Yes, Virginia, There Is A "Santa Rally"

Authord by Lance Roberts via RealInvestmentAdvice.com,

Yes, Virgina, There Is A Santa Claus

Every year, at this time, I republish the story of 8-year Virginia O’Hanlon who asked the most important of questions. I encourage you to read it as it reminds us of the importance, meaning and the “Spirit” of the Christmas season. 

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Eight-year-old Virginia O’Hanlon wrote a letter to the editor of New York’s Sun, and the quick response was printed as an unsigned editorial Sept. 21, 1897. The work of veteran newsman Francis Pharcellus Church has since become history’s most reprinted newspaper editorial, appearing in part or whole in dozens of languages in books, movies, and other editorials, and on posters and stamps

THE EDITORIAL

DEAR EDITOR:

I am 8 years old.
Some of my little friends say there is no Santa Claus.
Papa says, ‘If you see it in THE SUN it’s so.’
Please tell me the truth; is there a Santa Claus?

VIRGINIA O’HANLON.
115 WEST NINETY-FIFTH STREET.

“VIRGINIA, your little friends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except they see. They think that nothing can be which is not comprehensible to their little minds. All minds, Virginia, whether they be men’s or children’s, are little. In this great universe of ours, man is a mere insect, an ant, in his intellect, as compared with the boundless world about him, as measured by the intelligence capable of grasping the whole of truth and knowledge.

 

Yes, VIRGINIA, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist, and you know that they abound and give to your life its highest beauty and joy. Alas! how dreary would be the world if there were no Santa Claus? It would be as dreary as if there were no VIRGINIAS. There would be no childlike faith then, no poetry, no romance to make tolerable this existence. We should have no enjoyment, except in sense and sight. The eternal light with which childhood fills the world would be extinguished.

 

Not believe in Santa Claus! You might as well not believe in fairies! You might get your papa to hire men to watch in all the chimneys on Christmas Eve to catch Santa Claus, but even if they did not see Santa Claus coming down, what would that prove? Nobody sees Santa Claus, but that is no sign that there is no Santa Claus. The most real things in the world are those that neither children nor men can see. Did you ever see fairies dancing on the lawn? Of course not, but that’s no proof that they are not there. Nobody can conceive or imagine all the wonders there are unseen and unseeable in the world.

 

You may tear apart the baby’s rattle and see what makes the noise inside, but there is a veil covering the unseen world which not the strongest man, nor even the united strength of all the strongest men that ever lived, could tear apart. Only faith, fancy, poetry, love, romance, can push aside that curtain and view and picture the supernal beauty and glory beyond. Is it all real? Ah, VIRGINIA, in all this world there is nothing else real and abiding.

No Santa Claus! Thank God he lives, and he lives forever. A thousand years from now, Virginia, nay, ten times ten thousand years from now, he will continue to make glad the heart of childhood.”

Merry Christmas, and may this new year bring you joy, laughter, and prosperity.

From all of us at Real Investment Advice, Real Investment News, and Clarity Financial.

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Santa Rally?

With the market now back to overbought conditions, it is now or never for the traditional “Santa Rally” between Christmas and New Year’s Day.

If we go back to 1990, the month of December has had average returns of 2.02% with positive returns 81% of the time. Over the past 100 years, those numbers fall slightly to a 1.39% average return with positive returns 73% of the time.

For the month of December, so far, the market has risen 1.33% which is in-line with the historical norm.

As discussed over the last couple of weeks, this is not to be unexpected as portfolio managers and hedge funds “Stuff Their Stockings” of highly visible positions to have them reflected in year-end statements. 

However, come January, it is potentially a different story. As I have been laying out over the last several weeks, the “tax cut” rally may well come to an end as portfolio managers, being reluctant to sell before year-end which would put them under the 2017 tax code, will likely sell in January to lock in gains under the new tax code when they pay taxes in 2019.

While “this time” is never exactly like the “last time,” there is a reasonable precedent that a sell-off in January is a likelihood. With the outside gains this past year, and now extreme overbought conditions as discussed last week, the odds of a correction are high.

This next week, as close to the end of the year as possible, we will likely be adding two positions to portfolios to hedge against a potential “tax gain” related sell off.  The first position will be a short-S&P 500 index combined with an intermediate-duration bond position.

Given that IF a sell-off occurs money will rotate from “risk” to “safety.” In this case, the S&P 500 should fall while bond prices rise as rates head lower. As shown below, with the stock-bond ratio at extremes, this trade is fairly low risk.

(The current stock/bond ratio is at the highest level in history. Also, note that the correlation “broke” in 2013 with QE 3. That gap will likely be filled at some point.)

If I am wrong, and the markets continue to rise, our existing long-positions, which outweigh the hedges by a large percentage, will continue to advance with the hedge only slightly inhibiting performance. If a sell-off does occur, the hedges will mitigate some of the downside risk while we evaluate our next potential moves.

We will keep you apprised of our actions next week.

Dot Com 2.0

by Michael Lebowitz, CFA

On May 20, 1999, eToys.com became a publically traded stock, offering shares to the public at a price of $20 per share. Lurching to $76 per share on the first day of trading and then over $80 a share by mid-August of that same year, investors were blindly optimistic about the prospects for this internet retailer. In early January 2001, after a weaker than expected holiday season, the company laid off half of its staff. By late February, eToys.com stock traded at meager 0.09 cents per share and filed for bankruptcy in March. The bubble had burst on eToys.com and hundreds of other tech companies selling investors on the promise of a new economic paradigm and internet fantasies.

By late 1999, when eToys.com was flourishing, the NASDAQ stock market was in the midst of a ten-year run in which it gained over 2,700%. Valuations, especially those in the tech sector but also in the broader-based markets, rose well above every prior instance. Caution and conservatism were thrown out the window in place of greed and rampant speculation. A decade of impressive market gains resulted in a high level of complacency.

We are now 18 years beyond the tech bubble, and we find ourselves in similar shoes. Most measures of equity valuation are currently higher than just about every other equity market peak including even some from 1999. The market has produced a constant stream of winners seemingly coming in waves over the last few years. Among the more popular is the FANG stocks and their valuations that assume perfection in perpetuity.

Further reminding us of the late 90’s tech bubble and the eToys.com era are Bitcoin and blockchain related stocks. Longfin Corp. (LFIN) for instance, just completed an initial public offering (IPO) at $5 per share on December 13th. On December 18th LFIN announced the purchase of Ziddu Coin a business lender dealing in crypto-currency loans. Following the announcement, the stock rose as high as $136 a share producing a 2620% gain for those investors that sold at the highs. As we pen this note, the stock trades at $41.

Instead of using “dot com,” companies like LFIN, Overstock, Riot Blockchain and other companies are seizing on investor greed by telling a grand story of Bitcoin and blockchain riches. It is, to be sure, the new-new paradigm.

Another recent example is Long Island Iced Tea Corp. which was a purveyor of bottled drinks with a stock price languishing around the $2 range. Well, that is until the company changed its name to Long “Blockchain” Corp. which sent investors into a buying frenzy running the stock price up nearly 500% in one day.

The instances where anything related to Bitcoin and blockchain is instantly deserving of massive valuations is a mirage; here today and gone tomorrow. The current era serves as a gentle reminder of the greed and wild speculation of the latest bubble. In early 2000, the markets topped with no-name (and no-profit) companies capturing the wild hopes of investors. The NASDAQ took over 16 years to re-capture the prior high water mark representing precious years that investors lost.

Whether LFIN and the like are signaling that we are in the bottom of the ninth of the latest bubble or still have a few innings to go is up for debate. What is important, however, is to retell yourself the story of the tech bubble and how investors ignored the glaring signals. Does today’s price action sound familiar? If so we recommend that you continue to remain cognizant of the patterns of prior market bubble episodes and proceed accordingly.

Rules For The Road

If you are long equities in the current market, we continue to recommend following some basic rules of portfolio management.

“It is through following these basic rules that, with the markets overbought, underlying fundamentals stretched, we continue to suggest some portfolio actions be taken to reduce, not eliminate, overall risk.

1. Tighten up stop-loss levels to current support levels for each position.


2. Hedge portfolios against major market declines.


3. Take profits in positions that have been big winners


4. Sell laggards and losers


5. Raise cash and rebalance portfolios to target weightings.

Notice, nothing in there says “sell everything and go to cash.”

As I noted in last week’s missive on the current bubble, our job as investors is pretty simple – protect our investment capital from short-term destruction so we can play the long-term investment game.

In case you missed it, let me repeat for you the most important lines:

Our job as investors is actually quite simple. We must focus on:

• Capital preservation


• A rate of return sufficient to keep pace with the rate of inflation.


• Expectations based on realistic objectives.  (The market does not compound at 8%, 6% or 4%)


• Higher rates of return require an exponential increase in the underlying risk profile.  This tends to not work out well.


• You can replace lost capital – but you can’t replace lost time.  Time is a precious commodity that you cannot afford to waste.


• Portfolios are time-frame specific. If you have a 5-years to retirement but build a portfolio with a 20-year time horizon (taking on more risk) the results will likely be disastrous.

With forward returns likely to be lower and more volatile than what was witnessed in the 80-90’s, the need for a more conservative approach is rising. Controlling risk, reducing emotional investment mistakes and limiting the destruction of investment capital will likely be the real formula for investment success in the decade ahead.

This brings up some very important investment guidelines that I have learned over the last 30 years.

• Investing is not a competition. There are no prizes for winning but there are severe penalties for losing.


• Emotions have no place in investing.You are generally better off doing the opposite of what you “feel” you should be doing.


• The ONLY investments that you can “buy and hold” are those that provide an income stream with a return of principal function.


• Market valuations (except at extremes) are very poor market timing devices.


• Fundamentals and Economics drive long-term investment decisions – “Greed and Fear” drive short-term trading. Knowing what type of investor you are determines the basis of your strategy.


• “Market timing” is impossible– managing exposure to risk is both logical and possible.


• Investment is about discipline and patience. Lacking either one can be destructive to your investment goals.


• There is no value in daily media commentary– turn off the television and save yourself the mental capital.


• Investing is no different than gambling– both are “guesses” about future outcomes based on probabilities.  The winner is the one who knows when to “fold” and when to go “all in”.


• No investment strategy works all the time. The trick is knowing the difference between a bad investment strategy and one that is temporarily out of favor.

As an investment manager, I am neither bullish or bearish. I simply view the world through the lens of statistics and probabilities. My job is to manage the inherent risk to investment capital. If I protect the investment capital in the short term – the long-term capital appreciation will take of itself.

How To Survive Today"s Bubbly Market

Authored by James Rickards via Bonner & Partners,

To paraphrase one of the great gems of Wall Street wisdom, “Nothing infuriates a man more than the sight of other people making money.”

That’s a pretty good description of what happens during the late stage of a stock market bubble. The bubble participants are making money (at least on a mark-to-market basis) every day.

Meanwhile, the more patient, prudent investor is stuck on the sidelines – allocated to cash or low-risk investments while watching everyone else have fun. This is especially true today when the bubble is not confined to the stock market but includes exotic sideshows like cryptocurrencies and Chinese real estate.

It gets even worse when investors are taunted by headlines like the one in a recent article, “Investors Can Either Buy Bubbles or Be Left Far Behind.” The article is a case study in the “Bubblicious Portfolio.” Infuriating indeed. Actually, it should not be.

On a risk-adjusted basis, the prudent investor is not missing much.

When markets go up 10%, 20%, or more in short periods, market participants think of their gains as money in the bank. Yet, that’s not true unless you sell and cash out of the market. Few do this because they’re afraid to “miss out” on continued gains.

The problem comes when the bubble bursts and losses of 30%, 40%, or more pile up quickly. Investors tell themselves they’ll be smart enough to get out in time, but that’s not true, either.

Typically, investors don’t believe the tape. They “buy the dips,” (which keep dipping lower), then they refuse to sell until they “get back to even,” which can take ten years. These are predictable behaviors of real investors caught up in real bubbles.

It’s better just to diversify, build up a cash reserve, have some gold for catastrophe insurance, and then wait out the bubble crowd. When the crash comes, which it always does, you’ll be well positioned to shop for high-quality bargains amid the rubble. Then you’ll participate in the next long upswing without today’s risks of a sudden meltdown.

OK, so I just argued that the stock market (and other markets) are in bubbles. But where’s the actual proof of this?

Actually, it’s everywhere.

The Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio – a good indicator of how expensive stocks are – is at levels only seen at the 1929 crash that started the Great Depression and the 2000 dot-com bubble. Likewise, the market capitalization-to-GDP ratio is above the level of the 2008 panic and comparable to the 1929 crash.

The list goes on, including historically low volatility and unprecedented complacency on the part of investors.

For almost a year, one of the most profitable trading strategies has been to sell volatility. That’s about to change...

Since the election of Donald Trump, stocks have been a one-way bet. They almost always go up, and have hit record highs day after day. The strategy of selling volatility has been so profitable that promoters tout it to investors as a source of “steady, low-risk income.”

Nothing could be further from the truth.

Yes, sellers of volatility have made steady profits the past year. But the strategy is extremely risky and you could lose all of your profits in a single bad day.

Think of this strategy as betting your life savings on red at a roulette table. If the wheel comes up red, you double your money. But if you keep playing, eventually, the wheel will come up black and you’ll lose everything.

That’s what it’s like to sell volatility. It feels good for a while, but eventually, a black swan appears like the black number on the roulette wheel, and the sellers get wiped out. I focus on the shocks and unexpected events that others don’t see.

In short, we have been on a volatility holiday. Volatility is historically low and has remained so for an unusually long period of time. The sellers of volatility have been collecting “steady income,” yet this is really just a winning streak at the volatility casino.

I expect the wheel of fortune to turn and luck to run out for the sellers.

But it’s time to add another warning sign to the list. Certain high-yield (or “junk bond”) indices have fallen below their 200-day moving averages. This can be indicative of a stock market correction.

Junk bonds are riskier than equity. When they get in trouble, it’s a sign that the corporate issuers are having trouble meeting their obligations. That, in turn, is indicative of reduced revenues or profits, tight financial conditions, and lower earnings.

Panics in October 1987 and December 1994 were preceded by distress in bonds about six months earlier. While there is no deterministic relationship, bonds are a good leading indicator of stocks because they are higher in the capital table and feel distress sooner. The October 1987 one-day 22% decline in stocks and the December 1994 Tequila Crisis in Mexican debt were ugly for investors. The bond market gave a six-month early warning both times.

It may be doing so again.

But what the Fed? Is it setting markets up for a fall?

It’s true that the Fed has been raising interest rates since 2015 and had engaged in tapering for two years before that. Yet these actions hardly constitute tight money. The tightness or ease of monetary policy needs to be judged relative to financial and economic conditions.

You can have “easy money” at a 10% interest rate if inflation is running at 15% (something like the conditions of the late 1970s). In that world, the real interest rate is negative 5%, (10% – 15% = -5%).

In effect, the bank pays you to borrow. That’s easy money.

By most models, including the famous Taylor Rule, rates in the U.S. today should be about 2.5% instead of 1%. We have easy money today and have had it since 2006. This comes on top of the “too low for too long” policy of Alan Greenspan from 2002–2004, which led directly to the housing bubble and collapse in 2007.

The U.S. really has not had a hard money period since the mid-1990s. That’s true of most of the developed economies also.

What’s going to happen when central banks start to normalize interest rates and balance sheets and return to a true tight money policy in preparation for the next recession?

We’re about to find out.

Central banks all over the world including the Fed, ECB, and the People’s Bank of China are in the early stages of ending their decade-long (or longer) easy money policies. This tightening trend has little to do with inflation (there isn’t any) and more to do with deflating asset bubbles and getting ready for a new downturn.

But, in following this policy, central bankers may actually pop the bubbles and cause the downturn they are getting ready to cure. This is one more reason, in addition to those described above, why the stock market bubble is about to implode.

It’s important to realize that market crashes often happen not when everyone is worried about them, but when no one is worried about them.

Complacency and overconfidence are good leading indicators of an overvalued market set for a correction or worse.

2017 Has Been The Best Year For The Stock Market EVER

This article was originally published by Michael Snyder at The Economic Collapse

We have never seen a better year for stocks in all of U.S. history. Just five days after Donald Trump entered the White House, the Dow Jones Industrial Average hit the 20,000 mark for the first time ever. On Monday, the Dow closed at 24,792.20, and there doesn’t seem to be any end to the rally in sight. Overall, the Dow Jones Industrial Average is up more than 5,000 points so far in 2017, and that absolutely shatters all of the old records. Previously, the most that the Dow had risen in a single year was 3,472 points in 2013.

Yes, I know that it may seem odd for a website that continually chronicles our ongoing “economic collapse” to be talking about a boom in stock market prices. But of course there has not been a corresponding economic boom to match the rise in stock prices. This artificial stock market bubble has been created by unprecedented central bank intervention, and every previous stock market bubble in our history has ended with a horrible crash.

But for the moment, it is certainly appropriate to be in awe of what has transpired in the financial markets in 2017. Never before have we seen the Dow close at a record high 70 times in a single year, and we still have almost two weeks to go.

Stocks have risen every single month in 2017, and that is the very first time that has ever happened as well. No matter how much bad news has come out, stock prices have just kept climbing and climbing and climbing.

Since Donald Trump’s surprise election victory last November, the Dow is up a whopping 34 percent.

34 percent!

Wall Street has never seen better times than this. Overall, U.S. stockholders have seen more than 5 trillion dollars in paper gains since Trump was elected, and this has created a real estate boom in some of the wealthier areas of the nation.

Of course markets go down a lot faster than they go up, and that 5 trillion dollars in paper gains could be wiped out very rapidly in the event of a major disaster, but for the moment investors are absolutely thrilled with what has been happening.

Of course there are red flags all over the place, but not too many people are even paying attention at this point. Right now the S&P 500 is the most overbought that it has been since 1958, and earlier today a CNBC article declared that U.S. stocks are “very, very overbought”, but this will probably just encourage people to buy even more.

These days, if stocks are up that is a signal to buy, and if stocks are down that is a signal to buy.

Of course we witnessed similar euphoria just before the dotcom bubble burst and just before the financial crisis of 2008, but most Americans have extremely short memories.

For most of us, those crashes might as well be ancient history.

But just like in each of those cases, market euphoria tends to hit a peak before things completely fall apart. Bill Stone, the chief investment strategist for PNC Asset Management Group, recently made this point very succinctly…

“It is going to get to a point where it can’t get any better anymore,” he said. “In the market it’s always brightest before it gets dark.”

Others are being even more blunt.  For example, trends forecaster Gerald Celente is convinced that “equity markets around the world are going to crash” in 2018…

“Yes.  Everyone knows that the markets are overvalued. The Schiller PE ratios rival those of the pre-1929 stock market crash and the Dot-Com bubble…The Black Swan Event: When war breaks out in the Middle East, the equity markets around the world are going to crash. The Black Swan that is going to create ‘Market Shock’ is going to be an outbreak of war in the Middle East. And when that happens, you are going to see gold and silver skyrocket. That’s our forecast for one of the top 10 trends of 2018.”

Personally, I never believed that the stock market bubble could ever be inflated to such absurd proportions, and so I am just in awe at what is taking place on Wall Street.

Since the last financial crisis our national debt has doubled, corporate debt has doubled, U.S. consumers are now 13 trillion dollars in debt, our economic infrastructure continues to be gutted, more than 40 million Americans are living in poverty and our financial institutions are being more reckless than at any other point in our entire history.

But for the moment, it is working. We have been on the greatest debt binge in world history since the end of the last recession, and most people seem to believe that the debt-fueled standard of living that we are currently enjoying is somehow going to be sustainable.

Nothing about our long-term economic outlook has fundamentally changed. Just because the authorities were able to extend this bubble for a little while longer does not mean that we are going to get to escape the consequences of decades of incredibly foolish decisions.

We just keep on mortgaging the future, but the funny thing about the future is that eventually it shows up.

And when our day of reckoning finally does arrive, the pain that it is going to cause is going to be absolutely off the charts.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream. 

If you want to know what is coming and what you can do to prepare, read his latest book Get Prepared Now!: Why A Great Crisis Is Coming.

CalPERS Goes All-In On Pension Accounting Scam; Boosts Stock Allocation To 50%

Starting July 1, 2018 stock markets around the world are going to get yet another artificial boost courtesy of a decision by the $350 billion California Public Employees" Retirement System (CalPERS) to allocate another $15 billion in capital to already bubbly equities.  Of course, if this decision doesn"t make sense to you that"s because it"s not really meant to make sense. 

As Pensions & Investments notes, CalPERS" decision to hike their equity allocation had absolutely nothing to do with their opinion of relative value between assets classes and nothing to do with traditional valuation metrics that a rational investor might like to see before buying a stake in a business but rather had everything to do with gaming pension accounting rules to make their insolvent fund look a bit better.  You see, making the rational decision to lower their exposure to the massive equity bubble could have resulted in CalPERS having to also lower their discount rate for future liabilities...a move which would require more contributions from cities, towns, school districts, etc. and could bring the whole ponzi crashing down. 

The new allocation, which goes into effect July 1, 2018, supports CalPERS" 7% annualized assumed rate of return. The investment committee was considering four options, including one that lowered the rate of return to 6.5% by slashing equity exposure and another that increased it to 7.25% by increasing the exposure to almost 60% of the portfolio.

 

The lower the rate of rate means more contributions from cities, towns and school districts to CalPERS. Those governmental units are already facing large contribution increases — and have complained loudly at CalPERS meetings — because a decision by the $345.1 billion pension fund"s board in December 2016 to lower the rate of return over three years to 7% from 7.5% by July, 1, 2019.

Meanwhile, there was only one dissenting vote on the decision to hike the fund"s equity exposure.  Ironically, the dissent did not come from a rational investor looking to preserve the fund"s assets, but rather from a board member named J.J. Jelincic who wanted to go all-in on the pension accounting scam and hike the fund"s equity allocations to 60% so that discount rates could be raised even higher than the current 7%.

Of course, this is hardly a new topic for us. As we pointed out a year ago in a post entitled "CalPERS Board Votes To Maintain Ponzi Scheme With Only 50bps Reduction Of Discount Rate," each year CalPERS has to weigh mathematical realities against the risk of disrupting the ponzi scheme and forcing several California cities to the brink of bankruptcy with lower discount rates..."mathematical realities" rarely win that fight.

But a CalPERS return reduction would just move the burden to other government units. Groups representing municipal governments in California warn that some cities could be forced to make layoffs and major cuts in city services as well as face the risk of bankruptcy if they have to absorb the decline through higher contributions to CalPERS.

 

“This is big for us,” Dane Hutchings, a lobbyist with the League of California Cities, said in an interview. “We"ve got cities out there with half their general fund obligated to pension liabilities. How do you run a city with half a budget?”

 

CalPERS documents show that some governmental units could see their contributions more than double if the rate of return was lowered to 6%. Mr. Hutchings said bankruptcies might occur if cities had a major hike without it being phased in over a period of years. CalPERS" annual report in September on funding levels and risks also warned of potential bankruptcies by governmental units if the rate of return was decreased.

Under the plan adopted Monday, in addition to their 50% equity allocation, CalPERS will have a 28% weighting to fixed income, up from 20%.  Real assets, which includes real estate, will keep its 13% allocation, while private equity will remain at 8% and CalPERS" liquid portfolio, made up of cash and other short-term instruments, will fall to 1% from 4%.

SEC Suspends Trading In Crypto Company Which Soared To $11 Billion Amid Bitcoin Mania

Following last night"s chaotic appearance of LongFin CEO on CNBC"s FastMoney, it appears The SEC has finally had enough of the unusually explosive price gains of previously tranquil publicly-traded companies adding the word "blockchain" to their names (or mission statements). In what we suspect will be the first of many, The SEC has suspended trading of shares in "The Crypto Company" - a name we"re familiar with - due to "potentially manipulative transactions in the company’s stock."

The Securities and Exchange Commission cites concerns regarding the accuracy and adequacy of information about compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock.

As Bloomberg reports, through Monday, Crypto’s market value had surged to more $11.9 billion. The company invests in digital assets, and is developing source code for managing them, according to its regulatory filings.

 James Gilbert, the company’s president, held a stake valued at nearly $4.2 billion based on Monday’s closing price.

The SEC said its concerns include the compensation paid for promotion of Crypto and statements made in regulatory filings about plans for insiders to sell their shares.

Full SEC Statement:

The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of The Crypto Company (“CRCW”), of Malibu, California at 9:30 a.m. EST on December 19, 2017, and terminating at 11:59 p.m. EST on January 3, 2018.

 

The Commission temporarily suspended trading in the securities of The Crypto Company because of concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock. Questions have also arisen concerning potentially manipulative transactions in the company’s stock in November 2017. This order was entered pursuant to Section 12(k) of the Exchange Act.

 

The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.

 

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule, he should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 551-5777. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, he should refrain from entering quotations relating to The Crypto Company’s securities until such time as he has familiarized himself with the rule and is certain that all of its provisions have been met.

 

If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action. If any broker-dealer or other person has any information which may relate to this matter, contact Katharine Zoladz, Assistant Regional Director, Los Angeles Regional Office, at (323) 965-3998 or Roberto A. Tercero, Senior Counsel, Los Angeles Regional Office, at (323) 965-3891. The Commission appreciates the assistance of the Financial Industry Regulatory Authority and OTC Markets Group, Inc.

When it was halted, The Crypto Company had a market cap of around $11 Billion...

Bitcoin trading algos were a little shocked by the misleading headline from Bloomberg:SEC: TEMPORARY SUSPENSION OF TRADING OF CRYPTO SECURITIES

But we clarified...

No, the SEC isn"t banning trading in bitcoin and cryptos. a) it can"t. b) Crypto Company is just that, a company https://t.co/ssQ1t7w1SN

— zerohedge (@zerohedge) December 19, 2017

Bank Of America: "This Is A Sign Of Irrational Exuberance"

Two weeks ago, when discussing a recent Albert Edwards piece, we said that the word that has come to define the new normal better than all others, is "paradox", as in nothing makes sense, or rather everything makes sense if one only flips logic and reason 180 degrees. A "paradox" was on full display in the latest Bank of America Fund Managers Survey which found that once again, the percentage of respondents saying equities are overvalued hit a new record high of 45%; and yet the average cash levels continue to fall as one professional after another - whose year end bonus depends on whether they outperform the market - rush to allocate funds to equities, which most now agree are an asset bubble.

And while we call this "paradox", Bank of America has another, more familiar name for the phenomenon: "this is a sign of "irrational exuberance"."

Yet while breakneck allocation to stocks continues apace, there has been notable rotation within the sector, and as the next chart shows,  the November rotation shows buying of cyclicals and value, and selling of 2017 winners such as EM, Japan, Tech. It is unclear what is going on in December when everything appears to be bought.

Also of note: the tech sector allocation appears to be rapidly declining, and in December fell to 24% overweight, "the long-term average and the lowest z-score for tech in 3½ years."

But while the "growth" narrative may be fading for now, Goldilocks remains the consensus view for the global economy, with 54% of investors surveyed expecting above-trend growth and below-trend inflation in the next 12 months, just 2% lower than last month’s record high. As BofA adds, "Goldilocks is now the consensus view for the global economic outlook" while the "below-trend growth/ inflation" outlook rose 2ppt to 27%, close to May"11 lows & a total reversal from Jun"16.

Meanwhile, the yield curve reaches its flattest levels since the GFC as net 0% investors say they don"t need fiscal stimulus, the highest since 2011.

And speaking of the yield curve, net 8% of investors surveyed expect the U.S. yield curve to flatten in 2018, the highest level in 18 months

Separately, as reported earlier, "Long Bitcoin" is again considered the most crowded trade (32%) for the second time this year, followed by Long FAANG+BAT (29%) and Short volatility (14%)

As also noted, a central bank error, i.e. "policy mistake" by the Fed/ECB continues to be the top tail risk cited by investors (23%); the top three are rounded out by a crash in global bond markets (15%) and a Chinese debt crisis (14%)

When asked about the consequences of the GOP tax bill, a whopping two-thirds of respondents, a stunning consensus for this survey, expect tax reform to result in higher bond yields and higher stocks, while only 3% think tax reform will lead to lower yields and lower stocks.

 

Also, just 7% of investors say global interest rates will be lower in the next 12 months; 77% say interest rates will rise.

Translation: one year from now stocks and yields will be far lower.

Also, in December global investors favored banks, technology, industrials, insurance and discretionary while avoiding staples, telecoms and utilities. Which means the contrarians should do the opposite.

Here is how Michael Hartnett summarizes the big picture themes from the December FMS:

• Golditrumps: consensus still smitten by Goldilocks...54% expect "high growth, low inflation" in 2018. Almost 2/3 investors believe US tax reform will induce higher stocks & rates, but fiscal stimulus has coincided with lower, not higher profit expectations, and that will need to change given EPS leads relative performance of cyclicals by 3 months (Exhibit 10).


• Pro-cyclical Consensus: Investors are long macro "boom", short "bust"; long stocks, EU/Japan/EM stocks, financials (2nd largest ever), materials (highest since 2/2012) vs short government bonds, US stocks, healthcare & utilities. Pro-cyclical consensus entrenched by US tax reform across asset classes, bar, intriguingly, leading tech sector where allocations dropped to lowest since June 2014.


• FMS Crowded Trades: ...#1 long Bitcoin (32%), #2 long FAANG+BAT (29%), #3 short volatility (14%), while expectations for a "flatter yield curve" surged (highest in 18 months), all trades vulnerable to higher inflation & aggressive ECB/BoJ Quantitative Tightening in 2018.


• Contrarian Recession Trades: ...a recessionary bust even more contrarian than inflationary boom, lower rates more contrarian than higher rates, making short equities-long bonds, short banks-long utilities, short EAFE-long US stocks the most contrarian trades of all heading into the new year.

Finally, when asked when this bubble finally ends, investors were split on the expected timing of equity markets peaking in 2018: 25% see a peak in Q1, 30% in Q2, and 28% in the second half of the year

Nomi Prins: "Dark Money" Runs The World

Authored by Nomi Prins via The Daily Reckoning,

Few people know financial markets’ biggest secret...

For the last 40 years, most people believed the stock market always goes up. Simply buy and hold long enough, the theory went, and you could sit back and watch the money accumulate in your account. No thought or hard work needed.

It was a nifty strategy — until the idea burned most investors in 2008. Almost a decade later, the scar tissue is still fresh for many investors.

Even today, after the U.S. stock market has rallied by 271% since the bottom on March 6, 2009 — nearly tripling investors’ money — only about half of Americans are invested in the stock market, according to NPR. That’s down from two-thirds compared to a decade ago.

The rest are in cash on the sidelines. Maybe that’s been you.

And who can blame you? “Fool me once, shame on you,” the saying goes. “Fool me twice, shame on me.”

Last June, Fortune surveyed readers. 71% of respondents said “the economic system in the U.S. is rigged in favor of certain groups.”

A few years earlier, the Los Angeles Times reported “Poll finds 64% of voters believe stock market is rigged against them…”

They’re not wrong.

Somebody’s made gains from all of those sectors in the stock market. It just hasn’t been Main Street.

Since I’ve left the world of big banking, I’ve made it my mission to change that. That leads me to the catalyst for my new project…

Dark money.

Dark money is the #1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

On Wall Street, knowledge of and access to dark money means trillions of dollars per year flowing in and around global stock, bond and derivatives markets.

I learned this firsthand from my career on Wall Street. My first full year working on Wall Street was in 1987.

I wasn’t talking about “dark money” or central bank collusion back then. I was just starting out.

Eventually, I would uncover how the dark money system works… how it has corrupted our financial system… and encouraged greed to the point of crisis like in 2008.

When I moved abroad to create and run the analytics department at Bear Stearns London as senior managing director, I got my first look at how dark money flows and its effects cross borders.

The “dark money” comes from central banks. In essence, central banks “print” money or electronically fabricate money by buying bonds or stocks. They use other tools like adjusting interest rate policy and currency agreements with other central banks to pump liquidity into the financial system.

That dark money goes to the biggest private banks and financial institutions first. From there, it spreads out in seemingly infinite directions affecting different financial assets in different ways.

Yet these dark money flows stretch around the world according to a pattern of power, influence and, of course, wealth for select groups. To be a part of the dark money elite means to have control over many. How elite is a matter of degree.

These is not built upon conspiracy theories. To the contrary, alliances make perfect sense and operate publicly. Even better, their exclusive dealings and the consequences that follow are foreseeable — but only if you understand how the system works and follow the dark money flows.

It’s easy to see how this dark money affects the stock market at a high level, because we can monitor its constant movement.

Here’s the smoking gun:

The red line shows you how much “dark money” the Federal Reserve has printed since 2008.

The blue line shows you the S&P 500.

They move together — more dark money drives the market higher. Much higher.

There are dark money charts from around the world, just like the one I showed you for the Federal Reserve and U.S. stock market.

Look at this “dark money” chart from Japan, for example:

The blue line shows the dark money created by their central bank, The Bank of Japan. The red line shows Japan’s major stock index, the Nikkei 225, going up as well. The dark money drove the market much higher over the past eight years.

Or, look at this “dark money” chart from the U.K.:

Again, the blue line shows the “dark money” created since 2009 by the U.K.’s central bank, The Bank of England. The red line shows how the FTSE 100, their stock index, has followed higher in lock-step.

To invest profitably in financial markets, you need to understand the hidden power relationships that drive financial and political events. Ideologies and personal associations among elites are oblivious to political party lines and international boundaries. So is dark money.

The Yield Curve Is Crashing-er

Stoccks are at record highs on the basis that Marco Rubio might a "yes" and John McCain will make it through the weekend... but if everything is so awesome, why is the yield curve collapsing?

This is the 5th weekly plunge in the yield curve in a row - the longest streak since March 2016

 

The yield curve is now the flattest since Nov 2007, with the flattenig accelerating...

 

2017 is the fastest yield curve collapse since 2007...

 

If this is not going to end badly, we are going to need more QE - as JPMorgan shows in the chart below - each episode of QE steepened the curve and lengthened the current cycle...

Gundlach Reveals His Favorite Trade For 2018

One day after Stanley Druckenmiller confessional to CNBC that as a result of central planning and markets that make no sense, the legendary hedge fund manager had a "terrible" year, and his "first down year in currencies ever" (he also said many not very nice things about bitcoin), it was Jeffrey Gundlach"s turn to confess some of his more controversial views. And so, the man who two years ago correctly predicted the Trump presidency, first discussed his best investment idea for the new year. To those who listened to his latest DoubleLine investor presentation last week, the answer will hardly be a surprise: namely commodities, because they"re "historically, exactly where you want it to be a buy."

"I think investors should add commodities to their portfolios," Gundlach says on CNBC"s Halftime Report.

Gundlach said commodities are just as cheap relative to stocks as they were at historical turning points, while the macroeconomic backdrop also supports the case for commodities; he was referring to the following chart which he highlighted last week.

Echoing his presentation from last week, Gundlach said that once "you go into these massive cycles... the repetition is almost eerie. And so if you look at that chart the value in commodities is, historically, exactly where you want it to be a buy."

Investors should add commodities to their portfolios. There is a really remarkable relationship between a market cap or the total return of the s&p 500 and the total return something like the Goldman Sachs commodities index. The cyclicality is really repettiive.

Gundlach also noted that commodities are just as cheap relative to stocks as they were at turning points in previous cycles that began in the 1970s and 1990s. The S&P Goldman Sachs Commodity Index is up 5% this year, versus the S&P 500"s 19% gain.

There is also a fundamental case for investing in commodities, Gundlach said. He pointed out that global economic activity is increasing, a tax cut could boost growth and the European Central Bank is implementing "absurd" stimulus policies in the euro zone.

Jeffrey Gundlach: Investors should add commodities to their portfolios from CNBC.

In addition to his favorite trade, Gundlach touched upon several other topics including:

What drives the dollar:

"Short-term fed moves are not what drives the dollar. It correlates much more to what the bond market thinks vis-à-vis the fed say 18 months forward. So if you actually rook at the bond market pricing for 2019 now, there’s a pretty big discrepancy between the bond market and the fed, so that’s going to be really interesting in driving the dollar, and this time i think the bond market is going to be right."

Why the markets are so calm:

"I think it’s because of central bank pegging of rates and quantitative easing going on full bore in  europe and in japan. One of the charts that i love to reference is the nearly linear rise in central bank balance sheet holdings ever since 2011, where the Fed stopped quantitative easing back three years ago, and japan and the ecb just took over the slack, and it’s just a linear rise."

 

Jeffrey Gundlach: This has been a great year for investors from CNBC.

On ECB president Mario Draghi:

"That’s going to slow things down a little bit, but the real worry from the central bank activity would be forward about a year. Because Mr. Draghi has said astonishingly that they’re going to continue 30 billion euros per month of quantitative easing at least until September and then he threw  in, just to put a cherry on top of the cake of stimulus, he said, and negative rates well past the end of quantitative easing. Which means – sounds to me you’ll have negative rates as long has Mr. Draghi is around which is a little under two years."

On tax cuts and bonds:

"If there is a net tax cut, it has to be bond unfriendly. we already have growing bond supply. we’ve been liiving in a world for the last three years thanks to quantitative easing of negative net bond supply, really, from sovereign bonds in the developing world. and that’s gonna flip because the fed is now letting bonds roll off, the budget deficit is increasing, a tax cut would increase the deficit further, and to the extent that a tax cut might be stimulative to the economy, that’s bond unfriendly, because bonds don’t like economic growth and also it’s more bonds, expanding the deficit, so even more supply."

On tax hikes and risk:

"If i"m correct and i’m going to receive a seven-point bump in my tax rate, which is actually about a 15% tax increase, i have a feeling that i’m probably going to be less able and willing to buy risky assets or buy all the other things that are bubbling up these days, and maybe that side of the narrative will start showing up."

Jeffrey Gundlach: Tax plan could have unintended consequences from CNBC.

On stimulating the economy:

"While we’re not probably going to get 3% real for the year, we’ve had it for two quarters in a row. and gdp now at the atlanta fed has been bouncing around but it’s around 3% for the third quarter. when is the last time we had something like 3% growth for three quarters in a row? it’s a long time. why would you be stimulating the economy?"

Finally on bitcoin:

How Will The Market Absorb Trillions Of US Treasury Bonds to Replace The Feds Balance Sheet Wind Down?

First, the facts:

At Powell"s Nov 28th 2017 testimony to Congress, Powell said that as the Fed allows its 4 trillion dollar balance sheet to wind down, the US Treasury would issue new bonds to the market to replace them (so, technically, US notional debt will neither increase nor decrease as a result of QE).

Recall that QE is a sterile operation (this is why we don"t have hyper-inflation).  What does that mean?  Sterile means that the US public debt will neither increase or decrease as a result of QE, and neither will the money supply.  Another way to say this is that QE is a cash neutral operation.  Where cash is pushed into the system at one point, it must be drained someplace else (in our case, the Fed offers interest to banks to store their cash at the Fed...mostly with IOER - interest on excess reserves..and all the banks have indeed been doing this).  This is also why banks are not over-excited to lend you money...they get risk free money to deposit their cash at the Fed.  QE simply took US debt off the markets balance sheet, and placed onto the Fed"s (yes, the Fed printed digital fiat currency to make this happen...but the unwind will reverse  this "money" creation).  So, the Fed bought 10yr notes with funny money..will hold them to maturity...and then when those 10yr notes mature, the US Treasury will auction new bonds into the market to repay the Fed, making the funny money disapear like magic.  This whole process together "sterilizes" the Feds money printing...but in the meatime, the market pushed that money into other assets (mostly stocks).

Here is the simplified flow of money:
Fed QE --> bond market --> stock market --> bank accounts --> Fed accounts(IOER)

Such that total dollars in circulation didn"t change much...they ended up back at the Fed (with a nice uptick in asset prices as an inbetween step).
There was a nice side effect to this...while the Fed holds a large balance sheet...the US Treasury doesn"t have to pay interest on its debt (because the Fed remits all its profits back to the Treasury...and interest income is considered profit).  When the Fed winds down its balance sheet, the Treasury will have to start paying interest on that debt again.

The interesting question is thus:  When the US Treasury tries to sell 1-2 Trillion dollars of long term debt back into the market...what happens to interest rates and the stock market?  Recall #1 that after the Trump election, 10 year interest rates moved from 1.80% to now 2.40% (expectation of Trump borrowing lots of long term money to finance his infrastructure and deregulation projects).  But that hasn"t even happend yet (analysis of the Republican tax plan cost estimates an additional 1 Trillion US long term debt).  Recall #2 that the Fed is currently holding a lot of that debt...which minimized the need to liquidate bad long positions in the post Trump bond market selloff.  US Treasury debt is "high quality" and so the market will buy it...but at what price?  This is the big question.  Will the market sell stocks to make room to buy up all this new debt (reverse QE)?  Does this cause the next stock market crash?  (hint hint - probably)

 

The piper must be paid eventualy.  However, just like in Cyprus...the banks will have a heads up...and their assets will be safe.  What will happen to yours?

Gold: Isn’t the Whole Idea to Buy Low and Sell High?

Isn’t the Whole Idea to Buy Low and Sell High?

Authored by Adam Baratta

When it comes to the gold market, perhaps the old saying should be changed to “buy low and sell high-if ever.” That is likely the mentality behind gold investors at this point, as the yellow metal remains stuck in a trading range.

The gold market has some issues working against it currently. Higher stocks, a stronger economy and overall robust appetite for risk are all playing a role in the market’s current lack of upside follow through. In the absence of any fresh, bullish catalyst, gold could remain on the weaker side of the ledger going into the New Year.

Such a view is, however, dangerous as it does not really examine the bigger picture. If there were no significant reasons for gold to eventually start moving higher, the market would likely have sunk far below its recent lows by this point. Despite short sellers and others taking a bearish view of the metal currently, the market has held its ground. This is undeniably a sign of underlying strength.

Investors have an interesting tendency to view gold very differently from other asset classes such as stocks, for example. But in many ways, some of the same investment principles still apply. For example, if you were a long-term investor in Microsoft, would you rather buy shares at $25 per share or $30 per share? Obviously, buying the stock at $25 per share would be preferable, allowing the investor to potentially realize more gains if the price goes up while also possibly making better overall use of investment capital.

The gold market is no different in this regard. While many investors seemingly want to wait and see the market moving higher before taking action, the savvy investors realize that the old notion of buy low and sell high still applies. This is exactly why the market has not been able to really breakdown-the buyers have met and neutralized any significant selling pressure.

For the investor that is interested in value, and is taking more of a long-term view rather than a short-term view, the current range in the gold market could represent an excellent long-term buying opportunity. The market has shown time and time again that it has the ability to move sharply higher in a short period of time, and the next upside breakout could see such price action once again. Would you rather buy gold at $1250 per ounce or $5000 per ounce?

Now is the ideal time to add to a gold portfolio, and if you don’t already have an allocation in this key asset class, now is the ideal time to get started.

Adding physical gold to your holdings has never been easier than it is today, and you can get started by simply picking up the phone. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to make this asset class a key part of your portfolio using an IRA account.

 Read more from Adam at Advantage Gold

Eric Peters: Today"s Opportunities Include Negative Convexity, Complexity, Illiquidity, Leverage, Or All The Above

From the latest Weekend Notes by Eric Peters, CIO of One River Asset Management

Anecdote

“What are the odds we come across an opportunity in the coming 4yrs to earn 20%?” the investor asked his team.

“High,” they answered. “The odds are 100%,” he said, having seen this movie a few times. “So our cost of capital is 5% per year (20% divided by 4yrs), plus the 1% we earn on cash,” he said. His team nodded.

“Under no circumstances should we deploy capital unless it earns well more than 6% per year from here on out.” It made sense.

“What do we see that earns more than this hurdle?” he asked. His team’s list was as short today as it was long in 2016, 2011, 2009, 2003, 1998, 1997, 1994, 1992, 1990, 1987, etc. Today’s few opportunities have much in common with previous peaks: negative convexity, complexity, illiquidity, leverage, and/or all the above.

“Investors confuse a 7.5% average annualized return target with a 7.5% annual return target,” he explained. “They’re entirely different things.”

Targeting average annualized returns allows you to accept what the market gives you, while targeting annual returns forces you to leverage investments near peak valuations to hit your bogey. “Typical pension and endowment boards want incoming investment returns to consistently exceed outgoing flows.”

So most investors attempt to produce the highest return every year, no matter what it takes. “But that’s the wrong objective. Never underestimate the value of cash and patience in achieving the real goal; superior returns over the complete cycle,” he explained.

“Markets tell you what to do if you listen,” he said. “Near the highs, few opportunities exist to earn substantial returns, so you should take little risk. Near the lows, opportunities to earn attractive returns are abundant.” You should take a lot of risk. “This sounds simple because it is. It’s obvious. But obvious is not easy.”