August 2017

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Israeli occupation forces confiscate Children’s toys on eve of Eid celebration

Israeli occupation forces confiscated the toys of Bani Naim’s town children in eastern Hebron in the occupied West Bank on Thursday. Local sources stated that Israeli occupation forces broke into the town and searched a number of children’s toy stores. They confiscated bead-rifles, paintballs, firecrackers and laser toys claiming that there was an issue with permits. Read More: US, Israel ‘masterminding’ weapons supplies to ‘terrorists’ in Syria In a statement distributed and glued on the doors of the town’s shops, the occupation forces demanded that “the possession of dangerous games such as beads guns, paintballs, fireworks and laser toys without permission is forbidden in this place. Selling dangerous toys that are used by terrorist organizations is also prohibited as it may […]


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VAR Shocks!

By Chris at www.CapitalistExploits.at

How much money can you lose on any given day according to an entire squadron of dynamic variable factors?

It’s called value at risk (VAR), and because every hedge fund, investment bank, prop house, and algo firm wants to assess their own risk — while at the same time sneakily wanting to know how the rest of the market is assessing and quantifying their own risk — the models are all built on much the same inputs and, as such, are basically mirrors of each other.

So, you see VAR models eventually conform to the very thing they’re designed to protect us against. You see they are mostly like milk bottles — exactly the same, and they’re used widely, because they’re widely used.

Understand? Good!

Back when I had more hair… actually any hair, and I didn’t have to do 200 bloody sit-ups everyday just to keep flab from attaching itself to my stomach like some unwanted starved leech, I worked for a firm who, in order to protect their anonymity, I’ll just call PMJordan.

Anyway, while working at Lucifer, I worked on a project with the quants who built these VAR models.

These were very, very smart people. They were so smart that normal people had difficulty communicating with them.

One guy, who I’ll call “Frenchie” (to protect the anonymity of his origins), could explain parabolic curve theory to you with exquisite detail while simultaneously solving math problems in his head in mere seconds. Problems, I might add, which I would need a spreadsheet, half an hour, and intense frowning to complete.

What solidified my faith in his planet-sized brain was the fact that he was so awkward and almost completely incapable of social engagements. After the head of Lucifer in the London office addressed him, he promptly gazed up, flinched awkwardly, and stared out the window. Clearly a genius.

And “Frenchie” wasn’t the only one, because quants just like him can be found across the investment landscape developing VAR models and staring into space while their brains whirr and click away. But still, with all this brain power VAR models continue to be proven crap.

VAR models never managed to help those caught off balance when the CHF broke, and they never helped those caught off balance with Brexit.

Part of the problem, I suspect, is that in order to develop them you need a whopping great data set. Clearly the statistics based on data over, say, 10 years is better than that of 5, 100 better than 50, and so on.

One of my team here at Capitalist Exploits HQ referred me to the work of one Paul Schmelzing. Schmelzing is a visiting scholar at the Bank of England from Harvard University where he concentrates on 20th century financial history and he wrote an excellent piece on the history of bond bubbles going all the way back to the 1285. THAT’s a decent data set!

Probably the most important takeaway from Paul’s work — for me at least — is that at no period in history has there ever been the sort of bat sh*t crazy central bank intervention in the bond markets we’ve enjoyed in the last decade or so. VAR models don’t account for this.

That quite literally means that this time it is different.

I nicked this chart from Paul’s work. It provides us a clear picture over hundreds of years and thus puts things into perspective very nicely.

So here we sit in 2017 with some interesting data points, namely that back in July of last year the peak in the bond cycle was reached. Remember when I ranted about how bonds were trading as commodities?

Well, that was just one month after the peak in bonds. When we had over $13 trillion in bonds trading at negative yields.

This was the lowest level the risk free rate has ever reached in sovereign bond market history in 800 years.

This is one of the most remarkable bond bull market in all of recorded history. Lucky us!

Does this sound crazy? I think so.

How we got here? Fiscal expansion – the flip side of the bond bull market. Here we have the FED (US), the BOE (UK), ECB (EU), and BOJ (Japan).

There are a few things that turn any market. In the bond market, there are 3 that come to mind:

  1. Inflation is one of those things
  2. Geopolitical events are another
  3. Volatility is the third

Let’s look at all three.

Let’s take a look at unemployment rates — historically very closely tied with inflation. The second lowest rate since the late 60’s. Mmmm…

In the UK, we have to go back to the 70’s to find lower unemployment figures:

The EU is not faring as well but the trajectory and trend are clear:

And Japan? Same trend:

Where are you going with all this, Chris?

China just printed a 5.5% PPI number.

And over in the US….This just out from Bloomberg.

U.S. second-quarter growth was revised upward to the fastest pace in two years on stronger household spending and a bigger gain in business investment, putting the economy on a stronger track, Commerce Department data showed Wednesday.

  • Gross domestic product rose at a 3% annualized rate from prior quarter (est. 2.7%); revised from initial estimate of 2.6%
  • Consumer spending, biggest part of the economy, grew 3.3% (est. 3%), most since second quarter of 2016 and revised from 2.8%
  • Nonresidential fixed investment rose 6.9%, revised from initial increase of 5.2%
  • Corporate pretax earnings rose 7% y/y; up 1.3% q/q

And… our sauerkraut-eating, beer-swilling friends are experiencing the highest rate of accelerating inflationary growth in the last 23 years:

Our pasty friends in the UK? Bam!

Ok, so now we have all of this taking place.

Inflation being not so benign… central bankers actually getting what they want… while geopolitical risks, which I don’t have time to discuss here today but have written about extensively, are far higher than the market is pricing. And almost nobody seems to be paying much attention to them!

The connection between the structural political breaks and how these affect and feed both central bank policies and market participants behaviour is, I think, one of the most critical elements that bond investors are not considering.

Remember, both inflation or geopolitical shocks can impact the bond markets negatively. And what about the third one?

Volatility. Well, take a look for yourself.

Given that the treasury market volatility index just plunged again, the answer is that there are still trillions of dollars out there that believe in reward free risk. Are those planet sized brains building VAR models going to get it wrong again?

Question

VAR Poll

Cast your vote here and also see what others think

– Chris

“Take calculated risks. That is quite different from being rash.” — George S. Patton

 

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Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).

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The post VAR Shocks! appeared first on crude-oil.news.


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The Alarming Militarization Of American Police

Via StockBoardAsset.com,

President Donald Trump has signed an executive order clearing the way for local police in America to receive military gear such as grenade launchers, high-calibre weapons, and armored vehicles. Trump and the DOJ have just reversed former President Barack Obama’s restrictions that allows local police departments to receive surplus military equipment.

Per ABCNews,

Restoring the program will “ensure that you can get the lifesaving gear that you need to do your job,” Attorney General Jeff Sessions told a cheering crowd at a national convention of the Fraternal Order of Police in Nashville, Tennessee. The group, America’s largest organization of rank-and-file officers, endorsed Trump for president after he promised to revamp the program.

The big move by Trump comes at a time where American inner cities such as Baltimore and Chicago are in absolute turmoil. The President has been very vocal about the prior administration’s unfair criticism of police forces and it was an easy win to appease his core supporters.

On the other hand, civil liberties groups and various lawmakers are not enthused about the militarization of local police and argue this will only lead to a further escalation of violence.

Kanya Bennett, legislative counsel for the ACLU,

  “Tensions between law enforcement and communities remain high, yet the president and the attorney general are giving the police military-grade weaponry instead of practical, effective ways to protect and serve everyone”

Let’s not kid ourselves, America by the day is turning into a police state where power through police force is the objective. The citizens of the police state may experience restrictions on social or financial mobility, or even on their freedom to express or communicate alternative political views.

There is another startling development in the Police States of America (PSA), in the next 8-years military drones will be replacing police helicopters. The report from Defense One states “enormous military-style drones” could be policing the skies from 2,000 ft..

Back in 2014-2015, Baltimore was a testing ground for the deep state’s military spy blimps….

Back to the Police States of America (PSA), earlier this year, I was able to see first hand the militarization in Baltimore County’s police force…

Conclusion

Like it or not, the Police States of America (PSA) is here. This time around the war comes home and the government is preparing through the militarization of local police forces. America is in a transitional period healing itself from decades of democratically controlled leadership in the inner cities, along with massive amounts of deindustrialization that has left our country rotting from the inside.

*  *  *

Ron Paul asks “Is a Militarized Police The Answer To Inner City Turmoil?”

Is President Trump’s decision being “tough on crime,” as he likes to claim, or is it all about controlling the population and undermining civil liberties?

The post The Alarming Militarization Of American Police appeared first on crude-oil.news.


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Morocco slams prominent francophone magazine for “defamatory cover page”

The Moroccan government denounced today the French-language magazine Jeune Afrique for publishing anti-Morocco cover page of its latest edition. Speaking at a press conference, the government’s spokesperson, Mustapha Al-Khalfi  said that the country had been exposed to “unjust campaign” by the francophone magazine, adding that it was trying to promote a “negative image” of the North African country. Read More: The weakening of Morocco’s state institutions worsens the political logjam Khalfi described the magazine as “trying to flee responsibility instead of finding the at the real causes of terrorism emergence.” He described the act as “unacceptable,” stressing that Morocco has been providing assistance to several neighbouring countries in the fight against terrorism. “Morocco has not witnessed any terrorist attacks in recent […]


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Did China’s Bronze Swan Just Arrive? Copper Inventories Crash Most In History

Buyers withdrew more copper from the London Metal Exchange’s global warehouse network on Wednesday than at any time since daily records began in 1996, extending a 19-day drop.

As Bloomberg notes, while the net decline in percentage terms was also the biggest since the height of China’s raw-materials boom in 2006, some have warned against reading such moves as an end to a years-long supply glut. A tug of war between financial traders with opposing views of the market has led to sharp swings in metal moving in and out of storage in the past year.

However, stockpiles also slumped 8.2% on the Shanghai Futures Exchange, which is notable because last year we saw the London and Shanghai inventories see-sawing (up in London, down in Shanghai, and vice versa)…

A question that emerged is what China is spending all this newly created money on. One answer emerged overnight when Bloomberg reported that after tumbling in the first half of 2015, copper inventories at the Shanghai Futures Exchange had been steadily rising, and in the most recent week soared by 11% to an all time high of 305,106 tons.

 

At the same time reserves at the London Metals Exchange declined for 11 days to the lowest level in more than a year, in other words China is shifting idle inventory from Point A to Point B.

But, this most recent withdrawal surge (the largest in history) suggests a sudden failure of the long-running commodity “collateralization” transaction – or CCFD – regime implemented in China years ago, as described in this post and summarized in the chart below…

Copper, as China pundits may know, is the key shadow interest rate arbitrage tool, through the use of financing deals that use commodities with high value-to-density ratios such as gold, copper, nickel, which in turn are used as collateral against which USD-denominated China-domestic Letters of Credit are pleged, in what can often result in a seemingly infinite rehypothecation loop (see explanation below) between related onshore and offshore entities, allowing loop participants to pick up virtually risk-free arbitrage (i.e., profits), which however boosts China’s FX lending and leads to upward pressure on the CNY.

 

And sure enough, we have seen USDCNY surging in recent months… (even if the RMB basket against global currencies has stabilized)

 

 

An example of a typical, simplified, CCFD

 

In this section we present an example of how a typical Chinese Copper Financing Deal (CCFD) works, and then discuss how the various parties involved are affected if the deals are forced to unwind. Exhibit 3 is a ‘simplified’ example of a CCFD, including specific reference to how the process places upward pressure on the RMB/USD. We believe this is the predominant structure of CCFDs, with other forms of Chinese copper financing deals much less profitable and likely only a small proportion of total deal volumes.

 

To summarize, Goldman notes that these shadow banking vehicles – CCFDs – involve a long copper physical positions and a short futures position on the LME.

And so, the current crackdown on leverage in the system by Chinese authorities may be forcing unwinds of the CCFDs – thus putting upward pressure on Copper futures (unwinding short positions) and selling physical copper (which would mean procuring the physical metal before passing it on). These are exactly what we are seeing in the market currently.

So is this the bronze swan?

*  *  *

Barclays has also called the copper rally overhyped, while Bank of America Merrill Lynch said it’s the metal most at risk of a reversal, with the optimism of investors in financial futures disconnected from slow conditions in the physical market.

“When you look at the state of the refined copper market, you certainly question why prices have risen so significantly,” Snowdon said by phone from London.

And finally, bear in mind that the lagged response to China’s credit impulse is about to hit base metals…The rise and fall in China’s credit impulse that has been so highly correlated (on a lagged basis) with copper for the last eight years…

However, as one analyst noted,

“Getting short in any base metal is risky right now when you have this broad positive macro theme and increasing investor participation, particularly in China’s onshore market.”

 

“This is probably one to stand back from and wait for Chinese macro sentiment to turn.”

And finally, bringing the narrative back to American shores, DoubleLine’s Jeff Gundlach tweeted recently about the “Copper/Gold ratio soaring to the high of the year!”…

Adding

“Not good news for the “1.50% 10 year” crowd. Neither is 10 year Bund holding above 50 bp.”

If China’s legged credit impulse is about to have its peak effect on Copper (as we showed above) then perhaps, just perhaps, the real pain trade (given the surging shorts in T-Bonds), is a 1.50% 10Y yield after all… driven by a plunge in copper prices.

The post Did China’s Bronze Swan Just Arrive? Copper Inventories Crash Most In History appeared first on crude-oil.news.


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Milo Returns To Berkeley, Will Spend “Whatever It Takes” On Security

Conservative provocateur Milo Yiannopoulos says he will spend “hundreds of thousands of dollars” on security during an upcoming event at the University of California-Berkeley.

Yiannopoulos being led away from a 2016 event that was cancelled by violent protesters.

In an interview with Campus Reform, Yiannopoulos said that he is “prepared to spend whatever it takes” to provide security for the “Free Speech Week” that is scheduled for the end of September, underscoring his sincerity with the six-figure commitment.

According to The Chronicle of Higher Education, the September 24 event at UC-Berkeley’s Sproul Plaza is slated to feature a lineup of popular conservative firebrands, including Yiannopoulos, Ann Coulter, and former White House strategist Stephen Bannon.

Despite the university’s recent pledge to hold a “free speech year” and crack down on those who use violence to shut down speakers, however, the administration has come under increasing pressure to derail the upcoming event.

Earlier this week, for instance, Berkeley Mayor Jesse Arreguin asked Chancellor Carol Christ to reevaluate her commitment to allowing the conservative speakers on campus.

“I’m very concerned about Milo Yiannopoulos and Ann Coulter and some of these other right-wing speakers coming to the Berkeley campus,” Arreguin told The San Francisco Chronicle.

 

“It’s just a target for black bloc to come out and commit mayhem on the Berkeley campus and have it potentially spill out on the street.”

Other local lawmakers also echoed the remarks of the Berkeley mayor, citing security concerns as the primary danger of allowing Yiannopoulos and others to hold the event on a university campus.

“We don’t want the moral, psychological and fiscal expense of having these agents of hate coming to our town,” Berkeley City Councilman Ben Bartlett told The Los Angeles Times.

 

“We know the contest of ideas is at the very heart of freedom, but at the same time when the ideas are certain to cause bloodshed I’m inclined to err on the side of protecting the population, and I say that with a heavy heart.”

Councilwoman Cheryl Davila likewise told the publication that she does not “appreciate that there are racists coming to UC Berkeley to spew hate.”

A UC-Berkeley spokesperson told Campus Reform in an email that the speakers for the upcoming event are being hosted by independent student organizations, and that the school therefore does not have “the legal right or desire to interfere with or cancel their invitations based on the perspectives and beliefs of the speakers.”

“Where we do have discretion is around everything that has to do with the safety of our communities,” the spokesperson said.

 

“That priority, along with our commitment to Free Speech, remains at the center of our planning and preparations for future events.”

Yiannopoulos, for his part, is well aware of the severity of the threat posed by Antifa and other leftist groups, having been driven from Berkeley’s campus by violent rioters last time he was scheduled to speak at the school earlier this year.

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Looming Gas Shortage: “Imports Can’t Make Up For This”

The East Coast will start feeling the effects of Hurricane Harvey as the gasoline supplied from the Gulf Coast starts to dry up. One of the most important pipelines that ships refined products to the Eastern Seaboard shut down on Thursday, which means that the U.S. Southeast, Mid-Atlantic, and Northeast could see supply disruptions and price increases. The Colonial Pipeline carries gasoline, diesel and jet fuel from several refineries in Houston, Port Arthur and Lake Charles, along the Texas and Louisiana Coast, up through the U.S. Southeast to…


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Vasile Iuga, member of the Audit Committee

By letter dated 10th July 2017, Mr Vasile IUGA (Former Audit Partner, PwC) has been nominated by Romania, by common accord with the Kingdom of Denmark, the Hellenic Republic and Ireland, for appointment as a member of the Audit Committee of the Europea…