The Yellenburg Omen! Are Fed Rate Hikes Nailing The Stock Market?

Recently, the Hindenburg Omen has been flashing red, signifying a coming stock market correction. But the Omen has flashed several times since 2008 and nothing has happened.

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A closer look at the McClellan Oscillator.

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The VIX stock market volatility index is on the rise.

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But will another rate hike in December by Yellen and crew cause further declines in the stock market? It lends itself to a new term: Oryellian.

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Deutsche Bank Ramps Up Leveraged Loan Business In “Hail Mary Pass” For Revenues (More Risky Lending)

Deutsche Bank is still suffering from the global financial crisis where their stock price peaked at $125 and is now only $16.93, despite the staggering intervention from the European Central Bank (ECB).

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Deutche’s revenues have been faltering due to a decline in trading revenue. DB’s trading revenue was down 30% year-on-year to €1.512 billion versus €2.162 billion in Q2 2017.  Trading revenues in Q2 2017 fell 18% year-on-year to 1.666 billion euros versus 2.027 billion euros.

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Hence, Deutsche Bank is now throwing a “Hail Mary pass” and  hoping that leverage loan growth saves the day.  A leveraged loan is a commercial loan that is extended to companies or individuals that already have considerable amounts of debt. Lenders consider leveraged loans to carry a higher risk of default, and as a result, a leveraged loan is more costly to the borrower.

That’s the ticket. Bet on risky corporate loans as your HMP (Hail Mary Pass). Well, leverage loans had their best year in 2017.

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But DB’s rank in terms of leveraged loans is shrinking.

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DBs earning per share is the stuff of … the German Battleship Bismarck.

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Yes, global central bank policies have definitely encourage more risk taking.

Deutsche Bank? F*** that $hit. JP Morgan Chase!!!

Here is Boston College’s Doug Flutie making his memorable “Hail Mary” pass against Miami. The blueprint for DB’s leverage loan pass for increased earnings.

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Retail Inferno! America’s ‘Retail Apocalypse’ Is Really Just Beginning

That headline from Bloomberg sounds suspiciously like the line from the Brendan Fraser flick The Mummy, “Death is only the beginning.”

As an example, CNN reported that Toys ‘R’ Us declared bankrupty. While Toys ‘R’ US will keep their stores open for the Holiday season, they will likely be forced to shutter underperforming stores next year.

According to Bloomberg, In the U.S., more than 3,000 stores did open in the first three quarters of this year. But almost 6,800 closed. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.

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The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.

Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.

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Yes, this map looks  very much like a map of the “subprime” residential mortgage crisis.

Let’s focus on Pittsburgh as an example. Watchlisted Commercial Real Estate Loans in the Pittsburgh, PA are include all property types. not just retail. So it is more than just the Amazon effect (on-line retail) causing the closure of retail space. In short, US commercial real estate developers built too much inventory.

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One of the causes of CRE overbuilding? The Fed’s zero interest rate policy!

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Yes, it is a retail inferno.

Short-Volatility Funds Are Being Flooded With Cash (VIX Evaporating)

The SPX volatility index VIX is near an all-time low as The Federal Reserve attempts to raise their target rate and unwind their $4.46 trillion balance sheet. The question remains as to how further rate increases and balance sheet unwinding will impact equity volatility.

(Bloomberg) Exchange-trade products betting that volatility will sink lower have never been more popular.

Even as the CBOE Volatility Index plunges to its lowest on record and U.S. stocks march to fresh highs, investors have continued to give the short-volatility trade their vote of confidence this year. With $2.4 billion in assets, short volatility exchange-traded funds are backed by the most cash on record, according to data compiled by Bloomberg.

The funds’ meteoric rise is to some degree a bet that the U.S. stock market will keep rising, since the VIX and S&P 500 move in opposite directions about 80 percent of the time. With the S&P 500 up 16 percent and at its highest on record, the $1.1 billion VelocityShare Daily Inverse VIX ETN has surged 141 percent, heading toward its best yearly performance in five years.

For now, the volatility bears have the momentum. Inverse VIX funds have nearly tripled in size this year alone. The amount of assets tracking short-volatility products rose above that of their long-volatility counterparts for the first time in two years in the third quarter.


In fact, regardless of direction, volatility itself is an in-demand asset class. The popularity of volatility products far outweighs that of other prominent corners in the U.S.-listed ETF market. With $4.6 billion in assets, they are larger than funds tracking any single European country, other than Germany. They also have more assets than those tracking all frontier markets and all ESG (environmental, social and governance) strategies combined.

However, despite the growth and the stellar returns, it’s unlikely most short-volatility investors have stuck around to see all of their triple-digit profit. Because of the funds’ structure, holding periods tend to be as short as a few days or even just a few hours.

With Central Banks practicing volatility suppression (monetary easing), the equity volatility index is near all-time lows (under 10)

Here is the VIX volatility surface.

For the TYVIX (10 year Treasury note volatility), it remains near the all-time low.

 

Big Bubbles: Endless Printing and Rate Suppression Have Created The Mother of All Asset Bubbles

Crooner Don Ho almost got it right in his signature song “Tiny Bubbles.” But it is now “BIG BUBBLES in the economy, make me nervous all over, with a feeling that I’m gonna lose it it all.”

Check it out. Home prices are seemingly unstoppable and the S&P500 index is relentless. The unstoppable asset price bubbles started in the mid-1990s when M2 Money Velocity peaked. The housing bubble burst then rallied back it bubble levels again, but the stock market has outpaced its former glory.

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Of course, the M2 Money stock is over 3 times greater than in 1995 (that’s a lot of printing!) and interest rates have been depresssed since December 2008.

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Now, The Federal Reserve is tapping the brakes by ever-so-slowly raising The Fed Funds Target Rate while at the same time slowing M2 Money Supply YoY (we are now at the slowest YoY growth rate of money since early 2011. Next up? Today’s FOMC meeting.

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Big bubbles thanks to Central Banks.`tinybuubl

The VXX Vaporizer: The Amazing, Disappearing Equity Volatility

Yes, stock market volatility has evaporated as measured by the VIX and VXX indices.

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The iPath S&P 500 VIX Short-Term Futures ETN is an exchange-traded note issued in the USA. The Note will provide investors with a cash payment at the scheduled maturity or early redemption based on the  performance of the underlying index, the S&P 500 Short-Term VIX Futures TR Index.

But the 10-year Treasury note volatility index TYVIX has fallen as well.

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Yes, it’s the amazing equity volatility vaporizer, brought to you by the global central banks.

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New Home Sales Rise 18.9% In September, Largest Increase Since 1992 (25 Years)

New home sales surged 18.9% in September, the largest monthly gain since 1992.

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New home sales rose sharply in the northeast and the south.

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Homebuilders are doing quite well compared to the S&P 500 index.

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The two natural disasters (Harvey and Irma) certainly destroyed a substantial amount of the housing stock and caused population displacement.