 down 19.8 percent in the space of three months. The Dow Jones Industrial Average has plunged 5,036 points since its record, poised for its worst December since 1931. For the men and women who sold stocks and investment advice while the rally raged, it’s made Christmas a time of nostalgia.

“It was a remarkably long run,” John Carey, managing director and portfolio manager at Amundi Pioneer Asset Management, said in a phone interview. “Overall, it was a very, very strong market up until the last couple of months. It’s been a very good period, the last decade, for money management.”

Not that it’s over — necessarily. The S&P 500 is still 7 points away from completing a full-blown bear market drop. Futures on the index fell as much as 1.1 percent before rebounding to trade little changed as of 6:56 a.m. London time Wednesday.

Stranger things have happened than a recovery from here — the index came roughly as close only to rebound in 1998 and 2011. And even if the threshold does break, there’s nothing magical about a 20 percent decline. Donald Trump could right his ship, the Federal Reserve could stop raising rates — maybe the bear will go back into hibernation.

As you may have heard: the fundamentals look strong. Gross domestic product is rising, profits keep going up, and economic data gives no obvious evidence of a recession. Things look particularly sturdy compared with past episodes of tumult that the bull withstood, periods like 2011, when quarterly GDP growth twice turned negative, or 2016, when corporate earnings fell.

“One of the beautiful ironies of this whole situation is that in 2018 you finally feel like the economy is normalizing to what we knew before the crisis,” said Michael Purves, chief global strategist at Weeden & Co. “Until you got to this tax and spending deal a year ago, it was one of the most hated bull markets. The markets steadily climbed one wall of worry after another, and the problem was that the economic data did not confirm it.”

Hated it was, and for many the rally represented a moral quandary, particularly in the early years, when stocks served as a kind of daily referendum on actions by the Fed to end the financial crisis. In that role, buoyant markets became a target for those who saw a charity program for the very people who laid the economy low, while at the other end of the spectrum critics accused the Fed’s Ben Bernanke of engineering gains to hide economic wounds that never healed.

Profits rose, fueling the bull, but wages stayed stagnant. Most of the time since 2009, gains in the S&P 500 have surpassed gains in GDP and workerpay by gaping margins.

“The market surprised everyone both in when it bottomed out and how quickly it rose off those lows,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. “The problem with looking at the stock market as a way of saying the financial crisis is over is that it’s only one piece of the puzzle,” he said. “As far as an economic recovery, it’s been very sluggish.”

Now stocks are plunging as the stimulus Bernanke enacted is being withdrawn by a new Fed chairman, Jerome Powell. Inevitably, it’s spurring debate over whether the financial crisis ever ended.

“The reason I’d say it’s still with us is look at the Fed’s balance sheet,” Zaccarelli said. “This year has been impacted by quantitative tightening. As the Fed continues to run off its balance sheet, it’s a vestige of the crisis and it’s still with us today. Investors remain very scarred by what happened in 2007, 2008 — you can see it in investor anxiety.”

From the financial crisis bottom in March 2009, the S&P 500 had more than quadrupled by its September high, paying a total return of 19 percent annually. Investors made more money owning stocks in 2013 than in any year since the dot-com bubble — and anyone who sold when it was over has foregone gains of 151 percent in Microsoft, 237 percent in Amazon.com, and 345 percent in Netflix. One company, Nvidia, tripled in 2016, nearly doubled again last year, and was up 49 percent in early October. Now it’s down 34 percent and headed for the worst return since the financial crisis.

So while it may be hard to see things in the future that justify a hammering as painful as this one, a few things in the past suggested there was reason for worry.

“The biggest names just got bigger and bigger and the leadership became very narrow and we became reliant upon a handful of names to generate returns. And then when some of those names had some fundamental stumbles, the market was ill-equipped to deal with that,” Michael O’Rourke, JonesTrading’s chief market strategist, said by phone. “The bottom line is markets are supposed to go in both directions.”

V.I. (CNBC) Stocks could struggle after record outflows, history shows

(CNBC)

  • Data compiled by the Lipper team at Refinitiv showed investors pulled $46.2 billion from U.S. equity mutual funds and exchange-traded funds between Dec. 5 and Dec. 12. This is the biggest one-week outflow on record, according to Lipper.
  • Such strong outflows are typically seen as a contrarian indicator to buy back into stocks, but it could take some time for equities to start climbing back.
  • Fred Imbert@foimbertPublished 3:19 PM ET Fri, 14 Dec 2018CNBC.com
Traders work on the floor of the New York Stock Exchange.

Brendan McDermid | ReutersTraders work on the floor of the New York Stock Exchange.

Investors just pulled money out of stocks at a record pace and, if history is any indication, equities could struggle before recovering.

Data compiled by the Lipper team at Refinitiv showed investors pulled $46.2 billion from U.S. equity mutual funds and exchange-traded funds between Dec. 5 and Dec. 12. This is the biggest one-week outflow on record, according to Lipper.

Such strong outflows are typically seen as a contrarian indicator to buy back into stocks, but it could take some time for equities to start climbing back.

CNBC looked at the 10 largest weekly outflow numbers over the past 10 years. Using Kensho Analytics, CNBC found the median gain for the S&P 500 one week after these outflows is just 0.4 percent. Returns a month after are not great either, with the median coming in at 0.3 percent.

Stocks start turning significantly higher after three months, the analysis shows. The S&P 500’s three-month median return after these outflows tops 3 percent. The index’s median gain six months after outflows hits 4 percent.

Investors are draining money from stocks as Wall Street grapples with uncertainty around the U.S.-China trade war and fears over a possible global economic slowdown.

The U.S. and China are working toward striking a permanent deal on trade after agreeing Dec. 1 to a 90-day truce on tariffs. However, experts fear the grace period will not be enough to put together a deal that addresses the issues concerning both China and the U.S.

Meanwhile, the Chinese government reported Friday November industrial output numbers that were the worst in four years alongside its worst retail sales growth data since 2003. This led to a sharp sell-off in U.S. stocks on Friday, with the Dow Jones Industrial Average falling more than 500 points at its session low.

(CNBC) As fear rises on Wall Street, strategists warn the worst is yet to come

(CNBC)

  • Strategists say there’s more trouble ahead for the stock market which is experiencing its worst December since 1931.
  • Stocks plunged on fears of a recession, and the Nasdaq was temporarily in bear market territory, a 20 percent decline from its recent highs.
  • The Cboe Volatility Index temporarily jumped above 30, its highest since the major market sell-off in February of this year.
  • Strategists blame recession worries brought on by a tone-deaf Fed and continuing fears that trade wars and slowing global growth could sink the U.S. economy and chisel away at corporate profits.

Patti Domm@pattidommPublished 2 Hours Ago  Updated 5 Mins AgoCNBC.com

FRANCE-ZOO-ANIMALS-BEAR

Patrick Hertzog | AFP | Getty Images

Stocks plummeted toward bear country, led by the Nasdaq Composite Index, and Wall Street’s preferred fear gauge rocketed higher Thursday.

And strategists say the selling will get worse before it gets better.

After the Federal Reserve spooked markets Wednesday, risk assets and stocks have been reeling, with some of the sharpest losses on Thursday in growth sectors like biotech and technology. That weighed hard on the Nasdaq, which closed down 1.6 percent after falling temporarily into a bear market, down more than 20 percent from its recent high during most of the day. The Dow fell 454 to 22,859, closing below he psychological 23,000 level, and the S&P 500 was off 1.6 percent at 2,467, or 16 percent from its highs.

US Federal Reserve Board Chairman Jerome Powell holds a news conference after a Federal Open Market Committee meeting in Washington, DC, December 19, 2018.

The Fed just raised interest rates — Here are three big takeaways  4:23 PM ET Wed, 19 Dec 2018 | 02:05

The CBOE Volatility Index jumped above 30, its highest since the major market sell-off in February of this year. It was at 28.53 in late trading.

“The market’s in no man’s land,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. Stocks have broken through the lows of the year, and technicians are scurrying to find the next support levels. On the S&P 500, he said 2,400 is a potential psychological area of support.

The market plunged Thursday against the backdrop of a congressional feud with the White House over a continuing budget resolution, but the markets were more focused on the worries that have been festering over global growth and the potential for recession.

“You can guarantee if the government shuts down it’s going to very soon reopen,” said Boockvar. “This could be a carry through from yesterday, that’s legitimate. The problem now is this is the first time in years in this bull market that people are doing tax-loss selling. That’s helping to exaggerate the move. You’re also having redemptions.” Since the Fed announced its rate hike Wednesday, the Dow was down 815 points.

The sharp drop in stocks since early October was unexpected and even more crushing recently, since December is typically a positive time for stocks. The 10 percent decline so far in the S&P 500 is its worst December performance since 1931. If it remains this way, it would the first time ever that December is the worst month of the year for the index.

“It is entirely possible that looking out over the next three to six moths this correction turns into what you would call a bear market because of the fact that the Fed really didn’t show sufficient sensitivity to the affect of policy tightening on the speed of asset price changes to the downside,” said Julian Emanuel, chief equity and derivatives strategist at BTIG.

Emanuel said he’s not yet worried about a recession, but fears the Fed will make a policy mistake that could bring one on.

Trade war turnaround?

But the Fed is not the only worry. Also topping the list is the uncertainty surrounding the trade negotiations between the U.S. and China. The Chinese economy is already weakening, and investors worry weaker global growth will spread to the U.S., where the housing sector has begun to show weakness as the Fed raised interest rates.

“From our point of view time wise, we think this correction has further to run, consistent with the past over 10 percent corrections since March 2000,” Emanuel said. “Does it have further to run? That will be much more dependent on whether the data starts turning down in a much more meaningful way, and if there’s no signs of tangible … progress in negotiations with China.”

He added that the broader problems with China could continue but there’s still potential for a trade deal before the March deadline, which could appease markets.

Another big concern is a major slowdown in earnings growth. Market consensus is for 7.5 percent growth in 2019 in S&P 500 earnings, down from more than 20 percent this year.

Ed Keon, QMA chief investment strategist and portfolio manager, said his forecast is even more negative — at zero growth.

“How I interpret the market action yesterday and today, I think it basically means the market’s convinced it’s already too late for the Fed. We already have rates that are high enough to push us into at least a growth recession,” he said.

‘Worse before it gets better’

Keon is also concerned about trade. He said when the market turned higher Dec. 3 after President Donald Trump‘s meeting with Chinese President Xi Jinping, he began lightening up on stocks, and continued to sell into rallies. Stocks ultimately sold off on trade concerns even though the two sides have agreed to hold off on any new tariffs for 90 days and China has made some purchases of U.S. soy beans.

“We remain cautious. We think the market could get worse before it gets better. I still expect a positive year next year, but maybe something like 5 percent. You can get 2 percent in cash, without the volatility. … So far we’ve been selling into rallies and whether we continue to do that, we’ll have to see what the options look like,” said Keon.

He said he was a net seller Thursday, as well and he expects big investors to slow down their activities next week in what’s usually an illiquid time between Christmas and New Year’s

“We’re much more cautious. I’ve usually been bullish most of my career,” Keon said. He said the market will bottom once everyone becomes sufficiently negative. “We may not be that far away. I don’t think it’s going to get that much worse.”

Michael Arone, chief investment strategist at State Street Global Advisors, also sees more selling ahead and he recommends moving to the safer parts of the stock market, like the S&P aristocrats that have consistently increased their dividends.

“We need to see a bit more of a washout. We’re getting closer to those level but I think the holidays will interrupt, and we’ll have to see what happens when we regroup in January,” he said. “Admittedly, I think the end of the bull market may be on the horizon, but I still think fundamentals will support reasonably high stock prices in 2019. But we shall see.”

Arone expects earnings growth to slow as well, but to single digits.

“I definitely think the market is trading on sentiment. Underlying fundamentals are still reasonably OK, and I think that the negative sentiment is feeding on itself to a large degree, so selling begets more selling,” he said. “We’re seeing a reluctance to come in and buy on the dips. That has supported this bull market for the last 10 years. That’s something we’re observing from investors. … But I still think this is a kind of normal correction.”

Arone said one of his concerns is trade is just one source of friction between the U.S. and China, and a solution could take much longer to find.

“If this is a broader battle between two superpowers for global influence, it’s a whole can of worms,” he said. “I think what’s happening is the market’s not sure of what that looks like going forward and therefore, they’re reflecting that in lower asset prices until they know whether this is trade or something bigger.”

Arone said the Fed has also made itself a bigger problem for stocks, and he says investors should steer clear of growth and momentum names and look for higher quality value.

Federal Reserve Chairman Jerome Powell confused markets Wednesday with the Fed’s forecast for lower growth but commitment to continue tightening, said Arone. That comes after Powell’s previous pivot from a comment that the central bank was far from neutral to a statement that it was near neutral, just a month later. Neutral is the rate where the Fed is no longer seen as being accommodative and where it could stop raising interest rates.

“He was very steadfast on the fact that interest rates will continue to rise, and we’re on autopilot on the balance sheet. Yet they’re concerned about global risks,” Arone said. “It’s like speaking out of both sides of your mouth. Investors are looking for clarity, not confusion. … It seems the more he talks, the more confusing it is. Maybe less is more.”

Emanuel said the market has worried that Fed tightening, both through rate hikes and its balance sheet roll-off, are becoming a problem for risk assets and growth.

Powell said Wednesday, after the Fed hiked rates by a quarter point, that the Fed’s balance sheet program was on auto pilot, meaning it would continue to allow $50 billion of Treasury and mortgage-backed securities to roll off each month, as they reach maturity. The Fed has tapered the amount of securities it replaces, thereby shrinking its balance sheet.

“The market has not cared at all about the balance sheet reduction and about a week or two ago, it started caring about the balance sheet reduction because the belief was policy was becoming overly tight,” Emanuel said.

(CNBC) Jim Chanos says there’s something wrong with the stock market when rates this low cause panic

(CNBC)

  • Prominent short seller Jim Chanos says he’s concerned about the fragility of the stock market in response to increases in interest rates.
  • “One of the things that worries me is just how fragile we seem to be to small rises in interest rates,” Chanos told CNBC’s Sarah Eisen.
  • While government debt rates rallied for much of 2018 — sometimes sharply — borrowing costs are still far below historical norms.

Thomas Franck@tomwfranckPublished 4:15 PM ET Thu, 13 Dec 2018  Updated 5:51 PM ET Thu, 13 Dec 2018CNBC.com

Jim Chanos

Scott Mlyn | CNBCJim Chanos

Prominent short seller Jim Chanos is troubled by the fragility of the stock market, telling CNBC on Thursday that recent equity sell-offs in response to modest increases in borrowing costs isn’t a healthy sign.

“One of the things that worries me is just how fragile we seem to be to small rises in interest rates,” Chanos told CNBC’s Sarah Eisen. “If I were to tell you that nominal GDP growth recently was 6 percent, with record low unemployment — and good jobs numbers, good wage numbers — and you say ‘Gee! We’re having a problem with 3 percent interest rates,’ you’d say that’s — you know — what kind of fragility in the system?”

Chanos, who spoke from the Yale CEO Summit in New York, referenced the recent rise of the 10-year Treasury note yield above 3 percent.

Chanos: Worried about interest rate sensitivity

Chanos: Worried about interest rate sensitivity  3:50 PM ET Thu, 13 Dec 2018 | 01:30

Strategists blamed the quick rise in interest rates for stock downturns in February and October, when both the Dow Jones Industrial Average and the S&P 500 entered correction levels with falls of more than 10 percent. While government debt rates rallied for much of 2018 — sometimes sharply — borrowing costs are still far below historical norms.

The benchmark 10-year yield traded at highs above 5 percent for several years before the financial crisis; the long-term rate has not traded above 3.5 percent since 2011.

“In interest rate-sensitive industries, we’re talking about what a slowdown they’ve seen in the last two months in their business,” Chanos said. “Something seems to me a little bit off that if, eight or nine years into a recovery, we can’t handle a 10-year — which normally trades a full point below nominal GDP — that would be 5 percent. If rates went to 5 percent, people would probably lose their minds.”

The short seller also noted equity turmoil in Europe, where the German DAX, the FTSE 100 and the Stoxx 600 indexes are all more than 12 percent off their 52-week highs despite near-zero interest rates.

Chanos founded Kynikos Associates in 1985 and has more than $2.1 billion in assets under management, according to an SEC filing.

(CNBC) Cramer: ‘It’s not a safe market’ — in fact, it’s the most treacherous stock market I’ve seen in ‘many a year’

(CNBC)

  • CNBC’s Jim Cramer says the persistent market sell-off has gone beyond concerns about the economy and the Fed.
  • “I think that there’s a lot of people who say, ‘I got to get out. I got to get out, because everyone else is getting out,'” says the “Mad Money” host.
  • The Dow, S&P 500 and Nasdaq started the new week by opening sharply lower after they all tanked about 2 percent Friday.

Matthew J. Belvedere@Matt_BelvederePublished 10:45 AM ET Mon, 17 Dec 2018CNBC.com

Cramer: Employment is a lagging indicator of rate hike

Cramer: Employment is a lagging indicator of rate hike  10:45 AM ET Mon, 17 Dec 2018 | 04:04

CNBC’s Jim Cramer said Monday that the persistent sell-off in the stock market has gone beyond concerns about a slowdown in global economic growth and what the Federal Reserve will do on interest rates this week and next year.

“This was a soul-searching weekend for many of us because you left on Friday kind of in disbelief that the market could just fold. And it’s not just worldwide slowing growth. It’s not just fear of the Fed. But it’s basically exhaustion,” Cramer said on “Squawk on the Street.”

The Dow Jones Industrial AverageS&P 500 and Nasdaq started the new week by falling sharply in early trading after they all tanked about 2 percent Friday. Ahead of Monday’s trading, the Dow, S&P 500 and Nasdaq were off more than 5.5 percent each for the month, marking the worst December start in trading since 1980. All three stock indexes are in correction territory.

“I think that there’s a lot of people who say, ‘I got to get out. I got to get out, because everyone else is getting out,'” said Cramer. “It’s not a safe market. It’s a treacherous market. This is the most treacherous market I’ve seen in a many a year.’

The Fed, which meets Tuesday and Wednesday, is in a tough spot, Cramer said, reiterating that if central bankers don’t raise rates they risk really scaring the market about the economy. Fed Chairman Jerome Powell should increase rates this week and then pause, the “Mad Money” host said.

Powell is too focused on the strong labor market and the “old paradigm” that full employment could cause troublesome inflation, said Cramer, who has been critical of the Fed chief in recent months for allegedly not recognizing that shifts in the economy should warrant a scaled-back rate strategy. Cramer said the job market is a lagging indicator.

President Donald Trump, who has also been prodding Powell for months to pause on rates, tweeted Monday that it’s “incredible” that the Fed is “even considering yet another interest rate hike.”

Donald J. Trump@realDonaldTrump

It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!105K1:27 PM – Dec 17, 2018Twitter Ads info and privacy51.2K people are talking about thisTwitter Ads info and privacy

A rate increase this week would be the fourth in 2018. After its latest hike in September, central bankers projected three moves next year. The Fed will deliver an updated rate path Wednesday. The market expects the path to be scaled back.

(CNBC) The S&P 500 could drop another 20% in 6 to 18 months, says Leuthold’s CIO

(CNBC)

  • There could be a lot more pain for the stock market if Leuthold’s Doug Ramsey’s historical valuation comparison becomes a reality.
  • Ramsey says the S&P 500 could decline 20 percent over the next six to 18 months.
  • The S&P 500 tanked 6.9 percent in October; bounced 1.8 percent in November; but was losing about 4 percent so far this month.

Matthew J. Belvedere@Matt_BelvederePublished 9:55 AM ET Fri, 14 Dec 2018  Updated 10:34 AM ET Fri, 14 Dec 2018CNBC.com

Decline in foreign stocks indicate a cyclical bear market, says major investor

Foreign stock decline indicates cyclical bear market, says major investor  9:30 AM ET Fri, 14 Dec 2018 | 04:33

There could be a lot more pain for the stock market if Leuthold Group’s Doug Ramsey’s historical valuation comparison becomes a reality.

“If we were to mark down the S&P 500 to the same P/E on trailing earnings that existed … back in October 2007, the market would have to go down to 2,250,” the Leuthold chief investment officer told CNBC on Friday.

“If you marked it down to the same price-to-sales ratio that existed in October of ’07, the market would need to go down to 2,050,” he added in a “Squawk Box” interview.

Based on Thursday’s S&P 500 close of 2,650, Ramsey’s price-to-earnings comparison would be a 15 percent decline. His price-to-sales comparison would be a 22 percent drop.

Ramsey said he could see declines of those magnitudes “over the next six to 18 months.”

“I think it’s very likely.” he said. “And again, it’s the point that I don’t need to give you a draconian assumption to get that much down side.”

The Dow Jones Industrial Average dropped more than 200 points on Friday, with weak economic data from China to blame. The S&P 500 opened back in a correction, measured by a decline of 10 percent or more from its most most recent high.

Shortly after its all-time intraday high of 2,940 on Sept. 21, the S&P 500 tanked 6.9 percent in October, its biggest one-month slide since September 2011. It bounced 1.8 percent in November, but went right back into the soup in December, losing about 4 percent so far this month.

Many Wall Street strategists remain cautious or even bearish like Ramsey, including Morgan Stanley’s Michael Wilson, who sees a stagnant performance from stocks and the risk of an “earnings recession.”

But there’s a growing contingent of market watchers who are expressing optimism. UBS chief equity strategist Keith Parker told CNBC Thursday evening the S&P 500 could rise more than 20 percent by the end of 2019. Longtime strategist Jeff Saut of Raymond James predicted on CNBC Thursday morning the stock market has reached a bottom following a tumultuous 10 weeks.

O.P. (BI) Global markets are plunging as the Fed’s ‘hawkish tone’ steals Christmas

O.P.

Conforme eu tinha previsto,
vem aí o maior bear market da história.
Que se segue ao maior e mais longo bull market de sempre.
Perfeitamente normal.
Não há practicamente nada que esteja bem no Mundo.
Era apenas uma questão de tempo.
Ainda por cima com os bancos centrais de todo o Mundo a inprimirem dinheiro desde 2007/2008…
E agora pelo menos a Federal Reserve já parou e está a retirar do mercado 50 biliões de dolares por mês.
Só não viu quem não quis.

FCMP



(BI)

Wall Street trader

Spencer Platt/Getty Images

  • Global stocks drop sharply after Fed raises rates and says monetary policy tightening will continue in 2019.
  • Investors had been hoping that the Fed and Chairman Jerome Powell would be explicitly dovish in his communications, but were left disappointed by the central bank’s tone.
  • It was a sea of red: US stocks dropped on Wednesday, with Asia and Europe following suit on Thursday.
  • All major European indexes are lower by around 1.5% in the first hour of the day. The Euro Stoxx 50 reached a 2016 low. 
  • You can follow the latest market moves at Markets Insider.

Stock markets around the world are tumbling Thursday after the US Federal Reserve dashed hopes that it would go into 2019 with a more dovish policy outlook.

The central bank’s Federal Open Market Committee unanimously voted to raise the fed funds rate by 25 basis points to a range of 2.25% to 2.5% on Wednesday, and said that it expects to continue raising rates in 2019, albeit at a slower pace than the four rate rises this year.

Investors had been hoping that the Fed and Chairman Jerome Powell would be explicitly dovish in his communications, but were left disappointed by the central bank’s tone.

“Investors were expecting a more dovish tone from Powell given the sharp fall in equity markets and challenging global macroeconomic conditions,” Hussein Sayed, Chief Market Strategist at FXTM said in an email Thursday morning. “All they got was a less hawkish tone.” 

“Despite many signs of global economic growth slowing, the Fed does not seem to be very concerned at this stage suggesting that monetary policy will continue to tighten albeit at a slower pace than previously projected,” he continued.

“What appeared to be even more concerning to equity investors is that Powell is not only ignoring Trump’s calls to pause the tightening cycle, but he is also not listening to them.”

Read more: Here’s how the Fed raises interest rates and why it matters

Powell’s comments and the Fed’s overall tone mean that markets are a sea of red Thursday morning, with both European and Asian stocks selling off sharply, and the major US indexes looking set to fall further when the open later in the day.

Here’s the scoreboard:

  • All major European indexes are lower by close to, or more than, 1.5%. Britain’s FTSE 100 has shed 1.3%, while Germany’s DAX is off 1.4%. The benchmark Euro Stoxx 50 reached a 2016 low. 
  • Asian equities were red across the board, with Japan’s Nikkei 225 the biggest casualty, losing 2.8% of its value on the day.
  • Chinese stocks were a little stronger, likely boosted by news that Beijing has resumed purchases of US soybeans. The Shanghai Composite, China’s benchmark index, was down 0.52% on the day.
  • US futures point to another bad day stateside. The S&P 500 dropped 1.5% on Wednesday, and is set to shed another 0.5% when the market opens. Both the Nasdaq and Dow Jones look likely to see similar losses.
  • Oil prices slumped on worries of slowing global growth. Brent crude tumbled 3.9%.



(Forbes) Investment Management: Entering Choppier And Shallower Waters

(Forbes

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This is part one of a two-part article written collaboratively with Matt HarrisThe investment management industry is ripe for disruption. Whether it be wealth management (advising individual and institutional investors where to allocate their capital) or asset management (creating investment vehicles to manage capital), fees are trending down and client expectations are trending up.

This dynamism has created opportunities for new entrants to quickly take share, albeit often in ways that are catalysts for overall industry profit pool reductions.

So where does that leave market incumbents? Their survival will depend on their ability to successfully navigate the changes underway by effectively leveraging new technology to capture more of the value chain from both new and existing customers and expanding into higher margin segments.

The first disruption:  Lowering the price of admission

The entrance of low fee, self-driven trading platforms marked the first disruption in investment management, where compression in trading fees in the industry caused massive profit dislocation.

In 1970 the cost of buying and selling stocks, on average, amounted to more than one percent of transaction value. A retail trade averaged more than $45. When Charles Schwab, Ameritrade and eTrade entered the industry offering significant discounts and digital trading platforms, they sought to win share based on lower fees coupled with a message that the market could be accessible to individuals. Schwab recommended people “talk to Chuck,” and E-Trade presented an actual baby as a pitchman.

Many of the incumbents chose to ignore the discounted offering, in part to avoid cannibalization and in part because they had developed high operating costs, such as large research departments that inhibited them from being able to quickly match or undercut the new entrants. Further, by building new technology to support online client trading, these “new” players were able to capture over $100 billion in eventual market capitalization.

More recently Robin Hood has entered the market offering free trading and in doing so has managed to grow faster than any of its predecessors, while again chipping away at the commission profit pool.

Wealth management:  Feeling the heat

In the last decade, the entrance of robo-advisors has called into question whether a similar disruption will take place in wealth management, resulting in an overall reduction in the profit pools of traditional financial institutions. Robos have entered the space with the same strategy of looking to capture market share through lower fees and messages of accessibility.

Additionally, the collective message of these new entrants has been that a) there is no sustainable alpha; b) human service is over-priced; c) fees and rebalanced, risk-managed beta are all that matters; and d) new technology can make for a far more delightful user experience and a lower cost base.

Despite similar concerns around profit cannibalization, some major financial institutions moved to embrace this new technology and leverage the scale of their existing customer base to play in the robo-advice space. Vanguard and Schwab have leapfrogged Wealthfront and Betterment in total assets under management (AUM), and companies like Future Advisor (acquired by Blackrock) and SigFig are providing B2B robo solutions for dozens of large “traditional banks”.

This fast (by corporate standards) adoption of new technology was driven by industry predictions that robo could quickly destroy the traditional wealth management business.  That prediction has, in one sense, been overblown. In aggregate, Wealthfront and Betterment manage $25.5 billion in AUM, less than 0.03 percent of the industry; even when you add Schwab and Vanguard’s offerings, it remains less than 0.22 percent of industry assets.

However, traditional players that dismiss the impact of robo advisors will likely do so at their own peril. The real disruption is around fees and fee transparency.

Investors are regularly being told – via Betterment, Wealthfront, Vanguard and the rest of the robos – that active manager performance does not justify high fees. Paying high fees to receive active investment management is for suckers, especially when those active managers may have unrestrained conflicts between their clients’ interests and profitability.  Even if that message is aimed at a “new”, younger audience, high-value clients can’t help but hear and absorb it as well.

This of course begs the question, if human advisors are conflicted, expensive and generally fail to add alpha, what is keeping the vast majority of assets in human-driven investment strategies? Why are low fees alone not enough to change investment behavior?

Personal Capital, a robo advisor with approximately 3x the fees of Betterment and Wealthfront, has managed to grow nearly as quickly with an emphasis on combining tech tools with human advisors. Betterment has spent much of its energy in the last two years building out its institutional offering for advisors, a group it once said it would put out of business. A major reason for this is that consumers are looking for not only investment options but also for planning and advice.

A former CEO of one of the largest independent financial advisory firms said that in his experience when people hit 1x their income in savings they become aware of the fact that they need to do something different with their money. When they hit 2-3x their income, they feel a more heightened sense of anxiety about their money management, which, for most, leads to an advisor relationship.

In a survey that Bain Capital Ventures conducted of 556 Americans with $250,000 to $10 million of investable assets, the top financial concern was post-career retirement planning. When asked the most important attributes for selecting a financial advisor, the human attributes of trustworthiness and listening skills ranked highest, whereas fees scored much lower.

These survey results suggest that, even more than total fees, perceptions of conflict and the desire for transparency should concern incumbents that have historically prioritized product and distribution fees over client interests.

A few months ago The New York Times reported a shocking situation where a woman discovered that her mother’s financial advisor from J.P. Morgan Securities had generated $128,000 in fees in one year in her mother’s retirement account, approximately 10 percent of the account’s value. The Department of Labor’s “Fiduciary Rule”, which was supposed to go into effect this year and would have mitigated some financial conflicts such as this, has been indefinitely delayed by the current administration.

The confluence of banks encouraging their advisors to push proprietary products on their clients, coupled with their stingy revenue sharing practices, has caused many of the best financial advisors to open their own advisory practices and become registered investment advisors (RIAs). For the vast majority of these RIAs, who operate under a fiduciary standard for their clients, their focus is holistic and integrated planning and financial management rather than stock picking. The appeal of an independent advisor appears to be resonating with consumers, causing an unprecedented level of firm incorporations and new technology products to serve them.

Despite all of these factors, financial planning and wealth management will still face fee compression. The declines in the underlying costs of investment products (notably index funds and ETFs) have allowed the independent advisors to lower clients’ total fees without decreasing their profits. Nevertheless, over time, that may not be enough, and we are likely to see pressure on advisory fees.

Whether it is robo strategies finding the right way to personalize their offering to better meet client needs or human advisors improving their technology and expanding their scope of services, the old ways of generating large wealth management fees will no longer be sufficient.

David Snider is the Founder & CEO of Harness Wealth, a WealthTech business that guides accomplished individuals to financial opportunity. Previously he was COO & CFO of Compass.

Matt Harris is a managing director at Bain Capital Ventures and is based in New York City. He is consistently ranked as one of the top investors in fintech.

(BBG) Stock Sell-Off Defies Everything the Bulls Hoped Would Stop It

(BBG) Valuations aren’t stopping it. Jerome Powell’s softer tone failed to soothe anyone. The moratorium on tariffs is a fading memory and now the sturdiest chart level of the year is in danger of giving way.

A stock rout that bulls thought was finished three different times since October is in a new and ominous phase, with the Dow Jones Industrial Average losing 1,004 points in two days. No Santa Claus rally. Instead, the S&P 500 Index is hurtling toward the second-worst December on record.

“The stock market doesn’t care what looks good now. It’s wondering if fundamentals will deteriorate in the future,” said Peter Mallouk, co-chief investment officer of Creative Planning, which has around $36 billion under management. “You have a lot of people that are scared, and they’re sitting on the sidelines to wait it out.”

Waiting it out is starting to look like the only viable strategy. On Monday, the S&P 500 briefly pierced a level that had been a psychological foundation for 10 months, its intraday low from Feb. 9. Valuations shrink and shrink — computer and software stocks trade at 15 times next year’s earnings estimates, cheaper than utilities and soapmakers — and the selling just gets worse.

With Monday’s 54-point loss, the S&P has now fallen 2 percent or more six times this quarter. The Nasdaq Composite has done it 10 times. Both are the most since the third quarter of 2011.

Pinning a single cause on the carnage has become an exercise in absurdity, with analysts cycling through a rotating list of reasons that include trade, Donald Trump’s legal travails, China data, sinking oil and cooling home prices. Anyone daring to suggest economic growth may slow in 2019 is pointed to charts showing factories, employment and profits are booming — but those assurances are starting to fall on deaf ears.

Despite indicating a potential respite in early Asian trading Tuesday, S&P 500 Index futures reversed gains to trade little changed as of 1:35 p.m. Hong Kong time.

Investors “are too worried, but that’s the big driver behind the declines we’ve seen recently, overall worries about U.S. growth and worries about global growth,” said Kate Warne, investment strategist at Edward Jones. “Investors have gotten very nervous about the changes they’re seeing ahead and they’re uncertain about what they mean.”

A troubling sign for Americans: equity pain, which all year has been worse overseas, is landing with more force in the U.S. The Russell 2000 Index of small caps, a proxy for domestically oriented companies, slid into a bear market Monday, falling 21 percent since Aug. 31.

On the other hand, since hitting a 19-month low in late October, the MSCI Emerging Markets Index has trended higher, even as the S&P 500 Index keeps making new lows. Stocks in the EM gauge have outperformed the S&P 500 for three consecutive weeks, the most since late January, data compiled by Bloomberg show.

To comfort themselves in the face of such depressing facts, beaten-up investors have looked at past corrections and noticed that this one is still playing out according a relatively benign plan. Under the pattern, major swoons that have interrupted the bull market that began in 2009 have taken around 100 days to tire out before dip-buyers swooped in to put things right.

At the same time, anyone betting the New Year will bring an end to the volatility should be aware that bull markets can die slow deaths. The 88-day sell-off has been going on roughly one-third as long as it has taken for the S&P 500 to fall into the 11 bear markets it’s suffered going back to World War II.

How many more sellers than buyers were there on Monday? The volume of stocks trading lower on the New York Stock Exchange reached 1 billion shares, compared with 158 million that were bought. The difference in trading volume, at 883 million shares, is on track to become the biggest weekly gap since 2016, data compiled by Bloomberg show.

That the worst two-day sell-off since October landed on the same week Powell’s Federal Reserve is expected to announce its ninth interest rate hike was grist for those who see central bank policy behind everything. As willingly as the Fed chairman has walked back his most hawkish pronouncements, nobody thinks monetary policy is likely to loosen even as growth in the economy and earnings slows from this year’s pace.

“That’s what the market is struggling with right now — do they believe in a growth slowdown to trend or something more sinister than that?” said Phil Camporeale, managing director of multi-asset solutions for JPMorgan Asset Management. “I don’t think people really want to take risk, but especially trying to catch a falling knife on equity prices.”