Make Stocks Volatile Again

The general sentiment on the Convergex trading desks continues to be bearish, so today Nichaolas Colas reviews seasonal patterns for the CBOE VIX Index going back to its starting point in 1990 to see what that math says about current market risk.

Over the last 27 years, the VIX has tended to bottom in three specific months: January (15% of the time), July (22%), and December (30%).  When the VIX does bottom in January, its average low reading is 12.2; today’s close was 11.9. That doesn’t guarantee that we’re at the lows on the VIX for the year, but given January’s propensity to represent an annual low it does merit your attention.  And since changes in the CBOE VIX index are strongly (and negatively) correlated to equity market returns, this is a warning sign about the near term direction of US stocks.  Potential hiding places are few and far between, but we’d look at yield sensitive groups like Utilities, Consumer Staples and REITs, plus precious metals.

Nothing much typically happens in January, right?  It is cold out, daylight is in short supply, and everyone is economizing after spending too much around the Holidays. More recently, the “Dry January” movement seems to have emptied out the bars and nightspots in New York as well.

Yet a quick look at the history books shows that January (and not just the one in 2017) does get its fair share of excitement.  A few examples:

  • January 1, 1863. President Lincoln signs the Emancipation Proclamation.  (Which, by the way, was a Presidential Executive Order.)
  • January 1, 1959. Fidel Castro rolls into Havana.
  • January 8, 1982. Breakup of the American Bell System into regional phone companies and AT&T long distance service.
  • January 10, 1946. The first meeting of the modern United Nations, in London.
  • January 16, 1979. The Shah leaves Iran after mass protests led by religious clerics.

When it comes to US stocks, January has an even-money chance of being the best or worst month of the year when it comes to one key measure of expected near term volatility.  Since the start of the modern CBOE VIX Index in 1990, January has marked the high point for risk pricing in a given year 4 times.  Likewise, it has been the low point for expected volatility 4 times as well. 

A few details:

  • In case you aren’t up on your options math, the CBOE VIX Index is essentially the price of insurance against a sudden drop in the S&P 500. Mathematically it is the implied volatility imbedded in the options prices for near dated S&P 500 futures contracts.  But all you really need to know is that when the VIX goes up, stocks tend to go down.  The range on the VIX since 1990 is 9 to +60. Lower numbers indicate little current volatility and fear, while higher numbers correlate to periods of market turmoil.
  • The VIX has peaked during any given year in January four times since 1990: On the 14th in 1991, the 14th in 1999, the 20th in 2009 and the 27th in 2003.
  • The VIX has troughed 4 times for any given year in January since 1990: on the 28th in 1994, the 26th in 1996, the 22nd in 1997, and the 24th in 2007.
  • This shows that January has an abnormal number of VIX highs and lows; if the distribution were even through a year then January should have only 2 apiece (27 years, 12 months in a year).
  • The VIX has a very strong seasonal pattern, especially as it relates to annual low points. Just three months – January, July and December – account for 66% of the annual lows for this measure back to 1990 (when it shifted from measuring expected volatility on the S&P 100 to its current look at the S&P 500 index).
  • As a point of interest, January, August and October are high points for the VIX some 48% of the time since 1990. Only January is on the “Top 3” list for both VIX highs and lows.

Now, the obvious question is “Could the current CBOE VIX reading represent a low point for the year?”  There are 3 reasons why it could:

A reading this low is more than one standard deviation away from the VIX’s long term average of 20. Additionally, the VIX rarely goes below 10.  Statistically, it is an unusually low reading for the VIX.

 

 

 

The seasonal factors we outlined above show that the VIX often visits its extreme point, high or low, for the year in January. And since we know the current level is not likely to the high point for the year, it could well be a low.

 

Fundamentally, there are rafts of reasons why stocks may become more volatile as the year progresses. US large cap equity valuations are still high at 17x this year’s earnings for the S&P 500 of $130. President Trump’s agenda may be largely pro-business with tax cuts and less regulation on offer, but it comes with uncertainties over trade policy and tariffs.  And the timing and cadence of those changes is still a wild card even if the promised reforms do eventually come to pass.

When the CBOE VIX Index moves higher, stocks tend to go lower, so the next thing to consider is what sectors might be safe parking lots during a shift in risk appetites.  Assuming that whatever shock that drives equity volatility higher also puts a bid into Treasuries, the answer are dividend yield plays such as Utilities, REITs, and Consumer Staples.  Gold and silver may also be safe havens, especially if the dollar weakens.

As with any historical analysis, we should always remember the old saying about history rhyming more than repeating.  We do know January tends to show extremes of the market’s perceptions of near term risks, for good or for bad. And we know that at current levels the VIX highlights a complacent market.  Does that assure us that things will get choppier from here?  Of course not.  But to be boldly bullish here is to ignore the historical patterns.

And that seems riskier than staying aware of both history and current market dynamics.

Furthermore, as Gavekal Capital’s Eric Bush details, given the level of economic policy uncertainty, VIX should probably be higher…

Global economic policy uncertainty is near 20-year highs while the VIX is nearing 20-year lows.

This is an odd configuration for these two series. Usually as economic policy uncertainty moves higher, the VIX moves higher with it. That is not the case today. In the scatter plot below which plots monthly data points for the two series going back 20 years, you can clearly see how the latest data is an outlier. The other three data points surrounding the latest data point are from June 2016, July 2016, and November 2016. Based on the level of the economic policy uncertainty in the world, a regression model would have predicted that the VIX would be pushing 30 instead of hovering around 10.

All in all, it would seems more likely to us that the VIX will climb higher to close this gap rather than a swift drop in economic uncertainty.

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اتهام أميركي بمهاجمة مسلمة تعمل في شركة طيران

وجهت الى اميركي تهمة مهاجمة مسلمة تعمل موظفة في شركة طيران في نيويورك وتوجيه الشتائم لها وركلها وتهديدها بان الرئيس دونالد ترامب “سيتخلص منكم جميعا”. ووجهت الى الرجل (57 عاما) وهو من ماساشوستس تهمة توجيه الاهانة والشتائم لموظفة شركة دلتا في صالة رجال الاعمال في مطار جون ف. كنيدي الدولي الاربعاء، وركلها في ساقها بعد […]

The post اتهام أميركي بمهاجمة مسلمة تعمل في شركة طيران appeared first on forexnewstoday.net.

Greece Is In Trouble Again: Bonds, Stocks Plunge As Bailout Talks Collapse; IMF Sees “Explosive” Debt

It may – or may not – shock readers to learn that Greece is once again on the verge of collapse.

10-year bond yields shot up and stocks tumbled on Friday, a day after euro zone finance ministers acknowledged the country’s fiscal progress but once again failed to break an impasse with the IMF over the country’s future bailout targets. Early on Friday morning, the greatest Greek nemesis alive, and surely in the afterlife, German Finance Minister Wolfgang Schaeuble said that Greece’s creditors won’t unlock further financial aid to the country unless the government meets its reform promises, which he said it hasn’t done yet.

Two years after its third bailout, Athens and the Troika, or is that Quadriga, i.e., its European and IMF creditors, are still at odds over the fiscal goals Greece can achieve after 2018, when its third rescue programme ends. According to Reuters, the talks have dragged on for months, hindering the conclusion of a bailout review that would help Athens qualify for inclusion in the ECB’s much desied bond-monetization programme and return to bond markets as early as this year.

And, yes, the ongoing disagreements have rekindled fears of a new crisis in Greece, which never really emerged from any of the previous ones, which was forced to sign up to another bailout in July 2015 in order to stay in the euro zone.

Worse, hinting that there may not be a 4th bailout simply because the Greek people will snap by then, the Greek parliament’s budgetary office warned on Friday that “the fiscal cost of the delays may prove bigger than the benefit of a deal”.

Greek 10-year bond yields rose by 21 basis points on Friday, while stocks were 3 percent down. Which means that in the Greek market where an occasional trade takes place once a week, someone sold an oddlot.

“The outcome was tougher than what the market had hoped for,” Beta Securities analysts Takis Zamanis told Reuters.

There was some good news for Greece, now in its 7th years of economic depression, when European Commission Vice President Valdis Dombrovskis said that Greece outperformed its fiscal targets last year and was on track to meet its 2018 primary surplus target of 3.5 percent of economic output. But he added that more discussions were needed on the fiscal trajectory thereafter and on measures which might be needed and would be implemented only if Greece missed its targets.

In other words, back to square one.

The IMF, which participated in two Greek bailout programmes but is so far only an observer in the current one, says Athens can only achieve a surplus of 1.5 percent of gross domestic product in 2018 unless it adopts more measures now and is granted more debt relief.

The IMF also was the source of bad news, reporting that Greece’s debt is “highly unsustainable” and will reach 275% of GDP – this is after it has been “reprofiled” three times already – by 2060 unless the country’s loans are significantly restructured, according to a draft confidential review of the country’s economy. Without prior bailouts, Greek debt/GDP would be between 400% and 500% as of this moment.

The assessment, prepared ahead of an IMF board meeting on Feb. 6  and seen by The Wall Street Journal, was significantly more pessimistic than that of Greece’s eurozone creditors and underscores the difficulty of the fund moving ahead with a new bailout for Greece in the near future.

Under the draft review, which comes as Athens and its creditors once again failed to find an “austerity” solution, debt is projected to reach around 160% of GDP by 2030 but “become explosive thereafter.” Under the same scenario, debt is seen reaching as much as 275% of GDP in 2060.

The assessment presents a contrast with the eurozone’s own forecasts. An official eurozone analysis in May projected debt-to-GDP of 104.9% in 2060, under a baseline scenario in which Greece fully implements its bailout program. Eurozone governments are resisting the IMF’s push for more debt forgiveness that will come largely at their expense.

 

“Greece cannot be expected to grow out of its debt problem, even with full implementation of reforms,” the IMF says, adding that the country needs significant debt relief from its European partners to ensure the debt load is sustainable.

 

The draft review says that measures agreed by the eurozone in May to ease Greece’s debt load need to be further specified, and that “ambitious extensions of grace and maturity periods, a full deferral of interest on European loans, as well as a locking in of the interest rate will be needed” to put debt on a sustainable path.

Meanwhile, “The pressure is on for the Greek government following yesterday’s Eurogroup meeting, since it did not receive substantial support, not even by the supportive EU Commission,” Axia Ventures Group said in a morning note. Greece’s leftist-led government, which is sagging in opinion polls, is refusing to adopt more austerity measures, saying the country is delivering on its bailout promises.

And so, the impasse will go on until Greece either runs out of money again leading to the next social crisis and bailout, or until either China or Russia acquires it in bankruptcy auction, or the Turks invade.

The post Greece Is In Trouble Again: Bonds, Stocks Plunge As Bailout Talks Collapse; IMF Sees “Explosive” Debt appeared first on crude-oil.top.

Greece Is In Trouble Again: Bonds, Stocks Plunge As Bailout Talks Collapse; IMF Sees “Explosive” Debt

It may – or may not – shock readers to learn that Greece is once again on the verge of collapse.

10-year bond yields shot up and stocks tumbled on Friday, a day after euro zone finance ministers acknowledged the country’s fiscal progress but once again failed to break an impasse with the IMF over the country’s future bailout targets. Early on Friday morning, the greatest Greek nemesis alive, and surely in the afterlife, German Finance Minister Wolfgang Schaeuble said that Greece’s creditors won’t unlock further financial aid to the country unless the government meets its reform promises, which he said it hasn’t done yet.

Two years after its third bailout, Athens and the Troika, or is that Quadriga, i.e., its European and IMF creditors, are still at odds over the fiscal goals Greece can achieve after 2018, when its third rescue programme ends. According to Reuters, the talks have dragged on for months, hindering the conclusion of a bailout review that would help Athens qualify for inclusion in the ECB’s much desied bond-monetization programme and return to bond markets as early as this year.

And, yes, the ongoing disagreements have rekindled fears of a new crisis in Greece, which never really emerged from any of the previous ones, which was forced to sign up to another bailout in July 2015 in order to stay in the euro zone.

Worse, hinting that there may not be a 4th bailout simply because the Greek people will snap by then, the Greek parliament’s budgetary office warned on Friday that “the fiscal cost of the delays may prove bigger than the benefit of a deal”.

Greek 10-year bond yields rose by 21 basis points on Friday, while stocks were 3 percent down. Which means that in the Greek market where an occasional trade takes place once a week, someone sold an oddlot.

“The outcome was tougher than what the market had hoped for,” Beta Securities analysts Takis Zamanis told Reuters.

There was some good news for Greece, now in its 7th years of economic depression, when European Commission Vice President Valdis Dombrovskis said that Greece outperformed its fiscal targets last year and was on track to meet its 2018 primary surplus target of 3.5 percent of economic output. But he added that more discussions were needed on the fiscal trajectory thereafter and on measures which might be needed and would be implemented only if Greece missed its targets.

In other words, back to square one.

The IMF, which participated in two Greek bailout programmes but is so far only an observer in the current one, says Athens can only achieve a surplus of 1.5 percent of gross domestic product in 2018 unless it adopts more measures now and is granted more debt relief.

The IMF also was the source of bad news, reporting that Greece’s debt is “highly unsustainable” and will reach 275% of GDP – this is after it has been “reprofiled” three times already – by 2060 unless the country’s loans are significantly restructured, according to a draft confidential review of the country’s economy. Without prior bailouts, Greek debt/GDP would be between 400% and 500% as of this moment.

The assessment, prepared ahead of an IMF board meeting on Feb. 6  and seen by The Wall Street Journal, was significantly more pessimistic than that of Greece’s eurozone creditors and underscores the difficulty of the fund moving ahead with a new bailout for Greece in the near future.

Under the draft review, which comes as Athens and its creditors once again failed to find an “austerity” solution, debt is projected to reach around 160% of GDP by 2030 but “become explosive thereafter.” Under the same scenario, debt is seen reaching as much as 275% of GDP in 2060.

The assessment presents a contrast with the eurozone’s own forecasts. An official eurozone analysis in May projected debt-to-GDP of 104.9% in 2060, under a baseline scenario in which Greece fully implements its bailout program. Eurozone governments are resisting the IMF’s push for more debt forgiveness that will come largely at their expense.

 

“Greece cannot be expected to grow out of its debt problem, even with full implementation of reforms,” the IMF says, adding that the country needs significant debt relief from its European partners to ensure the debt load is sustainable.

 

The draft review says that measures agreed by the eurozone in May to ease Greece’s debt load need to be further specified, and that “ambitious extensions of grace and maturity periods, a full deferral of interest on European loans, as well as a locking in of the interest rate will be needed” to put debt on a sustainable path.

Meanwhile, “The pressure is on for the Greek government following yesterday’s Eurogroup meeting, since it did not receive substantial support, not even by the supportive EU Commission,” Axia Ventures Group said in a morning note. Greece’s leftist-led government, which is sagging in opinion polls, is refusing to adopt more austerity measures, saying the country is delivering on its bailout promises.

And so, the impasse will go on until Greece either runs out of money again leading to the next social crisis and bailout, or until either China or Russia acquires it in bankruptcy auction, or the Turks invade.

The post Greece Is In Trouble Again: Bonds, Stocks Plunge As Bailout Talks Collapse; IMF Sees “Explosive” Debt appeared first on crude-oil.top.

Senior Hamas leader speaks out Trump moving US embassy to Jerusalem

In an interview with Al Jazeera English’s current affairs show UpFront, Osama Hamdan, a senior leader of Hamas, revealed that the group is working on a new charter which includes addressing widely criticised anti-Semitic statements in the [1988] original. “We will have a clear political document, which is supposed to be in the near future, clarifying all those points,” Hamadan told UpFront host Mehdi Hasan, referring to anti-Semitic conspiratorial claims in the Hamas charter accusing Jews of running the world, creating communism and starting World War One and Two. “You will find in this document clear words that we against the Zionists, against the occupation of our lands and we will resist the occupiers, whoever they were. And we are […]

Grad Student Exposes Massive Network Of Over 350,000 Fake Twitter Accounts

A computer scientist in London has stumbled upon massive networks of fake Twitter accounts – with the largest consisting of over 350,000 profiles – which may have been used to ‘fake‘ numbers of followers, send spam, and boost interest in trending topics.

On Twitter, bots are accounts that are run remotely by someone who automates the messages they send and activities they carry out.

Some people pay to get bots to follow their account or to dilute chatter about controversial subjects.

As The BBC reports, UK researchers accidentally uncovered the lurking networks while probing Twitter to see how people use it.

The network of 350,000 bots stood out because all the accounts in it shared several subtle characteristics that revealed they were linked. These included:

  • tweets coming from places where nobody lives
  • messages being posted only from Windows phones
  • almost exclusively including quotes from Star Wars novels

It was “amazing and surprising” to discover the massive networks, said Dr Shi Zhou, a senior lecturer from UCL who oversaw Mr Echeverria’s research.

“Considering all the efforts already there in detecting bots, it is amazing that we can still find so many bots, much more than previous research,” Dr Zhou told the BBC.

 

“It is difficult to assess exactly how many Twitter users are bots,” said graduate student Juan Echeverria, a computer scientist at UCL, who uncovered the massive networks.

Mr Echeverria’s research began by combing through a sample of 1% of Twitter users in order to get a better understanding of how people use the social network.

However, analysis of the data revealed some strange results that, when probed further, seemed to reveal lots of linked accounts, suggesting one person or group is running the botnet. These accounts did not act like the bots other researchers had found but were clearly not being run by humans.

His research suggests earlier work to find bots has missed these types of networks because they act differently to the most obvious automated accounts.

The researchers are now asking the public via a website and a Twitter account to report bots they spot to help get a better idea of how prevalent they are. Many bots are obvious because they have been created recently, have few followers, have strange user names and little content in the messages.

“Their potential threats are real and scary due to the sheer size of the botnet,” he said.

A Twitter spokesman said the social network had clear policy on automation that was “strictly enforced”.

Perhaps not…

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