Friday, January 22, 2016

Friday video: Avril Lavigne is so punk

Avril Lavigne vandalizes a soundstage because she's so punk, then she goes out and collects pieces of red plastic:

I only really put this one up because I've been getting really into dayglo green recently. And maybe it's Valentine's Day coming up or something.

Thursday, January 21, 2016

Chinese currency run - some thoughts

The big elephant in the room that people are scared of is an uncontrolled renminbi run. It's obvious we're seeing a bog-standard EM/commodity collapse, the last one ended with the 1997 Asian crisis, and wow what if that happened today with China being the second largest economy in the world OMG LOL BRB?

I just realized there's some problems with this.

First, in 1997, the countries hit had low currency reserves, and China's are huge. Sure, of China's $3 point something trillion, only $1.6 trillion might be immediately available with the rest tied up; but that brings up an important point that they seem not to teach us in (undergrad) economics.

There are upside limits to everything.

It's easy to break the Mexican peso or the Thai baht when they're supported by low reserves: you simply have to mobilize more capital than that central bank has.

But how do you mobilize over $1.6 trillion to slam the Chinese central bank? I don't think there's enough available money in the world to break the yuan. Maybe if every investment bank worked in unison, you might succeed; but then you run into the second problem, that any failure in co-ordination or defection from plan will leave the rest of the team high and dry.

Essentially, I don't see how China's central bank can get broken without a higher level of trust and co-operation than what you should normally expect from bankers. Especially not now, with the US equity markets providing an extra source of uncertainty.

Secondly, you would need to mobilize so much capital that your trade would be an existential threat to your own bank. And you're not going to get bailed out by your government when they find out you zeroed out your reserves to cause a geopolitical crisis, making Li Keqiang angry at your government, with a hoped-for side-effect of destroying your nation's net exports.

If you fail the trade, you're going to be living the rest of your life in exile in Madagascar. That might sound nice, but wait til you see the spiders.

And thirdly, you know the risk is going to be higher than it was for the 1998 peso slam, because China's government is known for doing slightly crazy things with the intent of punishing their enemies. You don't want to go $100 billion short yuan long USD and then see China slam you 3% in overnight markets, then impose capital controls, then send the police to pay a visit to your Beijing office. Risk/reward has to be a lot lower.

So I just don't get how an immediate, fast, catastrophic yuan devaluation can happen.

It can still devalue with normal capital outflows, sure. Til the government shuts that door.

Some links from Josh Brown and Barry Ritholtz

Usually, Josh Brown and Barry Ritholtz aren't worth reading. But when things get tricky, suddenly they quit with the crap and start providing valuable insights:

The Reformed Borker (Bork Bork Bork!) - it's correction Twitter! I guess you could use that as a contrary indicator, no? I mean, Google Trends is so 2013, right?

Bloomberg - Saudi currency is COLLAPSING OMG. Wow, this would be a world-shaking story, if only Saudi Arabia wasn't a useless mud-hut backwater that does nothing whatsoever for the world economy beyond pumping oil, funding mass-murdering religious psychopaths, and providing a generous source for Bangladeshi remittances.

Ambrose Evans-Pritchard - WHAARRRRRGARBL. Apparently Ambrose found someone at Davos who thinks the world is on the cusp of a massive repudiation of debt. Then he spent the next couple hours laundering the spooge out of his pants.

Joe Fahmy - two scenarios from here. He's a good read, because he posts rarely and is always happy to sit on the fence til he finds conviction.

The Reformed Borker (Bork Bork Bork!) - everyone's a closet technician. Except some do it well, while others are clowns. The first and most important two indicators are volume and price, guys.

NY Times - China's factory slowdown. This is the money shot about the Chinese economy, for me:
While there are still many active factories in Dongguan, the main ones succeeding are increasingly high-tech and less reliant on large staffs.

After working 15 years at an automotive plant in Alabama, Michael Recha moved to Dongguan in 2012 to set up a specialized factory for car parts, one of the first of its kind in China. Owned by Gestamp, a Spanish automotive component maker, the factory uses a technology called hot stamping to form metal sheets into precision parts like car bumpers and body panels for both local and foreign carmakers.

But robots do an increasing share of the work. The factory employs just 400 workers working two shifts a day.

“China is no longer a low-cost country, so we have the same robots and equipment here” as in Europe, Mr. Recha said.
So within China, higher wages are driving industries to invest in capital to improve the marginal product of domestic labour? Hey, didn't I read something about that sort of thing in a development economics textbook? I think the story is that this ends well.

Caltech - investigators find evidence of a new ninth planet. It's a mysterious giant planet on a bizarre, highly elliptical orbit. I have only one thing to say about this:


JC Parets on the H&S pattern

Well, he is a TA after all, so let's see what he has to say:

JC Parets - about that H&S pattern in the S&P 500. Quote:

The Head and Shoulders experts are popping up everywhere these days.

OK, let's stop there and let that sink in.

Every single clown on the internet is looking at the same H&S pattern right now.

Good? OK, let's go on:

Never has there been a price pattern searched for or imagined in people’s minds more than the infamous Head & Shoulders Pattern. Funny, as much as they love to talk about it and as much airtime as it gets on the TV and Internets, it’s actually one of the more rare patterns driven by supply and demand. The reason it is so rare is because, by definition, it is a reversal pattern. Since markets trend, and ongoing trends tend to continue trending in their direction, by looking for a Head and Shoulders Pattern, you are doing the exact opposite of what we’re trying to do here in the first place: recognize trends.

Again, good point. Especially when someone's thinking the target of this H&S is 1600, what they're essentially doing is saying the secular uptrend in equities is going to end.

Secular equity trends don't change unless the economy changes, by the way.

Back to JC:

Currently, we are seeing such a pattern developing in the S&P500 Index. With a Left Shoulder in 2014, the Head throughout the Spring and Summer last year, and now a Right Shoulder in Q4, we have a Neckline near the 1860-1870 area. The S&P trading below that level, and only below that, would confirm that this is indeed, the rare structural topping pattern known as Head & Shoulders.

Totally cool, no disagreement from me. And I guess he'd agree this is a valid H&S brewing, because the right shoulder is deformed with higher volume. Looks perfectly good. That's totally a textbook head & shoulders.

And we know this because you, me, and every other clown on the internet has by now seen loads of previous H&S calls that didn't work out, and only afterwards did we find out that an H&S requires high volume on the right side and deformation because of fast price movement.

So now we all ignore the idiot with a blog somewhere who calls an H&S top based on an incorrect understanding of what counts as an H&S pattern. But this is a textbook H&S we're seeing now, so suddenly the idiot with a blog somewhere can point to a textbook pattern and so this time we believe him.

But here's the money shot:

The measured move target based on a completion of a Head and Shoulders Top is the distance between the top of the Head and the Neckline, subtracted from the Neckline. Our math gives us about 1870 minus 270, which would take us down under 1600 in the S&P500. This has been a target of mine for months, so it’s nothing too exciting from our standpoint. It really just confirmation of everything we’re seeing elsewhere.

I still think this is a sell any strength market environment. Any breaks of a neckline this week, or next, would likely lead to another 14-15% of downside for this market. I don’t think it’s anything irregular and would really just be a nice correction after a monster rally in the market since 2009. Think about it: A 25% correction in prices after a 220% rally in 6 years? Seems pretty reasonable, if you ask me.

Know what, JC? I think the entire market agrees with you right now! Absolutely! What's so terrible about a 25% correction from a 220% monster rally? You're supposed to see corrections, after all!

In fact, people spent all of 2014-2015 asking when the heck the 20% mid-cycle correction was going to come, JC!

They don't feel the August-September 2011 Eurodoom was a correction, because it was only 19.4% on the S&P 500.

The Gary Wordsalad June 2013 bottom-tick, which was supposed to usher in a massive repudiation of debt as a dishonest system came apart at the seams? A paltry 6%.

And remember the Ebola epidemic of October 2014, where millions of Americans were dying? That was just a pitiful 7.7% correction!

And the August 2015 flash crash, when the market went no-bid and QQQ was trading at a 15% discount to the NASDAQ index, also wasn't a good enough correction. That was only 12.3% on SPY.

They want more. Whitey wants a man's correction!

And now they see the H&S pattern, and they're thinking exactly what you're thinking:

We’ve been leaning on the short side for months now and would look to sell into strength, especially towards 1980, if we get up there. Also, I would definitely be aggressively adding to short positions if the S&P500 is below its Neckline. I think the levels are clean and this is a pretty simple setup.

And I betcha everyone else wants to do that too. That is the strategy of every single coke-snorting egomaniacal White-ass honky on Wall Street.

And the dummies and morons want to do this because they want to short the market to 0 as their long-awaited hypermageddon wipes out all worldwide wealth, while the smarter guys want to do that to make a bit of money before going long for the next 5-year upleg in the market.

Know what, JC?

That sounds like there's one heck of a crowded trade based on the H&S pattern.

I don't think you're going to get much of a neckline break.

Why? Well, if people are happy to puke Ford down to a 4% dividend yield with auto sales at an all-time high and gasoline prices plummeting, while the UST30Y is trading at under 2% yield, then there's not much lower that this market can go from a valuation perspective - barring a worldwide recession which hasn't been happening.

It's also silly to sell a monster monopolist like General Electric and go to cash or bonds when GE has a 3% yield, is finally cashing up by selling its noncore assets, and (trust me, I know electrical) it's still going to be the world-dominating source of all lighting products for the next 100 years.

I see the above, and I'm suddenly itching to go long the US equities again.

AAII billings

Calculated Risk - AAII billings end year on positive note. So apparently commercial real estate hasn't collapsed.

I wonder how correlated commercial real estate construction is with investment? Because there's a difference between an investment-led recession and an inventory correction, and I think architectural billings would be a good clue as to which is happening right now.

But hey, you guys keep selling. Try real hard to break through that H&S neckline, guys, we need that extra selling to provide a good strong base for the next multiyear 50% upmove.

Wednesday, January 20, 2016

About glorious American militias

Stonekettle Station - they make a lot of noise but they're fucking pussies. Here's Slim Jim on what a "well-regulated militia" really means:

At the Battle of Kip’s Bay, General Washington attempted to rally the panicked and fleeing militia by first commanding “take the walls!” pointing to the stone walls of the cornfields that made up the battleground. The men ignored him and continued to run away. Then because they were in utter disarray and their officers unwilling to stand their ground, Washington commanded the militia to “take the cornfields!” just to get them off the road and to stop running. Instead, the militia dropped their weapons and ran blindly away up the Post Road. Washington literally beat the fleeing militiamen with his cane and the flat of his sword in an attempt to turn their cowardice. Finally in frustration, Washington declared he would start running them through if they didn’t stand and fight. They didn’t.

Meanwhile on Long Island, the militia, facing battle hardened German troops under command of British General William Howe, threw down their weapons, raised their hands and attempted to surrender. The Germans shot the Americans in the face and then stabbed them with bayonets.

In anything but a support role – and often not even then – the militia was an abject failure. They were worse than useless and held in utter contempt by actual soldiers both on the British and the American side of the Revolution. The truth of the matter is that the Continental Army which Washington demanded from the Continental Congress and that eventually won our independence from King George, those soldiers were a professional military force. Untested and unsure at first, but after that terrible winter at Valley Forge, they were well trained courtesy of Baron Friedrich von Steuben and increasingly well supplied by the Continental Congress and supported by France.

If the Founding Fathers had depended for their independence on the various irregular militias, they surely would have all been hanged – separately and together.

Those men, those men who led the Continental Army and fought for our freedom, those men knew exactly what they were doing when they included the words “well-regulated militia” in the Second Amendment.

In case you didn't get it, "well-regulated" means "not a bunch of fiftysomething fat blowhard psychopaths".

Hey, wouldn't it be funny

Hey, wouldn't it be funny if oil bounced back right here and everyone suddenly flooded back into the US stock market, we got a huge bounce, and people suddenly forgot the H&S predictions of the amateur TA brigade?

And yeah I own gold too

Here's a chart of gold in Canadian dollars:

Here's the weekly candles:

It's actually been a pretty good investment for Canadians these past 2 years, hasn't it?

Though of course B2Gold still sucks.


Here's some charts for you.

First, this past weekend's update to GDPNow:

This has been tanking for a while. However, the past two winters also came with highly anomalous winter quarter GDP readings, so I'd really just take this as proof that the Fed still hasn't figured out how they're fucking up their seasonal adjustments.

Nevertheless, Wall Street Whitey will look at the GDPNow reading as yet another indicator of recession and reason to sell the universe. So I guess the selling continues til spring. Put GDPNow in your hotlinks.

And here's the S&P500:

It's bullshit and silly, but this is the right hand side of a broken H&S, it actually does have volume and deformation on the right side so it does count as a valid H&S, and thus I guess Wall Street Whitey has no choice but to sell it down to 1500 because technical analysis works that way.

And here's $VIX:

A slow crawl up in $VIX since Xmas looks ominous, because if things really break this could pop to something nuts like 80. In which case maybe we see another August disconnect, where you can buy QQQ for 15% less than its underlying index.

And the $VIX term structure is inverted 6 months out. That shows fear too.

So, the overall market sentiment is best summarized by Bender and Parallel-Universe Bender:

Liz Ann Sonders is smarter than you

Having switched to a new smartphone over Xmas, I forgot to replace my quicklink to Schwab, and so I've only just now remembered how much I got out of reading Liz Ann Sonders.

So here's her analysis from last week:

Schwab - market perspective. Lots of charts like Baker-Hughes rig count and manufacturing vs services, and scary negative figures like falling corp capex. Quote from the intro:
Happy New Year!? Few investors were sorry to see 2015 go, with its stomach-churning moves ultimately ending up with major indices close to where they started; but the start to 2016 has been decidedly worse. Multiple triple-digit down days on the Dow during the first week of trading likely unnerved investors. To that, we say, stay calm. The apparent catalysts for the selling—geopolitical and Chinese growth fears—haven’t greatly altered the overall picture to any great degree. Chinese economic data was in line with other releases noting that manufacturing is weakening, which is to be expected given their attempt to transition to a more services-oriented economy. Concerns about the continued devaluation of China’s currency as a signal of economic distress appear to be overdone. And the Middle East tension has had no impact on oil prices, while North Korea is economically nonexistent and even their one-time ally China condemned the move. But across asset classes, correlations have shot higher and greater global interconnectedness suggests ongoing bouts of volatility—extreme at times.

The S&P 500 Index closed 2015 down a scant 0.7%, but many stocks lost much more. The overall market was held up by good performance by a handful of extremely popular stock—a phenomenon known as narrowing breadth and often a troublesome sign for equities. No doubt, some of the selling seen to start the year can be attributed to some profit taking in some of those winners.

However, there is a glimmer of hope following the running to go nowhere action of 2015. Since 1970 there have been six “flat” years for the S&P 500 (-2% to +2%), and following those years, the Index returned between 11-34%, which if it holds true would be substantially better than most predictions on the Street. But geopolitical issues, some profit taking, and global growth concerns have contributed to a rough start. Despite this, we don’t believe the long-running bull market is ready to die just yet. As legendary investor John Templeton noted, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” US equity markets seem a long way from euphoria, and much closer to skepticism. We anticipate further volatility and greater frequency of pullbacks; but barring an economic recession, we think a bear market will be avoided and that stock will ultimately break to the upside.

Tuesday, January 19, 2016

B2Gold sucks

It's the news:

Calculated Risk - world oil supply and demand. There's still too much oil, so the price has to go down. Sorry, oilbugs, but we in the gold world have seen this play out a few years ahead of you boys.

New Deal Demoncrat - it's only a commodities recession. Sure, but I gather the central fear isn't so much oilpatch weakness, but rather the ultracollapse of China.

Olivier Blanchard - I just don't get it. He thinks the worldwide market weakness is just herd behaviour. Well, probably, but the herd doesn't stop til they realize they're being silly.

Krugginator - oil goes nonlinear. The argument goes that oil going down too fast can have a negative effect on the economy. And you know things have gotten silly when even economists are commenting on the stock market.

Gavyn Davies - the necessary evil of Chinese devaluation. A basic unalterable rule of markets is that currency values are highly dependent on expectations. So it is literally impossible for China to pursue a slow and measured 10% currency devaluation over a year: once it becomes necessary it'll happen in a couple days. We've seen it in the past and nothing has changed in the physics of currency markets since. Even more, it has to overshoot til the drop generates buying support in expectation of upward recovery.

FT Alphaville - signs of capitulation. Not that things can't capitulate more, of course.

WSJ - the world's 62 richest people are as rich as the poorest 3.5 billion. Even more, the richest 1% has more wealth than the other 99% combined. My question: so when does the bloodbath begin?

Sunday, January 17, 2016

Bill Drummond on the iPod

Here's Bill Drummond, known among other things for killing Julian Cope*, talking about the iPod:

* - not really, he even wrote a song about it. link